TMI Blog2010 (9) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... s : "1.The order of CIT(A) is erroneous both in facts and law. 2.The CIT(A) has erroneously relied on section 3 of A.P. Scheduled Areas Land Transfer, 1959 as it stood before its amendment with effect from 4-3-1970. 3.The CIT(A) has erred in holding that the sale of plots is valid even though the transferees are not members of Scheduled tribe. 4.The CIT(A) erred in holding that the profits on sale of plots is to be assessed as capital gains instead of business income even though the transfer of such land is absolutely null and void ." Thus, the main dispute in this appeal relates to the assessability of profit realized on sale of plots by the assessee to tax and the head under which the profit on sale of plots realized by the assessee is assessable. 3. Facts of the case in brief are that the assessee, a partnership firm carrying on activity of purchase and sale of kappas, owned 9 acres and 24 guntas of agricultural land in Echoda Village of Adilabad District, having been purchased originally by the father of the partner of the appellant firm, Shri Nandlal on 5-8-1969 from one Katham Ashareddy. The said land was initially used for agricultural purposes. Though a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred in view of the provisions of A.P. Scheduled Areas Land Transfer Regulations, 1959, since the Survey No. 10, in which the land in question is located, falls in the agency tract and therefore, there is a prohibition on transfer of the land. He also held that when the transfer of land is not legally permissible, receipt on sale of such land is to be taxed as a casual and non-recurring receipt. He also held the view that provisions of section 45(2) for conversion of the capital asset into stock-in-trade do not apply. The Addl. Commissioner of Income-tax accordingly came to the conclusion that the income is assessable only as income from business. In accordance with the directions of the Addl. Commissioner of Income-tax, the Assessing Officer completed the assessment for the years under consideration, treating the income earned on sale of land as business income vide orders of assessment dated 31-12-2008 for assessment years 2005-06 and 2006-07 and dated 30-3-2009 for assessment year 2004-05 passed under section 143(3) read with section 147 of the Act. 5. On appeal before the CIT(A), the learned counsel for the assessee filed elaborate written submissions, which the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as income from business or income of casual nature. I have already held that in fact there is no illegality about the transfer of the property within the meaning of the said Regulations. The Assessing Officer also did not establish that the appellant with an intention to carry on the business converted the land into plots. As pointed out earlier, the appellant intending to sell the property, plotted it and transferred most of the property in one year. All the acts of the appellant indicate that the appellant had no intention to carry on the business activity and wanted to sell the property. I am also in agreement with the appellant that the property was divided into plots to facilitate the sale and to derive better price. Therefore, I hold that the transactions are assessable as income under the head "Capital gains" and not under the head "Business". He sought to strengthen the above findings with the decisions of the Madras High Court in CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578 and CIT v. MLM Mahalingam Chettiar [1977] 107 ITR 236 (Mad.) and of the Madhya Pradesh High Court in the cases of CIT v. Dhananjay Rao Jadhav [1996] 88 Taxman 62 and CIT v. Sure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abad due to petition filed by Shri K. Narayan Reddy s/o Shri Asha Reddy wherein it was decided that the land would belonging to the partners of the assessee firm though the partners paid a comprise amount of Rs. 9 lakhs to Shri K. Narayan Reddy. Now the question is with regard to the head of income under which the income derived on the sale of plots to be assessed whether it should be treated as capital gain or business income. Admittedly, the assessee in this case is in the business of purchase and sale of kappas and mainly getting income from pressing and ginning of cotton. It is having ginning and pressing factory at Adilabad. The assessee was never in the business of trading in immovable properties. The term business is defined in section 2( 13 ) of the Income-tax Act. The term capital asset is defined in section 2( 14 ) of the Act. The test to decide whether it was an investment or an adventure in the nature of trade, has a very thin line of demarcation. Even a single instance of transaction can be regarded as business and even multiple transactions, some times can be deemed as investments. So, the criteria for deciding whether it is an investment or business is dependent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the assessee. The assessee had been carrying on the agricultural activities in the impugned property and offered agricultural income from the same to tax in earlier assessment years. Being so, the assessee correctly offered the income under capital gain. 10. The authorised representative of the assessee relied on the following judgments which support the assessee s claim : 1. Kasturi Estates (P.) Ltd. s case ( supra ); 2. MLM Mahalingam Chettiar s case ( supra ); 3. Dhananjay Rao Jhadav s case ( supra ); 4. Suresh Chand Goyal s case ( supra ); 5. CIT v. Smt. Radha Bai [2005] 272 ITR 264 (Delhi); 6. ITO v. D.N. Krishnappa [2009] 126 TTJ 140 (Bang.); 11. Before us, the learned Departmental Representative strongly relied on the order of the Ahmedabad Bench in the case of Smt. Nayanaben R. Desai v. ITO [2010] 124 ITD 387 wherein it was held that : "The assessee had used the plot of land in relation to her partnership business. The land was converted into stock-in-trade of the business. As the business of construction was done by the firm and the share of income received by her from the firm was duly shown as business income, the surplus gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowances made by the Assessing Officer out of the business expenditure claimed by the assessee, which have been partially sustained by the CIT(A). For the assessment year 2004-05, while the Assessing Officer made a disallowance of Rs. 39,000, the CIT(A) sustained the same to the extent of Rs. 20,000. For the assessment year 2005-06, while the Assessing Officer disallowed petty expenses of Rs. 21,003; loss on kappas of Rs. 27,850; expenses on ginning and preessing labour of Rs. 30,000; compound wall and godown repair expenses of Rs. 20,000; factory expenses of Rs. 20,000; and telephone expenses on account of personal user of Rs. 10,795, the CIT(A) deleting all these additions made separately, directed the Assessing Officer to make an addition of Rs. 40,000 only to cover all un-vouched expenses. Similarly, for the assessment year 2006-07, while the Assessing Officer made a disallowance of Rs. 40,236, CIT(A) sustained the same to the extent of Rs. 20,000. 15. We have heard both the parties on the above issue. Admittedly, significant portion of the expenditure claimed by the assessee as deduction is only supported by self-made vouchers. Since the expenditure is supported only by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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