T.C.A.No.269 of 2020 IN HIGH COURT OF JUDICATURE AT MADRAS Dated: 07.09.2020 Coram HONOURABLE Mr. JUSTICE T.S.SIVAGNANAM AND HONOURABLE Mrs. JUSTICE V.BHAVANI SUBBAROYAN T.C.A.No.269 of 2020 Commissioner of Income Tax Chennai .. Appellant Vs. Shri Ramesh Shroff No.2-C, Gee Gee Minar, 23, College Road, Chennai - 600006 ..Respondent Tax Case Appeal filed under Section 260-A of Income Tax Act, 1961, is directed against Order passed by Income Tax Appellate Tribunal Bench in I.T.A No.2710/Chny/2017 dated 13.12.2018 for assessment year 2011-2012. For Appellant : Ms.R.Hemalatha Senior Standing Counsel 1/14 http://www.judis.nic.in T.C.A.No.269 of 2020 JUDGMENT [Judgment of Court was delivered by T.S.SIVAGNANAM, J.] Heard Ms.R.Hemalatha, learned senior counsel for appellant / revenue. 2. This appeal filed by revenue under Section 260-A of Income Tax Act, 1961 ['the Act' for brevity] is directed against order passed by ITAT, 'A' Bench in I.T.A.No.2710/Chny/2017 dated 13.12.2018 for assessment year 2011-2012. 3. appellant / revenue has filed following substantial questions of law for consideration: '1. Whether on facts and in circumstances of case, Tribunal was right in quashing reassessment order made under Section 147 on ground that it was merely case of change of opinion especially when AO had not formed any opinion in first instance on issue relating to transferred capital assets? 2. Whether reasoning and finding of Tribunal is proper in entertaining alternate claim made u/s 54F, 2/14 http://www.judis.nic.in T.C.A.No.269 of 2020 when original claims should have been sustained by Assessee in return of income filed in response to notice issued under Section 148, but however in present case, assessee has changed original claim by treating impugned land as capital assets liable to capital gains deviating from its original claim that land was agricultural land? 3. Whether on facts and in circumstances of case, Tribunal was right in allowing deduction under Section 54F to extent of residential portion of property acquired by Assessee when facts remains that as per records of Corporation of Chennai and as per Assessee's own Wealth-Tax returns filed impugned property was shown as commercial property and not residential one?' 4. first issue is to be considered whether reopening of assessment under Section 147 of Act was justified or not? following facts would be relevant to consider this issue. 5. respondent / assessee, who is individual has filed his return of income on 30.07.2011 admitting total income of Rs.4,44,610/-. case was selected for scrutiny and notice under 3/14 http://www.judis.nic.in T.C.A.No.269 of 2020 Section 143(2) of Act was issued on 01.08.2012 accepting return filed by assessee. Thereafter, assessee had sold properties at Uthandi by registered sale deeds dated 18.01.2011 and 20.07.2011 for total consideration of Rs.2,56,40,000/- and Rs.2,45,70,000/-, in all, Rs.5,02,10,000/-. assessee contended that properties, which were sold were agricultural lands and did not offer any capital gain on such transfer. This was ground on which assessment was re-opened by stating that income chargeable to capital gain has escaped assessment. In re-assessment proceedings, assessee contended that lands were agricultural lands, however, assessing officer did not accept same and assessed sale consideration under 'long term capital gains'. assessing officer also did not give benefit of cost of acquisition, since assessee failed to submit parent documents of said property. Accordingly, assessing officer assessed entire sale consideration of Rs.5.02/- Crores under 'long term capital loss'. 6. Further, assessing officer observed that property cannot be treated as rural area property, as property is situated 4/14 http://www.judis.nic.in T.C.A.No.269 of 2020 within limits of Corporation of Chennai, for which purpose, assessing officer referred to Web-Site of Registration Department, Government of Tamilnadu. Further, Assessing officer held that no agricultural income was offered in earlier return and assessee treated land as non agricultural, which were later sold by assessee during reassessment proceedings. 7. assessee made alternate claim that property was treated as capital asset and out of sale consideration, assessee has purchased property at Nungambakkam, Chennai and therefore, deduction under Section 54 of Act was given. assessing officer did not accept this alternate plea on ground that property, which was purchased on 03.02.2011 within one month, assessee entered into sale agreement on 21.03.2011 for running restaurant and there is no possibility to convert residential property into non-residential house / restaurant within one month. Further, in wealth tax assessment, assessee had disclosed property at Nungambakkam as commercial property, accordingly, assessing officer assessed amount of Rs.5,02,10,000/- under head of 'long 5/14 http://www.judis.nic.in T.C.A.No.269 of 2020 term capital gains'. assessee preferred appeal before Commissioner of Income Tax (Appeals) - 4, Chennai, (in short, 'CIT[A]'). CIT(A), Chennai held that reopening of assessment as well as finding of assessing officer that transfer of asset was liable for long term capital gains, rejection of alternate submission by claiming deduction under Section 54F of Act in respect of cost of acquisition of Uthandi Property. CIT(A) upon perusal of sale deed dated 05.06.1992, which discloses sale consideration of Rs.4 Lakhs, directed assessing officer to recalculate capital gains by granting due benefit of cost of acquisition as per Law. 8. Aggrieved by dismissal of appeal, challenging re-opening, and treating land which was sold as capital asset and holding it to be liable for long term capital gains, assessee preferred appeal before Tribunal. Tribunal allowed assessee's appeal and held that reopening was mere 'change of opinion'. It referred to co-ordinate bench of Tribunal in case of N.K.V.Krishna, Chennai in ITA No.1642 and 1615/Mds./2012 for assessment year 2009- 6/14 http://www.judis.nic.in T.C.A.No.269 of 2020 2010 dated 26.09.2013 and held that Uthandi Villige came within limits of Corporation of Chennai only by virtue of G.O.Ms.No.97 dated 19.07.2011 and not prior to it. Further, Tribunal took note of assessment of assessee's spouse, who was co-owner of very same property, wherein scrutiny assessment under Section 143(3) of Act was completed by order dated 14.03.2014 accepting that land which is sold is agricultural land and said assessment of co-owner / spouse remained undisturbed. Accordingly, Tribunal came to conclusion that land, which was sold by sale deed dated 18.01.2011 is agricultural land and Uthandi village was annexed to limits of Corporation of Chennai only in July, 2011. Challenging order of Tribunal, Revenue is on appeal before us. 9. We have elaborately heard learned senior standing counsel for appellant / revenue. 