ASSISTANT COMMISSIONER OF INCOME TAX,, PUNE vs. M/S. RENAISSANCE CULTIVATION LLP,, PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1416/PUN/2017 िनधा�रण वष� / Assessment Year: 2013-14 ACIT, Central Circle-2(1), Vs. M/s Renaissance Pune. Cultivation LLP, Pastakiya House, A/P Kamshet Maval, Pune- 410405 PAN : AAOFR7634K Appellant Respondent Revenue by : Shri J. P. Chadraker Assessee by Shri Neelesh Khandelwal : Date of hearing : 16.03.2022 Date of pronouncement : 05.04.2022 आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the Revenue directed against the order of ld. Commissioner of Income Tax (Appeals)- 12, Pune [‘CIT(A)’ for short] dated 21.03.2017 for the assessment year 2013-14. 2. The Revenue raised the following grounds of appeal :- “1. On the facts and circumstances of the case, the Ld. CIT(A) was justified in allowing the appeal of the assessee without appreciating the entire facts of the case.

2 ITA No.1416/PUN/2017 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in ignoring the fact that the Assessing Officer from the analysis of seized/impounded documents and the events leading upto the final sale, had clearly proved that the sole motive behind the sale transaction of the impugned land was to earn higher profit and therefore the transaction was in the nature of adventure of trade. 3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in ignoring the fact that the Assessing Officer in Para 8.4 of his assessment order has found that the land was not used for agricultural purposes. 4. On the facts and circumstances of the case, the Ld. CIT(A) has erred in ignoring the fact that the Ld. CIT(A) has not appreciated the ratio of decisions of Hon'ble 1TAT, Pune Bench B in the case of Abhijit Subhas Gaikwad Vs. DCIT, CC-2(1), Pune and the decision of the Hon'ble Supreme Court in the case of Sarifa Bibi Mohamed Ibrahim and jurisdictional Bombay High Court Gopal C. Sharma Vs. CIT as applicable in the present case, when in fact they are different. 5. The emphasis laid by the Ld. CIT(A) on the period of holding the land was more than 12 years is irrelevant because the assessee is a professional trader in land. 6. The order of the Ld. CIT(A) may be vacated and the Assessing Officer be restored. 7. The appellant craves leave to add, alter amend and modify any of the above grounds of appeal.” 3. Briefly, the facts of the case are as under : The respondent-assessee is a Limited Liability Partnership (LLP) which came into existence on 21.08.2012 by converting the name of M/s. Renaissance Construction Pvt. Ltd. firstly into M/s. Renaissance Cultivation Pvt. Ltd. on 21.05.2012 and finally on 21.08.2012 in the name of above said LLP with its three partners, namely, Shri Fali J. Pastakiya, Shri Anand Mutha and Shri Rajendra

3 ITA No.1416/PUN/2017 U. Duggad having 45.10%, 36.70 and 18.20% of share holding respectively. It is engaged in the business of carrying on the building construction etc. The return of income for the assessment year 2013-14 was filed on 28.07.2013 declaring total income of Rs.Nil. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax, Central Circle- 2(1), Pune (‘the Assessing Officer’) vide order dated 12.02.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at total income of Rs.86,41,95,100/-. While doing so, the Assessing Officer brought to tax gains arising on sale of land situated at Khadkale, Pune admeasuring 54.5 acres as ‘business income’ against the claim of the respondent-assessee that profits arising on sale of agricultural land cannot be brought to tax as exempt from tax being agricultural income. The background of the impugned addition is as under :- The respondent-assessee bought land admeasuring 54.5 acres at Khadkale, Pune in the year 1995. The costs of the said lands were shown as stock-in-trade in the Balance Sheet. Subsequently, the characterization of the land is changed from stock-in-trade into investments in the year 2001. This change of characterization of the land was accepted by the Department. Subsequently, the said lands

4 ITA No.1416/PUN/2017 were sold to M/s Namrata Reality for consideration of Rs.87.16 crores in the month of March, 2013. A search and seizure operations were conducted in the premises of Namrata Group of cases. During the course of search and seizure operations, certain documents were stated to have been found and seized containing page no.1 to 77 of bundle no.1 pertaining to the sale of this land. According to the Assessing Officer, page 19 of bundle no.1 reveals that the revenue sharing agreement agreed between Namrata Group and the respondent-assessee herein. This, according to the Assessing Officer, establishes that the respondent-assessee is not agriculturist but businessman. The Assessing Officer conducted enquiries with the office of District Collector. On such enquiry it revealed that the respondent-assessee had applied for conversion of the land for non-agricultural purpose on 16.07.2012. However, the same was rejected by the District Collector, Pune. The Assessing Officer also referred to the statements recorded from all three directors of the respondent-assessee company, namely, Shri Sharad Goil, Shri Fali J. Pastakia and Shri Anand Mutha recorded by the Investigation Wing of the Department, Pune on 28.03.2013 wherein, one of the directors, Shri Sharad Goil in reply to question no.10 had

