AKRAM,ROORKEE vs. DCIT, CIRCLE, HARIDWAR

IN THE INCOME TAX APPELLATE TRIBUNAL DEHRADUN BENCH, DEHRADUN Before Sh. Satbeer Singh Godara, Judicial Member & Sh. Naveen Chandra, Accountant Member ITA No. 6373/Del/2017 : Asstt. Year : 2009-10 Akram, Vs DCIT, Village- Dhandhera, Roorkee, Circle, Distt. Haridwar, Uttarakhand-247667 Haridward, Uttarakhand-249401 (APPELLANT) (RESPONDENT) PAN No. BXLPA6575M Assessee by: None Revenue by: Sh. Mayank Kumar, Addl. CIT DR Date of Hearing: 07.01.2025 Date of Pronouncement: 07.01.2025 ORDER Per Satbeer Singh Godara, Judicial Member:

This assessee’s appeal for Assessment Year 2009-10, arises against the order of CIT(A), Dehradun dated 03.07.2017 in case No. 10764/CIT(A)/DDN/2016-17, in proceedings u/s 144/147 of the Income Tax Act, 1961 (in short “the Act”).

2 ITA No 6373/Del/2017 Akram taken to the learned CIT(A)’s detailed discussion upholding the assessment findings to this effect reading as under: “7. Coming to the addition itself, the AO received information that industrial land measuring 10490 sq. mtrs. situated at village Lakeshwari, Bhagwanpur, Roorkee was sold by the assessee Sh. Mohd. Akram along with two co-owners namely Sh. Ramesh Chand & Sh. Rao Farmood for a consideration of Rs. 2,30,62,500/- on 27.08.2008 to M/s Trading Engineers International Ltd., New Delhi in which the share of the assessee was 1 /4th (i.e. 2622.5 sq. mtrs.). The AO was also informed that this land was declared as part of notified industrial area by the Central Excise vide notification no. 50 dated 10-06-2003. He therefore issued notice u/s 148 of the Act on 22.03.2016 which is stated to be duly served upon the assessee. Howerver the assessee did not respond to this notice. The AO thereafter issued a notice u/s 142(1), pointing out this fact and asking the assessee to show cause as to why the same should not be assessed as income from business. The assessee did not respond to this notice also. Therefore, the AO after noting that even in the sale deed dated 30.08.2008, it had been mentioned that land had been declared as industrial land as per notification of the Uttarakhand Industrial Policy, proceeded to assess the income from business in the hands of the assessee as under :- i. Total sale consideration Rs.2,30,62,500/-(10490sq.mtr.) ii. ½ share of Rao Farmood & Rs.1,15,31,250/-(5245 sq. mtr.) Rao Mohammad Akram iii. ½ share of assessee Mohd. Rs.57,65,625/-(2622.5 sq. mtr.) Akram iv. Profit earned Rs. 57,65,625/- 8. As already pointed no compliance has been made to the various opportunities for hearing that have been afforded to the assessee during the course of appeal. In the circumstances, the merits of the case are being decided on the basis of grounds of appeal filed by the assessee. 9. Basically the issue that has been taken by the assessee in appeal is that income of Rs. 25,75,760/- was exempt from tax as it arose from the sale of agriculture land. It has been argued that the assessment order has been passed assuming incorrect facts and o. incorrect application of law and without giving sufficient opportunity of hearing to the appellant. The assessment order is based upon conjectures, surmises and is wrong in law, in determining non-taxable income as taxable income. It is submitted that since there is no change of land use but the land which was purchase and sold was an agriculture land and as such it was not taxable because agricultural operations was regularly carried on thereon. 10. I have duly considered the facts and circumstances of the case and I have already decided this issue i.e. whether tax

