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Mr. N. Jayamurgan Versus Deputy Commissioner of Income Tax, Central Circle 2 (1) , Chennai and Vica-Versa

2016 (6) TMI 518 - ITAT CHENNAI

Assessment of jurisdiction u/s.153A - agricultural income - Held that:- There is no allegation that these lands were kept idle and no agricultural operation was carried on by the assessee. Considering the vast area of agricultural land owned by the assessee and agricultural operations carried on by the assessee, it is not possible to hold in all assessments completed u/s.143(3) r.w.s.153A of the Act, the assessee’s income not from agricultural income and it is from other sources as there is no e .....

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he ground raised by the Revenue in all its appeals are dismissed.

Addition towards difference in turnover between the seized material and turnover declared in the finance statement - main plea of the assessee is that the turnover mentioned in the seized material does not tally with the books of accounts as on the date of search, since it requires reconciliation - Held that:- The observation of the CIT(A) is that the assessee has not reconciled properly while completing the proceedings .....

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ng , the AO shall decide the issue afresh.

Addition made in respect of income from sale of agricultural land by treating it as real estate business - Held that:- It is an admitted fact that the land was held by the assessee as a capital asset from the date of purchase till the date of sale. There is no evidenced brought on record by Revenue to show that the land was held by assessee as stock-in-trade.

The mere circumstances that a property is purchased in the hope that whe .....

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action is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention o .....

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gest that the activity was an adventure in the nature of trade.

Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as nonagricultural land by the assessee or any other concerned person, transfers such agricultural land as it .....

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er section 143(1) or 143(3) to the determination of enhanced income under section 143(3) r.w.s. 153A of the Act. - I.T.A.Nos.2356 to 2362 /Mds./2015, I.T.A.Nos.480 to 486/Mds. /2016 - Dated:- 27-4-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND Shri Duvvuru RL Reddy, JUDICIAL MEMBER For The Assessee : Mr.S.Vidhya,C.A For The Revenue : Mr.Sundar Rao,CIT, D.R ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: These seven cross appeals are directed against the common of the Ld.CIT(A)-18,Chennai dated .....

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artner in some of the firms to name a few are L.S.Distributors, Lucky Distributors etc. and is also proprietor of M/s.Nandhini palace. A search u/s.132 of the Act was conducted in the residential and business premises of the assessee on 12.05.2012 and M/s.Nandhini Palace on 15.05.2012. The ld. Assessing Officer issued statutory notices and completed the assessment u/s.143(3) r.w.s.153A of he Act for all the assessment years from 2007-08 to 2013-14 by making additions on three counts i) Agricultu .....

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search as such assessment of jurisdiction u/s.153A of the Act is bad in law. At the time of hearing, ld.A.R is not pressed this ground and accordingly made an endorsement to this effect. Hence, this ground in all the assessee s appeals are dismissed as not pressed. 4. The next ground in the assessee s appeals is with regard to the action of the Ld.CIT(A) confirming the addition towards agricultural income as by treating it as income from other sources at 50% in spite of the fact assessee is hol .....

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sessee has taken the plea before the AO that assessee is owning 150 acres of agricultural land in and around Sripeurambudur Taluk, Chengalpet & Kancheepuram district which was purchased mainly during the period 2003-04. The agricultural income received from cultivation of crops such as coconuts, mangoes, vegetables, seeds and paddy from the said agricultural land. The assessee said that the assessee has sold the agricultural produce in local market and the assessee also submitted proof for o .....

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onclude the income declared by the assessee as agricultural income. Thus, he treated the agricultural income declared by the assessee as nonagricultural income. However, on appeal, the Ld.CIT(A) observed that specifically in assessment year 2009-10 that the assessee has not kept any accounts for agricultural income. However, there is no dispute that the assessee owns 150 acres of agricultural land. It is not easy in agricultural sector to maintain the bills, vouchers, sales bills etc. Therefore, .....

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efore us. 5. We have heard both the parties and perused the material on record. Ld.A.R submitted that the owning of agricultural land was not disputed by the Revenue Authorities. The only reason for disallowance is non-production of certain documents regarding carrying out the agricultural operations and sale of agricultural produce. The assessee has placed evidence containing details of acres of cultivated land, place of cultivation, village name, type of cultivated and net income earned on eac .....

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material found during the search action to suggest that the assessee is not carried on any agricultural operation in these assessment years i.e. 2007-08 to 2013-14. The ld. Assessing Officer and Ld.CIT(A) in arbitrary manner observing that assessee s agricultural income cannot be treated genuine one, though there is evidence in the form of owning agricultural land of 150 acres. There is no allegation that these lands were kept idle and no agricultural operation was carried on by the assessee. Co .....

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me as agricultural income and arbitrarily disallowing the same by the AO and confirming the CIT(A) at 50% of that disallowed by the AO, is not justified. Accordingly, the agricultural income declared by the assessee has to be accepted in toto. This ground in all these appeals of the assessee is allowed and the ground raised by the Revenue in all its appeals are dismissed. 6. The next ground in assessee s appeal for all the assessment years is with regard to addition towards difference in turnove .....