10. First, we would consider as to whether reopening of assessment was valid in law and whether Tribunal was right in 7/14 http://www.judis.nic.in T.C.A.No.269 of 2020 allowing assessee's appeal?. 11. Ms.R.Hemalatha, learned senior standing counsel places reliance on decision of Hon'ble Supreme Court reported in (1999) 236 ITR 34 [SC] [Raymond Woollen Mills Ltd., Vs. Income Tax Officer and Others] wherein, Hon'ble Supreme Court held that it is to be seen whether there was prima facie some material on basis of which, Department could reopen case. sufficiency or correctness of material was not thing to be considered, at stage of reopening. By placing reliance on this decision, learned counsel submitted that in original assessment, there is no finding rendered by assessing officer with regard to classification of land and therefore, reopening of assessment is valid in law. 12. To examine as to whether, Tribunal was justified in quashing re-opening of assessment, we need to examine facts. primary reason for re-opening assessment was on ground that land fell within limits of Corporation of Chennai 8/14 http://www.judis.nic.in T.C.A.No.269 of 2020 and classification cannot be agricultural land. To justify such conclusion, assessing officer referred to Government order in G.O.Ms.No.97, in which, Uthandi Village was annexed to territorial limits of Corporation of Chennai. This according to assessing officer was reason for re-opening, as this was not considered by assessing officer while completing assessment under Section 143(3) of Act. Tribunal examined said contention factually and found that Gazette Notification published in Government of Tamilnadu annexing Uthandi village to limits of Corporation of Chennai was on 09.11.2010, whereas, transfer of land took place much after to that, i.e., on 18.01.2011, this aspect was dealt with by Co-ordinate Bench of Tribunal in case of NKV Krishna and by order dated 26.09.2013, Tribunal, in said assessee's case held that Uthandi village came within Corporation of Limits by virtue of G.O.Ms.No.97 dated 19.07.2011 and this was brought to notice of assessing officer in said case and revenue did not dispute finding of CIT(A) that land was located at distance of more than 18 Kms away from outer limits of nearest municipality. 9/14 http://www.judis.nic.in T.C.A.No.269 of 2020 13. Tribunal after noting said decision, on facts found that assessee vide letter dated 06.01.2014 during original assessment proceedings had brought entire details about sale of land in Uthandi Village and also noted fact that Gazettee notification issued by Government of Tamilnadu was very much available when original assessment was completed and assessing officer had no new tangible material to clarify its reopening. By relying upon decision in case of NKV Krishna, it was held that land sold was agricultural land. 14. Apart from that, crucial aspect was taken note of Tribunal, i.e., in case of assessee's spouse, who was also co-owner of very same property, property was treated as agricultural land and assessment was completed under Section 143(3) of Act and said finding remain undisturbed. above will clearly show that re-opening of assessment in instant case was clear case of 'change of opinion' and Tribunal was justified in allowing assessee's appeal. 10/14 http://www.judis.nic.in T.C.A.No.269 of 2020 15. With regard to eligibility of assessee to claim deduction under Section 54(F) of Act, Tribunal, in our view, rightly, took note of certificate issued by Executive Engineer, Greater Chennai Corporation, showing that building is situated in primary residential zone and building plan has been sanctioned for residential purpose only. Even in re-opening proceedings, assessing officer did not dispute fact that property which was purchased was residential property situated at distance of more than 18 Kms away from outer limits of nearest municipality, but held against assessee on ground that within few months, property, which was residential property was let out for commercial purpose to run restaurant. 16. There are several instances where residential properties are put to use for non-residential purposes and this cannot be test to decide nature of property under provisions of Income Tax Act, especially, in assessee's case, where letting out of property for non-residential purpose was much after purchase on 11/14 http://www.judis.nic.in T.C.A.No.269 of 2020 03.02.2011 and lease agreement was on 21.03.2011. So far as Wealth-Tax assessment is concerned, it may be true that in assessment, property is shown as commercial complex, as on relevant date, 31.03.2011, property was leased out for commercial purpose. Therefore, Tribunal was right in holding that assessee would be entitled to claim deduction under Section 54F of Act and also rightly restricted to residential portion only. For all above reasons, appeal filed by revenue is dismissed and substantial questions of law are answered against revenue. No costs. (T.S.S.J.) (V.B.S.J.) 07.09.2020 Index :Yes / No Internet :Yes / No Speaking Judgment / Non Speaking Judgment ssd 12/14 http://www.judis.nic.in T.C.A.No.269 of 2020 To Income Tax Appellate Tribunal Bench Chennai 13/14 http://www.judis.nic.in T.C.A.No.269 of 2020 T.S.SIVAGNANAM,J., AND V.BHAVANI SUBBAROYAN, J., ssd T.C.A.No.269 of 2020 07.09.2020 14/14 http://www.judis.nic.in Commissioner of Income-tax, Chennai v. Ramesh Shroff