NAIYER SULTAN ,KOLKATA vs. ITO, WARD - 32(4), KOLKATA

(A.Y. 2011-2012)-Naiyer Sultan & (A.Y. 2011-2012)-Manuwar Sultan since a common issue is involved therein, the same have been heard together and are being disposed of by a single consolidated order for the sake of convenience.

The relevant facts of the case giving rise to these appeals are that both the assesses are individuals, who were the co-owners of two pieces of land property situated at 41, Pudupakkam Village under Tirupporur Panchayat Union, District-Kancheepuram, Tamilnadu admeasuring 4 acres 19 cents having 50% share each. The said property was collectively sold by them on 15.04.2010 for a total consideration of Rs.9,00,00,000/- with both the assesses having their share of Rs.4.50 crores each. In the returns of income filed for the year under consideration i.e. A.Y. 2011-12, gain arising from the said sale was claimed to be exempt by both the assessees on the ground that the property sold was a rural agricultural land, which was not treated as a capital asset under the Income Tax Act. In support of this claim, a certificate issued by the concerned Tehsildar of Tirupporur was submitted by the assessees confirming that their land sold during the year under consideration was located 20 kms away from the boundary of Chennai Municipal Corporation. The return of income filed by Shri Manuwar Sultan claiming such exemption was accepted by the Assessing Officer under section 143(1) on 19.11.2012 while in the assessment completed under section 143(3) vide an order dated 25.03.2014 for the year under consideration, the claim of the other assessee Shri Naiyer Sultan for such exemption was allowed by the Assessing Officer after scrutiny. Subsequently certain information was received by the Assessing Officer by way of a communication from DDIT(Inv.), Unit-IV(1), Chennai on 31.03.2014 and on the basis of the same, assessments in case of both the assessees for the year under consideration were reopened by the Assessing Officer after recording the following reasons:- (i) Reasons recorded in the case of Naiyer Sultan: “............The case of Naiyer Sultan, vide PAN-AUUPS6171N was assessed u/s 143(3) of the Income Tax Act, 1961 on 25/0312014 for A. Y. 2011-12. However, after finalization of (A.Y. 2011-2012)-Naiyer Sultan & (A.Y. 2011-2012)-Manuwar Sultan

Against the orders passed by the Assessing Officer under section 147/143(3), both the assessees preferred their appeals before the ld.

In Grounds No. 1 & 2 of these appeals, a common issue is raised by both the assessees challenging the validity of the re-assessment proceedings initiated by the Assessing Officer in their cases, inter alia, on the ground that the reopening was based on wrong reasons without any tangible material and without any independent application of mind by the Assessing Officer.

The ld. Counsel for the assessees invited our attention to the reasons recorded by the Assessing Officer and submitted that there was nothing specifically to show that the exemption claimed by the assessees on account of gain arising from the sale of rural agricultural land was (A.Y. 2011-2012)-Naiyer Sultan & (A.Y. 2011-2012)-Manuwar Sultan wrong. He submitted that the claim of the assessees that the land sold during the year under consideration was rural agricultural land as made in the returns of income and accepted in the regular assessments was based on a certificate issued by the concerned Tehsildar confirming that the said land was located 20 Kms. outside the limit of Chennai Municipal Corporation. He has submitted that the information stated to be received by the Assessing Officer from DDIT(Inv.), Chennai on the other hand stated that the land was situated at about 3 Kms. from the Chennai Metropolitan area and on the basis of this information, the Assessing Officer entertained the belief that the claim of the assessees for exemption as allowed originally in the regular assessments was wrong and income of the assessees in the form of capital gains had escaped assessments. He contended that this information received by the assessees was vague and since the distance of the land from Chennai Metropolitan area was not relevant to decide as to whether the said land was urban or rural agricultural land, the belief entertained by the Assessing Officer about the escapement of income and reopening of assessment on the basis of such belief was without independent application of mind by the Assessing Officer. In support of this contention, he relied on the following judicial pronouncements:- (i) Sheo Nath Singh –vs.- ACIT (82 ITR 147) (Supreme Court); (ii) Ganga Saran & Sons (P) Limited –vs.- ITO (130 ITR 1) (SC); (iii)ITO –vs.- Lakhmani Mewal Das (103 ITR 437) (SC); (iv)Cygnus Investments & Finance Pvt. Ltd. (ITA No. 117/KOL/2018 dated May 18, 2018)

The ld. D.R., on the other hand, contended that specific information was received by the Assessing Officer from DDIT(Inv.), Chennai to show that the land sold by the assessees during the year under consideration was urban land and the gain arising from the sale thereof which was chargeable to tax in the hands of the assessees as long-term capital gain. He contended that the claim of the assessees for exemption of such gain thus was wrongly allowed by the Assessing Officer in the assessments

