MR.P.C.JOSE,,COCHIN vs. DCIT, COCHIN

Assessee by: ----- None ----- Revenue by: Shri Sanjit Kumar Das, CIT-DR Date of Hearing: 24.01.2024 Date of Pronouncement: 23.04.2024 O R D E R Per: Sanjay Arora, AM These are cross appeals, i.e., by the Assessee and the Revenue, directed against the Order dated 15.12.2011 by the Commissioner of Income Tax (Appeals)-II, Kochi [CIT(A)], partly allowing assessee’s appeal contesting his assessment under section 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 29.12.2010 for Assessment Year (AY) 2008-09. & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose Ex-parte Order 2. The appeals were heard at length on 10.08.2023, covering all the issues, including the principal one, being the assessment of gain arising on sale of lands, claimed as agricultural, by the assessee during the year, as business income. Shri Tinu Anto, CA, partner, M/s. Kaimal & Co., Chartered Accountants, representing the assessee, sought time to produce certain documents. Hearing was, accordingly, not closed and, accommodating him, the matter kept part-heard, posting it for the purpose on 17.08.2023. This was despite the fact that the said documents, not on record, no case for additional evidence in their respect had been made out by him.A short adjournment was sought on 17.08.2023; the request letter stating of the designated partner being advised bed rest due to acute spondylitis. Hearing was accordingly adjourned to 12.09.2023 and, thereafter, on requests, to 12.10.2023 and 13.12.2023, whereat none appeared nor any adjournment application received, again to 20.12.2023. It is notable that none appeared on these hearings, and adjournments sought on the basis of letters, and hearing listed by sending hearing notices by post. Further,no medical prescription accompanied the requests. On medical reason (Dengu Fever) being cited as the reason for seeking adjournment on 20.12.2023, hearing was adjourned to 17.01.2024 whereat, again, none appeared nor any adjournment motion made. The Bench, accordingly, noting as follows, posted the matter for final hearing on 24.01.2024: ‘None appeared for the assessee when the matter was called out for hearing, and neither is there any application for adjournment, despite service of notice of hearing sent at the email ID of the firm of CAs, M/s. Kaimal & Co., whose partner, Sri Tino Anto, has been appearing in the matter in the past, also seeking adjournments for personal reason/s, since accommodated. This is an old appeal, and the matter pending for long. So, however, to comply with the principle of natural justice, one final opportunity is provided for 24.01.2024. Issue notice by RPAD to the assessee as well as at the email ID afore referred.’ On 24.01.2024, whereat again none appeared nor adjournment application received, it was noted by the Bench that the only Power of Attorney on record is dated 12.12.20212 in favour of one, Shri P.K. Sasidharan, CA, of M/s. Kaimal &Co., CAs, 2 | P a g e & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose Cochin, who had also represented the assessee before the first appellate authority, as also before the Tribunalin the past,albeit seeking adjournments,the last of which was on 21.03.2017, seeking adjournment for one last time, whereat a final opportunity granted to him. The matter had in fact been posted as final opportunity, beginning 16.04.2013,when the Bench recalled the assessee’s appeal (in MA No. 17/Coch/2013, dated 22.03.2013), several times. There was, further, no Power of Attorney in favour of Shri Anto, or even the firm, M/s. Kaimal & Co., or any of it’s partners, on record. It is patent that the assessee is not cooperating. Why, he has, despite several opportunities, not even as much authorized any Counsel to represent him, which cannot but be deliberate. His conduct is clearly recalcitrant. Under the circumstances, hearing in the matter was proceeded with exparte the assessee.

4. Preliminary Objection/s: Wemay begin by recounting the background facts of the principal issue arising in these appeals; rather; the sole in the assessee’s, who has also raised a legal ground, which is therefore taken up first. It is claimed that the terms of BoardCircular F. No. 225/26/2006-ITA II (Pt.) dated 08.09.2010, binding on the Assessing Officer (AO), have not been observed, making the ensuing assessment as legally not maintainable. The ld. CIT(A) rejected the said Ground, stating that the power of the AO in the matter of assessment is plenary, and cannot be restricted in any manner. Copy of the said Circular finds place in the Department’s paper-book-2 (DPB-2), at page 20. The same refers to the Board’s letter dated 23.05.2007 (DPB-2, pg. 26), which is in respect of scrutiny cases for AY 2005-06, selected on the basis of information per Annual Information Returns (AIR). The AO is to limit his scrutiny to the areas specified in the AIR information, and other areas where required to be looked into,could be with the approval of the Range Head. Vide Circular dated 08.09.2010, 3 | P a g e 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose the Board, revisiting it’s earlier guidelines, places a threshold limit of Rs.10 lakhs for areas other than per AIR information. Further, notices u/s. 143(2) of the Act are to be clearly specified as ‘AIR Case’. As explained by Shri Das, the ld. CIT-DR, taking us through the copy of the reasons for selection of the returns for verification in the instant case (DPB-2, pgs. 27-28), the assessee’s return was selected for scrutiny under Computer Aided Selection Scheme (CASS), under the category ‘Compulsory’. The assessee, he explained, was subject to a survey u/s. 133A of the Act at his business premises on 25.3.2008 (para 1 of the assessment order), necessitating the return for the relevant year being subject to the verification procedure under the Act. Further, the note-sheet clearly states that the AO is to examine the claim of refund arising out of advance-tax, which obtains in the instant case, and on which the assessee was accordingly questioned in assessment. It may also be relevant to state that notice u/s. 143(2) stands issued in the instant case on 25.08.2009, i.e., much prior to the Circular being relied upon. The plea is, on facts, not maintainable.