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es turnover reported in these loose sheets were compared with turnover reported in the audited financial statement submitted for scrutiny. On comparision, the AO found that the sales turnovers are under reported to the tune of ₹ 50,72,828 being the difference between turnover as per seized materials amounting to ₹ 2,89,80,082/- and turnover as per tally accounts amounting to ₹ 2,39,07,254/-. The assessee submitted a reconciliation statement on 23.3.15 stating that the differenc .....

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and loss account and seized material with some numerical figure as he could not explain the difference. The ld.A.R submitted that if the aforesaid items are reduced from the turnover as per seized materials, the resultant turnover will tally with turnover as per audited accounts. The Ld.CIT(A) observed that though reconciliation statement was submitted, the assessee could not bring any evidence on record to prove the difference. The assessee simply stated that the main difference is on account o .....

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d in the seized material does not tally with the books of accounts as on the date of search, since it requires reconciliation. To this effect, he has filed statement showing the reconciliation of turnover which is as follows:- Assessment year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Turnover as per material seized Add: Mistaken in A.O page 6.Point No. 6.4(Page no. of loose sheet No. 48-Jan& Feb only taken-March, 12 not taken) 237,37,902 279,54,365 289,80,082 285,89,426 305,53,905 324, .....

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aundry etc. adjusted with related expenses) 1,29,502 59,807 (58,592) (394) 24,797 (3,67,758) (B) 38,23,170 45,84,273 50,72,829 54,72,270 60,86,795 72,10,947 (A)-(B) 199,14,732 233,70,092 239,07,253 231,17,156 244,67,110 265,72,021 As per Books of accounts 199,14,732 233,70,092 239,07,253 231,17,156 244,67,110 265,72,021 Difference (0) (0) - (0) The observation of the CIT(A) is that the assessee has not reconciled properly while completing the proceedings before him. The assessee filed above stat .....

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This ground is partly allowed for statistical purposes. Revenue s Appeals: ITA Nos.481,482 & 485/Mds./16 9. The next ground in ITA Nos.481, 482 & 485/Mds./2016 is with regard to deletion of addition made by the AO in respect of income from sale of agricultural land by treating it as real estate business. 10. We consider the facts in appeal No.482/Mds./16.(A.Y.2009-10) The facts of the case are that in the computation of income, the assessee had claimed exemption from Income tax for the .....

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le deeds were called for from the assessee. On verification of the sale deeds, It was found by the AO that the land was sold after converting the land into residential plots with the approval of Department of Town and Country Planning vide approval dated 26-02-2008. It was found that the Land was purchased as agricultural land and was sold as agricultural land and the land was under actual cultivation of paddy till, the date of sale. The assessee also produced Chittal Adangal copies before the A .....

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ossession of the agricultural land on the same day to Mr.Ramesh. Details of expenditure Incurred for cultivation of crop were available with the assessee and was lost in the month of May, 2008 as evidenced by police complaint. It is the submission of the appellant that different prices were paid to different parties depending on the quality of the agricultural land and availability of irrigation facility. It was submission of the assessee that some approvals were taken before the sale agreement .....

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r lands simultaneously along with Navaliur land cannot alter the nature of the land under discussion. Assessment to land revenue as agriculture land is a strong piece of evidence of its character. The assessee did not take any step to convert the agricultural land to residential lay outs and had not done any amount of work before the date of sale. The intention of the appellant was to do agricultural activity. Even though agriculture was done for only a brief period, the character of land will n .....

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ate business till today. 10.1 According to A.O, the land purchased by the assessee cannot be for agricultural land since he cannot hold so much land which against the Land ceilIing Act. The assessee is inreal estate business. The assessee had aggregated the lands by purchasing from 38 parties and brought them under single ownership and all the lands were made and became a single unit after purchase/ aggregation. The assessee had taken steps to convert the agricultural lands in to residential plo .....

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greement that is December, 2007 but even after,. every application was made in the assessee s name and approval was also given in the assessee s name The assessee had held the land in his possession for a period less than one year from the date of purchase to date of sale deed dated 14.05.2008. In some cases, it Is just seven months. The time gap between purchases of land arid Memorandum of Agreement for sale dated 01.12.2007 is less than eight months. In some cases, it is less than two months. .....

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14.05.20.08,Till the date of 14 05 2008 the assessee continued to be the absolute owner of the property. The possession was handed over to N S Gandhi Nagar Housing Society on 14.05.2008. The asset sold is a non-agricultural land and a developed and approved lay-out. The clause [iii) to sub section [14] to section 2 of Act 1961 Is not applicable to assessee s case. The appellant is in real estate business. The sale and handing over of possession took place on 14.05.2008. The property conveyed wa .....

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as income earned under section 28 of the Act and added to the income of the assessee. It is submitted that on conversion of agricultural land into residential plots the property is no more an agricultural land what was sold by the assessee was developed: residential plots. The agreement entered with Mr. Ramesh is an ineffective document through ineffective document Immovable property cannot be transferred. The appellant did not provide evidence to show that he did agriculture activity in these .....