We have considered the rival submissions on this issue and also perused the relevant material available on record. During the year under consideration, land owned jointly by both the assessees in the present case was sold and the gain arising from the said land was claimed to be exempt on the ground that the said land being an agricultural land was not a capital asset within the meaning of section 2(14). As defined in section 2(14), “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include, inter alia, as per clause (iii) agricultural land in India not being land situated in any area within the distance, measured aerially, not being more than 8 Kms from the local limits of any Municipality or Cantonment Board which has a population of more than 10 lakhs. In support of this claim, a certificate issued by the concerned Tehsildar of Tirupporur was submitted by the assessees showing that the land sold by them was located 20 Km. away from the limit of Chennai Municipal Corporation. Based on this certificate as well as the provisions of section 2(14)(iii), the claim of the assessees for exemption was allowed by the Assessing Officer in the assessments originally completed under section 143(3)/143(1). The said assessments, however, were (A.Y. 2011-2012)-Naiyer Sultan & (A.Y. 2011-2012)-Manuwar Sultan subsequently reopened by him after recording the reasons and a perusal of the reasons so recorded by the Assessing Officer, which are reproduced in the foregoing portion of this order, shows that the belief about the escapement of assessees income from assessments was formed by the Assessing Officer on the basis of information received in the form of a communication from DDIT(Inv.), Chennai, which stated that the area of Chennai Metropolitan region was much larger than what was stated by the Tehsildar in his report and the land sold by the assessees was situated at about 3 Kms from the Chennai Metropolitan area. On the basis of the said information, the Assessing Officer entertained a belief that the gain arising from the sale of the said land was chargeable to tax and the income of the assessees in the form of capital gains had escaped assessment. As rightly contended by the ld. Counsel for the assessees in this regard, the location of the land from the local limits of Channai Municipal Corporation was relevant to decide as to whether the said land was an agricultural land in India within the meaning of clause (iii) of sub- section (14) of section 2 and the distance of the land from the Chennai Metropolitan area was not relevant in this context. The information received by the Assessing Officer regarding the location of the land being situated at about 3 Kms from the Chennai Metropolitan area thus was vague and irrelevant to decide the issue relating to the exemption claimed by the assessees in respect of gain from the sale of their land and there was no live-link or nexus of the said information with the belief entertained by the Assessing Officer that the exemption claimed by the assessees was wrongly allowed in the assessments originally completed and that there was escapement of income of the assessees from the assessments.

In the case of Sheo Nath Singh –vs.- CIT (supra) cited by the ld. Counsel for the assessees, it was held by the Hon’ble Supreme Court that the words ‘reason to belief’ suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and the (A.Y. 2011-2012)-Naiyer Sultan & (A.Y. 2011-2012)-Manuwar Sultan ITO cannot act on mere suspicion, gossip or rumour. It was held that the ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the Section. In the case of Lakhmani Mewal Das (supra) cited by the ld. Counsel for the assessees, Hon’ble Supreme Court held that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. Hon’ble Supreme Court further held that action cannot be taken for reopening assessment if the information is wholly vague, indefinite, far-fetched and remote. It was held that the reason for the formation of the belief must be held in good faith and should not be a mere pretence.

Keeping in view the proposition propounded by the Hon’ble Supreme Court in the case of Sheo Nath Singh (supra) and Lakhmani Meyal Das (supra) and having regard to the facts of the case, we find that the assessments completed originally in case of the two assessees were reopened by the Assessing Officer on the basis of vague and irrelevant information, which was indefinite and far-fetched for the formation of any belief that was entertained by the Assessing Officer that the land sold by the assessees was not an agricultural land within the meaning of section 2(14)(iii) and that the gain arising from such sale was chargeable to tax. It is thus abundantly clear that the reasons recorded by the Assessing Officer for the belief which was formed by him failed to satisfy the requirements of section 147 and the initiation of reassessment proceedings without satisfying this mandatory requirement was bad-in- law. The assessments completed by the Assessing Officer under section 147/143(3) in case of both the assessees in pursuant to such invalid initiation thus are liable to be cancelled being bad-in-law. We order accordingly and allow Grounds No. 1 & 2 of both these appeals.

As a result of decision rendered by us on the preliminary issue involved in Grounds No. 1 & 2 cancelling the assessments made by the Assessing Officer under section 147/143(3), the other grounds raised by the assessees in their appeals challenging the additions made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of long-term capital gain have become infructuous or academic. We, therefore, do not consider it necessary or expedient to decide the same.

In the result, both the appeals of the assessees are allowed. Order pronounced in the open Court on May 03, 2019.