The background facts and respective cases: 5.1 The assessee, in the business of printing cards in his proprietary firm, M/s. Brothers Agencies at Kochi, returned an income of Rs.13,37,09,387 of his real estate business, stated to havebeen commenced on 01.4.2006, while returning a loss for the Card Division. Profit on land sales to the extent of Rs. 1935.81 lacs, detailed as under, computed at Rs. 1086.42 lacs, was however claimed exempt: (Amt. in Rs.)

Date Purchaser Doc. No. Sale Amount Place 05.01.2008 Calista Real Estates (P.) 42/2008 47,53,800 Kakkanad Ltd. 16.07.2006 Amon Estate (P.) Ltd. 33/2007 79,95,250 Kakkanad 21.07.2007 Calista Read Estates (P.) 3380/07 16,14,57,250 Kakkanad Ltd. 18.07.2007 - do - 3311/07 1,97,74,250 Kakkanad Total 19,35,80,550 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose On being questioned in its respect in the assessment proceedings; the assessee’s return claiming a refund of Rs. 234.76 lakhs, he explained to have estimated income at Rs. 16.32 crores (i.e., @ Rs.75,000 per cent on 17.15 cents and at Rs.1.25 lakhs per cent on 327 cents), including Rs. 4 crores qua property situate in Village Kakkanad, falling under Thrikkakara Panchayat, a notified area u/s. 2(14)(iii)(b) of the Act up to 1994. However, it was no longer notified, and which aspect had been overlooked by him while depositing advance-tax. The AO foundthis wholly unacceptable inasmuch as there was no nothing to show that the subject lands were agricultural, i.e., used for agriculture purposes or sold as such, i.e., as agricultural land. The same were in fact acquired by the assessee, a non-agriculturist, within a short period of time with the sole intention of facilitating land bank by the buyers, i.e., the real estate development companies, inasmuch as lands were located in a highly developed area very near to the Collectorate on the Seaport-Airport Road, an area which had witnessed large scale construction in the recent past. The cost of land at Kakkanad, in view of it being a growth centre, was in fact higher than in Kochi city. The same were asmucha part of the assessee’s, a real estate dealer himself, property business, as the other lands, similarly acquired and sold by him. Further, no evidence in respect of land development expenses, claimed at Rs.42.25 lakhs –even otherwise unlikely in a short span of time, had been adduced, disallowed the same. Business, a term of wide import, though implying continuous activity in carrying a particular trade or vocation, may include an activity which may be called ‘quiescent’ (CIT vs. Calcutta National Bank Ltd. [1959] 37 ITR 171 (SC)). Even a single transaction can be amount a business (refer paras 2.1 to 2.4 of the assessment order). Denying exemption on the gain on sale of such land/s, it was computed as under: (para 2.5) (Amount in Rs.) Sale consideration for the 8 plots sold 19,35,80,550 Less: Cost of acquisition (80789034 – 4225059) 7,65,63,975 11,70,16,575 Less: Brokerage (out of Rs. 41.50 lacs) 41,00,000 Profit from sale of plots 11,29,16,575 5 | P a g e & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose Without prejudice, though, the same, claimed exempt on the basis of the subject land being agricultural, was also assessed as short-term capital gain (STCG), i.e., on protective basis (para 2.6). 5.2 In the first appeal, the ld. CIT(A) allowed part relief to the assessee holding as: ‘II. (a) ….. (c) d) After careful consideration of the points raised by the appellant and after perusal of various documents, I have to hold that the properties covered by the certificates issued by the revenue authorities as paddy field or agricultural land are agricultural land and hence the profit arising from the transfer of such properties are eligible to be excluded from the computation of short term capital gains. Out of the land sold during the year, the total extent of properties covered by certificate from the revenue authorities as paddy field is 180.560 cents. The profit arising from the transfer of 180.560 cents of land should be treated as exempt being profit on sale of agricultural land and profit from sale of balance land to the extent of 120.442 cents would liable for short-term capital gains tax. III Ground No.6 Is against the treatment of profit on sale of properties as business income. The appellant submits that the assessing officer is not consistent in his stand that the profit from sale of properties is assessable as business income. This is evident from the fact that on a protective basis, the short term capital gains has been included in the total income, even though the same has been considered as business income. The assessing officer has not brought out any evidence to establish that the appellant is a dealer in real estate. The claim of the appellant that the activities with regard to the transactions in real estate cannot be considered as business activity has merit as evidenced by the documents and records. There are various decisions putting forward the circumstance under which the activities of a person can be taken as business. In the absence of any such evidence I hold that the assessing officer has gone wrong in treating the profit on sale of agricultural properties as business income. (emphasis, ours) 5.3 Aggrieved, both the assessee and the Revenue are in appeal. While assessee is aggrieved to the extent to which the gain on sale of lands, not classified as ‘Nilam’, has been regarded as non-agricultural, assessing it as business income and, in the alternative, as STCG, the Revenue is by, firstly, the income being not regarded as of real estate business and, two, in the alternative, of the subject lands being regarded as agricultural and, thus, exempt from tax, as they are therefore not capital assets. & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose Discussion& Adjudication: 6.1 We shall consider the assessment of business income, i.e.,the substantive assessment, first. We are completely at loss to understand the assessee’s case or that of the ld. CIT(A) in holding the profit on sale of land as not business income. Yes, he does state of the assessee having advanced‘document and records’ in substantiation of his claim that transactions in real estate cannot be regarded as business activity, but he does not state what those evidences are, or as to their nature &import, making his order vague,and finding/s inchoate. Even otherwise no infirmity in the AO’s findings and, thus, the Revenue’s stand, has been pointed out by him, or even by the assessee before him, nor anything on record to contradict the same. Read in conjunction with the finding that follows, which is confined only to the property held as agricultural, as we discern, when he states ‘documents and records’, he implies, or is adverting to,the certificates issued by the Village Officeras to the subject land being categorized as ‘Nilam’ (paddy field). Wesay so as this only would make his order as internally consistent. There is, further, no reference to any other material in his order; the assessee’s case before him, as a reading of his order shows, rests, besides the case law advanced before him, the same, as well as non-notification of the Thrikkakara Panchayat by the Central Government after 1993, also apparent from his decision.

