INCOME-TAX OFFICER, WARD - 2(3),, AURANGABAD vs. SHRI. AJAY HASTIMAL JAIN,, AURANGABAD

ORDER

PER PARTHA SARATHI CHAUDHURY, JM :

1. The ld. CIT(A) erred in both on facts and in law in passing the order.

2. The ld. CIT(A) failed to appreciate the fact that property in question viz. agricultural lands at a village Mauje Dahegaon, Tal. Gangapur, Dist.. Aurangabad were purchased by assessee alongwith 6 co-owners living in three different districts viz. Aurangabad, Jalgaon and Nandurbar vide purchase deeds dated 16-12-2010 and 10-5-2011.

3. The ld. CIT(A) failed to appreciate the fact that the said lands were sold as it is within a short span of seven months and twelve months vide sale deed dated 17-12-2011 for a consideration which is almost 25 times of the purchase cots. The sale consideration claimed is unusually high particularly considering the valuation of property for the stamp duty purchase by office of the sub-registrar.

4. The ld. CIT(A) failed to appreciate the fact that assessee is engaged in the business of trading of plots and he has shown closing stock at Rs. 54,48,092/- as on 31-03-2011 and Rs. 1,38,55,886/- as on 31-03-2012 declaring total income at Rs. 26,040/-. In the said return of income, the assessee neither disclosed the said transaction nor claimed any income as exempt from the said transactions.

2 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13

5. The ld. CIT(A) failed to appreciate the fact that in the sale deed also, it is clearly mentioned that the said land is sold only because it is not possible for them to jointly cultivate the said land and seller wanted to make some other investments. Further in the sale deed it is also mentioned that the land is open without any construction on it.

6. The ld. CIT(A) failed to appreciate the fact that the claim of the assessee that the lands were purchased with the intention of developing a fruit orchard is not supported by any cogent evidences like correspondence with Food Ministry or any other related Government Department. 7. The ld. CIT(A) ought to have held that the transaction of sale of agricultural land as adventure in the nature of trade and upheld the addition made by the AO. 8. The appellant craves leave to add, amend or alter any grounds of appeal.”

2. The brief facts of the case are that the return of income for AY 2012-13 was filed by the assessee on 26-08-2012 declaring total income at Rs. 26,040/- and agricultural income at Rs. 80,000/-. Subsequently, on the basis of information received from the CIT(A)-2, Nashik and the A.O had issued notice u/s 148 dated 27-03-2017 to the assessee. While assessing the income of the assessee, the AO had made an addition of Rs. 2,40,37,290/- to the returned income of the assessee. The said addition was made by treating the transaction of sale of agricultural land as adventure in the nature of trade. In para 3 of the assessment order, the AO had stated that notice u/s 148of the Act had been issued on the basis of information received from CIT(A)-2, Nasik. Thus the AO had issued notice on the basis of borrowed information and there was lack of application of mind. In number of judicial precedents, it was held that issue of notice under section 148 without application of mind was invalid. Hence it was requested to cancel the assessment completed on the basis of notice issued under section 148 of the Act which itself was invalid. It was stated that the assessee was an agriculturist. While assessing the income of the assessee, the AO had treated transaction of sale of agricultural land as 'adventure in the nature of trade" and made addition on account of profit of Rs.

3 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13 2,40,37,2901- in this transaction to the returned income of the assessee. It was stated that during the FY 2010-11, the following agricultural lands at Gut no. 167/1, 16712 and 177, Dahegaon, Taluka- Gangapur were purchased by the assessee along with six others co-owners and the share of the assessee in the said lands was 1/7th:

Sr. Details of agricultural lands Total Agri. land Date of Total No. purchased purchased purchase of purchase cost Azri Land 1. Agri. land at Gut no. 167/1 at 01 Hectare 97R 16.12.2010 6,88,712/- village Dahegaon Tq: Gangapur, Dist: Aurangabad, 2. Agri. land at Gut no. 167/1 at 03 Hectare 72R 16.12.2010 13,00,512/- village Dahegaon Tq: Gangapur, Dist: Aurangabad, 3. , Agri. land at Gut no. 167/1 at 02 Hectare 72R 10.05.2011 5,11,000/- village Dahegaon Tq: Gangapur, Dist: Aurangabad, 4. Agri.land at Gut no. 167/1 at 03 Hectare 99R 16.12.2010 13,94,904/- village Dahegaon Tq: Gangapur, Dist: Aurangabad.