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e is owner of the land in question on those dates arid the nature of land is Agricultural. 10.2 It is submitted that both the facts are wrong. Before these dates, the residential plots were transferred to M/s Gandhl Nagar Housing Society Limited through sale deed dated 14.05 2008 in the sale deed. It is mentioned that residential plots were developed. It was contention of assessee that the land was not transferred to Mr. R.Ramesh and the A.O continued to be the land owner till 14.05.2008. Moreov .....

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to be repaid by the purchaser to Mr R Rameh. 10.3 The figure of ₹ 50,49,54,375/ was taken from Computation of Income as submitted by assessee and the same is not In recognition of sale agreement which was not honored and ineffective entered between the assessee and Mr Rarnesh It is requested to enhance the receipt from sale of residential plots from ₹ 50,49,54,375/- to ₹ 57,90,14,350/- as per the sale deed dated 14.05.2008. A person who was not in a position to pay the sale co .....

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see that the assessee believed that it was an exempted income, he does have the liberty to declare in whatever the year he wants, which is not correct. What is needed is the proof for cultivation of land by the assessee to show that his intention was to cultivate the land. It is submitted that they are not applications and they are only No Objection Certificates to put the land for development of residential plots. It can be signed only by Revenue authorities of Government of Tamil Nadu. The ass .....

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in what period was held as agricultural land is important factors. The timeline is more important. Everything cannot be swept under a single blanket by saying it was assessed to land revenue. The approved layout adjacent to the land in question is an important factor that allured the assessee to jump into the venture of Navallur project. 10.4 The assessee has not produced any proof to show that the cultivated the land. The nature of land was changed before the date of sale by converting it into .....

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the assessee was to trade in the land and not to do cultivation. It is not a mere appreciation of land price. If land appreciates with reasonable time interval it is quite normal. Appreciation within a year is because of value addition done to the land which necessarily a business activity. In this case, value addition was done by land aggregation and development of residential plots. It is neither assumption nor pure guess work. The statutory provisions, was not given a go by and the assessee .....

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ture in the nature of trade by various judgments. The 50.84 Acres of land purchased was alone involved a series of more than 38 transactions. The assessee had not produced any proof that he cultivates 150 Acres of land. More specifically, he did not produce any proof to show that the cultivated Navalilor Land. After the amendment of Section 53A and 17(1A) of Transfer of property Act, in the year 2001, the written contract must be registered. Unregistered document is an ineffective document. He r .....

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007, but he did not do that. Against this, the assessee is in appeal before the Ld.CIT(A). 11.1 On appeal, Ld.CIT(A) observed that the assessee purchased the land as agricultural land as evidenced by various purchase deeds, which is not in dispute and was sold as agricultural land as evidenced by sale agreement by the appellant with Mr. Ramesh purchaser and the land was under actual cultivation of paddy till the date of sale. The agricultural land purchased held as fixed assets in the books of a .....

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o a buyer, Mr Ramesh and handed over the possession of the property on the date of agreement which is evidenced by the sale agreement dated 01-12-2007 and also affidavit filed before the assessing officer by Mr Ramesh. As per page no 4 of the sale deed registered on 14th May 2008, clearly mentioned that, Mr.Ramesh had made development and promoted the property more fully described in the schedule hereunder. Extract of the same is reproduced herein below: Mr. Ramesh, in pursuance to the agreement .....

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rea and other common amenities etc which Layout is known and termed as Greens Grove Jayam Nagar In the aforesaid land, and has obtained Layout Approval from the competent Authority of Town and Country Planning Department in their Approval No. LP/DTCP No.25/2008 dated 26.02.2008). The agreement between the appellant and Mr.Ramesh was incorporated in the registered sale deed also on which the learned assessing officer relying on Copy of page no.4 of the sale deed. It is also to be noted that, the .....

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of the sale deed dated 14th May 2008. The assessee entered into sale deed on l4 May 2008, the total consideration mentioned in the sale deed was ₹ 57,90,14,350/- The Assessing Officer, while computing the alleged business Income on this transaction, taken the total sale consideration as ₹ 50,49,54,375/- The above fact clearly shows that, Mr.Ramesh is the first purchaser of the property under discussion and he Is not a mediator, or co-developer for this property. Only for the, purpos .....

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h March 2015, before the assessing officer clearly mentioned that, he has purchased the agricultural land for the assessee, as per agreement dated 1 December 2007 and had taken the possession of the land on the very same day. He also mentioned that, he has developed the said land and to manage the financial consideration, he approached M /s Gandhi Nagar Housing Society Ltd for sale of land and as per the sale agreement the assessee executed the sale deed in favour of the M/s Gandhi Nagar Housing .....

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ing purpose which is irrelevant for the Issue under consideration. As per all the revenue records, the land sold by appellant is agricultural land. 11.2 The conditions lay down in section 2(14) of IT Act were fulfilled. Details of expenditure incurred for cultivation of crop were available with the appellant and was lost in the month of May, 2008 as evidenced by police complaint. It is the submission of the appellant that different prices were paid to different parties depending on the quality o .....