6.2 The first issue before us is as to whether the assessee’s transactions in real estimate can be regarded as ‘business’, and toward which the AO refers to Calcutta National Bank Ltd. (supra). We consider this to be a non-issue, and state this only with a view to address the confusion arising out of the impugned order. This is as the ld. CIT(A) has not disturbed either the profit returned by the assessee in respect of the Property Division of his business, i.e., for lands other than in Kakkanad, as business income, norto the extent, stated at 120.442 cents, he himself regards as non- agricultural. The balance-sheet and return for the current year and the immediately preceding year are on record; the assessee returning business income separately for & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose the Card and Property divisions on the basis of separate Profit & Loss Accounts, signifying separate books of account for each. Administrative expenditure, claimed at Rs.26.90 lakhs, including interest and bank charges at Rs.8.12 lakhs, stands claimed and, subject to adjustment for personal element in some expenses, allowed in assessment (para 3.1). Further, as we shall presently see, rights, on the basis of agreements to sell, are sold with a view to avoid registration charges. Land, or rights therein, is thus a trading asset of the assessee’s real estate business, valued, as at the year-end, i.e., to the extent unsold, at cost of acquisition. In sum, the assessee himself, much less disputes, admits real estate business, except to the extent it relates to land regarded as agricultural land, which is also the purport, as we understand, of the impugned order. It is accordingly not necessary to dilate further in the matter; no factual findings by the AO in the matter being refuted, much less rebutted. We may though add that ‘business’, defined u/s. 2(13) of the Act, as explained by the higher Courts is of wide – both large and indefinite, import, and connotes something that occupies the time, attention and labour of a person, normally with a view to make profit. Though it ordinarily denotes continuous activity, that is not conclusive, and even a single transaction, where it bears the indicia of trade, is capable of being regarded as business. Case law in the matter is legion, and we may cite some: Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368 (SC); State of AP v. H. Abdul Bakshi & Bros. [1964] 15 STC 644 (SC); CIT v. A. Dharma Reddy [1969] 73 ITR 751 (SC); Vishwanath Jhunjhunwala v. State of UP [2004] 4 SCC 437 (SC), et. al. On facts, Sh. Das, the ld. CIT-DR, has culled out the relevant details from the assessee’s paper- book (APB-1) as Statements A & B, at pages 21-23 of DPB-2. The same are appended as AnnexuresA1 & A2 to his Order, exhibit as they do the assessee’s activity insofar as the impugned land transactions are concerned. Annexure A3 is the statement of the methodology adopted in preparing Statements A/B. Plots of land, at varying rates, were purchased, most per unregistered documents, and sold, on aggregating pieces of land, to builders/real estate developers, within a time span 8 | P a g e & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose ranging from as low as 2 days, to a high of 11 months, realizing an average profit of 58.33% (refer para 5.1), i.e., within an average time span of less than six months. The assessee is, clearly, an acute businessman, and has, acting with alacrity, realized the commercial potential of the subject lands. Lands sold as a single parcel, viz. to Amon Estates (P.) Ltd., stand purchased at a huge price differential, i.e., for Rs.1.50 lakh per cent andRs. 5.05 lac per cent, underscoring both acute business sense and acumen, realizing Rs. 4.75 lac per cent, as against an average cost of Rs.3 lakhs per cent. It may be noted that most of the transactions are per unregistered documents, indicating, if that was still necessary, of sale as the primary purpose of the purchase. Further, though not necessary in view of it being a regular activity, even a solitary or an isolated transaction can be regarded as an adventure in the nature of trade (see, interalia, decisions at 35 ITR 594 (SC); 77 ITR 253 (SC); 100 ITR 706 (SC)).

