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2025 (6) TMI 1771 - HC - Income TaxReopening of assessment - LTCG - nature of land sold - difference between the purchase price and the stamp duty value - determining the question of capital asset - scope of documentary evidence that the property in question could not be termed a capital asset - According to the petitioner the agricultural land was located beyond 8 km. aerial distance from nearest municipality and the population of the village Khumari was below 10000 and therefore the land in question cannot be termed as the capital asset HELD THAT - It does not appear that the AO independently obtained the material and formed his opinion based on said material that there was escapement of the income. While drawing only inference he has to know the connotation of capital asset as per Section 2(14) of which clause (iii) excludes the agricultural land which is located beyond 8 km in aerial distance from the municipality and the population of the village is less than ten thousand does not fall within the purview of capital asset. Thus it is apparent that the AO without applying his mind to the information that was available at the insight portal or recording his satisfaction to be recorded issued the impugned notice u/s 148A of the Act and thereby reopened the assessment. Therefore in our view the mandate in Gandhibag Sahakari Bank Ltd. 2023 (9) TMI 1344 - BOMBAY HIGH COURT and Arvind Sahdeo Gupta 2023 (8) TMI 522 - BOMBAY HIGH COURT is applicable in the case at hand rather the decisions in the Anshul Jain 2022 (6) TMI 1310 - PUNJAB AND HARYANA HIGH COURT and Raymond Woollen Mills Ltd. 1997 (12) TMI 12 - SUPREME COURT as the facts in the said judgments are distinct than the case at hand. So the mandate in the said judgments is not applicable. Thus we find that the AO in absence of verification of the information available on the insight portal has proceeded to reopen the completed assessment without indicating the basis for having a reason to believe that the difference between the purchase price and the stamp duty value is chargeable to tax under the provisions of the IT Act and the tax paid by the petitioner had escaped assessment. Further reopening is based on grossly incorrect facts that the assessment had been completed u/s 143(1) and was hence no assessment u/s 2(40) of the IT Act of 1961 when in fact the assessment had been completed under Section 143(3) of the IT Act. The reopening was thus merely an outcome of a change of opinion of the AO. Thus the notice issued u/s 148A(b) and consequential order would not survive and are liable to be quashed and set aside. They are accordingly quashed and set aside having been issued in the absence of statutory jurisdiction in that regard. Consequently steps taken in pursuance of the said notice issued under Section 148A(b) of the Act would not survive. As a result the writ petition is allowed of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court include: (a) Whether the agricultural land purchased by the petitioner qualifies as a 'capital asset' under Section 2(14) of the Income-Tax Act, 1961 ("IT Act"), given its location beyond 8 km from the local limits of the nearest municipality and its population size. (b) Whether the issuance of notices under Sections 148A(b), 148A(d), and 148 of the IT Act by the Assessing Officer ("AO") and subsequent show cause notices and orders proposing variation in income for the assessment year 2020-21 were valid and within jurisdiction. (c) Whether the AO had a "reason to believe" and independently applied his mind, based on tangible material, to reopen the assessment under Section 148 of the IT Act, or whether the reopening was based on mere "borrowed satisfaction" from information on the insight portal. (d) Whether the jurisdictional Assessing Officer ("JAO") was competent to issue notices under Section 148A of the IT Act, in light of settled law. (e) Whether the petitioner's objections and contentions regarding the non-applicability of capital gains tax on agricultural land and the procedural irregularities in issuance of notices deserved acceptance. (f) The applicability and correctness of reliance on various High Court and Supreme Court precedents addressing the above issues. 2. ISSUE-WISE DETAILED ANALYSIS a) Status of Agricultural Land as Capital Asset under Section 2(14) of the IT Act The Court examined the definition of 'capital asset' under Section 2(14) of the IT Act, which excludes agricultural land situated beyond specified distances from municipalities or cantonment boards with certain population thresholds. The land in question was located in village Khumari, which had a population of 1,518 as per the 2011 census, and was situated beyond 8 km aerial distance from the nearest municipality. The petitioner submitted a certificate from the Gram Panchayat confirming the population and location facts. The Court held that such agricultural land does not fall within the ambit of 'capital asset' for income tax purposes, thereby excluding it from capital gains tax liability. This interpretation was consistent with prior judgments of the Bombay High Court and other authorities cited by the petitioner, including Arvind Sahdeo Gupta and Commissioner of Income Tax v. Chandan Magraj Parmar. The respondents did not dispute these factual parameters but contended that the petitioner failed to establish the non-applicability of the capital asset definition with documentary evidence. The Court, however, accepted the petitioner's evidence and noted that the respondents failed to