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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI R C SHARMA & SHRI AMIT SHUKLA
आदेश ORDER �ी अिमत शु�ला, �या स: PER AMIT SHUKLA, JM:
2 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 The aforesaid appeal has been filed by the Revenue and Cross Objection by the assessee against impugned order dated 30.05.2014, passed by Ld. CIT(Appeals)-20, Mumbai for the quantum of assessment passed under section 143(3) for the assessment year 2009-10. In the revenue’s appeal, following grounds have been raised:-
1. Whether on the facts and in the circumstances of the case and in law, the Learned CIT (A) was justified in deleting the additions, holding that the sale of plot of land by the assessee was a long term capital gains instead of being an adventure in the nature of trade without appreciating the facts brought out by the Assessing Officer?
2. Whether on the facts and in the circumstances of the case and in law, the Learned CIT (A) was justified in deleting the additions, holding that the sale of plot of land by the assessee was a long term capital gains instead of being an adventure in the nature of trade without appreciating the facts that the facts of the case laws relied on were different from the facts of the present case?
3. Whether on the facts and in the circumstances of the case and in law, the Learned CIT (A) was justified in deleting the additions, holding that the sale of plot of land by the assessee was a long term capital gains instead of being an adventure in the nature of trade without appreciating the facts that the assessee was going a very organized, well planned and pre- determined activity so as to increase the attractiveness and salability of land which is evident from the fact that the assessee has incurred development expenditure of nearly 3.5 times of the cost of land?" 4. "Whether on the facts and in the circumstances of the case and in law, the Learned CIT (A) was justified in deleting the disallowance of 30% of the development expenses holding that there is no valid reason with A.O. to disallow the same without appreciating the fact that the A.O. has categorically mentioned in the assessment order that no map, no comments of architect or engineer and not usage/ construction and other factual details have been given by the assessee linking the expenditure to the land concerned?"
3 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 5. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored”.
Whereas in the cross Objection, the assessee has raised following grounds:-
1 “On the facts of the case and in law, the Id. CIT (A) has erred in treating the Long Term Capital Gain on Sale of Agricultural as business Income instead of exempt income. The Appellant has also by oversight treated the said Income on Sale of said land as Capital Gains instead of treating the said income as exempt on account of section 10(1).
2. On the facts and in the circumstances of the case and in law, the LCIT(A) has erred in not allowing set off of the Short Term Capital Loss from shares of Rs. 88,35,265/- against the capital gains of the said year.
3. On the facts and in the circumstances of the case and in law, the LCIT(A) has erred in not allowing set off of the Short Term Capital Loss from land of Rs. 57, 40,228/- against the capital gains of the said year.
4. On the facts and in the circumstances of the case and in law, the LCIT(A) has erred in not allowing set off of brought forward Long Term Capital Loss (of AY: 2006- 2007) of Rs. 220,513/- against the capital gains of the current year.
5. On the facts and in the circumstances of the case and in law, the LCIT (A) has erred in not allowing the loss under Income from other source of Rs. 63,328/- against income under any other head. Your Honor is requested to direct the [CIT (A) to allow the said set off.
6. On the facts and in the circumstances of the case and in law, the LCIT(A) has erred in calculating the deductions under chapter VI-A. Your Honor is requested to direct the assessing officer to grant deduction under chapter VI-A as per the provisions of the Act”.
