TMI Blog2008 (3) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... bour cost during the year. Details of expenses were filed by the assessee before the Assessing Officer. 4. However, the Assessing Officer was not satisfied with the book results, and made addition of Rs. 5,00,000 by reducing the loss by Rs. 5,00,000. The Assessing Officer has stated in the order as under:- "...As per details on record, the ratio of consumption of grey cement, white cement, dolomite powder and chips quantified in bags to the total turnover (quantified in brass) is 470.26 per cent for assessment year 1999-2000, 514 per cent for assessment year 2000-01 and as high as 526.76 per cent for assessment year 2001-02. For the year under consideration for total turnover of 4876.98 brass, the bags of raw materials mentioned above was stated to be 25685 bags. The disturbing factors such as labour problem, etc., could not go to affect raw material consumption ratio. It is stated that quantity record of raw material consumed is maintained in detail. However, it is seen that shortage and scrape details are not mentioned. However the claim of the assessee that labour unrest resulted in slow work, sabotage of material etc. is without evidence. The huge rise in ratio of raw mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial consumed and items manufactured, due to which he could not work out the percentage of yield. In my opinion yield serves the same purpose as the ratio of consumption of raw material worked out by him, and referred above. I do not know what additional purpose working of yield will be serving, as both are indicators of raw material consumption with respect to the material produced. The increase in ratio of raw material consumption from 514 per cent to 526 per cent does not appear to be very significant warranting rejection of book results. Otherwise also, ratio of consumption of raw material to sales is irrelevant, as rightly pointed out by the appellant, and, hence, no adverse view is possible on slight fluctuation in such a ratio. The allegation of the Assessing Officer regarding non-maintenance of shortage and scrap details is also not based on proper facts as it forms part of the stock registers itself existence of which has not been denied by the Assessing Officer also. 10.2 As regards labour unrest, once the Assessing Officer is satisfied about such a happening, the outcome of it is on expected lines. Understanding the nature of assessee's business for this purpose is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the parties and have carefully perused the orders of the authorities below. 10. There is no dispute that there was an increase in the consumption of raw materials as well as labour charges. It is not the case of the Assessing Officer that the increase in the books of account towards consumption of raw materials and the payment of wages were false and bogus. No item of expenditure has been pointed out to be sham or non-genuine. Facts as to the consumption of raw materials and labour unrest has been correctly appreciated by the CIT(A). In the absence of any specific instances of items of expenditure which could be said to be bogus and non-genuine, the ad hoc disallowance made by the Assessing Officer is improper. The learned D.R. has not been able to point out any material to dispute the findings given by the CIT(A). We are inclined to uphold the order of the CIT(A) in deleting the above addition. We are in full agreement with the CIT(A) for the reasons given by him while deleting the addition. Therefore, this ground raised by the revenue is rejected. 11. The next issue raised in the ground No. 2 is with regard to the loss incurred on sale of plot of land at Pune. In the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion was purchased, i.e., whether to hold it as a capital asset or as a business asset/stock-in-trade. The basis for Assessing Officer's view that the land is a capital asset held by assessee and the loss incurred on sale of this land is a capital loss is that, in the past assessee has never dealt in land and there are other capital assets held by the assessee-appellant, and also there is no evidence of exploitation of the said land for business. The assessee has proved with evidence that in the past also assessee has dealt in land, as well as the other group concerns are in the same business. The fact that assessee has also shown income from estate dealing also, support the assessee's contention that this is not a new field for him to doubt his intentions regarding acquisition of 'Man' land for trading. On the other hand the ld. Authorised Representative of the appellant has put forth various reasons in order to prove assessee's intention behind buying/purchasing land in question, i.e., for trading purpose. The transaction in question has taken place along with the other land transactions at the same place and it is an undisputed fact that all other transactions by the group we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss loss is not admissible having regard to the facts of the present case. He submitted that the assessee had purchased the land with a view to earn profit on its investment and not by involving in any adventure in the nature of trade. He further submitted that the assessee has not been able to prove that the intention of the assessee to purchase the land