TMI Blog2011 (10) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore the activity is an adventure in the nature of trade or business and income from the same is taxable as business income - Held that:- AO has rightly formed requisite believe or reason to believe that the income has escaped assessment for the A.Y. 2000-01 - Decided in favor of the revenue - ITA No.1492/PN/2008 - - - Dated:- 3-10-2011 - Shailendra Kumar Yadav, D Karunakara Rao, JJ. For Appellant: Shri Sunil Ganoo For Respondent: Shri Hemant Luva, Sr AR ORDER Per: D Karunakara Rao: This appeal by the assessee is directed against the order of the Commissioner of Income tax (appeals) II, Nashik dt.19-9-2008 for the assessment year 2003-04. 2. Assessee raised the following grounds in this appeal. 1. In the absence of conditions precedent for issuance of notice u/s 148 of the Income tax Act, 1961, the impugned reassessment order being bad in law, void ab initio and patently illegal, the learned CIT(A) ought to have annulled/cancelled/vacated the impugned reassessment order. 2. In the facts and circumstances of the case and in law, the ld.CIT(A) has grossly erred in holding that on transfer of agriculture land situated at S.No.145/3 Kandari Shivar, B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an adventure in the nature of trade . On considering the fact that the assessee disclosed an agricultural income Rs 15,000/- in the return, A.O. requested the asssessee to provide the complete details about (i) the crops grown; (ii) expenses incurred for raising the crops; and (iii) evidence in support of the receipt of the agricultural receipts. The assessee was unable to give any satisfactory reply to the A.O. The assessee claimed that since the agricultural income was exempt, she was under a bona fide belief hence no details were maintained and complete information was not available with her. It was mentioned that she cultivated the land directly and earned an agricultural income of R.15,000. However, the assessee filed the 7/12 extracts as evidence in support of evidencing her claims. 6. The assessee was given a further opportunity of submitting the following details. i. When they purchased the land whether there were any crops on the land if so the details. ii. Who cultivated the land, i.e. self or by tenant iii. Whether there was any crop when the land was sold. iv. Any evidence other than 7/12 extracts to prove that the land was actually cultivated. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO. 7. The reasons for the same areas follows. I. Assessee is not an agriculturist. She did not hold any agricultural land prior to purchase of the above land. II. As concluded above assessee has not cultivated the agricultural land. The circumstances discussed earlier indicate that assessee had purchased the land with the sole intention to sell it in immediate future and not to till/cultivate it. III. The land is just within 1 km from the Bhusawal Municipal Limit and it is located in the zone marked for residence. Thus, purchase of agricultural land in the residential zone only indicates that the same was purchased with the sole intention to sell it in near future at a profit. IV. The sale of an agricultural land at substantially high price within 27 months of its purchase and subsequent purchase of another agricultural land on the very same day of sale of the earlier agricultural land is sufficient evidence/indicator that assessee is indulging in the activity of buying and selling of land with the motive to earn income/profit and is therefore adventure in the nature of trade. V. Immediate on sale/transfer of the land, the purchaser has converted the land into non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T.Act. d) There is a certain evidence in form of 7/12 extract that the land has been cultivated by the assessee and has taken the crops cited supra. e) The land was purchased as an investment with intention to cultivate it and never held as stock in trade or as a business asset. f) The land was never converted into stock in trade or assessee never tried to get it converted into non-agriculture land. As such, land was retained by the assessee as a capital investment till it was sold out. g) As alleged by the assessing officer, the assessee never carried out any business activities of sale and purchase of agriculture lands. The said land was sold not with intention to make profit but it had become inconvenient and difficult to carry out the agriculture activities in the said area due to uncongenial circumstances prevailing in that area. h) It is pertinent to note that I.T.Act permitted and motivated to reinvest the sale proceed of agriculture land, in purchase of new agriculture land, as can be seen as mentioned in the section 54B of the act. As such, the assessee reinvested the part sale proceeds of agricultural land in purchase of new agricultural land. To pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o) Mere inclusion in residential zone by town planners does not make the land as non agricultural land.In this connection I would like to draw your honour s kind attention to the Circular No.2D (WT) of 1960 dt.26- 02-1968, wherein it was clarified that the land which is covered by the Town Planning Scheme may be treated as agricultural land provided the following conditions are satisfied. i) Land revenue/agriculture