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2016 (5) TMI 634 - ITAT JAIPUR

2016 (5) TMI 634 - ITAT JAIPUR - TMI - Disallowance of profit in sale of agriculture land - whether transaction in property by assessee company should not be treated as business activity - Held that:- There is no enabling provision in the income-tax law prescribing that even if the assessee's income is exempt by a provision, then it can be forcibly brought into the tax net by assuming the assessee's activity to be adventure in the nature of trade. It is a settled position by Hon'ble Delhi High C .....

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n tax nor can be treated as business income. In view of the foregoing and respectfully following the case law cited 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

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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 - RAJASTHAN HIGH COURT) which was relied upon by the Hon’ble Punjab & Haryana High Court in the matter of Gurdas Garg vs. CIT,(2015 (8) TMI 569 - PUNJAB & HARYANA HIGH COURT) wher .....

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Whether on the facts and circumstances of the case the CIT (A)(Central), Jaipur has erred in law as well as on facts in deleting the addition of ₹ 57,39,980/- made on account of disallowance of profit in sale of agriculture land holding that transaction in property by assessee company should not be treated as business activity. 2) Whether on the facts and circumstances of the case the CIT (A) (Central) Jaipur has erred in law as well as on facts in deleting the addition of ₹ 55,20,0 .....

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enu Group. M/s. Focal Point Buildrs & Promoters (P) Ltd. was controlled by Shri Ziaulla Sheriff & Shri Tafsir Ahmed during the period relevant to A.Y. 2003-04. However, the shareholding has changed the hands to Shri Roop Bansal and Shri Basant Bansal. In A.Y. 2007-08 the shareholding again changed hand and it was controlled by Pahwa Group. The assessee company has not done any business activity during the period relevant to A.Y. 2003-04 to 2007-08 except holding a land in Gurgaon. In the .....

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lain 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 .....

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filed but it only says that the village Motipur, Pargana Dunkaur, Distt. Gautam Budh Nagar does not fall within the Municipal Limit and it is not urban area but rural area. The certificate says only that land under consideration was within Municipal Limit but it does not certify that it was within or outside 8 kilometers from the Municipal Limit. In the absence of the requisite certificate it can be safely assumed that the land was within eight Kilo metres of municipal limit. Therefore, the sam .....

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operty and other property whether real or personal and to turn the same into account as per its MOA. Not only the MOA but the conduct of the assessee also points towards its business being related to real estate which includes purchase & sale of land, agricultural or other wise. As can be seen from the details in the Balance Sheet filed by the assessee that it has purchased 3 more agricultural lands during the year other than the one which has been purchased during the year and has been sold .....

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claimed to be agricultural land. In view of the discussion as above, purchase and sale of agricultural land by the assessee is considered to be an adventure in the nature of trade and also the assessee has not been able to prove that the land sold was agricultural and was 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 giv .....

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ly 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 additional evidence, Hon ble ITAT Ahmeda .....

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e party has not adduced any evidence in the trial court. In the case of Shivajirao, Hon ble Supreme Court has laid down the basic principles for admission of the additional evidence, which inter alia includes that such evidence is relevant for determination of the issue. Considering the facts and circumstance of the case and decisions of the various courts, whereas it has been held that in the interest of justice and for proper determination of the income, the additional evidence may be admitted .....

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ivity of builders & promoters, which has been used by the AO as a basis for treating the sale of agricultural land as adventure in the nature of trade. The AO is right in mentioning that the facts and the circumstances of the case will decide whether the particular activity of the assessee is activity of sale of agriculture land or it is essentially adventure in the nature of trade. The Hon ble Courts, while deciding such matters, have gone into the facts of the case and in most of the cases .....

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h 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 .....

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Company Ltd. The assessee has sold part of the shares and included the profit in the profit and loss account; the assessee has purchased shares from borrowed money and not with the money readily available to it; the assessee had in the past dealt in the shares as business transaction. Considering these facts the Hon ble High Court held it to be adventure in the nature of trade. The Hon ble Supreme Court has concurred with decision of Hon ble High Court. However, in the instant case of the appel .....

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aw referred by the AO is not at all applicable to the facts of the appellant s case. 4.3. Accordingly in view of the facts and the circumstances of the case coupled with the legal position on the issue, it is not possible to sustain the finding of the AO that the sale of impugned agriculture land is essentially adventure in nature of trade. 4.4. Now coming to the issue whether the impugned land was the agriculture land within the meaning of Sec. 2(14) of IT Act or not. From the perusal of the as .....