5 ITA No.1416/PUN/2017 stated that the land was purchased by the respondent-assessee company for the purpose of construction of the project and had also stated that construction of the project was not undertaken because there was major recession in real estate in the year 1995. He also stated that the land was situated in Khadkale, Pune. The Assessing Officer also deputed one of the Inspector of his office for spot verification of the land. The Inspector submitted a report dated 07.09.2015 stating that this is fully developed area. The Assessing Officer also, on verification of entries in 7/12 extracts of the land, found that some part of the land is “PAD & GAWATPAD” and some part of land has “BHAT & JAWARI” from 2000-01 at different parcels of impugned land. The Assessing Officer also observed that the respondent-assessee shown very meagre agricultural income for the assessment years 2010-11, 2011-12 and 2012-13 in the returns of income. The statements given by the directors of the respondent-assessee were retracted. The Assessing Officer based on the following observations held that the land is not agricultural land sold for profit and brought to tax as business income :-

6 ITA No.1416/PUN/2017 (i) The appellant company was formed only for the purpose of carrying on the business of promoters/builders. (ii) The land was situated in residential zone and because of its proximity to old Bombay Pune Highway and also proximity to Kamshet Railway Station and near Kamshet Town. (iii) The land was business asset. (iv) The appellant had applied for conversion for non- agricultural use on 16.07.2012. (v) The treatment of the said land in the books of accounts was changed from stock-in-trade into investments only with a view to avoid payment of taxes. 4. The Assessing Officer also placing reliance on the following decisions held that it is business transactions and, accordingly, assessed to tax as business income of Rs.86,41,95,095/- :- (i) Smt. Sarifabibi Mohmed Ibrahim & Others vs. CIT, 204 ITR 631 (SC). (ii) CIT vs. V.A. Trivedi, 172 ITR 95 (Bom.). (iii) Gopal C. Sharma vs. CIT, 209 ITR 946 (Bom.).

7 ITA No.1416/PUN/2017 (iv) Abhijit Gaikwad, Shubhash Gaikwad and Ajit Gaikwad vs. DCIT, Central 2(1), Pune, ITA No.699, 700 & 701/PN/2013 (ITAT Pune). (v) Jitendra Sonigara vs. ACIT, Cir-9, Pune, ITA No.849/PN/2012 (ITAT Pune). (vi) Hanmantram Murlidhar & Company Vs. ITO, Ward-1, Panwel, ITA No.515/PN/2012, (ITAT Pune). 5. Being aggrieved by the assessment order, an appeal was filed before the ld. CIT(A) contending that the subject-land cannot be treated as business asset and the profit arising on sale of the said land cannot be brought to tax. The ld. CIT(A) by holding that no reliance can be placed on the report of Inspector for the reason that the appellant had transferred its land to Namrata Reality in 2013 whereas, the Inspector had visited on 07.09.2015 and also called for the remand report from the Assessing Officer on entries in 7/12 extracts. The ld. CIT(A) considering the remand report, and taking into consideration the following facts that :- (i) The Assessing Officer has not made any adverse comments on the factual details submitted by the respondent-assessee.

8 ITA No.1416/PUN/2017 (ii) Considering area of such huge size some part of the land is always uncultivable/padit land hence it could not be held that land was not used for agricultural operations. It cannot be said that the land was not cultivated. (iii) The land was held for more than 17 years from the date of purchase. (iv) The appellant had been carrying out agricultural activities resultant the agricultural income was shown in the year 2007-08 was accepted by the Assessing Officer. (v) The entries in 7/12 extracts of the land indicates that the appellant was carrying agricultural operations. held that the Assessing Officer was not justified in holding that the land was not agricultural land. Accordingly, the ld. CIT(A) concluded that the gains arises on sale of land cannot be taxed under the head ‘business income’. 6. Being aggrieved by the decision of the ld. CIT(A), the Revenue is in appeal before us. 7. The ld. CIT-DR submitted that whether a particular land is agricultural or not is essential a question of fact which should be decided with reference to the entries in the Revenue Record of the

9 ITA No.1416/PUN/2017 actual operations carried on by the assessee on the land. He submitted the following facts which according to him clearly establishes the intention of the assessee to hold the asset as ‘business asset’ :- (i) The objects of the company does not include the carrying on the agricultural activities. (ii) The fact that the directors of the assessee company already into the business of builders would indicate that the lands were purchased for the purpose of business. (iii) The assessee company had shown very meagre income from agricultural activities. (iv) The lands were situated only in the residential zone and it goes proximity to Railway Stations. (v) The statements given by the directors of the assessee company before the DDIT, Investigation Wing clearly revealed that the intention of the assessee holding the land only for the purpose of business and not to current business.

