ITO,WARD-4(1),, NAGPUR vs. SHRI VIKESH CHATURBHUJ AGRAWAL,, NAGPUR

This appeal preferred by the Revenue emanates from the order of the Ld. CIT(Appeals)-II, Nagpur dated 07.08.2013 for the assessment year 2009-10 as per the following grounds of appeal on record:

The brief facts in this case are that the return of income declaring total income of Rs.3,88,580/- was filed on 27.09.2009. During the course of assessment proceedings, it was noted by the Assessing Officer that the assessee had entered into several sale transactions of agricultural lands on which he has shown gain of Rs.1,89,36,900/- as per the following table:

The lands were agricultural lands and the assessee had shown the gain arising on sale of the lands as exempt income u/s.2(14) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Considering the frequency of these transactions and the period of holding, the Assessing Officer show caused the assessee as to why the said gain should not be treated as business income. Detailed submissions were made by the assessee in this regard stating that the lands sold were not a capital asset and as such not liable for capital gain and are specifically exempt u/s.2(14) of the Act being agricultural income and that surplus arising from the sale of land used for agricultural purpose which are located outside the municipal locality and not within the radius of 8 kms. of its limit is agricultural land.

The Assessing Officer did not accept the submission of the assessee and treated the said gain to be the business income of the assessee. The main reasons as stated by the Assessing officer are the high frequency of sale transactions and the short period of holding. It is stated by the Assessing Officer that the short period of holding in the assessee’s case shows the intention of the assessee. The Assessing Officer quoted that multiple transactions of purchase and sale have been carried out in earlier years and that the land was situated in Hingana in Nagpur which is the fastest developing city due to the prestigious projects that are coming in Nagpur. The Assessing Officer also noted that the assessee had no intention to carry out any agricultural activity on these lands and in his statement u/s.131 of the Act, the assessee stated that he along with his co-owner wanted to set up an industrial undertaking on these agricultural lands. The Assessing Officer also quoted that the assessee’s nature of transaction and manner of transactions, it is clear that the land has been treated as a trading asset and was accordingly brought and sold by the assessee and the assessee’s plea that this gain should be exempt is completely against the parliament’s intention of exempting gain received of Rs.1,89,36,900/- and therefore, the Assessing Officer added the same to the total income of the assessee.

The Ld. CIT(Appeals) as evident at Para 6.7 of this order has mainly based his decision concentrating on the character of the land and decided that it is an agricultural land and placed strong reliance on the 7/12 extract and provided relief to the assessee. The details reasoning is mentioned in the order of the Ld. CIT(Appeals) which is on record.

We have perused the case records and heard the rival contentions. We find that the Ld. CIT(Appeals) provided relief to the assessee stating the land to be agricultural land based on 7/12 extract. He has not come out with a speaking order specially when the Assessing Officer has noticed that there is high frequency of purchasing and sale of land by the assessee as is evident from the table reproduced hereinabove in the preceding paragraphs of this order which is also part of the record as appearing in the assessment order as well as in the order of the Ld. CIT(Appeals). The assessee could not explain before the Assessing Officer as to why there is such need for frequent sale and purchase of the land if they are kept for investment. That further in the statement recorded u/s.131 of the Act, the assessee himself has declared before the Assessing Officer that he along with his co-owner wanted to set up an industrial undertaking on these agricultural lands. Instead of providing categorical answer to the question of Assessing Officer regarding such frequency of purchasing and sale of land, assessee stated that he has actually business of trading of cellular phone. That further, these lands were declared under fixed asset in the balance sheet annexed with the income tax return and is basically for the purpose of investment and not for the purpose of business. When we peruse the findings of the Ld. CIT(Appeals), he has only dwelled upon the characteristic of the land being agricultural as per 7/12 extract while providing relief to the assessee. But he has not categorically stated or given any findings with regard to the frequency of purchasing and sale of the land by the assessee. In our considered view, the land may be agricultural land but that suo-moto cannot make the income exempt within the purview of the statute if the action of the assessee suggests that he has conducted business in respect of those agricultural lands. In this case, regarding the frequent purchasing and sale of the lands, the Ld. CIT(Appeals) has not given any reasoned findings. In view of the matter, we set aside the order of the Ld. CIT(Appeals) and remit the matter back to his file to pass a speaking order as regards to the nature of activities/transactions conducted by the assessee vis-à-vis the said lands and adjudicate the matter after complying with the principles of natural justice. Thus, ground No.1 raised in appeal by the Revenue is allowed for statistical purposes.

Ground No.2, it is with regard to the admission of additional evidences in contravention to Rule 46A. Since the major issue in this appeal is restored to the file of the Ld. CIT(Appeals), this ground being inter connected is also remitted back to the file of Ld. CIT(Appeals) to adjudicate the matter after providing reasonable opportunity of hearing to the assessee in terms of the provisions of Rule 46A of the Act. Thus, ground No.2 raised in appeal by the Revenue is also allowed for statistical purposes.