TMI Blog2016 (5) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee we have no hesitation but to held that the assessee's gains were profits from sale of specified agricultural land which does not come within the definition of asset as prescribed under s. 2(14) and by virtue of s. 2(lA)(a) r/w s, 2(14)(iii) r/w s. 10(1) the assessee's gains from sale of such agricultural land are exempt income - Decided in favour of assessee Disallowance under section 40A(3) - Held that:- The activities of the assessee was not in the nature of adventure of trade. However the purchase of land was an investment and was not stock in trade. The cash payment made by the assessee exceeding ₹ 20,000/- have duly been explained by the assessee. The AO has neither doubted the transaction nor it has doubted even the registration of sale deed nor it has doubted the amount. Since the AO has not doubted any of the above and further the land purchase was in the nature of investment and, therefore, following the judgment of the Hon’ble Supreme Court in the case of Attar Singh Gurmukh Singh vs. ITO (1991 (8) TMI 5 - SUPREME Court ) and also following the Hon’ble Jurisdictional High court in the matter of Smt. Harshila Chordia vs. ITO, (2006 (11) TMI 117 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued and served on the assessee and in pursuance thereof, a return declaring NIL income was filed on 03.09.2010. The assessee has declared NIL income from the business, however, has declared the profit on sale of agricultural land amounting to ₹ 57,39,980/-. Therefore, the assessee was called upon to explain as under :- It has been noted that the company has been in the business of purchasing, selling and developing land. As such the profit of ₹ 57,39,980/- earned from sale of agricultural land during the previous year 2007-08 relevant to A.Y. 2008-09 is the business income of the company. Show-cause why the same should not be treated as business income of the company. In pursuance thereof, the assessee had filed the detailed reply on 03.11.2010. However, the AO was not convinced with the explanation given by the assessee and, therefore, has made an addition of ₹ 57,39,980/- on account of profit earned on sale of agricultural land, treating the activity of the assessee as adventure in the nature of trade. The finding given by the AO is as under :- The assessee could only file sale deed of the property. It did not file copy of Khasra Girdawari to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the profit earned was exempt. Therefore, on both counts profit ₹ 57,39,980/- earned on sale of land is taxable, therefore, addition of ₹ 57,39,980/- is made to the income of the assessee. Similarly, the AO after giving the notice for violation of section 40A(3) of the IT Act has made the addition of ₹ 55,20,000/- as the assessee has made the cash payment of ₹ 20,00,000/- to Shri Kishan S/o Ramphal and ₹ 35,20,000/- in cash to Ms Anjaleka Kriplani D/o Sri Mohan Kriplani for the land purchased at village Amipur, Tehsil Distt. Faridabad. 4. Feeling aggrieved by the order passed by the AO, the assessee has preferred an appeal before ld. CIT (A). The ld. CIT (A) after considering the reply of the assessee and the remand report of the AO, has deleted the addition of ₹ 57,39,980/-. The reasoning given by the ld. CIT (A) is as under :- 4. I have considered the argument of the AR, the remand report of the AO and other material on record. Before discussing the issue it will be appropriate to first consider about admissibility of the additional evidence filed by way of modified certificate from Survey Lekhpal. In relation to admission of add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eces/plots and by laying kachha/pukka roads etc. that the courts have decided in favour of department. In the instant case undisputedly no such activity has been carried out by the appellant on the said agricultural land. The appellant has not converted the land into non-agriculture land; the appellant has not divided the said agriculture land into smaller pieces. Conduct of the appellant does not in any way reflect any intention to have adventure in nature of trade. The other circumstantial evidence also support this fact. It is seen that appellant has purchased three different agriculture lands in different years and in none of the agriculture land any such activity of developing the land as builder or developer was taken up till the year under consideration or even thereafter. Moreover these agriculture lands were shown as part of the fixed assets and not as stock-in-trade. 4.2. The AR has also countered the only decision referred by the AO i.e. in the case of M/s. Sutlej Cotton Mills Supply Agency. The facts of the reported case are that the said assessee applied for purchase of shares of Gawlior Rayon Silk Manufacturing Company Ltd. The assessee has sold part of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipur containing impugned land is mentioned to be more than 10 kms from nearby municipal limits. It is already on the record of the AO during the assessment proceeding that impugned land is in village Motipur and the population of the village Motipur is less than 10 thousand. Moreover there is no municipality in the village Motipur. Considering these facts, the observation of the AO so made in the assessment order only on the basis of assumption that land is within 8 kms. Of municipal limit and hence not agriculture land as per Sec 2(14) of the I T Act, is not sustainable particularly considering the certificate now