3 ITA No 6373/Del/2017 Akram can be levied on the assessee for purchase and sale of agricultural land in the case of Shri Ramesh Chand, one of the other 02 persons who sold the same land in question in his appeal for the same assessment year and in my order in appeal no. 180/CIT(A)/DDN/2015-16 for the A.Y. 2009-10 dated 08.05.2017, I have held as under:- “6. I have duly considered the facts and circumstances of the case. It is observed that this is not an isolated case of the assessee purchasing and selling land in the area notified by the Central Government and State Government as forming part of the Bhagwanpur Industrial Area. I have had occasion to witness two other instances in which the assessee purchased from agriculturist and, after a short interval, sold it to an industrial house for the purpose of setting up a factory. At times, this was done individually and at time this was done in association with other persons. It is important to state this because in deciding whether the assessee was engaged in an adventure in the nature of trade, regularity of transactions is one of the tests that has been prescribed by the Hon'ble Supreme Court in the case of G. Venkataswami Naidu vs CIT( 1959 AIR 359). The narration in the purchase and sale deed that the land was a part of area which had notified for the purpose of setting up industrial zone and the classification of the land in the said sale deed is of relevance because it reveals that when purchasing the land, the assessee was well aware of the fact that he was purchasing a land in an area which had been demarcated as an industrial zone and considering that he was regularly indulged in such transaction of purchase and sale of land in this zone, Is reflective of his intent to trade in the purchase and sale of land. The Hon’ble Supreme Court in the case of G. Venkataswami Naidu vs. CIT (Supra) has pointed out that the intention with which the land is purchased is an important consideration to determine whether the profits gained on subsequent sale of land is a result of capital accretion or whether it is an adventure in the nature of trade. Even though the Khasra shows that the land continued to remain agricultural land during the period it was held by the assessee, the fact that it was part of a series of transaction of purchase and sale of agricultural land in the vicinity from the farmers and their subsequent sale to industrial houses, shows that the intent of the assessee was never of enjoying the income of the land but to sell it at a later date for higher returns. Hence on this account also, it can be said that the assessee was engaged in an adventure in the nature of trade. The only point that remains to be determined, is whether the land was agricultural land or not, and if so, whether the assessee could be said to be indulged in an adventure in nature of trade in respect of purchase and sale of agricultural land. As per the land records of the State Government which have been produced before the AO and also before the undersigned, it is quite clear that the land was an agricultural land on the date of purchase and continued to remain the agricultural land up till the date of sale, because no action was taken u/s 143 of ZALR Act to convert the land use by the assessee. The contention of the AO that, because the area had been notified as industrial zone, the nature of the land

4 ITA No 6373/Del/2017 Akram would change to industrial on account of narration in the sale deed, is not well founded. In the first place, the industrial zone is not a municipality and secondly this status of the land does not change until the land use is changed. However, this would not mean that the profit arising from the purchase and sale of this land should not be assessed to tax in the hand of the assessee as his business income. While considering a similar matter in the case of the assessee for the A. Y 2007- 08, I have held:- “11. I have duly considered the facts and circumstances of the case. The main question to be determined is whether the assessee was engaging in an adventure in nature of trade by the purchase and sale of the land in Shri Ganga Industrial Estate, Village Lakeshwari, Bhagwanpur, Roorkee and Village Lakeshwari, Bhagwanpur, Roorkee which have been notified as an industrial estate vide State Govt, notifications on 15.12.2005 and 13.2.2006, respectively. Examination of the documents submitted by the assessee shows that when the land was purchased by the assessee, it was an agricultural land as per the revenue records. Furthermore, when the lands were sold by the assessee they continue to remain agricultural lands as per the revenue records. However, in the meanwhile the state govt, had issued a notification whereby the village in which these lands were located was notified as an industrial area/estate. Perusal of the notification reveals that it has been mentioned in the same that before using the land for industrial purposes, the land use conversion would have to be done and the plans for the industrial plants to be setup on these lands would have to be approved by the Competent Authority. Thus, from a plain reading of the notification it is clear that the notification in itself does not convert agricultural land into industrial land. What it does, is to give permission for conversion of the notified land into an industrial estate after changing the land use pattern. The land use pattern in both these cases from agricultural to industrial was applied for by the purchaser of the lands after the assessee had sold these lands to the industries namely M/s Fena Pvt. Ltd., New Delhi and M/s Hunung Toys and Textiles Ltd., New Delhi. The Khasra & Khatuani of the lands that have been sold have been furnished and examined. It is seen that during the period that the land was held by the assessee i.e. 16.1.2006 to 13.4.2006 in one case and 25.2.2005 to 14.9.2006 in the other case, the lands continued for agricultural operations and wheat and corn are stated to be grown on these lands. Thus, it is quite clear that the land was purchased as an agricultural land by the assessee and sold as an agricultural land. The mere fact that the land were included into a industrial area would not change the character of the land in itself. In the case of N. Srinivas Rao vs. Special Court under the A.P. Land Act the Hon’ble Supreme Court held that “except for the fact that the said land were now included within the urban area, there is nothing to show that the user of the same had been altered with the passage of time.” Accordingly, the Hon’ble Supreme Court held that the tenant in the instant case