6.3 The next question which emanates from the finding/s by the ld. CIT(A), under challenge before us, is if a land, even if agricultural, can be traded in so as to constitute ‘business’. We see no reason for it to be not so. The only thing that is relevant from the standpoint of the assessee, irrespective of the user to which it may have put in the past or its classification in the Revenue record, is the commercial potential of the land, i.e., in view of its locational advantage. It would be seen that, irrespective of its cost, which varies from a low of Rs.0.45 lakh per cent to a high of 5.05 lakh per cent, i.e., a variation of 1022%, land has been sold at a uniform rate of Rs.4.75 lac per cent. Why? The assessee has, to facilitate sale, aggregated land, irrespective of whether it: (refer Annexures A1 & A2) (a) was purchased per a registered instrument or otherwise; or (b) stands certified as wet (paddy) land or otherwise, rendering both, the mode of purchase/acquisition as well as it’s classification, as of no consequence. For the assessee, as indeed for the buyer, it is a trading stock of his business, i.e., a commodity, which for the assessee appears to extend to flats as well, 9 | P a g e 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose and a building site – residential or commercial, for the builder-company in the business of real estate development. That is to say, the nature of the assets in the hands of the assessee is only as a trading stock of his business. Income tax is one tax on income. The nature of receipt determines the head of income under which it is categorized for computational purposes. In the context of letting of house property, the issue as to whether letting is business or property income, it has been explained time and again by the higher Courts (viz. Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353 (SC)) that each case is to be seen from a businessman’s point of view to find out whether the letting was a doing of business or exploitation of his property by an owner. On a plea of the letting being of a commercial asset and, therefore, a business, the Hon'ble Court explained that a thing is not by its very nature a commercial asset, which is only an asset used in business and nothing else as business may be carried out with practically all things. It is, therefore, not possible to say that a particular activity is business because it is concerned with an asset with which the trade is commonly carried on. The subject land, to the extent certified as ‘Nilam’ is, thus, only a trading stock of the assessee’s business, and its nature as agricultural, even if so, of no consequence. To limit the business income on that basis, as the ld. CIT(A) does, is¸ thus, wholly incorrect, if not perverse, being contrary to the admitted and proven facts and, in fact the assessee’s conduct as a trader, as indeed returning income of his Property Division as business income.

6.4 We, next, though therefore not required to, i.e., in view of our clear findings of fact, based on material on record; the assessee’s conduct; and the law in the matter, i.e., as to the entire income from the activity of purchase and sale of land, at Kakkanad or otherwise, as being business income, may yet consider the Revenue’s alternative, without prejudice, stand of land, stated at 180.560 cents, covered by a certificate/s by the Revenue department, as not agricultural and, thus a capital asset, gain on which is, thus, in any case, assessable as STCG. In this context it may be 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose relevant to reproduce the Inspector’s report dated 22.12.2010 referred to at para 2.4 of the assessment order, as under: ‘Dated, 22nd December, 2010 To The Deputy Commissioner of Income Tax, Circle 2011. Kochi Sir As directed, I have visited the place where Shri P.C. Jose had sold land during the previous year relevant to A.Y. 2008-09 toDLF's associate company.

3. The property is situated very near to Sea-port Airport Road, in the opposite direction of Cochin Special Economical Zone, Kakkanad. It is very well development area where multistoried buildings have come up. The land in question is situated below the road level and once it was wet-land. As of now, all construction activities are going on and it is a small township. As gathered from the local people, no agricultural operations are carried on these lands for the last more than 20 years. The land is just about 1 KM from the Ernakulam District Collectorate and the real-estate business was flourishing in this area in the last more than 10 years. The famous Rajagiri Engineering College is about a KM away from the spot. Sunrise Hospital, Schools, Churches, Bus Station etc. are not much away from the location.

3. There has been no agricultural activities in these lands for the last so many years and what is visible here is purchases and sale of plots by Big Realty companies who amassed large area to make land-bank for their future projects.