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sing Officer, stated that, the appellant has obtained NOC even before the date of agreement dated 1st December 2007. It is found from the copy of the application placed at page no. A3 to A10 of the assessment order, the appellant has not signed the application. The applications for those approvals were not done by appellant. It might be possible that Mr. Ramesh or some mediators might have applied for approvals even before the date of agreement with the appellant. If the fact that the approvals .....

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the character of appellant land. The appellant did not take any step to convert the agricultural land to residential lay outs and had not done any amount of work before the date of sale. The intention of the assessee was to do agricultural activity. Even though agriculture was done for only a brief period, the character of land will not change. The appellant sold agricultural land as he was in need of funds for business activity to start up SNJ DstiIlers and SNJ Breweries Project. There are Seve .....

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he assessee was into adventure of nature of trade, the statutory provisions should be given a go bye and assessee is to be somehow held as engaged in the adventure of nature of trade .and taxed on non-taxable income. It is found that, so long as the assessee holds the specified agricultural land in terms of section 2(14) i.e, not being a capital asset, its transfer will neither attract capital gain tax nor can be treated as business income. 11.4 The assessee did not sell approved lay out to M/s .....

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ngalpet and Kanchipuram District. In the year under consideration, he sold around 50 Acres of land to Mr.Ramesh for the purpose of expanding his business activity and he is stiil continuing agricultural operation in the balance 150 Acres of Land. This clearly shows that, the intention of the appellant is to do agricultural activity only. 11.5 As per section 2[47](v) of the IT Act, any transaction involving of the possession of any immovable property to be, taken or retained in part performance o .....

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there is a contract to handover possession of immovable property for consideration of ₹ 50.50 Crores (b) The contract must be in writing, signed by the transferor, or by someone on his behalf None of these facts is in dispute and the conditions are fulfilled (c) The writing must be in such words from which the terms necessary to construe the transfer can be ascertained In the present case, the same is satisfied (d) The transferee must in part performance of the contract to take possession .....

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tract. We have already mentioned at (e) above, that the purchaser Mr. Ramesh had already performed his part of the agreement. Thus, if these principles are applied to the present case, possession of the land being one of the interests in property has been transferred to the purchaser by handing over the possession of the land, the Transfer is over as per the Income Tax Act. On the date of transfer, the assessee sold only the agricultural land and nothing else. The surplus arising out of the sale .....

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s in the business of real estate and he developed several layouts in and around Navallur, not only in the assessee s agriculture land but also adjacent to the appellant s land. 11.7 Ld.CIT(A) observed that there is no dispute that the appellant acquired the agriculture land of 50.84 acres as evidenced by purchase deeds As per all revenue records, namely, Chitta, agricultural land to Mr. Ramesh. Mr. Ramesh is in the business of real estate and he developed several layouts in and around Navallur, .....

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of this agricultural property is nothing but on account of adventure in the nature of trade and the same was assessed as business. It is found that the assessee held the land always as investment and not at all converted into stock-in-trade The character of the land In the hands of the assessee has not changed. There is no cogent material on record to show that the appellant carried on activities of buying and selling of land in a systematic manner so as to justify the action of the assessing of .....

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ds, but also it was subjected to the payment of land revenue and that it was actually and ordinarily used for agricultural purpose at the relevant point of time. He observed that In the case of CIT vs. Manilal Somnath reported in 106 ITR 917, wherein the Hon ble Gujarat High Court observed that the potential nonagricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land on the relevant date of sale. In the ca .....

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ay whether the land is agricultural or not. 11.8 In the present case, the land in question was classified in the Revenue records as agricultural land, actual cultivation has been carried on this land as evidenced by Chitta/Adangal and Income was declared from this land in the return of income filed by the appellant for the assessment year as agricultural income. In the Revenue records, the land is classified as agricultural land and has not been changed from agricultural land to non-agricultural .....

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otive of the assessee in selling the land without anything more by itself can never be decisive to say that the assessee used the land for non-agricultural purposes, Hon ble Supreme Court in the case of N.Srinivasa Rao v Special Court reported in 4 SCC 214, where it was observed that the fact that agricultural land in question is included in urban area without more, held not enough to conclude that the User of the same had been altered with passage of time. Thus, the fact that the land in questi .....

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s a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census Of which the relevant figures have been published before the first day of the previous year; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) .....

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intention of the assessee was at the time of acquiring the land. Though intention subsequently formed may be taken into account, it is the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade that intention must be present at the time of purchase. The mere circumstances that a property is purchased in a hope that when sold alter on it would leave a margin of profit, would not be sufficient to show, an intention to trade at t .....

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xable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade. Further, when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations In such agricultural land and also being specified as agricultural land in Revenue records, the land Is not subjected to any conversion as non-agricultural land by the assesse .....

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on of sale as per section 54 of The Transfer of Property Act that In the case of Tangible immovable property, such transfer may be made either by a registered instrument or by delivery of the property. Delivery of tangible immovable property takes place when the seller places the buyer in possession of the property. In the case under consideration, the appellant entered into agreement with delivery of the possession of the agriculture land with Mr.Ramesh on 1st day of December, 2007 and hence, t .....