cess is paid ii) Agriculture operations have been carried out from year to year iii) It has not been put to non-agriculture use. Although the above circular applies to wealth tax for granting exemption u/s 2(e)(i) of W.T.Act, the same can be applied with equal force in the relevant circumstances arising under I.t.Act. Kindly refer to the following decisions. A) CIT v. Raja Benoy K Sahas Roy (1957) 32 ITR 466 (SC) B) Smt.Saarifabibi Mohamed Ibrahim and Others v. CIT (1993) 204 ITR 631 (SC) p) Last but not the least, assessee want to submit that the intention of the assessee has to be gathered from his conduct and circumstances and the evidence available and not by surmises or conjectures. There is no presumption in regard to the intent of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land is agricultural land therefore, it is not a capital asset and (ii) if the impugned sale transaction dated 21.2.2003 constitutes adventure in the nature of trade or not, we have heard both parties and perused the orders of the revenue authorities as well as the paper books filed before us. We have gone through various citations relied upon by Sri Ganoo, the Ld Counsel for the assessee and also Sri Hemant Ld DR for the revenue. The stand of the assessee is that the land in question is an agricultural land when purchased as well as during the holding period. The same is reflected as agricultural land in the land records. If the said land is subsequently converted in to non agricultural one by the transferee of the said land, the assessee cannot be held responsible for the same. Assessee strongly rely on (i) 7/12 extracts and the contents therein and details kept with the revenue records relating to payment of land revenue; (ii) declaration of agricultural income on the returns; (iii) assessee books showing that the land is shown as investment and not as the stock in trade (iv) others as detailed in the preceding paragraphs. Therefore, as per the assessee, the said land is agric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order 3 Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop-gap arrangement? It was for a short period of 27 months after which the same piece of land was sold. 4 Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? No. The agricultural income is shown from the agricultural operations is not in consonance with the size of the holdings. 5 Whether the permission under s. 65 of the Bombay Land Revenue Code was obtained for the nonagricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of land on material date? The land has been sold to the vendee with clear intention of use for the non agricultural i.e. housing purpose only. The permission has been obtained for NA use of the land by the vendee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the sale or intended sale was in favour of a nonagriculturist was for non-agricultural or agricultural user? NA obtained for the non agricultural use by the vendee immediately on transfer of the land parcel. 12 Whether the land was sold on yardage or on acreage basis? Land sold on the yardage basis by the purchaser 13 Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield? In no way land would be purchased at the site sold for the price at which it was sold. The land parcel now lies within the highly lucrative residential areas of the Jalgaon city and agricultural operations are not possible on such lands. 14. From the table with the data compiled by the DR, we find that the data relating to the land in question relevant for the period during the holding period by the assessee and also the post transfer period was taken into consideration. Items no 5,9,11,12 etc of the above table contains the data of the vendee and however, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in and around that area. The short distance from the residential zone makes it clear that practically, the agricultural practices cannot be undertaken and in any case the land would be now in the Town Planning (TP) scheme of that area of Jalgaon. In our opinion, location of the land proximity to the residential zone goes against the assessee. More so when there is no direct evidence and convincing evidence to demonstrate the existence of agricultural activity on the said land during the holding period. Regarding the conversion of the land, plotting, construction of roads and sale of the plots in yardage and not acreage, it is a fact that she did not do any of these activities, however, the vendee has done all these activities. Now the question that arises here relates to if the data relevant for the vendee can be used by the revenue to advance their case? In our opinion, it is very difficult to answer this broad question with meager facts on file. However, the fact that the assessee sold the property of Rs 1.43 lakhs worth for the sum of Rs 11.11 lakhs in the gap of 27 months of holding period is of some significance. In other words, the said figures indicate that the said land is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecords (i) with standing coconut trees; (ii) but without any other agricultural activities; (iii) when sold 2 years after its purchase; (iv) for consideration 10 times more than the purchase price; (v) to a purchaser for raising a beach resort a commercial activities, is an agricultural land. In this regard, we have considered the