JAGDISH NANDKISHOR KHANDELWAL,,PUNE vs. INCOME-TAX OFFICER,,

आदेश / ORDER

PER PARTHA SARATHI CHAUDHURY, JM :

These separate appeals preferred by assessees emanates from the

different orders of the Ld. CIT(Appeals), Pune-6 for assessment year 2010-11

dated 21.04.2015 as per grounds of appeal on record.

similar, they are disposed of vide this consolidated order. For the sake of

convenience, we would take ITA No.1005/PUN/2015 as lead case. We find

that though the assessee in both the appeals have taken multiple grounds,

the crux of the grievance in both the appeals is whether the gain arising on

the sale of land is to be taxed as ‘business income’ in the hands of the

assessee.

and purchase of land and is a partner in M/s. Shrihari Builders and

Developers derives income from other sources as well as claims income from

agricultural activities. Return of income for assessment year 2010-11 was

filed on 25.09.2010 at the total income of Rs.7,47,270/- apart from

agricultural income of Rs.79,600/-. Subsequently, the case was selected for

scrutiny and assessment order u/s.143(3) of the Income Tax Act, 1961

(hereinafter referred to as ‘the Act’) was completed on 08.03.2013 at the total

income of Rs.2,25,02,890/- in which addition of Rs.2,17,55,620/- was made

3 ITA No. 1005/PUN/2015 ITA No.1006/PUN/2015 A.Y.2010-11

in respect of profit on sale of land claimed to be agricultural and therefore,

exempt by the assessee.

in question continues to be agricultural land and situated beyond 8 Kms. of

the municipal limits of Lonavala Municipal Corporation. With regard to the

condition that the land to be an agricultural one, argument on record by

assessee is that the said land is subject to the Land Revenue by the State

Government. Crops are grown on the land as can be seen from the 7/12

extract filed by assessee. In the return of income also, the assessee has

shown substantial agricultural income in the relevant assessment year 2010-

Regarding the contention that the said land is agricultural in nature,

the assessee placed reliance on the decision of Hon'ble Gujarat High Court in

the case of CIT Vs. Siddharth J. Desai (1982) 10 Taxman 1 which plays

guiding factors to be considered while determining the nature and character

of the land. Another case relied on the issue is the ratio laid down by the

Hon'ble Madras High Court in the case of Mrs. Shakunthala Vedachalam Vs.

ACIT, 369 ITR 558 (Mad.).

The second contention of the assessee is that land situated beyond 8

Kms. from local limits of Lonavala Municipal Corporation. In support of this

contention, the assessee has placed reliance on the decision of the Hon'ble

Bombay High Court in the case of CIT Vs. Minguel Chandra Pais & ANR,

reported as 282 ITR 618.

4 ITA No. 1005/PUN/2015 ITA No.1006/PUN/2015 A.Y.2010-11

which has given rise to this particular dispute. It is on record that the

Assessing Officer during the course of assessment proceedings noticed that

the assessee who is partner in the Firm M/s.Shrihari Builders and

Developers, had shown profits from his proprietary business which was

dealing in purchase & sale of land apart from income from other sources had

shown capital gain of Rs.2,17,55,620/- as exempt on account of the same

being agricultural land and shown as investment in the books of accounts.

The Assessing Officer further noticed that the assessee was having 1/3rd

share in the property and Capital gain was calculated by adopting 1/3rd part

of sale consideration and cost of acquisition. Since the same was claimed as

exempt being agricultural land, the Assessing Officer confronted the assessee

on the issue and asked the assessee to provide various details like copies of

purchase/sale deed. Copies of 7/12 extract as well as certificate from Talathi

etc. The Assessing Officer, thereby, examined the issue in detail and after

applying aerial distance, held that the plot was 7.4 km. from the limits of

Lonavala Municipal Corporation as against the claim of the assessee being 13

Kms by road distance. The Ld. CIT(Appeal) in his order has not accepted the

view of the Assessing Officer as it has been held by the various Tribunals

that aerial distance cannot be adopted for measurement of distance. The

amendment in the Act regarding aerial distance to be adopted is applicable

from A.Y.2014-15 vide Finance Act 2013 and therefore, the same cannot be

applied in the present assessment year i.e. A.Y.2010-11. To this aspect, Ld.