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reement. The Agreement for Sale entered on 1.12.2007 is the final one. As per the Certificate issued by the Revenue Authorities, the land fulfills the conditions laid down u/s. 2(14)(iii) of the Act. It is pertinent to note that the tests listed in this clause are applicable for Agricultural lands which are fulfilled. Once the assessee has qualified under section 2[14) of the Act, as per Revenue Records, as agriculture lands, the AO is not right in treating the gain as business income. The submi .....

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Act were fulfilled. The land was sold to Mr. Ramesh, agreement holder, through sale agreement on 15t of December, 2007 and handed over the possession of the agricultural land on the same day to Mr. Ramesh. As per Chitta/Adangal, the paddy crop. was cultivated In the month of September, 2006 and harvested in the month of January, 2007 as evidenced by Adangal issued In the name of Mr Varathappa Nayekar. As per the sale agreement all the approvals is to be obtained by Mr. Ramesh. The assessee is o .....

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to do real estate business as he sold the agriculture land to Mr. Ramesh as agriculture land only. Buying other lands simultaneously along with Naallur land cannot alter the nature of the land under discussion. Assessmert to land revenue as agricultural land is a strong piece of evidence of its character. Approved layout adjacent to sold land did not alter the character of assessee s land. The price fixation on sq. ft. basis is may be to facilitate the payment to the assessee. The intention of t .....

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6 and 12.12.2007 respectively. As per these assessment orders, the assessee was in the business of running boarding and lodging and hotel business and no real estate business income was assessed to tax in these assessment years. He never offered any income from real estate business for the assessment years under consideration which clearly proves that the assessee was not in real estate business. The case laws relied on by the AO is distinguishable on facts. All the above factors clearly establi .....

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idered as real estate business. Since the assessee has got approval for layout and also assessee converted the layout, once it is approved for developing the land, then it cannot be considered as agricultural land and it is to be considered as business asset of the assessee and not remained as a capital asset. Further, he submitted that assessee entered into MOU with M/s.Saravana Finance Ltd., on 18.05.2006 wherein the assessee requested for purchase of 200 acres of agricultural land. As Tamilna .....

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, for the purpose of residential layout and sale was made on 14.05.2008, which is less than one year from the date of purchase of the land. However, he submitted that:- 1. The time gap between purchases of land and Memorandum of Agreement for sale dated 1.12.2007 is less than eight months. In some cases it is less than two months and in one case it is just one day. 2. The appreciation in land value is 300 % and in one case it is 653 %. While entering into sale agreement with Mr. Ramesh the asses .....

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n square feet basis 5.The Agreement for sale entered on 1.12.2008 did not materilaise and it was not final one. The sale took place on 14.05.2008. 6.Till the date of 14.05.2008 the assessee continued to be the absolute owner of the property 7.The possession was handed over to M/S Gandhi Nagar Housing Society on 14.05.2008 8.The assessee sold and handed over the possession of the approved and developed lay out to M/S Gandhi Nagar Housing Society Ltd. 9.The assessee had pumped in lot of energy, ti .....

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. 14 .The clause (iii) to sub section 14 to section 2 of IT Act 1961 is not applicable to assessee s case. 12.1 The ld.A.R submitted that the assessee purchased the land as agricultural land as evidenced by various purchase deeds, which is not in dispute and was sold as agricultural land as evidenced by sale agreement by the assessee with Mr.Ramesh purchaser and the land was under actual cultivation of paddy till the date of sale. The agricultural land purchased held as fixed assets in the books .....

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d over the possession of the property on the date of agreement which is evidenced by the sale agreement dated 01-12-2007 and also affidavit filed before the assessing officer by Mr. Ramesh. 12.2 As per page no. 4 of the sale deed registered on 14th May 2008, clearly mentioned that, Mr.Ramesh had made development and promoted the property more fully described in the schedule hereunder. Extract of the same is reproduced herein below: Mr. Ramesh, in pursuance to the agreement dated 01-12-2007 enter .....

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menities etc which Layout is known and termed as Green Grove Jayam Nagar in the aforesaid land, and has obtained Layout Approval from the competent Authority of Town and Country Planning Department in their Approval No. LP/DTCP No.25/2008 dated 26-02-2008) The agreement between the assessee and Mr.Ramesh was incorporated in the registered sale deed also on which the learned assessing officer relying on. Copy of page no.4 of the sale deed is enclosed herewith. It is also to be noted that, the ass .....

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the sale deed dated 14th May 2008. The assessee entered into sale deed on 14th May 2008, the total consideration mentioned in the sale deed was ₹ 57,90,14,350/-. The Assessing Officer, while computing the alleged business income on this transaction, taken the total sale consideration as ₹ 50,49,54,375/-. The above fact clearly shows that, Mr.Ramesh is the first purchaser of the property under discussion and he is not a mediator or co-developer for this property. Only for the purpose .....

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nt, under the head obligation of the vendor. The purchaser Mr.Ramesh, in his affidavit dated 14th March 2015, before the assessing officer clearly mentioned that, he has purchased the agricultural land for the assessee, as per agreement dated 18th December 2007 and had taken the possession of the land on the very same day. He also mentioned that, he has developed the said land and to manage the financial consideration, he approached M/s Gandhi Nagar Housing Society Ltd for sale of land and as pe .....