5. Agri. land at Gut no. 167/1 at 03 Hectare 72R 16.12.2010 13,00,512/- village Dahegaon Tq: Gangapur, Dist: Aurangabad.

6. Agri. land at Gut no. 167/2 at 02 Hectare 78R 16.12.2010 9,71,888/- village Dahegaon Tq: Gangapur, Dist: Aurangabad, 7. Agri. land at Gut no. 177 at 01 Hectare 09R 16.12.2010 3,81,064/- village Dahegaon Tq: Gangapur, Dist: Aurangabad, 8. Agri. land at Gut no. 167/2 at 02 Hectare 75R 16.12.2010 9,61,400/- village Dahegaon Tq: Gangapur, Dist: Aurangabad.

Sr. Name Address PAN Assessed at No. 1 Ajay Hastimal Jain Shop No.1, Radhika Income Tax Arcade, Nupur Complex, Officer, Ward AFLPJ7181B Near Atithi Hotel, Ialna 2(3), Road, Aurangabad. Aurangabad 2 Ashish Gopi Ghodele Dwarkapuri, Bansilal ACIT Circle-L, Nagar, Aurangabad AYGPG4267K Aurangabad 3 Dharmendra Lokchand 15, Bharat Nagar, Near ACIT Circle-3, ABFPR8791R Ramnani jyoti Nagar, Aurangabad Aurangabad 4 Sandeep Suvalal 17, Kushal Nagar, Ialna Ward 2(1), AEIPC8542B Challani Road, Aurangabad Aurangabad 5 Vikas Ravinder 145, ]yoti Nagar, Ward 3(2), AFMPA0571P Agnihotri Aurangabad Aurangabad 6 Paras jawarilal Raka 180, Bank Street, Navi Peth, AAKPR8642R Ialgaon Circle 1, Ialgaon 7 Ajay Shantilal Lalwani 56, javnagar. Ialgaon AAEPL3257C Circle 1, jalgaon The above agricultural lands were sold by these seven persons for total consideration of Rs. 17,61,72,844/- the details of which were as under:

Sr.No. Particulars of Total area Date of sale Sale Agri. Land sold of agri. Land of agri. Land consideration sold of agri. Lands sold 1 Agi. Land at 16H-12R 17.12.2011 12,48,79,238/- Gut No. 167/1 2. Agi. Land at 05H-53R 17.12.2011 4,28,59,633/- Gut No. 167/2 3. Agri. Land at 01H-09R 17.12.2011 84,33,973/- Gut No. 177 The assessee‟s 1/7th share in total sale consideration was at Rs.2,51,67,549/-. The assessee has duly disclosed transaction of sale of agricultural land and profit of Rs.2,40,37,290/- there from in the balance sheet as on 31.03.2012

5 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13 enclosed along with the return of income filed for AY 2012-13. The assessee had shown the above referred agricultural lands purchased by him as 'fixed assets' in the balance sheet as on 31.03.2011 which was filed along with the return of income for AY 2011-12 and same was also submitted before the AO the course of assessment proceedings. The agricultural lands in question were also shown in revenue record as agricultural lands and details of crop pattern had been duly recorded by the Revenue Authorities in the 7/12 extracts of the said agricultural lands. Tile copies of the 7/12 extracts were submitted before the AO during the course of assessment proceedings. The agricultural lands in question were situated at Village Dahegaon, Taluka- Gangapur, District- Aurangabad and were beyond 8 k.ms from the Municipal Limits and as such were not capital assets within the meaning of the section 2(14) of the Act. The certificate from the competent authority evidencing this fact had been submitted before the AO during the course of assessment proceedings. The agricultural lands in question were sold in acres in totality without dividing or sub-dividing the same into small pieces. Neither said agricultural lands were converted into non-agriculture or layout of plotting for use other than agriculture was prepared by the assessee from the purchasers of the said agricultural lands and up to the sale of the said agricultural lands. Even before the purchase of said agricultural lands, same were used for agricultural purposes and even after sale and till this date, same agricultural lands were used for agricultural purpose only. The appellant was an agriculturist and even before acquiring the agricultural lands in question, he was deriving income from agricultural activities and same had been duly disclosed by him in the returns of income filed by him. In order to prove these facts, copies of the returns of income, statement of total income and balance sheets for three years i.e. for AY 2010-11, AY 2011-12