None of these factual observations, which form the basis of the AO’s findings, have been, as afore-noted, disputed by the assessee. How could, then, we wonder, the ld. CIT(A) issue contrary findings, with we having inferred that his reference to “documents and records” evidencing a part of the said land as agricultural, is the Thasildar’s certificates. To be fair, therefore, to the ld. CIT(A), he has, save the lands 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose classified in the Revenue’s record as agricultural, held the same as non-agricultural. The only material that has thus moved him is the said classification, bearing out our inference afore-stated. There is nothing to suggest of it even being sold to the assessee, a non-agriculturist, as agricultural land, i.e., of agricultural operations having been carried out by the person from whom it was bought by the assessee. A land does not become agricultural merely on it being classified in the Revenue’s record as such, but by the actual conduct of agricultural operations, onit being purchased or sold for that purpose. It is, rather, the carrying on of the agricultural operations in the past, as admitted, that would have led to it being classified as such. Rather than, therefore, altering the nature of the land – a matter of fact, it is the Revenue’s record that ought to be questioned, by examining the Thasildar – whose report has been regarded as sacrosanct by the ld. CIT(A), in light of the Inspector’s report. Why, the rates at which it is transacted makes agriculture inconceivable.Copy of the said certificates, placed as pages 96 to 107 (APB-1/3) are in vernacular and not accompanied by certified translated (in English) copy for us to take it as part of the record. There is also no reference to the language thereof in his order by the ld. CIT(A), or even as to the basis on which the said classification – which may have remained unaltered for decades – the Thrikkakara Panchayat having been in fact notified u/s. 2(14)(iii) by the Central Government as far back as in 1973. The matter, it may be appreciated, as also sought to be emphasized by the AO with reference to the decision in Sarifabibi Mohamed Ibrahim v. CIT[1993] 204 ITR 631 (SC), also reproducing there-from, is principally factual, to be decided in the conspectus of the case.No wonder, then, the fact of the land being classified as ‘agricultural’ in Revenue records was found not material in the facts of the caseby the Hon’ble Court. Why, the very fact that the land, deemed agricultural and non-agricultural on that basis, stands purchased by the assessee together, i.e., per the same document, at the same rate (sr. no. 1 of Ann. A1) defeats the assessee’s case. Then, again, the assessee has, similarly, sold the lands, deemed agricultural and non-agricultural, on such basis, 12 | P a g e & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose i.e., by aggregating them, to a buyer as a single parcel of land (sr. no. 3 of Ann. A2), which again put pays the assessee’s case. The protective assessment as STCG, i.e., without prejudice, of land deemed agricultural, i.e., 180.560 cents, by the AO is, reversing the finding by the ld. CIT(A), upheld. (also see para 6.5)