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09-10, do not make any difference. Mr. Ramesh developed the agriculture land into lay out for housing purpose which is irrelevant for the issue under consideration. As per all the revenue records, the land sold by assessee is agricultural land. The conditions lay down in section 2(14) of. IT Act were fulfilled. Details of expenditure incurred for cultivation of crop were available with the assessee and was lost in the month of May, 2008 as evidenced by police complaint. It is the submission of t .....

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n before the date of agreement. During the course of appeal proceedings also, the Learned Assessing Officer, stated that, the assessee has obtained NOC even before the date of agreement dated 1st December 2007. We find from the copy of the application placed at page no. A3 to A10 of the assessment order, the assessee has not signed the application. The applications for, those approvals were not done by assessee. It might be possible that Mr. Ramesh or some mediators might have applied for approv .....

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iece of evidence of its character. Approved layout adjacent to sold land did not alter the character of assessee s land. 12.6 The assessee did not take any step to convert the agricultural land to residential lay outs and had not done any amount of work before the date of sale. The intention of the assessee was to do agricultural activity. Even though agriculture was done for only a brief period, the character of land will not change. The assessee sold agricultural land as he was in need of fund .....

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cer is amounts to a pure guess work and conjecture. The assessing officer holding that, the assessee was into adventure of nature of trade, the statutory provisions should be given a go bye and assessee is to be somehow held as engaged in the adventure of nature of trade and taxed on non-taxable income. It is our submission that, so long as the assessee holds the specified agricultural land in terms of section 2(14) i.e., not being a cap[ital asset, its transfer will neither attract capital gain .....

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006. 12.7 The assessee owns more than 200 Acres of the Land in and around Sriperumbattur, Chengalpet and Kanchipuram District in the year under consideration. He only sold around 50 Acres of land to Mr.Ramesh for the purpose of expanding his business activity and he is still continuing agricultural operation in the balance 150 Acres of Land. This clearly shows that, the intention of the assessee is to do agricultural activity only. 12.8 As per section 2[47](v) of the IT Act, any transaction invo .....

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re must be a contract to transfer for consideration any immovable property. In the present case, there is a contract to handover possession of immovable property for consideration of ₹ 50.50 Crores (b) The contract must be in writing, signed by the transferor, or by someone on his behalf. None of these facts is in dispute and the conditions are fulfilled. (c) The writing must be in such words from which the terms necessary to construe the transfer can be ascertained. In the present case, t .....

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rt of the contract. (f) The transferee must have performed or be willing to perform his part of the contract. We have already mentioned at (e) above, that the purchaser Mr. Ramesh had already performed his part of the agreement and Thus, if these principles are applied to the present case, possession of the land being one of the interests in property has been transferred to the purchaser by handing over the possession of the land, the Transfer is over as per the Income Tax Act. On the date of tr .....

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h 2015. This affidavit is a strong piece of evidence to prove that the assessee sold the agricultural land to Mr.Ramesh. Mr. Ramesh is in the business of real estate and he developed several layouts in and around Navallur, not only in the assessee s agriculture land but also adjacent to the assessee s land. Hence, we request your honor to confirm the order of the CIT-A on this issue. 13.1 We have heard both the parties and perused the material on record. It is an admitted fact that the land was .....

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nai. The land was sold to Mr.Ramesh, against sale agreement dated 01.12.2007. The land was under cultivation till the date of sale. The assessee also produced Chitta/Adangal which was issued by the State Revenue Authority before lower Assessing Authorities and the land was never put to use for non-agricultural purpose as the assessee company never had any intention to make the land into plots and carry on real estate business in respect of the land. Thus, the assessee never created an asset as s .....

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#39;business transaction' for the following reasons: (i) Purchase and holding of land for a period and subsequent sale thereof itself cannot be an indicator to hold that the intention of the assessee was to carry on business with those assets. The intention cannot be presumed unless supported by evidence. In this case, the treatment given by the assessee for this asset clearly indicates that the intention of the assessee is to hold the same as capital asset to have good returns from the same .....

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e carried on regular agricultural operations in the land. In the light of favourable market conditions the assessee thought it good to sell the asset to realize a good amount. Realization of better price in a booming market cannot be considered as an adventure in trade. (iii) The expression adventure in the nature of trade occurs in the definition of business under section 2(13) but the expression adventure in the nature of trade has not been defined in the Act. It may be pertinent to mention he .....

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able are clearly outside the domain of adventure in the nature of trade. (v) The assessee treated the assets as investment in agricultural land. Therefore disposal of the same would not convert, what was a capital accretion, to an adventure in the nature of trade. To make it more clear, sale of agricultural land by the assessee and realisation of good price would not alter the basic nature and characteristic of the transaction. In the case of the assessee, land was acquired by the assessee and t .....

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ure of trade. (vi) Whether a transaction in respect of an asset is capital or business income being adventure in the nature of trade depends on the facts and circumstances of the case. There are many factors like frequency of transactions, period of holding, intention for resale etc, which determine whether the gain arising of a transaction is in the process of realisation of investment or in the course of business. The mere fact that the person has purchased a land and subsequently sold it, giv .....