10 ITA No.1416/PUN/2017 8. Further, he submitted that the lands cannot be classified as ‘agricultural’ as it does not fulfil the conditions laid down by the Hon’ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim vs. CIT, 204 ITR 631 (SC). He also submitted a detailed written submissions placing reliance in the various judgements/judicial precedents that the impugned land cannot be said to be agricultural land. 9. On the other hand, ld. AR submitted that the profit arising on sale of land cannot be taxed as an adventure in the nature of trade as the land was classified as agricultural land entries in ‘7/12 extracts’. The conduct on the part of the assessee company by conversion of stock-in-trade into investment cannot be doubted, as such treatment was accepted by the Assessing Officer in the earlier assessment years i.e. A.Y. 2005-06. The land had been undoubtedly used for the agricultural purposes and the assessee company had been showing the agricultural income which was accepted by the Assessing Officer. He also submitted that in terms of tests evolved by the Hon’ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim (supra) it cannot said that the lands are not agricultural lands. He also placed reliance on the decision of the

11 ITA No.1416/PUN/2017 Hon’ble Jurisdictional High Court in the case of CIT vs. Smt. Debbie Alemao, 196 Taxman 230 (Bombay) in support of the proposition that if the agricultural operation does not result in income that cannot be ground to say that the land was not used for the agricultural purpose. He also filed a chart before us demonstrating as to how in terms of the tests/guidelines laid down by the Hon’ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim & Others vs. CIT, 204 ITR 631 (SC) the land in question can be treated as agricultural land. The scanned images of the said submissions are reproduced below :- Factors as approved by Hon'ble SC in the case of SarifabibiMohmed Ibrahim vs CIT 204 Sr. No. ITR 631 Contentions of the Learned CIT(DR) Contentions of the Respondent Whether the land was classified in the revenue records as 1 agricultural and whether it was subject Yes. But as held by various courts classification in Yes. The land was classified in the revenue to the payment of land revenue records is not a sole factor to decide the records as agricultural and was also revenue? nature of land. subjected to the payment of land revenue (i) Yes, the Respondent has used the land for agricultural purposes. This fact is evident from the returns of income filed for various (i)No, the land was not ordinarily used for years wherein the Respondent has Whether the land was agricultural purpose. consistently disclosed agricultural actually or ordinarily incomeearned. (Please refer Page no.444 2 used for agricultural of Paper Book filed by the Respondent) purposes at or about the relevant time? (ii) The assessee was originally a company which was later converted as LLP and as per MoA, the (ii) The land has been used for cultivation main object was to construct, develop, purchase, for more than 10 years. sell, etc of immovable properties.

12 ITA No.1416/PUN/2017 Factors as approved by Hon'ble SC in the case of SarifabibiMohmed Ibrahim vs CIT 204 Sr. No. ITR 631 Contentions of the Learned CIT(DR) Contentions of the Respondent (iii) The 7/12 extracts of the landalongwith the summary of the crops produced clearly (iii)The Directors (now partners) of the assessee indicate that a majority of the area of the are established builders and not agriculturist as said land was under cultivation, withonly a stated by all three partners in their statements on meagre portion of the land being un- oath (Ans 7 at page 296 of PB, Ans 10 at page cultivable. (Page no.320 to 343and Page 302 &Ans 10 at page 313) no. 1 of the Paper Book filed by the Respondent) (iv) Also, as admitted by Directors of companies in the statement recorded on oath, the land was purchased for development/construction. (v)Though, meagre agricultural income was shown by the assessee in its ITR but such income is not commensurate the land holding. Details of year-wise agricultural income disclosed in IT is at page 444 of P.B filed by the assessee which clearly indicates that the income declared was in few thousands. As regards the said contention of the Ld. CIT (DR) that the notes to accounts of the Respondent mentionthat the crops produced (vi) In fact, the Notes to Accounts for financial were only on a minor portion of the land, we statements for FY 2007-08 (page 101 of PB), FY respectfully draw the attention of Your 2008-09 (page 112 of PB), FY 2009-10 (page 123 Honours to the notes to accounts, (Page of PB)FY 2010-11 (page 134 of PB) clearly no. 101, 112, 123, 134 of Paper Book mentions that Rice & Animal grass was grown on filed by Respondent) wherein it is clear that minor portion of the land. This note clearly what has been mentioned is that the animal suggests that even if some crops were produced grass is being cultivated on only a minor it was only on a minor portion of the land. portion of the land, with Rice being the main crop. Thus, the contention of the Ld. CIT(DR) is based on misinterpretation of the facts. (i)The agriculture use was only a stop gap Yes.The land was purchased by the arrangement and neither the company nor The Respondentin F.Y. 1994-95 which was directors (now partners) intended to do initially treated as stock-in- Whether such use of agricultural activity on the said land. trade.Subsequently, on realising that the the land was for a long development on the land was not (ii) Cultivation was never the main object of the period or whether it assessee. In fact the phrase 'cultivation' used in feasible,the Respondentconverted the land 3 was of temporary into investment in the F.Y. 2000-01, after object clause 4 in MoA is in the context of character or by way of developing the properties by planting, paving, which the land has been used for cultivation stop-gap for more than 10 years. Hence, Your drawing, farming, cultivating, etc. This is an arrangement? Ancillary object which is incidental for attaining Honours would appreciate that the agricultural activity cannotbe said to be of Main cultivation/farming object. So cultivation / farming cannot be a separate business activity of temporary character or by way of stop-gap