in question was to embark upon any business activities of sale and purchase of land and then to earn profit, but the assessee's intention was to earn profit on its investment as the assessee had an information that the land would fetch higher price after the same was converted into industrial land. No development activities to make the land fit for carrying on any business by any industry or unit were ever carried out by the assessee. He further pointed out that the assessee used to hold certain other lands as an investment. In this connection, he has pointed out that in the assessment year 1996-97, a short-term capital gain on sale of land amounting to Rs. 64,000 was shown by the assessee and was also assessed accordingly in the assessment made under section 143(3) of the Act. He further clarified that in the note No. 3 annexed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring 2.20 Acres (0 Hect. 88 Acres) was purchased on 25-6-1999 by the assessee for a consideration of Rs. 22,03,880. The land covered by S. No. 346/5 was situated at village Man, District Pune. The land was classified as Agricultural land in the revenue records at the time when the same was purchased by the assessee. In the meantime, a notification on page Nos. 924 and 925 of Maharashtra Government Notification-Part-I (supplementary) bearing No. CA/SF/1/79), dated 25-5-2000 was issued under section 32(1) of Maharashtra Industrial Development Act, 1961 by the Government of Maharashtra to acquire the said land for the purpose of expansion of Pune Info Tech Park at Hingewadi. The said land had then become the Government land under section 32(4) of the Act. The classification of land was later changed from "Agriculture and No Development Zone" to "Industrial Zone" vide notification dated 13-7-2000 of the Government of Maharashtra. A notice under sections 33(2) and 36(1) of Maharashtra Industrial Development Act, 1961 was issued on 11-12-2000 to the assessee to collect the amount of compensation on 16-12-2000 from the office of Sub-Divisional Officer, Sub-Division Mawal, Pune and to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere no other activities of the appellant. Those who had purchased nearby lands with the similar intention did make good profit in short period (Exhibit 'B') and have returned the same as business income." 18. We have to examine the question involved on the aforesaid fact whether it is a matter of capital gain or a matter of profits out of the adventure of trading business. In this case, the assessee has submitted that he had some information that the land in question was to be declared as industrial zone, and to get benefit of this information, the assessee purchased the land with the intention of disposing it off in the same form or after carving out plots, and to make good profits in the process. We may observe that the assessee is not a dealer or engaged in real estate business. The land was not held as stock-in-trade. There can be no gain saying that even a single venture may be regarded as a trade or business, but there have to be circumstances which may give rise to such a conclusion. No single fact has decisive significance, but we must look at the cumulative effect of all the facts and circumstances of a given case to arrive at a conclusion as to whether the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ane linen and sells it in different lots, and, for the purpose of selling starts an advertising campaign, rents offices, engages an advertising manager, a linen expert and a staff of clerks, maintains account books normally used by a trader, and passes receipts and payments in connection with the linen through a separate banking account: Marlin v. Lowry: a person who carries on a money-lending business purchases very cheaply a vast quantity of toilet paper and within a short time thereafter sells the whole consignment at a considerable profit: Ruiledge v. Commissioners of Inland Revenue: and a person, even though he has no special knowledge of the trade in wines and spirits, purchases a large quantity of whisky and sells it without taking delivery of it at a considerable profit: Commissioners of Inland Revenue v. Fraser, may be presumed, having regard to the nature of the commodity and extent of the transaction coupled with the other circumstances, to be carrying on an adventure in the nature of trade. These are cases of commercial commodities. But a transaction of purchase of land cannot be assumed, without more to be a venture in the nature of trade. A director of a company carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r instance, would be capital if the assessee is an ordinary investor realizing his holding; but it would be revenue if he deals with them as an adventure in the nature of trade. The fact that the original purchase was made with the intention to resell if an enhanced price would be obtained is by itself not enough but in conjunction with the conduct of the assessee and other circumstances it may point to the trading character of the transaction." 25. The Hon'ble Bombay High Court in the case of Principal Officer, Laxmi Surgical (P.) Ltd. after applying the test laid down by the Hon'ble Supreme Court in the case of Janki Ram Bahadur Ram and other cases has held that any transaction undertaken with intention to earn profit is not enough to give it the character of a stock-in-trade or to bring the transaction within ambit of an adventure in the nature of trade. 