controvert the certificate or facts. b) Validity and Jurisdiction to Issue Notices under Sections 148A and 148 of the IT Act The petitioner challenged the issuance of notices dated 22-03-2024 (under Section 148A(b)), 30-03-2024 (under Section 148), and subsequent show cause notices and orders, on grounds that the JAO lacked jurisdiction and that the notices were issued in a faceless manner contrary to settled law. The respondents argued that the notices were validly issued based on information received regarding the discrepancy between the purchase price and stamp duty value, amounting to escaped income of Rs. 6,63,000/-. They relied on Explanation (i) to Section 148 and various High Court and Supreme Court precedents to assert that the JAO had jurisdiction to issue notices under Section 148A and to reopen assessments where income had escaped assessment. The Court analyzed the relevant statutory provisions and the precedents, including the recent decision in Hexaware Technologies Ltd., which held that the JAO lacks jurisdiction to issue Section 148A notices in a faceless manner. The Court found that the order of prior approval by the Principal Commissioner was not supplied to the petitioner, indicating procedural irregularity. Further, the Court observed that the reopening of the assessment was based solely on information uploaded on the insight portal, without any independent verification or application of mind by the AO. This amounted to issuance of reopening notices on "borrowed satisfaction," which is impermissible under settled law as explained in Gandhibag Sahakari Bank Ltd. and Principal Commissioner of Income Tax v. Shodiman Investments (P) Ltd. The Court emphasized that the AO must independently form a "reason to believe" supported by tangible material before reopening assessments under Section 148. Mere reliance on information from third-party sources without verification does not satisfy this requirement. c) Application of Law to Facts and Treatment of Competing Arguments The Court noted that the petitioner had submitted returns and replies to notices under Section 142(1) and had raised objections to the show cause notice on the ground that the land was not a capital asset and that the notices were issued without jurisdiction. The respondents argued that the petitioner's wife's assessment was reopened on similar grounds but was discharged, and that the petitioner's case was distinct as he had paid the consideration amount and was thus liable. The Court rejected the respondents' contention that the petitioner failed to establish the non-applicability of capital asset status, accepting the documentary evidence regarding the land's location and population. Regarding jurisdiction, the Court held that the AO did not independently verify or apply his mind to the information before reopening the assessment, rendering the notices and consequential orders invalid. The Court also distinguished the present facts from those in Anshul Jain and Raymond Woollen Mills Ltd., where the reopening was held valid, noting that in the present case, the reopening was a mere change of opinion without fresh material. d) Conclusions on Jurisdiction and Validity of Proceedings The Court concluded that the notices under Sections 148A(b), 148, and the show cause notices and orders arising therefrom were issued without statutory jurisdiction and in violation of procedural safeguards. The reopening was based on incorrect facts and a change of opinion rather than a bona fide reason to believe. Consequently, all impugned notices and orders were quashed and set aside, and the writ petition was allowed. 3. SIGNIFICANT HOLDINGS "A bare perusal of the definition of 'capital asset' means the property of any kind held by an assessee, whether or not connected with his business or profession. However, it does not include agricultural land in India, situated beyond 8 km from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may specify in this behalf by notification in the Official Gazette and which has a population not exceeding ten thousand." "Except for stating that such information was available on the insight portal, no material has been brought on record to show the existence of a reason to believe by the Assessing Officer that the income of Rs. 6,63,000/- had escaped assessment in respect of the petitioner. The reasons disclosed by the assessing office do not indicate that any exercise of independent verification thereafter was undertaken, resulting in consideration of the same with due application of mind by the Assessing Officer so as to reopen the completed assessment." "Issuing the reopening notice on borrowed satisfaction, which is not permissible." "The reopening was thus merely an outcome of a change of opinion of the Assessing Officer." "The notice dated 22-03-2024 issued under Section 148A(b) of the IT Act and consequential order dated 30-03-2024 by respondent No. 2; notice dated 30-03-2024 under Section 148 of the IT Act issued by respondent No. 2, show cause notice dated 08-11-2024 issued by respondent No. 4, and consequential order dated 27-11-2024 passed by respondent No. 3, and notice dated 28-11-2024 issued by respondent No. 3 would not survive and are liable to be quashed and set aside." "No statutory remedy is available to challenge the notice U/s 148 of the Act, so it can be challenged in writ jurisdiction. Also, if the statutory authority has not acted in accordance with the provisions of the enactment in question, extraordinary jurisdiction could be exercised."
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