CIT(Appeal) has agreed with the contention of the assessee that it is road

distance to be calculated while determining the limits from Municipal Limits

and not aerial distance. However, main issue remains whether land can be

termed as ‘investment’ as shown in the books of account of the assessee and

5 ITA No. 1005/PUN/2015 ITA No.1006/PUN/2015 A.Y.2010-11

also whether it could be taxable as long term capital gain and also whether

the character of the land is agricultural as taken by assessee merely because

of the fact that agricultural income has been shown by the assessee in the

return of income. On this issue, Ld. CIT(Appeal) has made following

observations:

i) The land was acquired by the assessee along with other two persons, one of whom also happens to be partner in the firm M/s. Shrihari Builders and Developers.

ii) The land in question is in the foothills of Lohgarh Fort and is located in Forest Zone.

iii) The assessee claims that as per 7/12 extract, the land is agricultural and has also derived income from the same but the facts prove otherwise as one Late Ganpat Gopal Baikar claimed that he was in possession of the agricultural land and he was cultivating the land. Ultimately the assessee and other co-owners had to arrive at settlement agreement which was registered on 24.07.2008 by giving Rs.30,00,000/- to legal heir of Late Ganpat Gopal Baikar. This being so, no agricultural operation could have been' carried out by the assessee as the land was in adverse possession.

iv) The Ld.CIT(Appeal) also held that the intention of the assessee was not to keep the land as investment but to acquire the same, clear the encumbrances and sell the same at higher profit which clearly highlights the business motive of the transaction.

v) As per the final Regional plan of Pune Region, land in forest Zone can be permitted to be used for agricultural purposes. This proves that the land in question cannot be termed as agricultural land as claimed by the assessee. The permissible use in Afforestation Zone is as under:

“Users Permissible in Afforestation Zone: In addition to the plantation of trees, forest houses, meant for the servant/technicians/owner and for storing of fertilizers/forest tools etc, may be permitted subject to the following regulations – (a) Building for the residential purposes of forest house shall have built up area not exceeding 100 sq.mtr., provided that forest plot area is not fess than 0.4 hect. Additional area of 50 sq.mtrs. may also be permitted for ancillary users. Structure to be erected for these

6 ITA No. 1005/PUN/2015 ITA No.1006/PUN/2015 A.Y.2010-11

purposes should be of Ground Floor only and should not have height more than 5 meters and should be of such material as would blend with the surroundings: Provided further that no forest house should be permitted unless owner has planted at least 800 trees per hector ( or such lesser number on the basis of the species selected and approved by Forest Department), and only after such trees are reared for 1 year) Provided further that no such forest house will be permitted i) within a distance of 100 meters, from the H.F.L/ F.S.L of the lake, ii) and on hill slopes steeper than 1:5. Layout of the forest ledges may be permitted for areas more than 0.4 hectare. (b) Land in the afforestation Zone may be permitted to be used for agricultural purposes. (c) Tourist Resort Complexes may also be permissible in the afforestation zone subject to the restriction in regulation No. 2.6.2. Table No. X-1.”

Therefore, according to the Ld. CIT(Appeal), it is clear that apart from

construction of forest houses and agricultural activity, the only other fruitful

activity could be carried out was construction of Tourist Resort Complex. The

fact that land in question was at the foot hill of Lohgarh Fort, made it an ideal

location for Tourist Complex, which clearly emerges out from the motive to

sell the land to Manhar Resorts Pvt. Ltd. Therefore, it is clearly established

that the intention of the assessee that the asset was acquired not with

investment motive but business motive.

the books of account as per the claim of the assessee, cannot be accepted for

the simple reason that nature of entry in the books of account is not the

decisive factor as far as taxation of any amount is concerned as held by the

Hon'ble Supreme Court of India in the case of Kedarnath Jute Mills, 82 ITR

363.