Brief facts of the case are that, the assessee had purchased five plots of land situated in Village Karla, Taluka Maval, district Pune, during the financial year 2003-04 for sums aggregating to Rs.1,91,25,874/-. Assessee claimed that 4 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 he has incurred development expenditure of Rs.8,46,36,147/- on the said plots over the period of time. During the previous year, the assessee had sold the plots for a consideration of Rs.14,58,01,350/- on which the assessee had shown long- term-capital gain. The Assessing Officer from the perusal of the material and facts on record noted that, assessee has purchased five plots of land during the AY 2004-05 which was combined together. AO observe that assessee has purchased the land for an amount of Rs.1,91,75,874/- on which he has claimed to have further spent huge amount of Rs.8,46,36,147/- on its improvement. The improvement includes the following: Beautification and leveling of land by filing it with sand; Getting Electricity connection; Building Elevated water-tank on the land; Planting trees; Building approach roads; and Building concert pond for natural storage of water. The AO’s further observation on the facts and analysis of the submissions of the assessee are as under:- “It is to be noted that the assessee has himself shown that part of land was purchased where the previous owner had built road and walls. No evidence has been produced whether the same has been utilized and why the assessee claimed to be made for construction of wall are genuine, the Ld. Counsel has claimed in his letter dated 23.12.2011 that, expenses were made in the previous four years and three out of four years were under scrutiny and hence by default the expenses stand proved. The submissions of the Ld. Counsel were totally contrary to the facts of the present case. In the impugned case assessee has been engaged activity in management and development of properties with the idea of selling the same at future profit. A fabricated statement that, no sale 5 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 / development has taken place in preceding three years has been made. Attention is drawn to development agreement dated 15.05.2007 as signed by the assessee with M/s Sai Venkata & Associates for land at Village Karla, Taluka Maval, district Pune. By the said agreement, assessee has given land for right to develop, construct and make sale. This land, Gut No.73 (9900 sq. mtr) and Gut No. 74 (10180 sq. Mtr) has Indrayani River to the south and on the north it has 30 mtr wide Road. It is stated in the copy of sale deed that this land has compound wall also. It may be noted that, Ld. Counsel for the assessee in his reply dated 21.12.2011 has categorically stated that, sale of land was a solitary transaction of the assessee and that 87% expenses on the same have been capitalized by the assessee in books for several previous years and that only Rs.1.08 crores was spent on the land in the impugned assessment year and hence according to the assessee, his activity cannot be treated as business activity and conveniently forgot to mention regarding the development agreement with one M/s Sai Venkata & Associates and has further failed to justify, why the whole improvement etc. was made systematically over the years if assessee himself has not set out to make profit from sale of the said parcel of land. The key facts of the case are mentioned herein below:- a) The plan for development of land was initiated from day one; b) Assessee had to consolidate his holdings in one block of land so that it could be sold to one party; c) That, legal fees and expenses at Pune Collectorate were made for consolidation; and d) Assessee has produced copies of Advertisement expenses – which shows planned, organized, systematic manner of activity of land development”.
After referring to various decisions and considering the facts and material on record the Assessing Officer spelt out the following factors and tests to show that, the entire conduct of 6 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 the assessee was in the form of ‘adventure in the nature of trade’. “9. The key points emerging but of above are which will be relevant in this case are (a) That improvement and increase in marketability itself indicated intention to trade.
(b) That conduct of assessee if it was as conduct of normal business engaged in that trade will indicate adventure in nature of trade (AINOT)
(c) Whether efforts have been made by assessee to improve marketability, whether special efforts have been made to advertise the goods (d) Whether any income was even expected from the trade without which assessee's argument that this was to be investment would not be sustainable.
(e) That in case of in the case of an isolated transaction of purchase and resale of property there is really no middle course open. It is either an adventure in the nature of trade, or else it is simply a case of sale and resale of property."
(f) Whether prior conduct of assessee shows a design and plan and what was the initial intention of the assessee when he entered this business transaction this will give a strong presupposition that this was an adventure in nature of trade AINOT).
It may be seen that all the above indicators are found in this case All the indicia mentioned in summary above are present in this transaction of the sale of land by the assessee and hence the income is taxable as income from adventure in nature of trade”. Accordingly, the Assessing Officer treated the entire sale consideration of Rs.14,58,01,350/- as business income and also disallowed the 30% of the cost of the development claimed by the assessee and accordingly, the income was assessed at Rs.6,73,80,173/- as business income from of sale of the land in the following manner:
7 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 Sale consideration Rs.14,58,01,360/- Less: (i) Cost of acquisition Rs.1,91,75,874/- (ii) Cost of development (30% disallowed)Rs.5,92,45,303/- 7,84,21,177/- Rs.6,73,80,173/- ------------------------ 4. In the first appeal, the assessee besides challenging the action of the Assessing Officer for treating the LTCG on sale of the plot as business income, raised additional ground wherein it was contended that, the sale proceeds from such land is not taxable at all, because what has been sold is the agricultural land and any income/ gain arising from sale of said land is exempt under section 10 of the Income-tax Act. For the admission of the additional ground, it was submitted that, due to inadvertent mistake the gain was offered as LTCG instead of showing it as exempt income, therefore, being a legal ground same should be admitted. In support, the assessee had filed the title reports of land which revealed that property in reference was an agricultural land and also filed 7/12 extract. It was