13 ITA No.1416/PUN/2017 Factors as approved by Hon'ble SC in the case of SarifabibiMohmed Ibrahim vs CIT 204 Sr. No. ITR 631 Contentions of the Learned CIT(DR) Contentions of the Respondent the company arrangement.

(iii) Notes to Accounts for financial statements clearly suggest that even if some crops/animal grass was produced, it was only on a minor portion of the land. (iv) Moreover, the directors had admitted that the land was purchased considering its potential in terms of appreciation. (answer to Q10 to Q 18 at page 302 to 304 of P.B. filed by the assessee. Similar admission have been made by other partners) (v) Also, the copies of various documents seized and discussed by the AO clearly indicate that the assessee wanted to develop the land by way of plotting/constructing flats. Whether the income No there is no rational proportion between the derived from the agricultural income declared and the market value agricultural operations of the land. The market value as per valuation (i) The Respondent has earned profits on carried on in the land report dated 17.05.2012 was Rs. 87.16 crores. the sale of agricultural produce in most of 4 bore any rational The agreement to sale was also made at the the years. (Page no.444 of the Paper Book proportion to the same value. Against this amount, the agricultural filed by the Respondent) investment made in income declared in ITRs is only few thousands purchasing the land? (page 444 of PB filed by the assesse). The permission obtained for conversion of Whether, the agricultural land into non-agricultural land permission under was on 05th September, 2014(Page no.438 Section 65 of the to 443of the Paper Book filed by the Bombay Land Revenue Respondent) whereasthe land was sold by Code was obtained for (i) Yes. Permission for non-agriculture use was 5 (a) the Respondentto M/s Namrata Realty in the the non-agricultural obtained by the assessee itself. F.Y. 2012-13. Hence Your Honours would use of the land? If so, appreciate that till the date that the land when and by whom was owned by the Respondent, the (the vendor or the permission for non-agricultural use was vendee)? never granted.

14 ITA No.1416/PUN/2017 Factors as approved by Hon'ble SC in the case of SarifabibiMohmed Ibrahim vs CIT 204 Sr. No. ITR 631 Contentions of the Learned CIT(DR) Contentions of the Respondent The power of attorney (POA) referred to on (ii) Firstly, the assessee applied for converting Page 286 to 290 of the Paper Book is only the land to non-agriculture use on 16/07/2012. a draft POA and has never been executed by The same was however, rejected as requisite all the parties mentioned in the document. documents were not filed (kind reference to para The same is evident from no sign on the last 5.3 at page 8 of the assessment order) page of the POA on Page 292 and page 293 of the P.B. (iii)Later, the permission for non agricultural use was given on 05.09,2014 on a joint application made by Shri Fali Jehangir (in the capacity of self as well as in the capacity of partner, founder and main person of the assessee and M/s Namrta Realty (other Joint Development Partner) (kind reference to page 438 of PB filed by the assessee). (iv) Reference is also invited to the Power of Attorney dated 25.01.2013, granted by the assesse to Its development Partner for obtaining permission for non-agricultural from relevant authorities. It is clearly mentioned in POA that as the assessee is unable to attend to various matters related for sanction, so it is authorising the Namrta Developer for same. (Kind reference is invited to page 286 to 290 of PB filed by the assessee). (v)The said PoA is dated 25.1.2013 It is important that on the said date initial amount of Rs 7 crores was paid by the Joint developer as mentioned in final agreement to sell (page 192 of the PB filed by the assessee). Incidentaly it was the only payment made by Namrata Developer to the assessee and balance amount remains payable Whether such permission was in respect of the whole or portion of the land ? A perusal of the N.A. permission granted If the permission was would make it clear that the permission has in respect of a portion The permission for conversion is for whole of the (b) been granted only after the sale of the land. of the land and it was land. (Page no.438 to 443of the Paper Book obtained in the past, filed by the Respondent) what was the nature of the user of the said portion of the land on the material date ?

