PARAS JAWARILAL RAKA,,JALGAON vs. ASSISTANT COMMISSIONER OF INCOME TAX,,

आदेश / ORDER

PER ANIL CHATURVEDI, AM :

This appeal of the assessee is emanating out of the order of Commissioner of Income Tax (A) – 2, Nashik for the assessment year 2012-13.

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Assessee is an individual having income from partnership firms,

house property and other sources. Assessee filed his return of income

for AY 2012-13 on 30.7.2012 declaring total income of

Rs.11,97,500/-. The case was selected from scrutiny and thereafter

the assessment was framed u/s 143(3) vide order dated 23.03.2015

and the total income was determined at Rs.2,53,12,050/-. Aggrieved

by the order of AO, assessee carried the matter before LD.CIT(A) who

vide order dated 26.12.2016 (in appeal no.Nsk/CIT(A)-2/89/15016)

dismissed the appeal of the assessee. Aggrieved by the order of

Ld.CIT(A), assessee is now before us and has raised the following

grounds:

“1. The Commissioner of Income-tax (Appeals) 2, Nashik (hereinafter referred to as the CIT(A) erred in upholding the action of the Assistant Commissioner of Income-tax, Circle - 1, Jalgaon (hereinafter referred to as the Assessing Officer) in making an addition of a sum of Rs 2,41,14,550, being surplus/ profit on sale of rural agricultural land as income arising on adventure in the nature of trade. 2. The appellant contends that the CIT(A) and the AO have suo moto by assigning insufficient and invalid reasons, considered the rural agricultural land as a business asset which, in effect, is an investment in capital asset and shown as such by the appellant in the balance sheet as at 3151 March, 2011 and thereby bringing to tax the surplus/ profit on sale of such an asset to tax as adventure in the nature of trade. 3. The appellant further contends that the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition of Rs.2,41,14,550 alleged to be arising on an adventure in the nature of trade inasmuch as the surplus/ profit arising on sale of rural agricultural land is not chargeable to tax inasmuch as such an asset is not a "capital asset" within the meaning of section 2(14) of the Act, being specifically excluded from the definition of capital asset.”

controversy in the appeal is of addition of Rs 2.41 crores on sale of

agricultural land as income from business.

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the details, AO noticed that assessee had sold land at Gat No 167/1,

167/2 and 177 at Dahegaon Tal Gangapur Dist Aurangabad

alongwith six co-sellers and assessee had received his share of sale

consideration of Rs.2,51,67,550/- and the profit earned from its sale

was not offered to tax. The assessee was asked the reason for not

offering the profits to tax to which assessee inter-alia submitted that

the land was an agricultural land and since it was not a capital asset

therefore in view of Sec.2(14) of the Act, the gain on sale of

agricultural land was not liable to tax. The submissions of the

assessee was not found acceptable to the AO. AO on perusing the

Balance sheet of assessee for A.Ys. 2010-11, 2011-12 and 2012-13

noted that assessee was holding land at various places which

according to the AO showed that assessee was purchasing the land at

various places and then in turn it was sold at higher price and

therefore the purchase and sale of land was the business of the

assessee. He also noted that since the assessee was staying in

Jalgaon, the land at Dahegaon which was more than 150 kms from

his residence and it was purchased jointly with 7 other persons which

also showed that the land was purchased with the intention of making

profits and it cannot be considered as agricultural land and therefore

being exempt from tax. According to the AO, the mere filing of 7/12

extract showing the details of the crop grown does not prove that the

land was cultivated. He thereafter held the transaction of sale of land

by the assessee to be an adventure in the nature of trade and held the

profits to be taxable as business income. He thereafter granted credit

for the cost of acquisition of Rs.10,53,000/- and taxed the balance

amount of Rs.2,41,14,550/- as income from business. Aggrieved by

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the order of AO, assessee carried the matter before LD.CIT(A) who

upheld the order of AO by observing as under :

“8. I have carefully considered the facts of the case, remand report of the A.O. and rival contentions. On perusal of the same it has been noticed at the outset that the appellant has earned income of Rs.2,41,67,550/- in respect of his share in the land purchased of Rs.10,53,000/-, within a short period of 7 months and 12 months. At the outset it has been observed that the appellant had sold the impugned lands for a price which is 25 times of the purchase price of the impugned lands. The said exorbitant sale consideration claimed by the appellant appears to be impossible, as the Sub-Registrar had estimated the price of the lands at Rs.1,30,000/- per Hector, whereas the appellant had sold lands within short period @ about Rs.77,50,000/- per Hector within short span of time mentioned above. Therefore the transaction claimed by the appellant by claiming exemption of income of Rs.2,41,67,550/- appears to be suspicious.