5 ITA No 6373/Del/2017 Akram remained an agriculturist and therefore, transfer from an agriculturist to a non-agriculturist which was expressly prohibited under that Act was invalid. Relying on this decision the Pune Bench of ITAT in the case of Haresh V Milani vs. JCIT 111 TTJ 310 Pune held that mere fact that the land under reference was brought under an industrial zone cannot be a determining factor to say that the character of the land had changed. Furthermore, in the case of M/s Srinivasa Naicker vs. ITO 292 ITR 491 (Mad) it was held that till date of sale, the agricultural operation were carried on by the assessee and the fact that the purchaser had put to use for a totally different purpose from that of the assessee ought not to have weighted with the tax authority. Capital gains could not be levied. Furthermore, in the case of Raghottama Reddy vs. ITO 169 ITR 174, the A.P. High Court held, “Accordingly we hold that the profit or gain resulting from sale of agricultural land is revenue derived from land i.e. it is agricultural income within the meaning of clause (1) under section 2 of the Act.” The ITAT Hyderabad bench in the case of T. Urmilla vs. ITO W-6(2) in ITA No. 398 of 2012 dated 12.12.2012 while dealing with the case of an assessee whose land incorporated into Hyderabad Airport Development authority held that the Hyderabad Airport Development authority was not a municipal authority and was outside the outer municipal limit of Hyderabad. The land transferred could not be considered a capital asset under the provision of section 2(14)(iii) of the I.T. Act. From the ratio of these judgments. It is quite clear that mere notification of the area In which the assessee’s land was situated as an industrial zone would not alter the character of the land and render into a capital asset. The land continued to remain an agricultural land until its sale. Accordingly the assessee was not liable to pay capital gains, Thus it was not a capital asset which could be brought to tax under the head capital gains tax. However, in the instant case the A.O. has also not brought the same to tax under this head. Rather he has held that because the land was purchased with the intention of selling it at a profit, it was a adventure in the nature of trade. The only question is whether there can be an adventure in the nature of trade in respect of purchase and sale of agricultural land. The AO’s arguments revolve around the thesis that the purchase of the land just before the notification of the same into Industrial estates and the sale of the land after such notification to industries would seem to indicate that the assessee was aware that there was expected to be an increase in the value of land in view of the same being notified as a part of the industrial estate and, therefore, made an investment in the purchase of this land with a view to selling it and thereby indulged in an adventure in the nature of trade. I have duly considered this view. In a similar matter the Hon’ble High Court of Bombay has taken a similar view. In the case of DCIT vs Gopal Ramnarayan Kasat 328 ITR 556 (Bom) the Hon’ble High Court held, ”From the material placed on record, on the basis of which the three authorities have concurrently held that the transactions were "adventure in the nature of