also pointed out that the said land was beyond the municipal limit and met the criteria laid down under the Act for treating it to be agricultural land in terms of definition of “capital asset” under section 2(14). The Ld. CIT(A), at the first instance held that the said additional grounds are not admissible and then he proceeded to decide the said grounds on merits for rejecting the claim of the assessee. His observation and finding in this regard was as under:- On merit also, this additional grounds of appeal deserves dismissal reason is very obvious. It can be seen from the evidences available on record that appellant has purchased 8 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 five plots of land in FY 2003-04 and thereafter has combined the same. These plots of land were purchased at Rs.1,91,75,874/- and thereafter appellant has spent amount of Rs.8,46,36,147/- on its improvement development beautification leveling, for electrification, for building wall and constructing water tank, planting trees for beautification, constructing approach road etc., Further, it is found from the record that assessee has given development rights to one M/s Sai Venkata and Associates vide development agreement dated 15.07.2007. Against parting of development rights appellant has received Rs.2.25 crores as advance from the Developers who has got the right to develop, construct and sell the property. By letter dated 21.12.2011, A.R. of the assessee has submitted before the Assessing Officer that land was sold as a solitary transaction and 87% expenses on the same has been capitalized by the appellant in its books of account during the preceding years and only Z. 1.08 crores was spent on the land for the development in this years. This fact itself proves that there was no agricultural activity at this land and it was developed for sale to the buyers. Therefore, it is basically a wrong claim that land was remained an agricultural land. In fact evidences on record prove that no cultivation or agricultural farming was done as agricultural activities. Therefore, it is patently wrong on the part of the appellant or Ld. A.R. to claim that land was still an agricultural land”.
5. On the issue of LTCG, the assessee made very detailed submissions. The sum and substance of his contentions were as under:- (a) The assessee had purchased agricultural land; way back in the year 2003-04 (AY 2004-05) and to make the land worth usable, 9 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 certain expenditures were incurred. The improvement of the land was necessary, because it was near the banks of the river “Indrayani” which was always prone to flood. Hence, for the purpose of soil conservation and saving if from erosion by the flood, the assessee had to incur huge expenditure of more than Rs. 8.46 crores over the period of time; (b) The agricultural land purchased was always shown as investment in the books of account and in the audited Balance sheet and such an investment in the agricultural land has been accepted by the Department in the earlier years even when the assessments were made under scrutiny proceedings under section 143(3) right from assessment years 2005-06 to 2008-09; (c) Assessee never had any intention for the commercial development and has neither carried out any sub-division of the plots nor created any structures on the said land. It remained in the same from, that is, as agricultural land. The land was properly registered in the name of the assessee and the assessee has made the Stamp duty and registration charges as agricultural land; (d) Since, the assessee has held major part of land for substantial period of time, which is more than 3 years, therefore, any gain arising there from should be assessed as LTCG; (e) Reliance was placed on the CBDT’s Circular No.4 of 2007, which prescribes the various tests for a particular transactions to be treated as trading transaction and highlighted the various tests laid down in the said Circular; (f) Out of the total expenditure incurred, only an amount of Rs.1.08 crores out of Rs.8,42,96,989/- was spent in the current year, that is, more than 87% of the total expenses has been allowed by the Department to be capitalized in the scrutiny proceedings under section 143(3); 10 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 (g) This is only a solitary transaction of sale of the land in the block of three preceding years and two subsequent years and hence one solitary transaction cannot be treated as in the nature of business, as there is no systematic activity of purchase and sale of plot/ land; and (h) Reliance was placed on various decisions, which has been noted by the CIT(A) in his impugned order in detail.
The Ld. CIT(A) after considering the entire facts and circumstances of the case, held that, Assessing Officer has wrongly treated the LTCG as ‘business income’ without establishing the fact that business activities has been carried out by the assessee. He noted that, assessee has purchased five piece of land in financial year 2003-04 for Rs.1,91,75,874/- which consisted of various plots situated in Village Karla, Taluka Maval, district Pune. The 7/12 extract submitted by the assessee reveals that, at the time of purchase of land, it was agricultural land. Thereafter, the assessee had merely carried out incurred some expenditure for improvement and development. Hence it cannot be held that, assessee was involved in any business activity of purchase and sale of land nor was there any activity of doing plotting and selling to various purchasers or investors or developer. Most of the expenditure incurred was mainly to improve the quality of the land and to ensure the safety of the land, which was situated near the river. It was only because of the development of the land, the assessee got sale price of Rs.14.58 crores. He also noted that, the agricultural land has not been converted into non- agricultural land which fact has not been controverted by the Assessing Officer and it has been sold to one person only, namely, Shri Arun Kumar Jyantilal Michala. In the Balance 11 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 Sheet, the assessee has always shown agricultural land as investment right from the year of purchase till the year of sale which fact has been accepted by the Department in the earlier years under scrutiny proceedings. In sum and substance, he accepted the entire contention of the assessee and adopted the same line and reasoning as canvassed by the assessee. He also noted that, assessee was entirely into different business, like textile manufacturing, ayurvedic and herbal formulations etc. from different companies based in Surat The assessee was never engaged in real estate business or construction of building. Thus, being a solitary transaction of sale of agricultural land, hence it cannot be treated as business transaction.