7 ITA No. 1005/PUN/2015 ITA No.1006/PUN/2015 A.Y.2010-11

that all throughout in the books of account they have shown the land as

agricultural land as investment, they have always offered for tax as

agricultural income. That rice was grown exclusively on land and even at the

present date also, there is no commercial activity that has been undertaken

and it is still agricultural land. That it is already established, it is beyond 8

Kms. from municipal limits. On this assertion, it was prayed by the Ld. AR

that land should be treated as investment. Since it is agricultural land, it

cannot be charged to business income and that the sale of land is, therefore,

not business transaction. That it is further submitted by the Ld. AR that the

Revenue on hypothetical basis has stated that the assessee and the other co

owners have purchased land to sale it later on higher profits and therefore,

the motive was only business. This is purely hypothetical as there is nothing

on records from Revenue side to prove such claims.

sold to Manhar Resorts Pvt. Ltd. The assessee has shown meager agricultural

income which does not conclusively prove that it was used for agricultural

purposes throughout. The assessee had paid money to free the land from

adverse possession and then sold it to the present purchaser once adverse

possession is being cleared. The plea of the assessee that the land was

agricultural land, cannot be accepted as at that point of time no agricultural

operation could have been carried out by the assessee as the land was in

adverse possession. The Ld. DR further placed reliance on the order of

Authorities below.

8 ITA No. 1005/PUN/2015 ITA No.1006/PUN/2015 A.Y.2010-11

find that the premise in which the Ld. CIT(Appeal) has upheld the addition

and held the transaction in sale of land as business transaction, is only on

intention of the assessee not to keep the land as investment but to acquire

the same, clear encumbrances and sell the same at higher profit which

therefore, is business motive of the assessee. It is also asserted by the Ld.

CIT(Appeal) that the land sold to Manhar Resort Pvt. Ltd and therefore, the

land was not in the nature of investment but for business motive transaction.

We do not find anything coming out from the order of Ld. CIT(Appeal) wherein

he has brought out any specific reasons regarding statement made in the

order. There is no enquiry or factual verification done by the Ld. CIT(Appeal)

to ascertain the nature and character of land and whether it could be called

as agricultural land in terms of continuous agricultural activities, if at all

undertaken. Similarly, the Ld. AR of the assessee submitted that even at

present the land is used for agricultural purposes and all throughout, they

have shown it as investment in their books of account and agricultural

income is also shown in the return of income.

proof regarding the agricultural nature of the land and that as on date

whether still it is agricultural land. To which, Ld. AR stated as instructed by

the assessee, it is still agricultural land and there is no construction of resort

or anything like that on the said land. We find that the power of the Ld.

CIT(Appeal) is coterminous with that of the Assessing Officer. The Ld.

CIT(Appeal) should have called for Inspector’s report after sending Inspector

for spot verification and taking details about the land. It should come out

from facts on record that continuously agricultural activities were carried on

9 ITA No. 1005/PUN/2015 ITA No.1006/PUN/2015 A.Y.2010-11

the said land and if revenue is having doubt it should bring evidences on

record. Similarly specific verification needs to be conducted to verify whether

actual intention of the assessee was to procure the land for investment or to

sale it at higher profit. These things are not clear from the order of Ld.

CIT(Appeal). Therefore, the issue requires detailed verification. In view of the

matter, we set aside the order of Ld. CIT(Appeal) and restore the matter to the

file of Assessing Officer to make detailed verification and re-adjudicate the

matter after providing reasonable opportunity of hearing to the assessee.

Hence, grounds raised in ITA No. 1005/PUN/2015 are allowed for

statistical purposes.

No.1006/PUN/2015, the decision taken by us in ITA No.1005/PUN/2015

shall apply for ITA No.1006/PUN/2015 also and therefore herein we set aside

the order of the Ld. CIT(Appeal) and restore the matter to the file of Assessing

Officer for fresh factual verification and adjudicate the issue after providing

reasonable opportunity of hearing to the assessee. Hence, grounds raised in

ITA No.1006/PUN/2015 are allowed for statistical purposes.

Sd/- Sd/- D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 10th January, 2019. SB

10 ITA No. 1005/PUN/2015 ITA No.1006/PUN/2015 A.Y.2010-11

आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals), Pune-6. 4. The Pr. CIT, Pune-5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.

11 ITA No. 1005/PUN/2015 ITA No.1006/PUN/2015 A.Y.2010-11

Date 1 Draft dictated on 07.01.2019 Sr.PS/PS 2 Draft placed before author 09.01.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order