Income Tax Appellate Tribunal - Cochin
R. Krishnarjunan vs Income-Tax Officer on 12 June, 1986
Equivalent citations: [1986]18ITD350(COCH)
ORDER
P.I. Mohan Singh, Judicial Member
1. This appeal of the assessee relates to the assessment year 1981-82 and arises out of the order of the AAC, Trivandrum, dated 17-12-1985. The assessee has taken two grounds in this appeal. The first ground is that the AAC erred in concluding that the action under Section 143(2)(b) of the Income-tax Act, 1961 ('the Act') initiated by the ITO was valid. The second ground taken by the assessee is that the AAC erred in holding that the sale of agricultural land situated in Alleppey municipal limits gives rise to capital gains
2. The original assessment in this case was completed under Section 143(1) on 30-4-1983 on a total income of Rs. 33,700. After the completion of the original assessment, the same has been reopened under Section 143(2)(b) for bringing to tax the capital gains arising on the sale of agricultural land belonging to the assessee and situated inside the urban area. On appeal before the AAC it was contended by the learned counsel for the assessee that the sale of agricultural land within the municipal limits of Alleppey has been brought to the notice of the ITO by means of a statement accompanying the return. The assessee has also claimed that no capital gains arose in this case in the light of the Bombay High Court decision in the case of Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87. He contended that since these facts were within the ITO's knowledge and since he came to the finding that the assessee's statements were acceptable there was no scope for a fresh look at the matter. After hearing the learned counsel for the assessee, the AAC held that the reopening of the assessment under Section 143(2)(b) is in order as, according to him, the original assessment was completed under Section 143(1) as a summary assessment and the ITO has merely converted the summary assessment into a scrutiny assessment. This could be done irrespective of the disclosures made at Section 143(1) stage. He observed that action under Section 143(2)(b) could not be equated with the action under Section 147(a) or 147(6) of the Act. With regard to the other grounds raised by the assessee that no capital gains would arise in view of the ratio of the Bombay High Court decision in Manubhai A. Sheth's case (supra) the AAC held that the asset sold by the assessee was urban land and since it is a capital asset, the sale of capital asset would give rise to capital gains and the ratio of the Bombay High Court decision relied upon by the assessee was not applicable to the facts of the case. As against this order of the AAC, the assessee is in appeal before us.
3. In support of the first ground raised by the assessee, the learned counsel contended that on an analysis of the language of Section 143(2)(b) certain inherent conditions for isssue of notice are to be satisfied. These are (a) on the basis of assessment records the ITO finds that the return is incomplete or incorrect, or (b) the ITO has some information or material in his possession on the basis of which he may doubt the correctness or completeness of the return. If none of these conditions exists then issue of a notice under Section 143(2)(b) only on the basis of the ITO's sweet will is neither justified nor permissible under the provisions of the Act. It is so because in terms of Section 143(2)(b) the ITO is empowered to verify the correctness and completeness of the return only and not the correctness of the assessment order or assessed income. He further contended that the failure on the part of the ITO to take into account the adjustment narrated in Clause (b) of Section 143(1) does not lead to the belief that the return on the basis of which the assessment has been completed under Section 143(1) is incorrect and incomplete. According to him, the intention of the Legislature in enacting the provisions of Section 143(2)(b) was that the powers under Section 143(2)(b) should be exercised only if the ITO has some information or material with him about the correctness or completeness of the return. The Legislature while enacting Section 143(2)(b) has used the words 'considers', 'necessary' and 'expedient'. The word 'consider' signifies that before arriving at the conclusion to verify the correctness and completeness of the return by requiring the presence of the assessee or production of evidence in this behalf, the ITO should have some cogent material or information which is an implied condition on the basis of which the verification of the correctness and the completeness of the return can be said to be necessary or expedient. In this case, the counsel of the assessee contended that since the fact that the assessee has sold agricultural land and claimed capital gains from such sale as exempt has been disclosed in the enclosure to the return and these facts being within the knowledge of the ITO before passing the order under Section 143(1), the reopening of the assessment by the ITO under Section J43(2)(b)is bad in law. On merits, he relied upon the decision of this Bench of the Tribunal in the case of D. Ramarajan Nair v. ITO [IT Appeal No. 414 (Coch.) of 1985, dated 6-11-1985], wherein the Tribunal, following the decision of the Bombay High Court, in the case of Mannbhai A. Sheth (supra) held that the sale of agricultural land even situated within the municipal limits will not give rise to capital gains tax.
4. The learned departmental representative, on the other hand, contended before us that the assessment made under Section 143(1) being a summary assessment, the ITO is fully empowered to reopen the assessment under Section 143(2)(b). He further contended before us that the wrong claim made by the assessee in the return of income itself makes the return incorrect and the ITO is fully justified in reopening the summary assessment completed by him under Section 143(2)(b). He, therefore, supported the order of the AAC.
5. We have carefully considered the facts and circumstances of the case, the material on record and the arguments advanced by both the sides. On a perusal of the enclosure to the return filed by the assessee, it is seen that he has given the value of 1 acre 15.325 cents of land sold at Rs. 42,250 and immediately below this he has mentioned that no capital gains arose in view of the judgment of the Bombay High Court. From this, it is clear that the fact that the assessee has sold the agricultural land and claimed capital gains from such sale as exempt has been disclosed by the assessee in the enclosure to the return. Only after filing the return and the enclosure, the ITO has completed the assessment under Section 143(1) on 30-4-1983. The ITO can invoke the provisions of Section only if he considers it necessary or expedient to verify the correctness and completeness of the return. This implies that after completing the assessment, the ITO should have come in possession of some information about the correctness and completeness of the return. Only after the ITO is satisfied that the return filed by the assessee is incorrect and incomplete he may invoke the provisions of Section 143(2)(b). In this case, as already pointed out earlier, the fact of sale and the amount realised by the assessee by such sale and the fact as how the assessee is entitled to claim exemption have been brought to the notice of the ITO in the enclosure to the return. Since the return filed by the assessee was neither incorrect nor incomplete the reopening of the assessment by the ITO under Section 143(2)(b), in our opinion, is not permissible and, therefore, bad in law. The AAC while deciding the merits of the case has given a finding that the land sold by the assessee is an urban land. On a perusal of the assessment order, it is seen that the ITO has given a categorical finding that the capital gains arising to the assessee from the transfer of urban agricultural land is liable to tax. From this it is clear that the ITO disallowed the claim of the assessee only on the ground that the land sold, though agricultural, the gains arising out of the sale were not entitled to exemption as the land sold is an urban land. Since the ITO himself has given a finding that it is an agricultural land, the finding of the AAC that it is not an agricultural land, is without any basis. We have been consistently following the decision of the Bombay High Court in Manubhai A. Sheth's case (supra). Respectfully following the aforesaid decision of the Bombay High Court and the order of this Bench of the Tribunal in the case of D. Ramarajan Nair (supra) we hold that the land being agricultural land the sale of this agricultural land will not give rise to capital gains.
6. In the result, the assessee's appeal is allowed.