15 ITA No.1416/PUN/2017 Factors as approved by Hon'ble SC in the case of SarifabibiMohmed Ibrahim vs CIT 204 Sr. No. ITR 631 Contentions of the Learned CIT(DR) Contentions of the Respondent Yes.The sale agreement relied upon by the assessee is 20th March. 2013. Before this date, the assessee had (i) Applied for conversion of land use to non- agricultural on 16.07 2012 (ii) Negotiated with Panchsheel group for joint development and a final draft was prepared on 18.09 2012 (iii) Entered into Joint development agreement/revenue sharing agreement with Namrata group on 08.11.2012 (iv) This revenue sharing arrangement was Whether the land, on arrived at after elaborate deliberation for Various the relevant date, had combinations of proposed development (page 270 The land has been used for agricultural ceased to be put to purposes consistently since F.Y. 2001-02 i.e. to 274 of paper book). agricultural use? If so, after the Respondent had converted the (V) A public notice dated 19.11.2012 was Issued whether it was put to 6 land into investment in the year 2001-02. by the advocate or Mrs Namrata developers an alternative use? Further, it is an undisputed fact that the clearly indicating the property details and joint Whether such cesser Respondent is holding the land as an development plans. (page 263 to 266 of Paper and/or alternative investment. book) user was of permanent (vi) Signed a Power of Attorney dated or temporary nature? 25.01.2013, granting rights to Namrata Developer for obtaining permission for non-agricultural use from relevant authorities. (vii) Received an amount of Rs. 7 crores on 25.01.2013 from Namrata Developer Thus, as per the ratio laid down by Hon'ble Bombay High Court CIT vs VA. Trivedi (1988) 38 Taxman 102 (Bom) as well as other case laws, the land ceased to be agricultural land before the relevant date The spot verification made by the Inspector clearly established that the land has been developed in 298 residential plots. (kind refence to para 5.4/page 12 of assessment order) This development is permanent.

16 ITA No.1416/PUN/2017 Factors as approved by Hon'ble SC in the case of SarifabibiMohmed Ibrahim vs CIT 204 Sr. No. ITR 631 Contentions of the Learned CIT(DR) Contentions of the Respondent The assessee is a company which was later converted as LLP. And as per MoA, the main object was to construct, develop, purchase, sell, The land has always been used for Whether the land, etc of immovable properties. The Directors (now agricultural purposes. This fact has also though entered in partners) of the assessee are established builders been accepted by the Department at the revenue records, had and not agriculturist. time of assessment of the Respondent for never been actually AS per statements of Directors of companies, the A.Y. 2006-07 and 2007-08 wherein the used for agriculture, land was purchased for Assessing Officer has specifically stated that 7 that is, it had never development/construction. The only intention was the Respondent is engaged in business of been ploughed or to earn profit through development/appreciation. cultivation of the agricultural lands and tilled? Whether the taking the crops such as Jawar, Rice and The meagre income declared by the assessee owner meant or animal green grass, etc. (Page no.179 to clearly indicates that the land was not actually put intended to use it for 183of the Paper Book filed by the to agriculture use. Notes to Accounts for financial agricultural purposes? Respondent) statements for various years clearly suggests that even if some crops/animal grass were produced, it was only on a minor portion of the land. (i)Admittedly, the land is situated in residential zone of town planning. Whether the land was situated in a (ii) As per Valuer report, there are construction A perusal of the pictures of the area developed area? activities under progress in the surrounding area surrounding the land (Page nos. 410 to Whether its physical of the land (page 276 of P.B. filed by the 426of the Paper Book filed by the characteristics, assessee) Respondent) shows that the area 8 surrounding situation (iii) The directors have admitted that they surrounding the land is entirely in the nature and use of the lands in themselves had constructed 7-8 buildings in of agricultural land and no construction the adjoining area nearby area (Ans 15 at page 304) Also, as per the activity is being undertaken in the adjoining were such as would report of Inspector, there was no agriculture areas. indicate that the land activities in the surrounding areas as well as on was agricultural? land (point 3 & 4 of para 5.4/page 12 of assessment order) No, the land was not developed by plotting and providing road and other facilities. The Whether the land itself report of the Inspector being relied upon was developed by Yes, land was later developed by plotting and was obtained only in the year 2015, when 9 plotting and providing providing roads and other facilities as discussed M/s. Namrata Realty had already started the roads and other above. construction activities. Hence, Your Honours facilities? would appreciate that reliance on the said report is misplaced.