6 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13 and AY 2013-14 were also submitted. On going through the same, it could be appreciated that the assessee has shown agricultural income from the agricultural lands in question only. Moreover factually he was an agriculturist and engaged in agricultural activities since many years and therefore the agricultural lands in question were purchased by him with the intention to carryon agricultural activities thereon and to earn agricultural income thereon. All the seven persons who had purchased the agricultural lands in question jointly were regularly assessed to the income-tax and they all had reflected these transactions of sale of agricultural lands in their respective returns of A.Y 2012-13. Out of these seven persons, the assessments of following three persons were made under section 143(3) of the Act, details of which were as under:

Sr.No. Name of the PAN Assessed at Remarks person 1. Dharmendra ABFPR8791R ACIT Cir. 3 The department vide Asstt. Lokchand Aurangabad Order dated 17-0302015 had Ramnani accepted the stand of the assessee that profit from sale of agricultural lnds was not taxable.

3. Paras Jawarilal AAKPR8642R Circle 1, His Assessing Officer added Raka Jalgaon the profit from sale of agricultural land to his returned income. On first appeal before the CIT(A) assessment order was confirmed but on second appeal, the Hon‟ble ITAT decided the issue in favour of the assessee vide order dated 17-05-2018.

7 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13

(a) The assessee had submitted 7/12 extracts during the course of assessment proceedings in which crop pattern had been given. (b) The agricultural lands in question were situated beyond 8 kms from the Municipal Limits.

(c) The agricultural lands in question were not converted in to N on- Agriculture before the sale. (d) Agricultural lands in question were sold in acres in toto and no layout dividing it into small pieces of plots was done before sale.

(e) The assessee has disclosed the agricultural lands in question under the head 'fixed assets'.

(a) The assessee had sold the agricultural lands in question within a short period of 7 months to12 months. (b) The assessee had sold the agricultural lands in question for a price which above 25 times of the purchase price and such exorbitant sale consideration claimed by the assessee appeared to be impossible as the Sub-Registrar had estimated the price of the said lands at Rs. 1,30,000/- per acre. (c) The assessee has filed 7/12 extracts but merely filing a 7/12 extract did not prove that land had been cultivated. (d) The adventure in the nature of trade could arise even on purchase and sale of agricultural lands in the case where the lands were purchased with the intention to earn profit.

8 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13

(e) The AO accepted the fact that the agricultural lands in question had been shown by the assessee in balance sheet under the head 'fixed assets'. But he stated that it was a settled position of law that entries made in the books of accounts and balance sheet were not decisive but the actual facts and transactions were to be considered for deciding the issue under the Income Tax Act. (f) The AO had distinguished on facts the cases relied by the assessee during the assessment proceedings on following facts: i) The various lands at Dahegaon were purchased by 7 co- owners, who were residing in 3 different districts which were located far away from each other. ii.) The contention of the assessee that the lands were purchased for carrying out agricultural activity for longer period was found to be incorrect and false. iii.)The lands were sold within 07 months and 12 months after purchasing the same. iv.) The assessee along with other Co-owners have sold the impugned lands at a price which is 25 times of the purchase price of the said lands. g) Further in para 6.6 of the assessment order, the AO had narrated the meaning of 'adventure in the nature of trade' and concluded that 'in the face of its own evidence a case had to be decided but the motive could never be irrelevant to be inferred by surrounding circumstances and the intention behind the said activity. The motive of the seller, his intention behind sale, his overall activity of accomplish, the desired goal were all in conjunction with the conduct of the assessee so as to establish that the 9 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13 adventure as taken by him was within the sphere of trade activity. h) The AO placed reliance on the decision of the Honorable Supreme Court in the case of Mohammed Meera Khan vs. CIT (73 ITR 735). It was held that.a single transaction might also constitute an adventure in the nature of trade. There need not be regularity or repetitiveness as in the activity. i) Finally, by placing reliance on above decision of the Honorable Supreme Court, the AO in para 6.8 of the assessment order concluded that in this case the principle was applied that "dominant impress ion", the ultimate test'. It was held that circumstances were taken into consideration and due weight given to them was that the transaction entered into by the assessee for purchase and sale of land situated at Dahegaon was part of regular business activities of the assessee. Accordingly the said plot was treated as trading asset and the profit earned was business income.