arguments of the DR who stated that the said decision has not considered the then existing judgment of the Supreme court in the case of the Smt.Saarifabibi Mohamed Ibrahim and Others (supra), which is known for its ratio that for ascertaining whether land is agricultural, cumulative effect of all relevant facts for and against assessee must be considered; on such consideration land held not to be agricultural when sold . The fact the above judgment of the Apex court was not considered in the said cases reported in reported in 196 Taxmann 230 (Bom) (suspra) was also brought to our notice. Further both the parties have vehemently quoted various other citations, which were duly considered by us. We have perused the said judgment of the Apex court and found the same was held in favour of the revenue. In the said judgment, Hon ble Apex Court dismissed the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee heavily relied on the 7/12 extract, whereas the A.O. clearly proved that the 7/12 extract cannot be taken as an acceptable evidence in the present facts of the case in view of the enquiry made him u/s 131 of the Act. Further enquiries made by the A.O. from the purchaser proved that there were no crops standing at the time of sale of the said piece of land. The assessee strongly objected to the use of the said statements in the assessment without giving her an opportunity. However, during the course of the appeal proceedings, the A.O. offered the opportunity of crossexamination to the assessee, but the authorized representative of the assessee did not avail the opportunity for whatever reasons he felt. This fact has been confirmed by the assessee herself in her submissions dt.18-8-2008. Therefore, the assessee cannot take a plea that the said statements were used against her without giving her the opportunity of cross-examination. The assessee was not having any evidence regarding the purchase of seeds, fertilizer or pesticides or any other expenditure about the agricultural operations carried out by her. The assessee even could not produce any form of evidence regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent facts of the case. There are various decisions on this issue and each case is different because of distinguishable facts. However, the principles laid down in the various decisions will act as a guiding factor to decide whether a particular transactions is an adventure in the nature of trade or otherwise. In the present case, the A.O. held that the transaction of sale of land amounted to adventure in the trade of trade for the following reasons. i. The assessee was not an agriculturist. ii. The assessee never cultivated said piece of land. iii. The said piece of land was very close to the municipal limit of Bhusawal. iv. The sale of the said piece of land was at a substantially high price. v. Immediately after the sale, the purchaser developed the land for commercial purposes. 5.1 As per the detailed submissions of the assessee, it may be seen that though the assessee was not an agriculturist earlier, but definitely she hails from an agriculturist family. This factor is also not very relevant to decide whether a transaction is in the adventure of trade or otherwise. The assessee is not doing any business and she being a lady it cannot be taken that she d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to mention that the assessee did not made use of the offer of the CIT(A) during the first appellate proceedings for cross examination of the witness. Regarding potential of the impugned land, it is undisputed fact that the said land is located proximity to the residential zone as discussed in the table above. It is a fact that the end use of the land is for residential plots only. Regarding the timing of the conversion of the land in to NA, the DR s argument that the assessee being a women shifted that responsibility to the vendee, who soon after the sale, applied for NA on 28/7/2003, obtained the same on 30/9/2003 and finally plotted the land and sold them off thereafter the sale. Mr Pravin Balakrishna Chaudari, the vendee, took possession of the land on 21/02/2003. Aanswers to Questions 9 to 16 of the statement of Mr Pravin B Chaudari placed at page 72 73 are relevant and perused. Considering the series of the events registered soon after the date of sale transaction of the land, in our opinion, the assessee s intention of commerce with the impugned land cannot be disassociated with said sale transaction. Considering the end use of the land done soon after the sale transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons drawn by the CIT(A) in para 4.10 of his order does not call for any interference. Accordingly, ground 2 is dismissed. II. VALIDITY OF THE REASSESSMENT PROCEEDINGS U/S 147 22. Next issue at ground 1 relates to the issue of validity of the reassessment proceedings. In this regard, learned counsel for the assessee mentioned that this is a case, where the assessee filed the return of income on 20-9-2003. The return was processed u/s 143(1)(a) and the assessing officer issued a notice u/s 148 of the I.T.Act, 1961 (the Act) on 4-12-2006 i.e. within four year from the end of the year in which the return was filed. The assessing officer recorded the reasons for reopening the assessment. Further, the assessing officer met the objections raised by the assessee by passing