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2020 (2) TMI 776 - AT - Income TaxReopening of assessment u/s 147 - nature of land sold - capital asset under section 2(14) or agricultural land - HELD THAT:- AO had information coming into his possession that the assessee had sold the property in question but had not returned / paid the capital gains tax, however, he was also aware that the necessary enquiries were made in this respect not only by his office but also by the Investigation Wing that too not only during the survey action at the premises of the assessee carried out u/s 133A of the Act but also thereafter. The assessee duly explained about the transaction and explained that the land being agricultural and not falling within the definition of capital asset under section 2(14) of the Act, hence, was not exigible to capital gains Tax. AO without having met with the reply and explanations given by the assessee and even not mentioning a word about reports thereof of the concerned officers, proceeded to reopen the assessment on the same premise. The Assessing Officer, fully knowing that if he will rely upon those proceedings, he will have to meet and discard the reply and explanations of the assessee and also the reports, if any, given by his predecessor and by the concerned investigation authorities and under the circumstances his action of reopening might not pass the test of ‘reasons to believe’, hence, he skipped the entire episode of earlier proceedings, based his reasons for reopening of the assessment on the alleged information received from DCIT, central circle, Panaji, which even does not support the reasoning given by the AO. When the very reasons on the basis of which the reopening, allegedly could not form the basis of forming the belief by the AO that the income of the assessee had escaped assessment, the consequential reassessment order formed by the AO u/s 147 of the Act is illegal and the same is accordingly quashed. Nature of land sold - The assessee furnished the evidence before the lower authorities that it had employed two employees and further developed the orchard by putting efforts i.e. by weeding undesired growth of wild plants, by clearing bushes grown between the food bearing trees, pruning the food bearing trees and to further develop and enhance the yield of fruit crops such as cashew, mangoes, jackfruit and coconut. AO has denied relief on the ground that the assessee could not produce the evidence of tilling and ploughing of the fields and harvesting of crop etc. The Assessing officer, in our view, could not differentiate between traditional agriculture and horticulture. The case of the assessee specifically is that it has been developing and maintaining an orchard. The assessee in this case has placed certificates from Gram Panchayat and Land Revenue officials, apart from the report and affidavit of Regd. Land Valuer cum Engineer to the effect that the land in question is situated at a distance of about 10.5 Km from the Panaji Municipal limits, whereas, the Department has relied upon the vague and uncertain statements of Income tax inspector and that of assessing Officer, which as discussed above can not be relied upon. Moreover, the certificate procured by the assessing officer during appellate proceedings from the office of Municipal Council, Mapusa – Goa states the distance of village Reis Magos from Municipal Corporation Goa and not of the land of the assessee. Even the Ld. CIT(A) has also not given any finding that the evidence furnished or relied upon by the AO inspires any confidence. Rather, he has opined from the appraisal of the evidence on the file that it is a disputed issue and has chosen to base his findings on the first issue holding that the land in question is not an agricultural land. However, in the light of reliable evidences furnished by the assessee, it can be safely concluded that the land is situated beyond 8 KMs from the Municipal Limits of Panaji. So far as the observation of the lower authorities that the earlier purchaser has not claimed the said land as agricultural land not falling in the definition of capital asset is concerned, it is to be noted that Reis Magos Estate Pvt. Ltd. has not paid any capital gains tax on the sale of the said land to the assessee. The said seller has returned the income from the above sale of land as business income, which means that the said company has treated the land as stock in trade and not as an investment or a capital asset. The question of exemption from capital gains tax would have arisen, if the previous owner would have treated the said land as an investment asset and not as stock in trade. Further, even though the said company did not continue to maintain and develop the land as orchard for the purpose of earning agricultural income, yet, the fact on the file is that it even did not alter its character. If the previous owner did not carry out agricultural activity on an agricultural land, however did not alter or change its nature and character, but the subsequent owner of land starts the agricultural activity on the said land, under the circumstances, it can be safely held that the land remains the agricultural land and has not lost its original characteristic. In view of the above discussion of the matter, the issue on factual matrix is also decided in favour of the assessee.
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