SHRI DHIRAJ RAMBHAU LINGADE L/H OF LATE SMT. MEENAKSHI RAMBHAU MLINGADE,,BULDHANA vs. A.C.I.T. , AKOLA CIRCLE, AKOLA

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JM & SHRI ARUN KHODPIA, AM ITA No. 41/NAG/2017 Assessment Year: 2012-13 Shri Dhiraj Rambhau Lingade Vs. The ACIT L/h of late Smt. Meenakshi Rambhau Lingade Akola Circle Buldhana Akola PAN No.:ABOPL 3689 P Appellant Respondent Assessee by: Shri S.C. Thakar, Adv. Shri Kapil Hirani, Adv Revenue by :Smt. Agnes P Thomas (CIT-DR) Date of Hearing: 27/04/2022 Date of Pronouncement: 8 /6/2022 ORDER PER: SANDEEP GOSAIN, J.M.

This appeal is filed by the assessee challenging the order dated 23-12-2016 of ld. CIT(A)-1, Nagpur confirming the order of the Assessing Officer (ACIT, Akola Circle) who made an addition of Rs. 83,72,000/- on account of treating the income from Long Term Capital Gains (LTCG) on sale of plot as trading income. 2.1 The Ld. AR of the Appellant, during the course of hearing reiterated the facts of the case which can be summarized as under: a. The Appellant is engaged in the business of running a wine shop. b. The Appellant is the owner of land admeasuring about 32661 sq. mtr. From out of agricultural field Khasra Survey No. 54 within

2 ITA41/NAG/2017 DHIRAJ RAMBHAU LINGADE VS ACIT, AKOLA CIRCLE, AKOLA municipal limit of Buldhana as investment and personal use vide sale deed dated 4.6.1990 for Rs. 3,15,000/-. c. The impugned land when purchased was an agricultural land. d. After the purchase it was found that the impugned land was reserved for public/semi-public purpose and was intended to be allotted to specified Educational Institution by the Town Planning Authority. e. However, since no institution showed interest in the impugned land, the Town Planning Authority deleted the reservation and included the same in residential zone somewhere in the year 1991. f. The Appellant with the intention of avoiding any possibility of the land being reverted back to public purpose, applied for conversion of the impugned agricultural land for residential use and submitted layout plan of around 92 plots. g. The said application was allowed by the Collector Buldhana by order dated 30.3.1992 and layout plan was approved. Out of the total layout some plots were donated by the Appellant in the year 1994 and 1998-99. Rest of the plot was retained by the Appellant until the sale of the same in the impugned A.Y which forms part of the dispute under this appeal. h. The Appellant due to old age wished to relocate to Pune and accordingly decided to sell the land and purchase residential house in Pune which was used for claiming exemption under section 54F. i. The Appellant accordingly then sold a large chunk of the plot in the impugned Financial Year (“FY”) for a total consideration of Rs. 83,72,000/- Long Term Capital Gains (“LTCG”) on the same, according to the Appellant amounted to Rs. 65,61,939/-. The Appellant offered this income as LTCG in her return of income and claimed exemption under section 54F of the Act and tax was paid on the balance sum remaining. j. The calculation of LTCG as well as the eligibility of the claim of exemption under section 54F is not in dispute in the present appeal.

3 ITA41/NAG/2017 DHIRAJ RAMBHAU LINGADE VS ACIT, AKOLA CIRCLE, AKOLA k. The present appeal is solely on the ground that the AO treated the transaction of sale of plot as trading income and not LTCG which resulted in denial of claim of exemption under section 54F as well.

2.2 The AO treated the transaction of sale of plot as trading income on various grounds enumerated at para 3.3 of the assessment order, a view which has been confirmed by the first appellate authority. 2.3 The Ld. AR during the course of hearing strongly opposed the action of the AO of treating the transaction of the sale of plot as trading income instead of LTCG as claimed by the Appellant. l. The AR submitted that the Appellant is in the business of running a wine shop and that the Appellant has never been in the business of sale of plots. The AR submitted that this is an undisputed fact. m. The AR further argued that the Appellant, prior to the impugned transactions, have never sold any land in the past so as to treat the Appellant to be in the regular course of business of trading in land. n. The AR emphasized that the impugned transaction is an isolated transaction which deserves to be treated as capital gains under law. o. The AR further brought to our attention that the land in question was sold as a chunk of land and not plot by plot. p. The AR strongly objecting to the view taken by the AO, finally submitted that it is an undisputed fact that the land has been sold after a period of nearly 20 years which makes it a capital asset beyond any iota of doubt. He argued that no businessman would retain the asset which he bought for business purposes for a period of 20 years. The land, according to the AR is this undisputedly a capital asset and the gains on the same is capital gains which the AR submitted has been rightly offered to tax by the Appellant and which deserves to be considered as such.

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q. The AR further relied on various judicial pronouncements in support. r. The AR further relied on the written submissions made before the first appellate authority and relied on the same in support of his arguments before us as well and submitted the copy of the same during the course of hearing.