6.5 We next consider the assessee’s case qua the (120.442 cents of) land, held non- agricultural by the ld. CIT(A) inasmuch as there was no evidence of any agricultural operations being carried out on the subject land/s, either by the seller or by the assessee, or of his intention to do so, or by the buyers, who are in fact developers and, further, not certified as ‘Nilam’ (wet land). What, then, one wonders, makes the assessee contend of it being agricultural, a term which is not defined under the Act. The matter, as afore-noted, is essentially factual, to be decided in the conspectus of the case, taking the entirety of the facts and circumstances into account. The several tests devised by the Hon’ble Courts for the purpose, as their reading shows, being in the nature of guidelines, are by way of factual indicators toward ascertaining the purpose and intendment of transfer from the conduct of the parties and the surrounding facts & circumstances. No hard and fast rule could, accordingly, be laid down, and each case to be decided on its facts, viewing the matter in a realistic sense, i.e., as the contracting parties understood it as. The onus to prove it’s claims, needless to add, is on the assessee. This represents well-settled law, for which we refer to some judicially binding precedents, viz. CIT vs. Gemini Pictures Circuit P. Ltd. [1996] 220 ITR 43 (SC); Sarifabibi Mohamed Ibrahim vs. CIT [1993] 204 ITR 631 (SC); G.M. Omer Khan vs. CIT [1992] 196 ITR 269 (SC); CWT vs. Officer-in-Charge (CW), Paigah [1976] 105 ITR 133 (SC); Kalpetta Estates Ltd. vs. CIT [1990] 185 ITR 318 (Ker), quoting, for authority, from the last: ‘Whether a piece of land is agricultural in character or a capital asset is largely a question of fact which should be determined by the cumulative effect of fall facts and circumstances in a 13 | P a g e & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose given case. The onus is on the assessee to show that the character of the lands changed after the acquisition of the capital asset by the assessee and that the lands were agricultural lands at the time of transfer of the asset. The material date with reference to which the question whether the particular asset (land) which has been sold is agricultural land or not is to be decided is the date of sale. In other words, in order to entitle the assessee to earn the exemption, it is not enough to allege or show that the land was once agricultural land at the time of acquisition. The assessee should further prove that it was agricultural land at the time of transfer.’ (emphasis, ours) The tests afore-referred, culled out in Mahaveer Enterprises vs. UoI [2000] 244 ITR 798 (Raj) after a review of judicial precedents, are as under: ‘The question whether a piece of land is agricultural land or not, is essentially a question of fact. The facts that raise a presumption that the land is non-agricultural are— (i) situation of the land, for example, land situated in an urban area within the municipal limits in the proximity of buildings and building sites, [ (ii) sale of land to a non-agriculturist for non-agricultural purposes, (iii) sale of land on a square yard basis at a price comparable to prices fetched by building sites, (iv) sale of land on a square yard basis at a price comparable to prices fetched by building sites, (v) sale at a price at which no bona fide agriculturist would purchase for genuine agricultural operations, and (vi) when the price is such that no prudent owner would sell it at a price worked out on the capitalisation method taking into account its optimum agricultural yield in the most favourable circumstances. When the question arises as to the real nature of land in the context of land situated in urban areas, the crucial two-fold test would be to find out, if any prudent agriculturist would purchase the land in order to carry on agricultural operations having regard to the price he would have to pay and whether the owner of such land would sell it by valuing it as property yielding agricultural produce on the capitalisation method, even on the basis of optimum yield and maximum sale price. The effect of the totality of the circumstances must be considered.’ (emphasis, ours) This, then, explains the law in the matter, which is to be applied in the facts of a case, variances in which would explain the differences in the decisions. Each decision, as it’s careful reading would show, the question of the subject land being agricultural or not, was answered by the Hon'ble Court in the context and the facts of the case at hand. We may close our discussion on the law in the matter with reference to the 14 | P a g e & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose decision in Sarifabibi Mohamed Ibrahim(supra), a locus classicus,dilating in the matter with reference to judicial precedents, with the Hon'ble Court listing separate facts – both for and against, i.e., suggesting and indicating the subject land as agricultural or, as the case may be, non-agricultural, in that case, taking a final view on an overall assessment of the case that it was agricultural. The land being classified as agricultural in Revenue record was one such factor suggestive of the land being agricultural, and no more, and which, in view of substantive evidence to the contrary, did not tilt the balance in favour of the land being agricultural. In the instant case there is no claim of it being bought from an agriculturist, is so by a non-agriculturist, and sold to a builder, with even no claim of agricultural operations being carried out by any of them, or even in the past, purchased and sold at commercial rates. Each of the several factors afore-mentioned in favour of land being agricultural, as indeed inSarifabibi Mohamed Ibrahim(supra), find presence in the instant case. We have rather found the same as being a trading asset of the assessee’s business of trading in real estate, as in fact returned by the assessee qua lands not situate in Kakkanad. The sole basis, as it appears, thus, of the assessee’s claim is of the land being situate at Kakkanad in Thrikakkara Panchayat, which is not notified by the Central Government. The current map of the Municipal Corporation, local limits and which vary from time to time, is not on record, with, rather, Sh. Das, informing us (on 10/8/2023) of the Panchayat being upgraded to a Municipality in 2010.Section 2(14),defining capital asset, per clause (iii), it may be noted, does not define an agricultural land, but only excludes agricultural land where it is situate within a specified distance of a notified municipality. In other words, the same is relevant only where the subject land is agricultural, else not. Also, the distance from the municipality would again be of relevance where the land is notified, and not otherwise. Reliance to the land being in Thrikakkara Panchayat, not notified u/s. 2(14)(iii)(b), would thus be of no relevance in determining if the land sold is agricultural. Reference in this context may be made to the orders by the Tribunal in 15 | P a g e & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose M.K. Abdul Rehman v. Dy. CIT (ITA No. 301/Coch/2009, dated 21.11.2011/DPB-1 pgs. 78-84) and Dy. CIT v. M.J. George (ITA No. 525/Coch/2011, dated 31.10.2023/DPB-2, pgs. 1-19), relied upon by the Revenue inasmuch as both are in respect of lands situate in Kakkanad. This explains our reference to these decision, as the same is otherwise of little consequence in view of the matter being principally factual, to be decided in the facts of the case on issuing factual findings. Reference may also be made to the order by the larger Bench of the Tribunal in Asst. CIT v. Sreedharan Ashok Kumar (ITA No. 18/Coch/2012, dated 07.05.2015), also relied upon (DPB-1, pgs. 2 – 77), inasmuch as the Tribunal in that case was moved by the fact of the sale price; what being relevant is the status of the land at the time of it’s sale. Income on the said sale, stated at 120.442 cents, would thus stand to be assessed as business income and, alternatively, as STCG.

6.6 This decides the assessee’s appeal, and Gds. 1 to 4 of the Revenue’s appeal, with Gd.1 of both being general in nature, warranting no adjudication.