filed in appellate proceeding which mentions the distance being more than 10 kms. It seems that the Survey Lekhpal incidentally has issued this certificate filed as additional evidence putting the same date as of the earlier certificate, since this modified certificate was taken just after few days of the first certificate i.e. after the assessment order was passed. In any case the appellant has filed another letter wherein on request made by the appellant in the application giving details of the agriculture land, the Survey Lekhpal has certified vide his signature dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances and legal position on the issue under consideration, it is clearly evident that provisions of Sec. 40A(3) are not attracted in the instant case of the appellant in relation to purchase of agriculture land and, therefore, the disallowance/addition made by the AO u/s 40A(3) amounting to ₹ 55.20 lacs is hereby deleted. 5. Now the revenue is before us. We have heard the arguments addressed on behalf of the revenue and have also gone through written submissions filed on behalf of the assessee. 5.1. The Ld D/R for the revenue has submitted that AO has demonstrated that the land purchased by the assessee was not meant for carrying out agricultural activities but with the main object to make profits by selling it to builders and developers. Reliance is placed on following case laws for the proposition that in such circumstances the addition can be made : (i) Sutlej Cotton Mills Supply Agency (supra); (ii) R.Dalmia v. CIT [1982] 137 ITR 665/[1981] 7 Taxman 284 (Delhi); (iii) Jawahar Development Association (supra); (iv) Kedarnath Jute Manufacturing Co. Ltd. (supra). 5.2. Coming to the legal arguments, s. 2(lA)/2(14)(iii) r/w s. 10(1), learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand, in the written submission the Ld AR for the assessee has submitted that - 1. The Assessee has explained that generally to carry on business activities the change in land use is necessary which is basic requirement for business activity proposed to be carried on. Such intention makes it necessary to take various actions for business Licence etc. Since the intention to create such business opportunity was absent, hence such action was not taken which clearly explains the conduct of assessee that it did not want to create any business venture. Such actions like improving the land, converting it for non-agricultural purposes, dividing the land into smaller pieces are generally done, if one has to do business activity. 2. The Assessee has also explained that this land has not been found suitable for its productive use as an ,agricultural land. Because its effective use as an agricultural land has been the basic motive when it was purchased, which when found non-achievable, enforced the Assessee to sell the land. 3. The land subsequently purchased as agricultural land has been continued to be agricultural land which is not at all the subject matter of doubt and AO has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not shown any activities of the assessee which has a manifestation of doing the business by acquiring and selling the land through the colourable devices. Their activities are to be analyzed on the basis of actual activities and cannot be ignored merely because of the name of the company . Ihus, this inference by lower authorities amounts to a pure guesswork and conjecture which we are unable to subscribe. Further, it . has been demonstrated by the assessee that it was mainly solitary transaction of the assessee to hold the agricultural land in question as fixed asset, carry out agricultural operation thereon and sell it as agricultural land. We do not find any facts on record to hold any other view. Thus, we are unable to subscribe the view that assessee was engaged in adventure in the nature of trade. 5.8. Coming to the nature Of agricultural land and its geography, it has not been disputed that the land in question was situated outside the specified municipal limits and as per the prescription of s.2(14) it does not amount to an asset. In order to come under the realm of capital gains, the law (snic-land) has first to qualify as an asset as per IT Act. The income arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 40A(3) of the IT Act. The perusal of the assessment order passed by the AO shows that vide Sale Deed dated 19.07.2007 the land was purchased and a sum of ₹ 20,00,000/- was paid in cash to Shri Kishan S/o Ramphal and ₹ 35,20,000/- was paid in cash to Ms Anjaleka Kriplani D/o Shri Mohan Kriplani. On the basis of payment made in cash, the AO has invoked the provisions of section 40A(3) on the premise that the activity of the assessee is in the nature of adventure and, therefore, the land purchased by the assessee company is stock-in-trade and, therefore, in view of the judgement of Hon ble Supreme Court in the case of Attar Singh Gurmukh Singh vs. ITO, Ludhiana, 191 ITR 667, provisions of section 40A(3) were attracted. 6.1 The matter was assailed by the assessee before the ld. CIT (A) and the ld. CIT (A) has deleted the addition on the ground mentioned in the appellate order. 7. Now the revenue is before us. 7.1 We have perused the written submissions and also gone through the orders passed by the authorities below and have also noted down the arguments of the revenue. While adjudicating the first issue, we have held that the investment made by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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