2004 (11) TMI 310 - AT - Income Tax

Validity of the assessment of additional income based on on-money receipts - assumption of jurisdiction for reopening of assessment - Eligibility for exemption u/s 54F - Conversion of agricultural land into plots - Nature of income from the sale of plots - Capital gains Or Business income - HELD THAT - In the instant case from the facts we have therefore to conclude that the Asstt. CIT at Coimbatore did not have jurisdiction for the asst. yrs. 1995-96 and 1997-98 for the reason that the income returned was very below Rs. two lakhs. Because the precondition for assumption of jurisdiction for reopening of assessment is the processing jurisdiction to frame an assessment at the initial stage which in the instant case especially for the asst. yrs. 1995-96 end 1997-98 not vested with the Asstt. CIT Coimbatore the assumption to jurisdiction to reopen these two assessments is beyond his powers. Therefore the action having been initiated without adequate powers to act under law or his actions following the reopening of assessments have also become bad in law illegal and we have no alternative but to quash the reopening proceedings as well as the assessments framed on that basis. For the asst. yrs. 1995-96 and 1997-98 the Asstt. CIT Coimbatore assuming jurisdiction being illegal the assessments made cannot stand in the eye of law and accordingly they are quashed. The claim of the assessee that for the asst. yrs. 1995-96 and 1997-98 the Asstt. CIT Coimbatore did not have jurisdiction is found in favour of the assessee and to that extent the claim is allowed. Sale of land - The assessee has spent Rs. 27.75 lakhs over the three years towards the construction of her house. Accordingly part of the amount realised in the asst. yr. 1995-96 has gone into the construction and likewise the amount realised in the years 1996-97 and 1997-98 has also gone into the construction of the house. Therefore the claim of the assessee that she is entitled to deduction u/s 54F of the Act based on three years limit for the asst. yr. 1999-2000. The assessee would benefit of nearly 30 lakhs of rupees sale consideration available on which she has invested Rs. 27.75 lakhs in the construction. We have considered the submissions of Alagirisamy daughters of the assessee and others. We have also considered the submissions of the assessee and corroborated by others that the moneys were kept with them only for safe custody. We have the finding given by the CIT(A) that the assessee did not carry on any business before and after the sale of the plots. We have also observed that other than the AO making an estimate on the basis of one single document which was consideration of Rs. 21, 000 per cent and applying it uniformly for all the plots without verification or without any basis in our opinion is not justified. When the persons to whom the money was given for safe custody have corroborated the version of the assessee it is found that no other document or evidence is found indicating that the averments of the assessee as corroborated are false. Rejecting the claim as nothing but refusing to see the fact as it is. We are therefore of the opinion that the sale consideration claimed by the assessee and offered by the assessee is the correct price and therefore the addition made on account of interest etc. should be deleted. We may observe that the extra addition made by the AO to the extent of Rs. 28 lakhs on the basis of offer made by the assessee was deleted by the CIT(A) for the sole reason that the assessee did not carry on any business. When it is admitted to this extent that the assessee is found (not) to have carried on any business and further there is no evidence of investments made by the assessee on any other property or matter and further there being no source of income available which the assessee could be said to have not disclosed the claim of the assessee that she had given to the CIT(A) at the time of offering Rs. 28 lakhs in addition to Rs. 13 lakhs offered for various years as her income from sale of plots in our opinion deserves to be accepted. We accordingly accept the sale value and direct the AO to rework the capital gains for the asst. yrs. 1996-97 1998-99 and 1999-2000. For the asst. yrs. 1995-96 and 1997-98 though factually the assessee would have got a claim for deduction u/s 54F of the Act it would become academic because we have quashed the assessments on jurisdictional aspect itself. In the result the appeals preferred by the assessee are allowed and the appeals preferred by the Revenue are dismissed.

Summary

Issues Involved:
1. Reopening of assessments.
2. Assumption of jurisdiction by the Asstt. CIT.
3. Classification of income from the sale of land.
4. Claim of exemption u/s 54F of the IT Act, 1961.

Summary:

Reopening of Assessments:
The assessee challenged the reopening of assessments for the asst. yrs. 1995-96 to 1997-98, arguing that the Asstt. CIT, Circle I(1), Coimbatore, assumed jurisdiction without proper authority, as the income returned was below Rs. 2 lakhs. The Tribunal concluded that the Asstt. CIT, Coimbatore, did not have jurisdiction for the asst. yrs. 1995-96 and 1997-98 since the income returned was below Rs. 2 lakhs. Therefore, the reopening of these assessments was beyond his powers, rendering the actions and assessments illegal and quashed.

Assumption of Jurisdiction by the Asstt. CIT:
The assessee contended that the Asstt. CIT, Circle I(1), Coimbatore, assumed jurisdiction without giving an opportunity to object to the transfer. The Tribunal found that the Asstt. CIT at Coimbatore was given jurisdiction over assessees located at Pollachi with income of Rs. 2 lakhs or more for administrative convenience. It was not considered a transfer within the meaning of s. 127 of the Act. Thus, the assumption of jurisdiction by the Asstt. CIT at Coimbatore was justified.

Classification of Income from the Sale of Land:
The primary issue was whether the profits derived from the sale of land should be classified as business income or capital gains. The Tribunal upheld the assessee's claim that the sale of land resulted in capital gains. The assessee had held the land for 50 years, never carried on any business, and used the proceeds to construct a residential house. The Tribunal applied the ratio from the Madras High Court cases, concluding that the intention was not to carry on business but to construct a residential house, thus classifying the income as capital gains.

Claim of Exemption u/s 54F of the IT Act, 1961:
The assessee claimed exemption u/s 54F for the asst. yr. 1999-2000, having invested the sale proceeds in constructing a residential house. The Tribunal directed the AO to consider the claim of exemption u/s 54F in light of the investments made in constructing the house over the years. The Tribunal accepted the sale consideration offered by the assessee and directed the AO to rework the capital gains for the asst. yrs. 1996-97, 1998-99, and 1999-2000, allowing the exemption u/s 54F accordingly.

Conclusion:
The appeals by the assessee were allowed, and the appeals by the Revenue were dismissed. The Tribunal upheld the classification of income as capital gains and directed the AO to rework the capital gains and exemption u/s 54F for the relevant assessment years.