7.1 Grounds 5 & 6 of the Revenue’s appeal arequa the disallowance of development expenses at rs.31,90,709, out of the total expenses at Rs.42,25,059. The same was disallowed inasmuch as the assessee furnished no evidence in its respect (para 2.5 of the assessment order). In appeal, the assessee submitted that only Rs. 10,34,350 had in fact been claimed, the balance expenditure being incurred during the preceding year, forming part of the closing stock as at its end and, thus, forming part of the opening stock for the current year. Out of Rs.10.34 lakhs, the ld. CIT(A) disallowed Rs. 9 lacs, so that the balance Rs.33.25 lacs was to be deducted in computing the capital gain for the current year. His order reads as:

‘IV Ground No.7 The appellant challenges the disallowance of development expenses of Rs. 42,25,059/-. The assessing officer has stated that no evidence as to the cost of improvements was produced. The appellant's representative submits that cost of development incurred during the year is only Rs. 10,34,350/-. The balance amount was considered in the previous 16 | P a g e 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose assessment and it was added to the value of closing stock. On examination of the records produced before me I find that the contention of the appellant is correct and that Rs. 10,34,350/- alone has been incurred as development expenses during the year. The disallowance of Rs.31,90,709/- (Rs.42,25,059 -Rs. 10,34,350) is therefore deleted. With regard to the expenses incurred during the year I find that the appellant had to incur certain expenditure for measuring, getting certificates determining & clearing boundaries etc. Considering the nature of expenses, it is difficult to get vouchers for such expenditure. I direct that the expenditure incurred during the year be allowed as a deduction in computing the capital gains.’ Out of the total development expenses of Rs. 42,25,059/-, Rs.9 Lakhs is in respect of properties claimed as agriculture. Therefore only Rs.33,25,059/- is to be allowed while computing the capital gains.’ 7.2 We have heard the parties, and perused the material on record. The assessee’s argument is valid in principle. If the income on the lands qua which the same has been incurred and claimed in a preceding year, inflating the cost of acquisition and, accordingly, the stock, where unsold, as at the year-end, it is an expense for that year, which could only be allowed, or, as the case may be, disallowed, in assessment for that year, and not the current year. Our agreement with the ld. CIT(A), however, ends here; his subsequent findings and decision being not in agreement with the said argument. There is, firstly, no finding by him as to the land/squa which the expenditure stands incurred. This is relevant as the AO, as it appears, disallowed the same in respect of lands sold for Rs. 1935.81 lacs during the year (refer para 5.1), income on which stands claimed exempt, partly accepted by the ld. CIT(A), i.e., for 180.560 (out of 301.002) cents. Again, for land/s at Kakkanad (120.442 cents), income from which stands held by him as assessable for the current year as STCG, (per para II(d) of his order), what value it being incurred in an earlier year? Expenditure, irrespective of the year in which incurred, would stand to be deducted as cost of acquisition against the income only for the current year, so that the same, deductible in principle, would require being verified by the AO, and qua which no evidence stands admittedly furnished, again, negating the claim. Even otherwise, i.e., accepting the assessee’s argument, the matter ought to have been remitted by him to & 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose the file of the AO to determine the quantum of expenditure qua lands income stands upheld for being assessed as STCG for the current year.

7.3 This, in fact, represents the second infirmity in the adjudication by the ld. CIT(A), who ought to have, even if he found the assessee’s claim as valid in principle, confront the AO with the relevant evidence, if any, seeking his comments per a remand report. In this context, it may be relevant to state that the computation of closing stock, enquired into and submitted by the assessee in assessment proceedings, is on record, which reveals development expenses as claimed at Rs.15 lakhs and Rs.10,34,350, valuing the closing stock as on 31.03.2007 and 3.103.2008, i.e., corresponding to AY 2007-08 and 2008-09, respectively, by including the same. Thirdly, the expenditure referred by him, i.e., the expenditure on measuring; getting certificates; determining and clearing boundaries, are, firstly, of expenses which would rather yield vouchers in the ordinary course of business. None of them though, however, is cost of improvement. Determining and clearing boundaries are expenses connected with purchase or, as the case may be, sale, and thus deductible. Getting certificate is toward the assessee’s claim qua the nature of the land and, thus, not an incident of either purchase or sale, to be claimed in its respect.

7.4 Finally, as regards allowance of expenditure of Rs.1.34 lakhs (i.e.,Rs. 10.34 lakhs – Rs. 9 lakhs), incurred during and claimed for the current year, we again find the impugned order as confused. No income stands held by him as assessable as STCG. For land situate in Kakkanad, he has found the gain as exempt, the subject land/s being not a capital asset, so as to chargeable to tax u/s. 2(24)(vi) r/w s. 45 of the Act. For lands outside Kakkanad, he has, as afore-noted, not disturbed the assessment thereof as returned, i.e.,as business income. That is, either way, there is no question of the expenditure being deductible in computing STCG, assessed on protective basis. Inasmuch as we have also upheldthe assessment as STCG on protective basis, we find, in view of our finding the assessee to have aggregated the 18 | P a g e 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose lands acquired, consider the expenditure allowed at Rs.1.34 lakhs, in the absence of evidence, as not unreasonable and, rather, extend it to Rs.1.50 lakhs.

7.5 We may sum up our findings. The entire expenditure being unsubstantiated, which finding is undisturbed, is to be disallowed, except to the extent incurred and taken into account in computing business income for the preceding year, either by way of sale or reckoned in valuing stock as on 31/3/2007. This disallowance is to be however restricted to a sum in excess of Rs. 1.50 lacs. We decide accordingly.

