DCIT CIRCLE-6(1)(1), BMTC BUILDING ROOM NO vs. GODAVARI VENKATESHWARA PRASAD, BANGALORE

Brief facts of the case are assessee filed its return of income for the Assessment Year 2016-17 admitting a total income of Rs.46,81,110/- on 31.03.2018. Thereafter, notice under section 143(2) of the Act was issued on 08.08.2018. Further, notices under section 142(1) of the Act were issued on various dates. In response, the learned AR appeared and furnished details from time to time. It was observed that assessee has invested in land and sold the land by sub-dividing it into smaller plots. The assessee also claimed expenditure of Rs.2,11,20,586/- as development expenditure incurred for land levelling charges, sewage and other expenditure. The details of purchase and sale of land is given below:

The learned AO noticed that assessee has claimed the profits as long term capital gain instead of business income. The learned AO framed the assessment by stating that the transactions are adventure in the nature of trade and hence to be treated as business income. He therefore made an addition of Rs.3,48,68,110/- to the declared income.

On being aggrieved by the Order of the learned AO, assessee filed the appeal before the learned CIT(A). It was submitted before the learned CIT(A) that the assessee is engaged in the business of developing land for the past 7 years and has declared income as long term capital gain during the earlier Assessment Years which was not disputed by the Revenue. The learned CIT(A) accepting the submission made by the assessee allowed the appeal of the assessee.

On being aggrieved by the Order of the learned CIT(A), Revenue is in appeal before us by raising various grounds.

The learned DR submitted that the assessee has sold 7 properties during the impugned Assessment Year for a consideration of Rs.3.91 Crores by sub-dividing it into plots. He also submitted that the assessee has therefore engaged in the business of sale of plots by converting the agricultural lands into non-agricultural purpose. He also relied on the decision of the Hon’ble Supreme Court in the case of Raja J. Rameshwar Rao Vs. CIT reported in [1961] 42 ITR 179 (SC). The learned DR also in the written submissions has placed reliance on the following cases:

Per contra, the learned AR submitted that assessee regularly purchased agricultural land and after converting it into non-agricultural land and sold the property for optimizing the profit from the sale. The assessee does not carry any other business but claimed that he purchases agricultural land only for the purpose of investment. He also submitted that this kind of buying and selling activities are for the past 7 years. The Revenue has not disputed the capital gains declared by the assessee for the earlier Assessment Years. He submitted that following the principles of consistency, the income for the current year should also be treated as long term capital gains and not as business income.

We have heard the rival contentions and perused the material available on record including the case laws cited by the learned DR. However, on perusal of the transactions, we find that the assessee’s intention is to sell the agricultural lands firstly converting it into non-agricultural lands and secondly by sub-dividing it into plots over a period of time with the motive of earning profit. It was also found that the above modus operandi by the assessee cannot be considered as investment by asseessee and hence be treated as business. It indicates that the assessee is intending to maximizing profit from the property and does not use it for personal purpose. Therefore, the learned AO has treated it as income from business arising from adventure in the nature of trade and not as capital gains. Further, we also find that assessee has levelled the land and enhanced its saleability also indicates the intention of the assessee to resell the land which shall be considered as adventure in the nature of trade. It was the submission of the learned AR that if the assessee does not succeed by treating the income as capital gains, as an alternative prayed for estimating the profits @ 8% on the sale value. We therefore set aside the Order of the learned CIT(A) while upholding the Order of the learned AO by considering the income as business income arising out of the sale of property which is considered as adventure in the nature of trade. Since the learned AO has not allowed the expenditure citing non submission of documentary evidences, in our opinion it would be fair to estimate the income and therefore we direct the learned AO to estimate the profit at 12% on gross sale value as income from business. Thus, the grounds raised by the Revenue are partly allowed.

Assessee has raised various grounds supporting the Order of the learned CIT(A). Since the Order of the learned CIT(A) is set aside by upholding the Order of the learned AO, the CO raised by the assessee becomes infructuous and hence dismissed.

In the result, appeal of the Revenue is partly allowed and CO of assessee is dismissed. Pronounced in the open court on the date mentioned on the caption page.