Regarding disallowance of expenditure also, Ld. CIT(A) observed that once 70% of the expenditure has been allowed and most of them have been incurred in the earlier years the balance amount cannot be disallowed. After detailed discussion, he directed the Assessing Officer to delete the disallowance of expenditure and allow the entire expenditure as claimed by the assessee.
Before us, the Ld. DR strongly relied upon the order of the Assessing Officer and submitted that, once assessee has bought various plots of land and incurred huge expenditure which is more than 3 to 5 times of the cost of the land purchased, then it can be inferred that assessee had the intention to develop the plot of land for earning gain as he was doing very organized work of development on the land which has to be reckoned in the nature of trade or business.
12 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 He further submitted that, the assessee’s intention can also gauged from the fact that assessee had earlier entered into development rights with a Developer vide development agreement dated 15.05.2007 and for assigning the development rights assessee has in fact received sum of Rs.2.25 crores which was advanced from the developer for parting of the development rights. What happened to this development right has not been discussed by the ld. CIT(A) even though this fact has been noted by him in Para 3.3. Thus, he submitted that the order and reasoning of the AO should be affirmed.
On the other hand, Ld. Counsel for the assessee on the issue raised in the cross objections submitted that, in fact, the land was acquired as an agricultural land which continued to be the agricultural land and was sold as such. Once it has been sold as agricultural land then, under the Income Tax Act such an agricultural land cannot be taxed at all either as a business income or as LTCG. In support, he also drew our attention to the certificate issued by Talathi of Mawal district, Pune which has been placed at page 144 of the paper book, to show that this was an agricultural land and is beyond the limit of Lonawala Municipal Council. He also drew our attention to various title search documents along with 7/12 extracts to show that, these were agricultural land, therefore, same cannot be taxed at all. In support, he strongly relied upon the decision of Hon’ble Bombay High Court in the case of CIT v Smt. Debbie Almano, reported in [2011] 331 ITR 59 (Bom). Further reliance placed on the following decisions:-
13 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 i) CIT v Nitish Rameshchandra Chordia [2015] 374 ITR 531 (Bom); ii) CIT v Lal Singh [2010] 325 ITR 588 (Punjab & Haryana); iii) ITO v Amrutilal B Shah [2013] 22 ITR (T) 668 (Mumbai – Trib): iv) Mrs. Sakunthal Vedachalam [2015] 369 ITR 558 (Mad); v) Supriya Kanwar v [2019] 149 ITD 1 (Jodhpur)(Trib)(TM).
On the issue of LTCG as raised in the Departmental appeal, he submitted that the Ld. CIT(A) has passed a very reasoned order after considering the submissions and evidences placed on record and hence the same should be upheld. On disallowance of expenditure also, he strongly relied upon the order of the CIT(A).