8.1 We next consider Gd. 7 of the Revenue’s appeal. The same concerns the assessee’s claim of loss of Rs.7,50,927 in respect of the Card Division. Verification in assessment revealed the same to be on account of winding-up of the said business. This was as there was no closing stock as on 31.03.2007, i.e., prior to the beginning of the relevant previous year, nor any purchase and, thus, sale during the current year. The expenditure of Rs.7,48,388 toward depreciation and administration expenditure, therefore, could not be allowed. The income of the Card Division was accordingly taken by the AO at Nil. In appeal, the ld. CIT(A) allowed the assessee’s claim, holding as: ‘V. Ground No.8: Is against the disallowance of loss of Card Division of Rs.7,50,927/-. The assessing officer disallowed the claim on the ground that the assessee is proposing to close down the business as is evident from the fact there is no closing stock as at the end of the year. The assessing officer has not pointed out any specific instance where the expense is excessive or unreasonable. He has not made up a case that most of the expenses are not genuine. The reasons for disallowance stated by the officer do not justify the disallowance. If the appellant had carried on the business and incurred the expenditure, the loss incurred in the business should be allowed to be set off. In the absence of any evidenced to the contrary I hold that the loss from the card division is eligible to be set off against other income.’ 8.2 We find no interface between the findings by the AO and by the ld. CIT(A). While the assessing authority finds no business carried out during the relevant year, inferring it to be being wounded-up, the ld. CIT(A), without rebutting his finding, 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose making, or causing to, further verification, states that the business had been carried out, so that the expenditure, being not found unreasonable or un-genuine, had to be allowed. On what, however, is it incurred, if no business stands carried out, is the question, bringing us back thereto, i.e., whether business had indeed been carried out, for which the AO holds in the negative, stating reasons, not contradicted/rebutted. The burden to prove his return, and the claims preferred thereby, is on the assessee, which he has clearly failed to. True, temporary suspension of business cannot be regarded as winding-up, but there is claim to that effect, i.e., suspension, which can easily be proved by resumption of business later, i.e., after a period. Lack of application of mind by the ld. CIT(A) is patent, and his decision only needs to be stated to be rejected. We, accordingly, vacate his findings, and uphold that by the AO on the basis of the material on record and the explanations furnished by the assessee.

9.1 Ground No. 8 arises qua the suo motu determination by the ld. CIT(A) for deletion of Rs. 62,75,500, received by the assessee as nomination charges, stated as forming part of the assessee’s returned business income. The relevant part of his order reads as under: ‘XIX On an examination of the details furnished it has come to my notice that some of the properties were owned by the appellant himself and he has received some consideration as nomination charges. It is seen that Rs.62,75,500/- is received as consideration for nomination of own property. Since what has been shown by the appellant as nomination charges is only part of consideration, this should be considered while determining the capital gains. The authorized representative submitted that proportionate amount relating to transfer of agricultural land should be excluded from the computation ofcapital gains. The assessing officer is directed to consider Rs.62,75,500/- in the computation of capital gains and exclude the same from the computation of income from business. No need is felt to add that proportionate profit arising from the transfer of agricultural properties is eligible for exemption from the capital gain tax.’ 9.2 As explained during hearing, and further borne out by the assessee’s argument notes, property purchased on the basis of the agreement contains a clause that the assessee may nominate, in his stead, someone else as the buyer, and in whose name the land is accordingly registered; the assessee receiving the difference from the 20 | P a g e 84/Coch/2012 (AY: 2008-09) P.C. Jose v. Dy CIT / Dy. CIT v. P.C. Jose ‘nominee’, which is booked as nomination charges. The same is claimed as duly accounted as income. The issue, however, is that in some cases nomination charges are received in respect of properties purchased and registered in the assessee’s name. In such cases, the assessee directly sells the property, and there is no question of nominating someone else. Inasmuch as it forms part of the transfer consideration, the same, to the extent relating to agricultural land, though returned as income, is exempt, and which explains the impugned order.

9.3 As per the assessee’s Note on file explaining the same, a total of rs. 1318.245 lacs was received from M/s. Amon Estate (P.) Ltd. and Calstar Real Estate (P.) Ltd., nominated by him inasmuch as they wanted to acquire the properties for development, by way of nomination charges and, accordingly, booked as income, offered at Rs. 1315.745 lacs, i.e., net of commission at rs. 2.50 lacs, and which sum agrees with credit to the assessee’s P & L Account on record, reflected as “margin of sale of property under nomination agreement (net)”.The assessee’s claim, restricted to Rs. 62.755 lacs, is based on a part of the said lands being agricultural, which perhaps also explains the proportionate allowance by the ld. CIT(A), who though ought to have sought verification and adjudication by the AO in the matter. We have already held the entire income of the assessee’s property division as assessable as business income. Rather, as afore-noted, the said income proves the assessee to be in the business of trading in lands or interest therein. The same is thus taxable u/s. 28 or, in any case, u/s.