17 ITA No.1416/PUN/2017 Factors as approved by Hon'ble SC in the case of SarifabibiMohmed Ibrahim vs CIT 204 Sr. No. ITR 631 Contentions of the Learned CIT(DR) Contentions of the Respondent Though, there was no actual sale of any portion of the said land in past. But, the assessee entered into development agreement not only with M/s Whether there were Namrata Realty but with M/s Panchshil. Group as any previous sales of well. (Reference is invited to page 244 to 261 of 10 portions of land for paper book filed by the assessee). The assessee non-agriculture use? has neither during the post search investigation, assessment proceedings, or appellate proceedings has denied the existence of these There was no sale of any portion of land in agreements/MoUs. the past for non-agricultural purposes. It is not clear as to whether such permission was taken or not but, it may be submitted or that the Whether permission lawyer of Namrata Developer clearly advised that under Section 63 of such permission shall be required (reference is the Bombay Tenancy invited to page 219 of PB filed by the assessee). and Agricultural Lands The permission for the conversion of land But the fact remains that later permission for non- Act, 1948, was was never obtained by the Respondent agricultural use was granted on 05.09.2014 on a 11 obtained because the during the period that the land was owned joint application made by Shri Fali Jehangir (in the sale intended sale was by the Respondent. capacity of self as well as in the capacity of in favour of non- partner, founder and main person of the assessee agriculturist was for and Namrta Realty (other Joint Development non- agricultural or Partner) (kind reference to page 438 of PB filed agricultural use? by the Assessee ). The land was finally developed in plots as reported by the inspector. Consideration was determined on per square The land has been sold on acreage basis. meter basis. Even though it is mentioned in the Further, the valuation report also mentions agreement that the land was sold acreage basis the valuation of the land on acreage basis but the valuation report dated 17.05.2012 (Page Whether the land was (Page no. 227of the Paper Book filed by 279 of paper book) clearly establishes that the 12 sold on yardage or on the Respondent). Further, reference is also land was valued on per square meter basis. Here , acreage basis ? drawn to the Agreement to Sell wherein a it is important to mention that the valuer valued lump-sum consideration is mentioned.(Page the land at Rs. 87.16 crores and exactly same no. 192of the Paper Book filed by the consideration is mentioned in the ‘ agreement to Respondent). sell’ Whether an In this regard it is submitted that the agriculturist would Respondent has tried to maximise the profit purchase the land for that it can obtain on the sale of land. Your No. As per assessee’s own declarations in ITRs, agricultural purposes Honours would appreciate that an investor the income earned was few thousands per year, at the price at which would always endeavour to sell its 13 against this, consideration agreed was Rs. 87.16 the land was sold and investment for the maximum profit and crores by a realty firm. No agriculturist shall pay whether the owner doing so would not change the character of this amount. would have ever sold the asset from investment to ‘stock-in- the land valuing it as a trade’. Reliance is placed on the judgement property yielding of the Hon’ble Bombay High Court in the

18 ITA No.1416/PUN/2017 Factors as approved by Hon'ble SC in the case of SarifabibiMohmed Ibrahim vs CIT 204 Sr. No. ITR 631 Contentions of the Learned CIT(DR) Contentions of the Respondent agricultural produce case of CIT v. Smt. Debbie Alemao on the basis of its [2011] 196 Taxman 230 (Bombay), yield? wherein eventhough the assesse had sold the land for a price which was 10 times the purchase price within two years of purchase, the Hon’ble Bombay High Court had characterised the land as agricultural land, being exempt from tax. The Hon’ble Bombay High Court upheld the orders of the lower authorities wherein due consideration was given to other factors, being entry in revenue records, permission for non- agricultural use, etc. 10. We heard the rival submissions and perused the material on record. The only issue in the present appeal relates to whether or not in the facts of the present case can it be held that the profits arising on sale of lands in question to be taxable under the head “business income”. There is no dispute that the subject lands were classified in the revenue record as agricultural lands as per entries in 7/12 extracts of the lands. The entries in 7/12 extracts of the lands also clearly indicate that majority of the land was under cultivations with only small size of land is uncultivable. In this connection, the Hon’ble Madras High Court in the case of CIT vs. Mansi Finance Chennai Ltd., 388 ITR 514 vide para 6 held as follows :-

19 ITA No.1416/PUN/2017 “7.2 In Mansi Finance Chennai Ltd., the Madras High Court, while dealing with the importance of classification of land in the revenue records, particularly when the said classification is not rebutted, what is the extent to which such a factor will have a decisive influence in considering what constitutes agricultural land or not, held thus: "From the material on record, it could be deduced that the respondent has discharged his burden and proved that the lands were agricultural lands, at the time of transfer. Sufficient evidence has been adduced by the respondent, to prove that the subject lands have been put to agricultural operations before the sale. Classification of the lands, in the revenue records, as agricultural lands, is not varied and that is a determining factor." 7.3 In Ms. Srinivasa Naicker case the Madras High Court referred to the effect of subsequent treatment of the subject matter of sale transaction and whether it has any impact in determining the nature of asset sold by the assessee on the date of sale. In the said decision it has been held thus : "A perusal of section 45 shows that the requirement as on the date of sale or transfer is that the asset must be a capital asset, considering the description under the Act. The charge ability to tax under section 45 arises only if on the date of sale, the land in question retained its character as a capital asset, which means, an asset which does not answer the definition of a capital asset and which is an agricultural land falling within the definition of section 2(14) would automatically be outside the scope of section 45. In the decision in M. Venkatesan v. CIT reported in [1983] 144 ITR 886, this court, referring to the scope of section 45, held that "taxation or exemption from taxation depends upon the subject of transfer answering or not answering the definition of capital asset at the time of transfer and at no other point of time." In the subsequent decisions reported in CIT v. P.J. Thomas [1995] 211 ITR 897 (Mad) and (CWT v. E. Udayakumar [2006] 284 ITR 511 (Mad)), it was held that the subsequent treatment has no relevance in the matter of considering a capital asset. It is no doubt true that the purpose for which the purchaser had purchased was totally different from what the transferor had intended to use the lands in question but as held in the decisions cited above, with the admitted finding that the lands in question were under agricultural operation on the date of sale for the purpose of considering the meaning of capital assets, it matters very little how the subsequent purchaser intended the land in question to be put to use.”