8.1 The appellant had purchased the impugned lands alongwith other co-owners and sold the same. The details of purchases of land as per deeds submitted by the appellant are as under :

Particulars of land Area of Date of Purchase Remark land purchase consideration 1) Agricultural land at 01 H-97R 16.12.2010 6,88,712 Seven purchasers Gut No.167/1 (Jiryat including appellant i.e, not irrigated) at and two sellers from village Dahegaon Dist. Aurangabad and Aurangabad Sikandarabad (AP) 2) Agricultural land at 03 H-72R 16.12.2010 13,00,512 Seven purchasers Gat No.167/1 (Jirayat including appellant i.e not irrigated) At and two sellers and village Dahegaon Tal. from Sikandarabad Gangapur Dist. (AP) Aurangabad 3) Agricultural land at 02 H-72R 10.05.2011 5,11,000 Seven purchasers Gat No.167/1 (Jirayat including applicant i.e not irrigated) At and one from seller village Dahegaon Tal. from Aurangabad Gangapur Dist. Aurangabad 4) Agricultural land at 03 H-99R 16.12.2010 13,94,904 Seven purchasers Gat No.167/1 (Jirayat including appellant i.e not irrigated) At and two sellers and village Dahegaon Tal. from Sikandarabad Gangapur Dist. (AP) Aurangabad 5) Agricultural land at 03 H-72R 16.12.2010 9,61,400 Seven purchasers Gat No.167/2 (Jirayat including appellant i.e not irrigated) At and two sellers from village Dahegaon Tal. Aurangabad Gangapur Dist. Aurangabad 6) Agricultural land at 02 H-78R 16.12.2010 9,71,888 Seven purchasers Gat No.167/2 (Jirayat including appellant i.e not irrigated) At and two sellers from

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village Dahegaon Tal. Aurangabad and Gangapur Dist. Sikandarabad (AP) Aurangabad 7) Agricultural land at 01 H-09R 16.12.2010 3,81,064 Seven purchasers Gat No.177 (Jirayat i.e including appellant not irrigated) At and one seller from village Dahegaon Tal. Aurangabad. Gangapur Dist. Aurangabad

The details of sale of land made by the appellant alongwith 6 co- owners are as under :

Particulars of land Area of Date of sale Sale Remark land consideration 1) Agricultural land at 16 H- 12R 17.12.2011 12,48.79,238/- Seven sellers including Gut No.167/1 (Jiryat appellant and two i.e., not irrigated) at purchasers from village Dahegaon Dist. Aurangabad Aurangabad 2) Agricultural land at 05 H-53R 17.12.2011 4,28,59,633 Seven sellers including Gat No.167/2 (Jirayat appellant and two i.e not irrigated) At purchasers from village Dahegaon Tal. Aurangabad Gangapur Dist. Aurangabad 3) Agricultural land at 01 H-09R 17.12.2011 84,33,973 Seven sellers including Gat No.177 (Jirayat i.e appellant and two not irrigated) At purchasers from village Dahegaon Tal. Aurangabad Gangapur Dist. Aurangabad

8.2. From the above facts, it has been noticed that the 7 co-owners including the appellant have purchased agricultural lands at village Dahegaon on 16.12.2010 and 10.05.2011. The above mentioned lands are purchased by the above 7 co-owners with the intention to earn profit by making immediate sale. Once of the lands was purchased on 10.05.2011 and the same was sold within about 7 months. The other lands were sold after 12 months.