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s the assessee itself involved in the primary operation such as ploughing, tilling, sowing, watering etc. The assessee has grown crops such as coconut, paddy, mango, vegetables etc. The assessee carried on the operations of cultivation. (viii) By selling the above agriculture produce the assessee earned agriculture receipts which were brought into taxation. 13.3 From the above, it is clear that: (a) The assessee purchased agriculture land now under consideration situated beyond 8 km from the mun .....

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hus, the character of the land i.e., agriculture nature was continuing till the same was sold by the assessee company. (f) Because of favourable market conditions the assessee sold the land and the same fetched them a good price. 13.4. Therefore, in the present case there is no dispute that the assessees acquired agricultural land. There is also no dispute that there was agricultural operation in this land before sale of this land. 13.5 The Assessing Officer was of the opinion that the amount re .....

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ify the action of the AO in treating the activities of the assessee as adventure in the nature of trade. The land was sold by the assessees in acreage and not by making plots. 13.6 Now the question as to whether a land is agricultural land or not is essentially a question of fact. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. We have to answer the question on a consider .....

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, whether it is agricultural land or not has to be determined by using the tests or methods laid down by the Courts from time to time. 13.8 The Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT [[1993] 204 ITR 631] has approved the decision of a Division Bench of the Hon'ble Gujarat High Court in the case of Siddharth J. Desai (supra) and has laid down 13 tests or factors which are required to be considered and upon consideration of which, the question whether th .....

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ther the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? 5. Whether, the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural 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 .....

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e it for agricultural purposes? 8. Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the land in the adjoining area were such as would indicate that the land was agricultural? 9. Whether the land itself was developed by plotting and providing roads and other facilities? 10. Whether there were any previous sales of portions of the land for nonagricultural use? 11. Whether permission under s. 63 of the Bombay Tenancy and Agric .....

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ral produce on the basis of its yield?" 13.9 A reference could be made to the case of CWT v. Officer-incharge (Court of wards) [1976] 105 ITR 133(SC) wherein the Constitution Bench of the Hon'ble Supreme Court stated that the term 'agriculture' and 'agricultural purpose' was not defined in the Indian IT Act and that we must necessarily fall back upon the general sense in which they have been understood in common parlance. The Hon'ble Supreme Court has observed that t .....

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tom of its cultivation of the land in the sense of tilling of the land, sowing of the seeds, planting and similar work done on the land itself and this basic conception is essential sine qua non of any operation performed on the land constituting agricultural operation and if the basic operations are there, the rest of the operations found themselves upon the same, but if the basic operations are wanting, the subsequent operations do not acquire the characteristics of agricultural operations. Th .....

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in the Revenue records show that the land in question is agricultural land, then, a presumption arises that the land is agricultural in character and unless that presumption is rebutted by evidence led by the Revenue, it must be held that the land was agricultural in character at the time when it was sold. The Division Bench of the Hon'ble Gujarat High Court further held that there was nothing on record to show that the presumption rose from the long user of the land for agricultural purpose .....

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further held that the Supreme Court had clearly pointed out that the burden to rebut the presumption would be on the Revenue. The Hon'ble Bombay High Court held that the ratio of the decision of the Supreme Court was that what is to be determined is the character of the land according to the purpose for which it was meant or set apart and can be used. It is, therefore, obvious that the assessee had abundantly proved that the subject land sold by them was agricultural land not only as classif .....

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ltural land on the relevant date of sale. 13.1.4 We may also refer to the case of Gopal C. Sharma v. CIT [1994] 209 ITR 946/72 Taxman 353(Bom), in which, the case of Smt. Sarifabibi Mohamed Ibrahim (supra) was referred to and relied, amongst other cases. In this case, the Division Bench of the Bombay High Court has stated that the profit motive of the assessee selling the land without anything more by itself can never be decisive for determination of the issue as to whether the transaction amoun .....

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quot;8. It is well settled in the case of CIT v. Smt. Savita Rani (2004) 186 CTR (P&H) 240: (2004) 270 ITR 40(P&H), wherein it is held that the land being located in a commercial area or the land having been partially utilised for non-agricultural purposes or that the vendees had also purchased it for non-agricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B. 9. In the abovesaid case, the assessee an individual sold 15 karnals, 18 marlas o .....

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nd sold by the assessee was not agricultural land and this was upheld by the CIT(A). On further appeal, the Tribunal accepted the claim of the assessee holding that the transaction in question duly fulfilled the conditions specified for relief. On further appeal to the High Court, the Punjab & Haryana High Court found that the finding that the land had been used for agricultural purposes was based on cogent and relevant material. The Revenue record supported the claim. Even the records of th .....

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intent to purchase another land within two years had also been permitted to claim exemption under s. 54B of the IT Act, 1961. In the instant case, even though there was no sale as such, the assessee owned agricultural land within the limits of Tirunelveli Corporation and he had not put up any construction thereon, the assessee is entitled to claim exemption from the WT Act for the assessment of wealth-tax. That the land in question is adjacent to the hospital is totally irrelevant." 13.1.6 .....