20 ITA No.1416/PUN/2017 11. Therefore, in the light of the fact that the entries in the 7/12 extracts shows that lands were agricultural lands at the time of transfer and the lands have been put to agricultural operations, it can be said that the assessee company had discharged his burden and proved that the lands were agricultural lands. Further, the fact that the purchaser of the lands had used the lands for non-agricultural purpose has no bearing in determining the nature of assets sold by the assessee on the date of sale as held by the Hon’ble Madras High Court in the case of M. S. Srinivas Naicker vs. ITO, 292 ITR 481 as extracted above. 12. Further, in the present case, the seller of the land had not taken any steps which would indicate the intention to exploit the land for non-agricultural use, it is only the buyer of the land who sought the permission for conversion of land into agricultural to non- agricultural on 05.09.2014 which is subsequent to the sale of land by the respondent. Recently the Hon’ble Kerala High Court in the case of CIT vs. Cochin Malabar Estates and Industries Ltd., 440 ITR 121 after referring to the judgement of the Hon’ble Madras High Court in the case of Mansi Finance Chennai Ltd. and MS. Srinivasa Naicker referred (supra) held as follows :-

21 ITA No.1416/PUN/2017 “8.3 ……… In our understanding, the test stipulates that the subject matter of land is capable of being used for agricultural purposes without inhibition both in fact by change of user and by law by orders of conversion from agricultural to non-agricultural. Any other future independent application of said tests, is impractical from the perspective of sale and purchase. The judgment of this Court in Kalathingal Faizal Rahman case refers to the burden of proof, and that, what constitutes agricultural land essentially is a question of fact and the same has to be established by the assessee. While adverting to the future use, we are persuaded by the reasons given by the Madras High Court in Ms. Srinivasa Naicker and Mansi Finance Chennai Ltd. cases.” 13. Thus, the argument of the ld. CIT-DR that the land was used for non-agricultural purpose by the purchaser of the land has no impact in determining the issue whether the land is agricultural or not at the time of sale. 14. The appellant had also been disclosing agricultural income, though meagre, accepted by the Department. The Hon’ble Jurisdictional High Court in the case of CIT vs. Smt. Debbie Alemao, 196 Taxman 230 (Bombay) held that if agricultural operation does not result in income that cannot be ground to say that land was not used for agricultural purpose. Thus, it cannot be said that there is no agricultural activities on the subject lands. 15. The mere fact that the assessee company made huge amount of profit cannot be ground to treat the profit arising on sale of

22 ITA No.1416/PUN/2017 agricultural land as “business income” as held by the Hon’ble Gujarat High Court in the case of PCIT vs. Heenaben Bhadresh Mehta, 409 ITR 196 (Guj.). The relevant observations vide para 9 of the said judgement are as under : “9. As observed hereinabove, the land was sold as an agricultural land and in fact, what was sold was agriculture land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by the assessee on sale of agriculture land as business income. Similarly, merely because for whatever reason, the assessee has earned sufficient huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agriculture land as business income.” 16. The submissions made on behalf of the respondent-assessee company detailing as to how in terms of the tests laid down by the Hon’ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim & Others vs. CIT, 204 ITR 631 (SC) the land is an agricultural land, remain uncontroverted by ld. CIT-DR. 17. In the light of above discussion, we are of the considered opinion that the assessee company had brought on record a conclusive proof to infer that the lands sold were agricultural lands. Accordingly, we uphold that the findings of the ld. CIT(A) that the lands sold were agricultural lands.

23 ITA No.1416/PUN/2017 18. As regards to the finding of the A.O. that lands were held as business assets in the year of purchase of lands and, therefore, the gains arising on sale of lands should be assessed as business income, we find that the lands were purchased in the year 1994-95, however, shown initially in the books of accounts as stock-in-trade, later on changed it to investments in the books of account, this treatment was accepted by the Department, which goes to prove the intention of the assessee company to hold land as “investments”. The bona-fide of this treatment was never doubted by the Department in the assessment year in which change the character of land took place. No doubt, the statements of the directors of the assessee company before the DDIT, Investigation Wing that the lands were purchased with the intention of developing of housing project clearly indicates that the land were originally purchased with intention of holding lands as business assets. But such intention of the assessee company had underwent change owing to several reasons, such as slump in real estate market rate etc. Thus, the very object of holding the lands had changed and this is demonstrated by the assessee company in the form of treatment given in the books of account by conversion of lands held as stock-in-trade into