8.3. The appellant had contended that the said lands were purchased by the 7 co-owners with the intention of developing a fruit orchard. In this regard it has been noticed that the 7 co-owners are residing at different places, the 4 co-owners are residing at Aurangabad, 2 co-owners are residing at Jalgaon and 1 co-owners is residing at Nandurbar. All the above 3 places are located far away from each other. Therefore it is not likely that the said co-owners could have come together and have purchased agricultural lands at village Dahegaon, for carrying out agricultural activity. In support of the contention that the lands were purchased by 7 co-owners with the intention of developing a fruit orchard, the appellant had filed project report of 6 pages. The said project is not signed by any person. The said project was also not filed with any financial institution and appears to be typed only to support the contention. From the so called

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project report, it has been noticed that the name of the land holder has been mentioned as Mr. Paras Jawrilal Raka and other 6 partners. Therefore, it is apparent that the report was typed to suit the contention of the appellant in appeal. This is not the way in which the project report is prepared.

8.4 The appellant has further claimed that funds were required to be contributed by the co-owners for developing a fruit orchard in addition to loan from financial institution and as the co-owners were not ready to contribute the funds, the fruit orchard was not developed. This contention of the appellant is also not true as, as per the appellant’s contention 7 co-owners have purchased various lands at Dahegaon with the intention of developing fruit orchard at Dahegaon. If such was the intention, then the co-owners would have certainly made all the enquiries about the fund requirement and sources for the same for developing a fruit orchard on the substantial land before purchasing the said lands. In that case the 7 co-owners would have understood that further funds would be required to be contributed for developing a fruit orchard on the substantial area of land and would have certainly arranged funds for the said purpose. Therefore, it is evident that the said lands were purchased with the intention to earn profit within short span of time and hence the transaction is certainly adventure in the nature of trade.

8.5 The appellant has claimed that he had carried out agricultural operations on various lands and shown agricultural income since the last many years which was accepted by the department and hence the impugned lands sold used for agricultural operations are capital assets and not stock in trade and hence the transaction cannot be adventure in the nature of trade. In this regard it is pertinent to note here that the other lands to be held by the appellant with the intention of holding the same for substantial period and also for carrying out agricultural operations. Whereas, the impugned lands were purchased alongwith 6 other co-owners residing in different districts with the intention of selling the same at profit within short period and not for holding the same for long period for carrying out agricultural operations. It is also settled position of law that an assessee can hold some of the properties as stock in trade and some of the properties as investment. From the facts of the case it is evident that the impugned lands purchased at Dahegaon Tal. Gangapur Dist, Aurangabad, alongwith 6 co-owners by the appellant, residing at Jalgaon agricultural operations. Therefore the above contention of the appellant is rejected.

8.6 The appellant has also claimed that in the books of accounts and balance sheet, he had shown the impugned agricultural lands under the head ‘fixed assets’. It is settled position of law that the entries made in the books of accounts and balance sheet are not decisive but the actual facts and transactions are to be considered for deciding the issue under Income Tax Act. This proposition of law is supported by following decisions. i. Kedarnath Jute Mfg. Co. Ltd., 82 ITR 363 (SC). ii. CIT Vs. Padmavati Raje Cotton Mills Ltd. (1993) 203 ITR 37 (Kol). iii. Star Paper Mills Vs. CIT (2001) 252 ITR 337 (Kol) iv. Associated Banking Corporation of India Vs. CIT (1965) 56 ITR-1 (SC) v. CIT Vs. Hiralal Mittal & Sons (1972) 86 ITR 463 (Alla)

The contention of the appellant that he had shown the impugned agricultural lands under the head ‘fixed assets’ in the balance sheet as on 31.03.2011 is not correct, as it is seen from the Balance Sheet as on

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31.03.2011 that the assessee has not shown this land under the head ‘Fixed Assets”, but has shown the same under the head “Investment”. Once the land is not shown in the fixed assets, it means the intention of the appellant was very clear that the said land was not purchased for agricultural purposes but for booking the profit by selling the same within a short span of time.

8.7 The appellant has further contended that he had not carried out any commercial activity on the impugned agricultural lands sold and has not converted the said land into Non Agricultural land and hence the lands were capital assets and not stock in trade and therefore no adventure in the nature of trade resulted on sale of the impugned lands. This contention of the appellant cannot be accepted in view of the facts of the case, as the adventure in the nature of trade or business transaction can be resulted on purchase and sale of agricultural lands in the cases where the lands were purchased with the intention to earn profit. Therefore the above contention of the appellant is also rejected.

8.8. The appellant has also claimed that there are no other transactions of selling and purchasing agricultural lands and hence the impugned transaction cannot be treated as adventure in the nature of trade. In this regard it has been noticed that it is settled position of law that even on isolated transaction of purchase and sell of property, in the cases where purchase was made with the intention to earn profit within short span of time is to be regarded as adventure in the nature of trade.