We have heard the rival submissions, perused the relevant finding given in the impugned order as well as material reffered to before us. It is an admitted fact that, the assessee had purchased 5 plots of land which were initially bought as agricultural land in the year 2003-04 for sums aggregating to Rs.1,91,75,874/-. Thereafter, the assessee had incurred huge expenditure of Rs.8,46,36,147/- on its improvement which included the following:- Beautification and leveling of land by filing it with sand; Getting Electricity connection; Building Elevated water-tank on the land; Planting trees; Building approach roads; and Building concert pond for natural storage of water The said land has been sold in the relevant assessment year for more than Rs.14.58 crores which has been shown and 14 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 offered to tax as LTCG. The Assessing Officer has treated it to be as business income and has also disallowed 30% of the expenditure incurred on the said land. Whereas, the assessee’s claim before us is that, first of all it is not exigible to tax at all, because it is sale of agricultural land, which cannot be treated as a “capital asset” as defined under section 2(14) because it does not fulfill the criteria of capital asset, rather, it falls within the ambit of being treated as agricultural land. This plea was taken for the first time before the CIT(A). From the perusal of the CIT(A) order, we find that there is an inherent consistency in his finding. First of all, he holds that additional ground whereby, this issue has been raised is not liable to be admitted and accordingly, he has rejected the additional ground for being admitted only. After rejecting the admission of additional ground, he proceeds to decide the additional ground on merits and dismissed the same after detailed reasoning and noting down the various facts. While deciding the additional ground on merits, he categorically held that, assessee had spent huge amount of expenditure for improvement of such land and had also given development rights to a developer under a development agreement for parting of the rights of development in the said land. Further, the assessee even received huge amount of Rs.2.2 crores as advance from the developer. After recording these facts, he held that there was no agricultural activity carried out by the assessee at all and therefore, it is not an agricultural land. Once he gives such a categorical finding in para 3.3 (which has been reproduced above in the earlier part of our order), he also rejects additional evidences filed by the assessee which goes to show that, these were agricultural 15 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 land. Thereafter, while deciding the issue on merits on LTCG, he takes contrary stand and holds that, it is an agricultural land at the time of purchase and also at the time of sale. Since assessee had shown investment of land in the Balance sheet, therefore, the same has to be treated and reckoned as long-term-capital-asset which is to be taxed as long-term- capital-gain. His finding as given in para 4.6 to 4.7 are contrary to his own finding given at para 3.3 to para 3.4. This can be highlighted from the relevant extract of his observation given in these paragraphs, which are as under:- “It can be seen that appellant has purchased five piece of agricultural land in FY 2003-04 for Rs.1,91,75,874/-. These lands are having Gut No.36, 41, 45, 36,46, 43, 69, 48,39, 44 28,29 34, 35 and 69 etc. situated in Villalge Bhaje Ta. Mawal, Dist., Pune. 7/12 extract submitted by the appellant reveals that at the time of purchase of and it was agricultural land. The search and title report of the land given by Advocate Prakash N Devmore reveals the fact that it was an agricultural land at the time of purchase. xxx As evident from the evidences on record submitted before the Assessing Officer that basic character of purchase land was of agriculture which was improved and developed for sale or for own utilization and there was no organized course of any business activities of purchase and sale of land nor was there any activity of doing plotting and selling it to the various purchaser or investor or developer. xxx It is also important to note that the Assessing Officer has not denied the genuineness of the expenditure. Further, it is very 16 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 important to note that agricultural land has not been converted into non agricultural land. Assessing Officer has not controverted this fact.
The Ld. CIT(A) cannot take such an inconsistent stand to reject one ground and to allow another ground. This approach cannot be upheld. He has to give a specific and categorical finding as to whether the land which was purchased was an agricultural land and also continued to be an agricultural land afterwards and the nature of the land has not been changed at all. Nothing further is borne out from the record or has been brought on record as to what happened with the “development agreement” which was entered by the assessee with the developer, M/s Sai Venkata & Associates, vide development agreement dated 15.05.2007 for which the assessee has received huge amount of Rs.2.25 crores as advance for parting away the development rights and whether the development agreement was terminated and money has been refunded to the assessee or not has not been made clear. If the assessee had incurred expenditure to develop the land which ultimately is to be developed by himself or to be handed over to the developer for the development of any real estate project, then definitely it is indicative of the intention that the assessee had some kind of an intent to enter into the business adventure. However, the impugned order is completely silent on this issue. Even if we agree that, it is an agricultural land in the light of various evidences filed, then same needs to be examined properly by the Assessing Officer or by the Ld.CIT(A) because, these evidences were not filed before the Assessing Officer and 17 �ी धीरेन पी दलाल Shri Dhiren P Dalal ITA 5164/Mum/2014 CO No. 15/Mum/2015 CIT(A) has refused to admit the same. Therefore, in the interest of justice, we feel this entire matter needs to be restored back to the file of the Assessing Officer to consider these evidences of land revenue records as well as Talathi Certificate to examine that at the time of sale, the land was actually an agricultural land. The Assessing Officer shall also examine the factum of the fate of the developers’ agreement entered by assessee with the developer and what happened to such a development agreement. Thus, the entire matter is restored back to the file of the Assessing Officer to be decided afresh and in accordance with the law after giving due and effective opportunity to the assessee to represent its case. Accordingly, grounds raised in revenue’s appeal and Cross objections of the assessee are treated as allowed for statistical purposes.
In the result, both revenue’s appeal and assessee’s CO stands allowed for statistical purposes.