24 ITA No.1416/PUN/2017 investments. This characterization of land as investments was accepted by the Department in the earlier assessment years. The material on record would conclusively prove that the lands were agricultural lands held as investments. Therefore, the profit arising on sale of land cannot be brought to tax as business adventure in the nature of trade. The ratio of the decision of the Hon’ble Bombay High Court in the case of Gopal C. Sharma vs. CIT, 209 ITR 946 (Bom.) has application to the facts of the present case as, in the said case, the decision was rendered on premise of fact that non-use of land for cultivation for reasonable span of time whereas in the present case undoubtedly the land was used for agricultural purpose. Strong reliance was placed by Assessing Officer on the statements of the directors of the respondent-assessee company that the land was originally purchased for the purpose of project development in support of the finding of the A.O. the land was held as business asset, without delving into the issue of validity of these statements in view of the their subsequent retraction it would suffice to hold that :-

25 ITA No.1416/PUN/2017 (i) It is an accepted position that the lands were originally held as stock-in-trade but converted into investments subsequently. (ii) Once the lands are held to be agricultural lands, the gains arising on sale of said lands cannot be brought to tax as business income as held by the Jurisdictional High Court in the case of CIT vs. Nitish Rameshchandra Chordia, 374 ITR 531 (Bom.) wherein, the Hon’ble Bombay High Court after referring to the decision of the Hon’ble Delhi High Court in the case of D.L.F. United Ltd. vs. CIT, 129 CTR 33 (Delhi) held that any gains arising on sale of agricultural land/property cannot be considered as business income. The relevant part of the said decision is reproduced as under :- “13. In the ruling in the case of DLF United Ltd. v. CIT [1995] 217 ITR 333/84 Taxman 379 the Hon'ble Delhi High Court referred to explanation to section 2(1A) relied upon by the Counsel for the Revenue and held that surplus of the compensation amount arising as a result of acquisition of agricultural land in question was capital asset and not the income at all. The question of change in the definition of agricultural income because of insertion of the explanation has no relevance. Thus, in the facts and circumstances of the case, when M/s.DLF United Ltd. was carrying on business as colonisers by purchase, development and selling the plots of lands in and around Delhi in the course of its business and the

26 ITA No.1416/PUN/2017 Company had acquired certain agricultural land in certain villages around Delhi, out of which some land was acquired by the Government through a notification issued u/s.4 of the Land Acquisition Act followed by declaration issued under Section 6 of the Land Acquisition Act and the Company received compensation for the land after assessment under the Land Acquisition Act, the Income Tax Officer, while assessing that the Company was a dealer in lands, had held that the acquired land constituted the Company's stock-in-trade and compensation received by the Company was liable to be taxed as an income in three assessment years under consideration. The question which was raised was answered by the Delhi Court in paragraph 9 of the ruling under consideration, which reads thus : "This Court further held that in other words the agricultural lands purchased originally by the assessee for urbanisation or conversion into building plots remained agricultural land till the acquisition and payment of compensation, and in view of the said finding this Court held that the first question has to be answered in the negative, i.e. the profits were not business profits. With regard to the second question this Court found that as the compensation had been paid for the acquisition of agricultural land, the question really involved a determination as to whether the price paid for the land by way of compensation could be included within the definition of agricultural income. It was further held that agricultural land was excluded from the definition of 'capital asset' occurring in s. 2(14)(iii) and accordingly any gain resulting from the acquisition of agricultural land was not income, and accordingly the answer to the said question was that the compensation amount was not income." 14. Thus, the income out of transactions of immovable property in the nature of agricultural land is held as capital gain exempted under the Income Tax as arising from the agricultural land. We find the ruling in the case of DLF United Ltd. (supra) was challenged in S.L.P. (Civil) No...CC 1727-1729/98 and the Hon'ble Apex Court found that there was no merit in the S.L.P. And it was accordingly dismissed on merits. Thus, capital gain arising from the transaction in respect of agricultural land cannot be considered as business income. The ruling is squarely applicable to the facts and circumstances under our consideration in the present case as well.”

27 ITA No.1416/PUN/2017 19. Thus, viewed from any angle, the statements of directors of the assessee company, do not support the findings of the A.O. that the lands are held as business assets. 20. Therefore, we do not find any illegality or perversity in the findings of the ld. CIT(A) in holding that the profits arising on sale of land cannot be brought to tax as “business income” or “capital gains”. Thus, we do not find any merit in the grounds of appeal filed by the Revenue. Hence, the grounds of appeal raised by the Revenue are dismissed. 21. In the result, the appeal filed by the Revenue stands dismissed. Order pronounced on this 05th day of April, 2022. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 05th April, 2022. Sujeet आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A)-12, Pune. 4. The Pr. CIT, Central, Pune. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.