MATTAPALLI RAM KUMAR,RAJAHMUNDRY vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), RAJAHMUNDRY

This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-1 [in short, “CIT(A)”], Rajamahendravaram, in dated 04.07.2019 for the Assessment Year (A.Y.) 2016-17.

Brief facts of the case are that the assessee is a commission agent, deriving income from finance business, filed his return of income for the A.Y.2016-17, declaring income of Rs.48,78,230/-, besides agricultural income of Rs.4,50,000/-. The case was selected for complete scrutiny under CASS, where notices u/s 143(2) and 142(1) have been issued and served on the assessee. The assessee purchased agricultural lands jointly with his wife during 2012 to an extent of 4.5 acres and later converted the land into non agricultural land on 18.06.2013 vide proceedings of RDO, Rajahmundry in RC.F.2951/II/3540/13 (LCR 03009988). Later, the assessee along with his wife divided the land into plots under a project, known as “Rome City” and obtained approval from Director of Town & Country Planning, Rajahmundry in T.L.P. No.111/2014/R. Subsequently, the assessee sold the entire plots to M/s Sattibabu Ventures & Projects Pvt.Ltd., Rajahmundry, where, the assessee is also one of the Directors holding 32% of shares. The assessee declared his share of long term capital gains of Rs.29,14,025/-, arising out of sale of plots. The Ld.AO carefully examined the submissions made by the assessee, relying on the case of G.Venkataswamy Naidu Vs. CIT [35 ITR 594 (SC)] and treated it as ‘Adventure in the Nature of Trade’ and taxed the sale consideration as business receipts.

Aggrieved by the order of the AO, the assessee filed appeal before CIT(A), Rajahmndry. Considering the submissions made by the AR, the Ld.CIT(A), upheld the order of the AO, relying on the judgement of Hon’ble ITAT, Jaipur Bench in the case of Ramswaroop Saudagar, Jaipur Vs. ITO, Dausa in ITA No.329/JP/2017.

Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us raising the following grounds :

The Ld.AR argued that in order to fetch better price for the land which was held as an asset by the assessee for a period of more than 36 months, the land was converted into non agricultural land and divided into plots and sold to M/s Sattibabu Ventures & Projects Pvt. Ltd., Rajahmundry.

Per contra the Ld.DR relied on the order of the AO and also argued that the assessee with an intention to commercially exploit the sale of land converted the land into non agricultural land and later divided into plots and sold for a higher consideration. Therefore, he pleaded that the order of the Ld.CIT(A) be upheld.

We have heard both the parties and perused the material placed on record. It is seen from the submissions of the Ld.AR that the agricultural land was purchased by the assessee on 21.01.2012 and converted the same into non agricultural land on 18.06.2013. The assessee in order to exploit the opportunity of getting higher price for the land, divided it into plots and sold them to M/s Sattibabu Ventures & Projects Pvt Ltd., where the assessee is also a Director. We find that it is quite natural that a person will try to exploit the commercial opportunities for the investments made by him. It is also noted that the assessee has not claimed any expenses with regard to conversion of agricultural land into non-agricultural land. The assessee after indexing the cost of land offered the balance Rs.29,14,025/-, being his share of capital gains to tax. Since the assessee is not in the business of trading in plots or real estate, it is prerogative of the assessee to make the land into a saleable condition for higher consideration. In view of the above, we find force in the argument of the Ld.AR and based on the merits of the case, the appeal of the assessee is allowed.

In the result, appeal of the assessee is allowed.