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within 8 kms of municipal limits and hence is not agriculture land. The AR has rightly argued that AO has just presumed that land was within 8 kms. Only in absence of any mention of distance by the Survey Lekhpal by ignoring the details and submission made by the AR in the assessment proceeding. The AR has furnished another certificate from Survey Lekhpal as additional evidence in the appellate proceedings wherein the distance of the village Motipur containing impugned land is mentioned to be mo .....

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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 .....

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) of IT Act and on this account also no addition need to be made. Accordingly addition made by the AO amounting to ₹ 57,39,980/- is hereby deleted. 4.1. Similarly, the ld. CIT (A) has also deleted the addition of ₹ 55,20,000/- under section 40A(3) for the following reasons :- 5.3. I have considered the arguments of AR and perused the material on record. It is undisputed that appellant has shown the purchase of impugned agriculture lands (wherein part of the payment have been made in .....

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0A(3) is applicable on the expenditure incurred which includes the expenditure for purchase of stock-in-trade as had been held by Hon ble Supreme Court in the case of Attar Singh Gurumukh Singh (supra) and Sec. 40A(3) is not at all applicable for purchase of fixed assets. In the instant case, undisputedly the purchase of land is part of purchase of fixed asset and is not part of the stock-in-trade. The AO s observation that appellant is in the business of purchase and sell of land, is country to .....

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5.4. In totality the facts and circumstances 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 .....

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981] 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 D/R contends that the main argument of the assessee is to the effect that the land in question is outside the specified municipal limits and such land being not a capital asset is not liable to income-tax. AO has not taxed the gains on the basis that purchase and sale of land by the assessee is .....

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al investment, entries in the books of accounts are not material and the real nature of transaction is to be seen. Reliance is placed on Hon'ble Supreme Court judgment in the case of Kedarnath Jute Manufacturing Co. Ltd. (supra). It is further pleaded that the MOA of the assessee nowhere provides that it will be purchasing agricultural land for carrying out agricultural operation or for keeping such land for long-term basis. Thus, the agricultural activity claimed to be carried on by the ass .....

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ssessee has claimed exempt by treating the same as fixed assets, is an adventure in the nature of trade. 5.5. The property under consideration was purchased in the year and was sold in the year itself. Period of holding of the property also indicates that the property though agricultural land was purchased with a profit motive. coupled with the fact that the"business of the assessee company is dealing in real estate, therefore, the profit earned on sale of agricultural land is business inco .....

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tunity 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 .....

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before Assessee like having availed some loan facility which enforce the Assessee to have some business strategy to scale down the outside liability; to save the company from high value financial commitment or to save the company from interest obligation. 5. The Assessee pleaded that Agricultural Land has not been treated as stock in trade at all. Even the Agricultural Land other than the above mentioned Agricultural Land has been treated as fixed Assets. Hence, any extra-ordinary inference may .....

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there are no sale of agriculture land in the subsequent year and all the agricultural lands are existing as agricultural lands only and till date there is no action about conversion! Land use charges etc of existing agriculture lands in hand. Even in the impugned agricultural land, no any activity related to conversion or land use change or any activity of such nature was carried out. Thus the dominant intention of keeping the land only as agriculture land was quite clear. 5.7. We have heard th .....

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estate development, therefore, the assessee is engaged in real estate business. In our considered view his assumption has no legs to stand. First of all, assessing officers 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 au .....

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ing 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 from the sale of agricultural land falls under s. 2(14)(iii) r/w - s. 10(1) and is to be treated as agricultural income. The inter .....

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ssee was into adventure in the nature of trade, therefore, the nature, geography and activity of the land should be ignored, the statutory provisions should be given a go bye and assessee is to be somehow held as engaged in the adventure in the nature of trade and taxed on exempt income. In our view, There is no enabling provision in the income-tax law prescribing that even if the assessee's income is exempt by a provision, then it can be forcibly brought into the tax net by assuming the ass .....

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agricultural land in terms of s. 2(14) in,i,e. not being an asset, its transfer will neither attract capital gain tax nor can be treated as business income. In view of the foregoing and respectfully following the case law cited 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( .....

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77; 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 .....

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