an order dt. 5-7-2007. The assessing officer rejected the objections which were confirmed by the CIT(A) during the first appellate proceedings as per the discussion given vide paragraph 7 of the impugned order. Aggrieved with the finding of the CIT(A), the assessee took up this ground before us. 23. At the outset, the learned counsel for the assessee took us through (1) the reasons recorded by the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cannot be said to be the agricultural land and impugned sale transaction cannot be held to be non commercial transaction. At the end, Ld DR is of the opinion, the AO has rightly assumed jurisdiction u/s 147 of the Act. 25. We have heard both the parties and perused the orders of the revenue authorities along with the paper books available before us. In our opinion, it is relevant to extract (1) the reasons recorded by the assessing officer available at page 4 of the paper book 1; and (2) objections raised by the assessee and meeting of the same by the assessing officer vide his order dt. 5-7-2007. First we take up the reasons at sl no 1 above. Reasons recorded by the assessing officer for issue of notice u/s 148 of the I.T.Act. During the year assessee has sold agricultural land bearing No.9.4, kandari Bhusawal for Rs.11,11,000 on 21-2-2003. The land was purchased on 12-10-2000 for Rs.1,43,000/- assessee has held the land for just 28 months. Assessee is not an agriculturist. Further on the same day of sale of this land assessee has purchased another agricultural land for Rs.2,00,000. Assessee has not offered for taxation the profit on sale of the above land which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Laxmi Surgical P Ltd 202 ITR 601 (SC) Specific attention of the assessing officer is invited on the decision of the Bombay High Court in the case of Siemens India Ltd. V. ITO 143 ITR 120 wherein it is held that Not to follow the decision of the High Court within whose jurisdiction the ITO acts, would tantamount to committing contempt of that Court. The objection raised by assessee against issue of the notice u/s 148 dt.4-12- 2006 is rejected for the following reasons; 1) Assessee purchased the agricultural land at Kandari in October 2000. Assessee is not an agriculturist and neither held any agricultural land previously. 2) The land at Kandari was sold within three years of holding it and on the very same day of its sale assessee purchased another agricultural land. 3) The agricultural land was purchased for only Rs.1,43,000/- and within 28 months it has been sold for Rs.11,11,000/- i.e. appreciation of nearly nine times within 28 months. 4) The sale of an agricultural land at substantially high price within 28 months of its purchase and subsequent purchase of another agricultural land on the very same day of sale of the earlier agricultural land is suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic information relating to the impugned land and the sale transaction ie about its location, holding period of 28 months in the hands of the assessee, purchase and sale considerations of the land, profit of Rs.9,68,000/-, reinvest of the said profit to the extent of Rs 2 lakhs in another land etc. AO is also of the view that the assessee being a lady is not an agriculturist by profession. Considering the above fact, it appears that the AO formed an opinion that the assessee is carrying on the business of purchase and sale of agricultural land and therefore the activity is an adventure in the nature of trade or business and income from the same is taxable as business income. We have to decide if the said belief is erroneous or otherwise and the said information is sufficient enough for generating a reason to believe as mentioned in the section 147 of the Income Tax Act, 1961 relating to Income escaping assessment . We have also perused the Supreme Court judgment in the case of Joti Parshad vs. State of Haryana 1992-(SC2)-GJX-0657-SC for detailed meaning of the expression reason to believe as defined by the Section 26 IPC. It is the finding of the Hon ble court that suspici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recording of the reasons, that the assessee is a lady and she has no other agricultural land except the one under dispute claimed as agricultural land. Considering all these circumstances, we are of the considered opinion the AO has rightly formed requisite believe or reason to believe that the income has escaped assessment for the A.Y. 2000-01. So far as the case laws cited by the assessee s AO, we have already held that they are distinguishable on facts. Therefore, the notice issued by the AO for the reason recorded are valid and therefore, the ground one raised by the assessee is dismissed. III. Additional ground - Deduction u/s 54B of the Act 30. This ground is raised without prejudice to the other two grounds raised originally in the appeal. Considering the fact the same is legal in nature and adjudication of the does not call for any investigation into the facts, in our opinion, the assessee is entitled to raise the same before us and therefore, we proceed to admit the same. On admission, Ld DR for the revenue opposed vehemently stating that the admission of the additional ground merely an academic exercise as the impugned land was never used by the assessee in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