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oses and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property nor the surrounding areas were subject to any developmental activities at the relevant point of time of sale of the land. 13.1.7 It is also an admitted position that without establishing and proving that the land was put into use for non-agricultural purposes by the assessee does not and cannot convert the agricultural land into non-agricultu .....

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icultural land at the relevant point of time when the land was sold by the assessee from Mr.Ramesh. No material or evidence in support of the fact that the assessees have put the land in use for non-agricultural purposes has been brought on record. At the relevant point of time the land was used for agricultural purposes only and nothing is brought on record to show that the land was put in use for non-agricultural purposes by the assessee. In view of the decision of the Hon'ble Bombay High .....

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ugh to conclude that the user of the same had been altered with passage of time. Thus, the fact that the land in question in the instant case is bought by Developer cannot be a determining factor by itself to say that the land was converted into use for nonagricultural purposes. 13.1.8 Recently the Karnataka High Court in the case of CIT v. Madhukumar N. (HUF) [2012] 208 Taxman 394/23 taxmann.com 341held as follows: "9. An agricultural land in India is not a capital asset but becomes a capi .....

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m the local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires the fulfilment of the condition that the Central Government has issued a notification under this Clause for the purpose of including the area up to 8 kms, from the municipal limits, to render the land as a "Capital Asset. 11. In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to sectio .....

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;capital asset' be giving this very reason, we find the conclusion arrived at by the Tribunal is nevertheless the correct conclusion." 13.1.9 Further the Kolkata Bench of the Tribunal in the case of Dy. CIT v. Arijit Mitra [2011] 48 SOT 544/16 taxmann.com 66(Kol.) held as follows: "7. From the above, it is clear that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of such Municipalities or Cantonment Boards are covered by the ame .....

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on of not less than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the outer limits of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, in view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression 'capital asset', the agricultural land situated in rural areas continues to be excluded from that definition. And a .....

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d by the assessee. Accordingly, we quash the assessment order qua charging of capital gains on very jurisdiction of the issue is quashed. The cross objection of the assessee is allowed." 14.1 It was held in the case of Manilal Somnath (supra) as follows: 'Under the Income-tax Act of 1961, agricultural lend situated in India was excluded from the definition of "capital asset" and any gain from the sale thereof was not to be included in the total income of an assessee tinder the .....

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-agricultural is used temporarily for agricultural purposes. The determination of the question would, therefore, depend on the facts of each case. 'The assessee, Hindu, undivided family, had obtained some land on a partition in 1939. From that time, up to the time of its sale, agricultural operations were carried on in the land. There was no regular road to the land and it was with the aid of a tractor that agricultural operations were being carried on. The land was included within a draft t .....

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was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purposes for a long time and nothing had happened till the date of the sale to change that character of the land. The potential nonagricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was, therefore, agricultural land. 14.2 Furt .....

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nd which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify .....

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e of the name by which such municipality is called. This fact is further substantiated by the provisions contained under clause (b) wherein it has been clearly provided that the authority referred to in clause (a) was only municipality. 14.4 Further it is nobody's case that the property falls within any area which is comprised within the jurisdiction of a municipality or cantonment board or which has a population of not less than 10,000 according to the last preceding Census of which the rel .....

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e Act, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. 15.1 We have carefully gone through the notification issued by the Central Government u/s. 2(1A)(c) proviso (ii)(B) and 2(14)(3b) vide No. 9447 (F. No. 164/(3)/87/ITA-I) dated 6th January, 1994 as amended by notification No. 11186 dated 28th December, 1999. In the schedule annexed to the n .....

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has issued the above notification, as amended latest by Notification No. 11186 dated 28.12.1999 clearly clarifies that agricultural land situated in rural areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the outer limits of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accord .....

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n 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. This is supported by the order of Kolkata Bench of this Tribunal in the case of Arijit Mitra (supra), Harish V. Milani v. Jt. CIT [2008] 114 ITD 428(Pune) and M.S. Srinivas Naicker v. ITO [2007] 292 ITR 481/169 Taxman 255(Mad.). By borrowing the m .....

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ase and sale of the land and the relevant improvement/development taken place during this time is relevant for deciding the issue whether transaction was in the nature of trade. Though intention subsequently formed may be taken into account, it is the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade; that intention must be present at the time of purchase. The mere circumstances that a property is purchased in the hope tha .....

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transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intent .....

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t suggest that the activity was an adventure in the nature of trade. 15.3 Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as nonagricultural land by the assessee or any other concerned person, transfers such agricultural land as it .....

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ion of addition made by the AO towards income from business in real estate. 16.2 The facts of the issue for assessment year 2008-09 are that the assessee had purchased the land situated at Kallapiranpuram village, Madhurantakam Taluk, Kancheepuram district from three parties on 10.02.2006, measuring 2.71½ acres, the total purchase cost ₹ 19,23,884/- including registration charges. The said land was sold on 12.06.2007 for the sale consideration of ₹ 34,27,200/- to M/s.Chennai B .....

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