6. On through the above observations, views and conclusions of the AO, it could be seen that these were based merely on assumptions and presumptions and it had been proved by the AO that facts stated and submitted by the assessee were false. The AD had also not considered the crop cultivation certificate as well the 7/12 issued by the Competent Authority submitted by the assessee which clearly stated that the agricultural lands in question were under cultivation in FY 2010-11. The AO had also not considered the sale pattis for sale of the crops that were cultivated on the agricultural land in question. The AO had not given proper thought to the past history and past income tax records of the assessee from which it was well proved fact that assessee was an agriculturist and he had derived agricultural income not only in this assessment year but regularly since many years, he was earning income from agricultural activities. The AO for the sake of his convenience, had given stress on the fact that the agricultural lands in question were owned jointly by seven persons but he conveniently avoided to narrate the facts that in the Income

10 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13 Tax assessments for the same assessment year the Department has accepted the stand of the two assessee i.e. Mr. Ramnani and Mr. Agnihotri and he also neglected the fact even in the cases of other remaining assessees, the Department has accepted their returns and till date of as. assessment not any notice has been sent to them. Thus by doing this the AO has contradicted the view of the Department itself. Shri Paras Jawarilal Raka who was one of the joint owners of the agricultural lands was assessed with ACIT, Circle 1" Jalgaon. His case for the AY 2012-13 was selected under scrutiny and during the course of scrutiny proceedings, the issue of profit on sale of agricultural lands had arisen and the Assessing Officer was not convinced about the non taxability of the said profit and addition of Rs.2,41,14,550/- was made to his returned income. The appeal was filed by him challenging the said addition before the Commissioner of Income Tax (Appeals-2), Nashik. The addition made by the Assessing Officer in his assessment order dated 23.03.2015 was confirmed by the CIT (A)-2, Nashik vide appellate order dated 26.12.2016. The second appeal was filed by Shri Paras Jawarilal Raka before the Honorable ITAT Pune. The Honorable ITAT Pune vide appellate order in dated 17.05.2018 for AY 2012-13 decided the issue of profit on sale of Agricultural Land in favour of the assessee by dismissing the appeal of the revenue. The facts of the case of the asses see were similar to the facts of Shri Paras Jawarilal Raka who was also one of co-owners with the assessee in the sale transaction of agricultural lands in question. Considering the decision of Jurisdictional Tribunal i.e. IT AT Pune Bench in the case of Shri Paras Iawarilal Raka and facts of the case, it was requested to delete the addition of Rs.2,40,3 7,290/- made by the AO.

7. The ld. CIT(A) has given relief to the assessee on the basis of the order of Pune Tribunal in dated 17-05-2018 in respect of one of the co-owners Shri Paras Jawarilal Raka where the addition was deleted and it was appreciated by the ld. CIT(A) that under the same facts and circumstances, therefore, the assessee who was the 11 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13 other co-owner, addition cannot be sustained. The relevant paragraph is as follows:

“I have duly considered the submissions of the appellant. In the present case, the has treated the transaction of sale of agricultural land as "adventure in the nature of trade" and thereby taxed surplus of Rs. 2,40,37,290/- from sale of agricultural lands at Gut no. 167/1, 167/2 and 177 at Dahegaon, Taluka- Gangapur. However these transactions were carried out by 7 co-owners including the appellant. It is further brought to my notice by the counsel of the appellant that in the purchase and sale of agricultural lands in question, one of the co-owners namely Shri Paras Jawarilal Raka had preferred appeal to the Hon'ble Pune ITAT against the addition of Rs.2,41,14,550/- made in his case for AY 2012-13 on account of business profits i.e. adventure in nature of trade. The Hon'ble Pune ITAT vide its order in dated 17.05.2018 had deleted the said addition by making the following observations: 5. Before us, Ld AR reiterated the submissions made before the lower authorities and further submitted that the assessee has declared agriculture income since last many years and the same has been accepted by the Revenue. He further submitted that the land at Dahegaon is situated beyond 8 kms from any Municipality. The land was purchased by the assessee with 6 other co-owners with the intention to develop fruit orchard and for which the assessee and the co-owners approached various Financial Institutions for finance but since all the institutions insisted on further infusion of money by the promoters and since many of the co-owners were not willing to invest more money and considering the favourable market conditions, the land was sold. He further submitted that the assessee never got the land plotted/sub- plotted for sale or sought conversion of land from agriculture to non-agriculture use and never carried out any activity to commercially exploit the land and that the aforesaid land till date continues to be “Agricultural land” and in support of which he pointed to the copies of 7/12 extract of the land. He further submitted that during the period under consideration the land was put to agricultural use and the produce cultivated from the land was sold and the sale proceeds are disclosed in the return of income. He further submitted that the land was not reflected in assessee‟s balance as stock in trade but as investment. He further submitted that the Hon‟ble Supreme Court in the case of Sarifabibi Mohamed Ibrahim Vs. CIT reported in (1993) 204 ITR 631 (SC) has laid down 13 tests/factors which are required to be considered to determine whether the sale of land is agriculture land or not. He pointed to the table of aforesaid tests as laid down by Hon‟ble Supreme Court and assessee‟s position vis-a-vis those tests at page 11 of the paper book and pointing to the same, he submitted that after considering those tests, assessee‟s case cannot be considered to be in the adventure in the nature of trade. He further pointed to the table reproduced by the Ld.CIT(A) at page 9 and 10 of the order and pointed out that out of 6 co-owners, in the case of 2 coowners, the sale of land has been accepted to be exempt in the order passed u/s 143(3) of the Act by their respective A.Os. He further placed reliance on the decision of Hon‟ble Bombay High court in the case of CIT Vs. Dhable, Bobde, Parose, Kale, Lute & Choudhari reported in (1993) 202 ITR 98 (Bom) wherein the land sold within a short period of purchase was held to be exempt. He also relied on the decision in the case of Bhogilal H. Patel Vs. CIT reported in (1969) 74 ITR 692 (Bom) for the proposition that intention at the inception is crucial and that the mere circumstance that a property is purchased in the hope that when sold later on, it would leave a margin of profit will not be sufficient to show that the intention was to trade at inception. He further relied on the decision of Hon‟ble Bombay High Court in the case of Gopal C. Sharma Vs. CIT reported in (1994) 209 ITR 946 (Bom) for the proposition that the profit motive without anything more by itself can never be decisive for determination of the issue as 12 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13 to whether the transaction amounted to adventure in the nature of trade. He therefore submitted that the order of Ld.CIT(A) upholding the order of AO be set aside. Ld DR on the other hand took us through the findings of AO and Ld.CIT(A) and supported their order. He further submitted that assessee had not produced any evidence to demonstrate of having indulged into any agricultural activity on the land. He thus supports the order of Ld.CIT(A).

13 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13

Since the facts and circumstances in the present case are similar to that of Shri Paras Jawarilal Raka (one of the co-owners and in order to maintain judicial discipline, the addition of Rs. 2,40,37,290/- made by the AO is directed to be deleted. The second ground of appeal is accordingly allowed. Since the quantum addition has been deleted by the undersigned therefore, there is no need to adjudicate the first ground of appeal relating to re-opening of assessment by issue of notice u/s 148 of the Income-tax Act, 1961.”

8. At the time of hearing, none appeared for the assessee. The ld. D.R conceded that the Pune Tribunal had provided relief to the other co-owner Shri Paras Jawarilal Raka and the additions were deleted following the same parity of reasoning in respect of the assessee who is the other co-owner. Considering the submissions of the ld. D.R and having perused the materials on record and the orders of the sub-ordinate authorities along with the judicial pronouncement, we find Mr. Paras Jawarilal Raka who is one of the co-owners in the entire transaction for which the Tribunal had provided relief and the ld. CIT(A) had relying on the said decision provided relief to the assessee herein. In such circumstances, we find no reason to interfere with the findings of the ld. CIT(A) and the relief provided to the assessee. The same is sustained.

Order pronounced in the open court on 30th day of August 2022.

Sd/- sd/- (DR. DIPAK P. RIPOTE) (PARTHA SARATHI CHAUDHURY) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated, this 30th day of August 2022 Ankam Copy of the Order forwarded to : The Appellant. 1. 2. The Respondent. 3. The Pr. CIT-2 , Aurangabad . 4. The CIT(A)-2 Aurangabad 5. The D.R. ITAT „A‟ Bench Pune. 6. Guard File BY ORDER, /// TRUE COPY/// Sr. Private Secretary ITAT, Pune

14 ITA 1848/PUN/2018 Ajay H. Jain A.Y. 2012-13 Date 1 Draft dictated on 30-08-2022 Sr.PS 2 Draft placed before author 31-08-2022 Sr.PS 3 Draft proposed and placed before the JM/AM second Member 4 Draft discussed/approved by second AM/JM 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