6 ITA No 6373/Del/2017 Akram trade", it can clearly be inferred that the assesses herein were involved in series of transactions of purchasing lands which were notified or likely to be notified for acquisition by the Government. It is to be noted that the transactions were not only pertaining to the Jalgaon District but also Aurangabad District, at a far away distance from the place of residence of the assesses. We do not find any perversity in the finding of fact recorded by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, that the transactions were "adventure in the nature of trade". With Regard to the plea that the lands in question were agricultural lands and did not constitute Capital assets and therefore could not be brought to tax the Hon High Court held, “Now, let us deal with the contention of the assesses, that in view of provisions of Section 2, Sub-Section 14(iii), Clauses "a" and "b" of the said Act, the agricultural lands were excluded from the definition of "capital asset" and, as such, no tax was payable on the compensation received on account of the acquisition of the said lands. From the material on record, it is manifest that the lands purchased by the assesses were not purchased with an intention to hold it as a "capital asset" but were purchased with the knowledge that the said lands are being acquired with the sole intention of earning huge profit on account of their acquisition. If the lands were not purchased with the intention of holding them as "capital asset" and only with an intention of earning huge profits on the said purchases, we do not find any infirmity with the finding of the Tribunal, that the reliance placed on the provisions of Section 2(14)(iii)(a) and (b) is of no assistance to the assesses. If the lands, in question, were not purchased for the purpose of agriculture, with an intention to hold them as a "capital asset", we do not find any merit in the contention of the assesses, that the said agricultural lands were excluded from the definition of "capital asset" and, as such, the income from the sale thereof not liable to be taxed. In the result, we reject the contention of the assesses in this respect. 12. Thus it is quite clear that even if an asset is an agricultural land, if it is purchased not with a view of using it as an agricultural land but with a view of selling It to make a huge profit, then the profits from such land can be brought to tax as business income as the same could be an adventure in the nature of trade. In the instant case it appears that this was done. The land was purchased and sold off after short intervals. In one instance this interval was as short as three months. It was purchased just on the eve of state govt., notification of industrial area and inclusion of these lands in the identified area. The land which were agricultural continued to be used for agriculture in the 17 months and 3 months respectively that they remained in the assesee’s possession. However after the notification and upon identification of a buyer they were sold at a large profit. The case therefore fits in with the aforesaid judgment of the Bombay High Court in the case of Gopal Ramnarayan Kasat (Supra). Accordingly,

7 ITA No 6373/Del/2017 Akram relying on the same, I hereby confirm the addition made by the Assessing Officer holding that the profit derived by the assessee from the sale of these lands was profit from an adventure in the nature of trade. However it is observed that the assessee has claimed that the Assessing officer has not allowed the full cost as deduction while computing the said income and the total cost price of the lands in the hands of the assessee works out at Rs 1,509,380/-. The same may be verified from the purchase deeds and the assessee may be given relief accordingly.” 7. The facts of the present case being virtually identical to the earlier transaction entered into by the assessee, I have no hesitation in relying upon my findings in the case of the assessee in Appeal no. 2/CIT(A)/DDN/2014-15 for A. Y 2007-08. The order passed by the Ld. CIT (Appeals), Muzaffarnagar cannot be accepted as a correct precedent to follow because the issue at stake is not whether capital gains was chargeable on the said land, but whether the assessee was indulging in an adventure in the nature of trade in the purchase and sale of agricultural land that were likely to be notified as a part of industrial zone. Thus the action of the AO in bringing the assessee's share of profit to tax in his hands as business income is justified on account of the decision of Hon’ble Bombay High Court in the case of Gopal Ram Narayan Kasat 328 ITR 556 (Bom). The addition is accordingly confirmed.” 11. The case of the assessee being identical to that of Shri Ramesh Chand, I have no hesitation in relying upon my findings in the case of Shri Ramesh Chand in appeal no. 180/CIT(A)/DDN/2014-15 for the A.Y. 2009-10 and the earlier order in A. No. 02/CIT(A)/DDN/2014-15 for the A.Y. 2007-08, to hold that the action of the AO to bring the profit on the sale of the land by the assessee to tax, as business income, is justified and deserves to be confirmed. It is accordingly so.” 4. It is in this factual backdrop that the first and foremost substantive issue which arises for our apt adjudication is that of the status of the assessee’s land as a capital asset. His case all along is that the said land forming part of the sale/transfer deed herein is infact used for agricultural purposes and therefore, it is not a capital asset within the meaning of section 2(14) of the Act. We are of the considered view that once it forms a part of an industrial state (supra), the same indeed deserves to be treated as a capital asset u/s 2(14) of the Act.

8 ITA No 6373/Del/2017 Akram We thus see no reason in the assessee’s instant former substantive ground in principle which stands declined accordingly.