2.4 During the course of hearing, the Ld. DR relied on the order of the AO.

2.5 We have carefully considered the rival contentions, facts of the case, order of the lower authorities and material on record. We find force in the submissions of the Ld. Counsel for the Appellant. We find that it is an undisputed fact that the land in question was held by the Appellant for period of around 20 years before being sold. We also find that it is further an undisputed fact that the land was sold as a large plot of land and not on plot by plot basis. We also find that there is no instance brought on record by the AO to prove that the Appellant was regularly involved in the activity of trading in plots. We find that the AO has justified treating the transaction of sale of land as income from trading on the following grounds as emanate from the Assessment order and which are not tenable for reasons as under : s. The Assessee is not an agriculturist by profession and carries on the business – This contention of the AO is not tenable as it is not the case where the Appellant has claimed the transaction of sale of land as exempt as the land is an agricultural land. In the present case, it is undisputed a non-agricultural land and the transaction has been treated as taxable as LTCG. The Appellant is in business for sure

5 ITA41/NAG/2017 DHIRAJ RAMBHAU LINGADE VS ACIT, AKOLA CIRCLE, AKOLA but not in the business of trading in land but that of running a wine shop. t. The Assessee has obtained the permission of the concerned authorities for conversion of land into residential plots – This argument of the AO also, in our view is not tenable. Mere action of conversion of the land does not partake the character of a business. This view is further affirmed in various judicial pronouncements discussed later herein. u. The fact that the assessee left space for the roads and plotted out, sold them to different persons by square feet instead of entire land as a single plot and was in receipt of price fetched by the urban building sites – We are unable to agree to this argument of the AO as well. The mere fact that the layouts were applied for and sanctioned does not, in our view, in singularity, change the character of the transaction. The Assessee might seek sanction to enable to get a higher price. Merely this action of the Assessee does not, in our view, make the activity a trading activity as held by the AO. Further the AO has mistakenly held that the Appellant has sold plots, whereas the fact of the matter being that the land was sold in big chunks and not on plot-by-plot basis. v. The agricultural land was converted into non agricultural land by payment of development charges – Again, as stated above mere act of conversion of land does not singularly decide the nature of the transaction. w. The assessee made its intention clear when it converted agricultural land into non-agricultural land in 1992 – As stated above, mere act of conversion of land does not singularly decide the nature of the transaction. The AO in our view lost sight of a very important factor that even after conversion of the land into non-agricultural land, the Appellant did not sell the land for around 20 years. Had the intention of the Appellant was to do business, she would not have retained the land for that long. It is inconceivable that anyone wanting to do business would wait for 20 years to dispose off the property.

6 ITA41/NAG/2017 DHIRAJ RAMBHAU LINGADE VS ACIT, AKOLA CIRCLE, AKOLA We are in agreement with the various judicial precedents relied upon by the AR wherein it has been held as under: x. B. Narsimha Reddy Vs. ITO (1993) 47 ITD 398 (ITAT Hyderabad) - Sale of agricultural ancestral land situate in municipal limits after plotting it out is not an adventure in the nature of trade, but a transfer of capital asset exigible to capital gains tax. y. CIT Vs. Mohmmed Mohideen (1988) 74 CTR 129 (Madras)- A sale of immovable property may possibly be a trading or commercial transaction, but need not necessarily be so. ... If a land-owner developed his land, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form of asset into another. Obviously, the surplus in such a case will not be trading or business profits because the transaction is one of realisation of assets in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade. z. CIT Vs.Suresh Chand Goyal (2008) 298 ITR 277 (MP) - There was nothing on record to show that land was purchased for the purpose of selling into plots. There ws isolated activity and plots were said to same better price, therefore, such isolated activity could not come within perview of adventure in the nature of trade in business. The main earning on the sale of land was in the nature of capital gain and, therefore, not assessable as income from business. aa. ITO Vs.Omkarlal Rambilas Ginning and Pressing Factory (2011) 44 SOT 544 (Hyd) - It was noted that assessee was holding impugned property in field of investment and it had no intention to trade in properties and Moreover, assessee did not carry on any development activities like laying roads, drainage and sanitary connections. It was also noted that assessee had made division of property only with an intention to get good buyers since large properties were not easy to sell in open market Therefore, on facts, development of land into residential plots with a view to get

7 ITA41/NAG/2017 DHIRAJ RAMBHAU LINGADE VS ACIT, AKOLA CIRCLE, AKOLA best price, without doing anything more, was nothing but realization of a capital asset, and, as such, surplus realized through sale of plots was only capital gain and could not be treated as a business profit. bb. Addl.CIT Vs. Delhi Apartment Pvt. Ltd. (2012) 135 ITD 441 (Delhi) - The assessee has carried on agricultural operations on the land and held it for more than 10 years. It is no doubt true that the MOA permits the assessee to carry on the business of purchase and sale of land. It had, in fact, carried on such business also. However, there is no bar on an investor in land to deal in land and vice-versa. Thus, an assessee could be trader as well as investor in land simultaneously, depending upon what his intention is and how he treats the asset in question. In this case, the land was purchased and shown as asset in the balance-sheet. The land was used for agricultural purposes. It was held for a long period of time. There is no evidence that borrowed capital was used for the purchase. Therefore, the facts on record lead to an inference that the land was held as an asset. Surplus realized on sale of such an asset has to be taxed under the head Capital gains.

On a conspectus of the all the facts and circumstances of the case and the various judicial pronouncements enumerated supra, we find that the AO erred in treating and the ld. CIT(A) erred in confirming the transaction of sale of land amounting to Rs. 83,72,000/- as trading income instead of LTCG as rightly declared by the Appellant. We accordingly hold the impugned transaction of Rs. 83,72,000/- relating to sale of land to be in the nature of Long-Term Capital Gains and accordingly set aside the impugned order passed by the ld. CIT(A) and direct the AO to delete the addition made. Accordingly, the grounds raised by the assessee stands allowed.

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Nagpur DATED: 8/6 /2022 *Mishra Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. By Order

Assistant Registrar ITAT, Nagpur