26. These principles discussed above have been taken into account by the Hon'ble Bombay High Court in the case of Principal Officer, Laxmi Surgical (P.) Ltd. It was held and observed by the Hon'ble Bombay High Court as under:- "Applying the tests laid down by the Supreme Court in the various judgments referred to above to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was an adventure in the nature of trade. The intention of the assessee to acquire the plot was in expectation that the same would be converted into the industrial land by the State authority and if it is then sold, the assessee would be able to earn handsome profit. The assessee had intention to dispose off the land either in the same form or after carving out the plot after the same was declared as industrial zone. This very intention of the assessee is not enough to bring the transaction within the ambit of an adventure in the nature of trade without anything more in the nature of any business activity. The assessee has not produced any adequate and proper evidences to establish that the assessee had purchased the land with an intention to sell the land to earn profit by involving or embarking upon any trade activities in respect of the land. The assessee's case is the case of realization of investment with profit and cannot be termed as an adventure in the nature of trade. Even, mere carving out the plots and selling it to different persons cannot also be assumed to be an adventure in the nature of trade unless something more activities in the nature of business are carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out by that assessee, i.e., M/s. Ashoka Industries. Therefore, mere because the profit earned by M/s. Ashoka Industries in selling of plots of land has been shown under the head "Business" is not sufficient to say that the assessee was also carrying on business of dealing in lands unless it is otherwise brought by cumulative effect of all the factors present in the assessee's case. In this connection, we may take a note of the instances of purchasing and selling or shares and securities, where the surplus realized on the sale of shares would be capital if the assessee is an ordinarily investor realizing his holdings, but it would be business profit, if he deals with that as an adventure in the nature of trade. Similarly, the surplus amount realized on the sale of plot of land would be capital if the assessee is realizing his investment, but it would be revenue, if the assessee deals with the selling and purchasing of land as an adventure in the nature of trade. In the case of M/s. Ashoka Industries, the assessee was dealing with the purchase and sale of land, and as such, the profit arising therefrom may be a revenue amount and that by itself would not lead to a conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much settled vis-a-vis the cases of investors-cum-traders in shares and securities. Further, it is a settled position that even a single transaction can be on business account if it is in the nature of adventure in the trade. Thus, the Assessing Officer was not right to consider the said land transaction under the head 'Capital gains' for the reasons that there are other capital assets in the shape of land purchased by the assessee. Actually, the Assessing Officer never asked to prove this, in spite of repeated requests in this connection." 31. There is no quarrel as to this proposition as submitted by the assessee. The assessee has admitted the position that one is permitted to hold certain assets on capital account and certain similar assets as stock-in-trade. This position is very much well-settled in the cases of investors-cum-traders in shares and securities. We find that the assessee owns agricultural land as capital investment inasmuch as in the assessment year 1998-99, the assessee has shown agricultural income amounting to Rs. 17,900 being agricultural land rent received from Ashoka Vanarai Development and Ashoka Lawns. In the year under consideration, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit. The land was agreed to be sold as a whole to M/s. Agarwal Enterprises, who was a colonizer and after development asked the assessee to transfer the plot of land to its nominee. Development expenses have been borne by M/s. Agarwal Enterprises. On these facts, the view of the Commissioner of Income-tax (Appeals) and the Tribunal cannot be held to be erroneous in concluding that the profit earned was not arising from the adventure in the nature of trade, but was in the nature of capital gain. For the reasons stated above, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. However, there shall be no order as to costs." 33. Therefore, on the facts found, we hold that it is the case of realization of investment and cannot be termed as an adventure in the nature of trade. Therefore, the loss arisen from the transaction of purchase of land and then acquired by the Government is assessable under the head "Capital loss" and not "Business loss". 34. In the light of the discussion made above, we, therefore, hold that the CIT(A) was not justified in accepting the assessee's claim that the transaction was an adventure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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