8.9. The decisions relied on by the appellant are distinguishable on facts as in the case of the appellant, following facts existed : i) The various lands at Dahegaon were purchased by 7 co-owners, who are residing in 3 different districts which are located far away from each other. ii) The contention of the appellant that the lands were purchased for carrying out agricultural activity for longer period was found to be incorrect and false. iii) The contention of the appellant that the lands purchased were with the intention to develop fruit orchard is also found to be incorrect and false. iv) The lands were sold within 7 months and 12 months after purchasing the same. v) The appellant alongwith other co-owners have sold the impugned lands at a price which is 25 times of the purchase price of the said lands.

Therefore it is evident that the facts of the case of the appellant are distinguishable from the facts of the cases relied on by the appellant.

8.10. From all the relevant facts and circumstances of the case as discussed above, I am of the considered view that the particular transactions entered into by the appellant in respect of impugned lands at Dahegaon, is adventure in the nature of trade.”

Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before

us.

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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

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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 co-

owners, 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 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 support the order of Ld.CIT(A).

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on record. The issue in the present case is about the taxability of

profits earned on sale of land. It is assessee’s contention that profits

are exempt from tax as the land is agriculture land whereas the

Revenue’s stand is that the sale of land is adventure in the nature of

trade and therefore business income. It is an undisputed fact that

assessee along with 6 co-owners had purchased land at Dahegaon,

which is located beyond 8 kms from any Municipality and the same

was sold during the year under consideration. The disclosure of the

land in assessee’s balance sheet as investments is not in dispute. The

Submission of the assessee that the land has been classified in the

Revenue records as agricultural land, no permission from the

concerned authorities has been obtained for transfer for non-

agricultural use, no plotting/sub plotting of the land has been

undertaken by the assessee has not been controverted by Revenue.

Further the submission of the assessee that the produce from the sale

of cultivation was disclosed by the assessee, that the assessee wanted

to start horticulture activities and for which the assessee had

approached bank for financial assistance has not been proved to be

false. We further find that the assessee’s contention of having satisfied

of the various parameters spelt out by Hon’ble Apex Court in the case

Sarifabibi (supra) to hold the land as agricultural land has been met

and the contention of the assessee has not been found to be incorrect.

Dharmendra Ramnani and Vikas Agnihotri) their claim of share of

profit on sale of the same land being exempt, due to land being

agricultural land has been accepted by the Revenue in their

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assessments framed u/s 143(3) of the Act. Thus, when the share of

profit arising out of sale of same land in case of 2 co-owners has been

accepted by Revenue in the scrutiny proceedings, then on the some

set of facts taking a different view by the Revenue Department in the

case of assessee cannot be accepted. One of the objection of Revenue

in treating the profits as capital gains is that the land was sold within

a period of 7 months from its date of purchase and the sale price was

more than 25 times to the purchase price. We find that in the case of

CIT Vs. Dhable, Bobde and others (supra), the assessee, an

association of persons, had purchased agricultural land in October,

1966 and sold in January, 1967 and had claimed it to be exempt.

Revenue treated the transaction to be on adventure in the nature of

trade and held it as taxable business come. The Hon’ble High Court

while deciding the issue in favour of assessee has held that the onus

of proving that the land formed part of business asset of the assessee

was on Revenue and in the absence of evidence to that effect, the

presumption was that land was held as capital asset and therefore

income on its transfer was not income from business. was held as

capital asset and therefore income on its transfer was not income from

business. Before us, Revenue has not placed any material to prove

that the land formed part of business asset of the assessee. Further

the contentions of the Ld AR have not been controverted by Revenue.

In such a situation, we are of the view that the ratio of the decision in

the case of Dhoble, Bobde and others (supra) would be applicable to

the present case. We therefore after relying on the various decisions

cited by the assessee, are of the view that the AO and Ld.CIT(A) were

not justified in treating the profits from sale of land as business

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income. We therefore set aside the order of Ld.CIT(A) and thus the ground of the assessee are allowed.

Order pronounced on the 17th day of May, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 17th day of May, 2018. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-2, Nashik. 4. Pr.CIT-2, Nashik. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, ITAT, “B” Pune; 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER,स // True Copy //

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