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Purushottam Madanlal Boob, C/o Mahesh Industries Industrial Estates Versus The Dy. Commissioner of Income Tax

2016 (7) TMI 687 - ITAT PUNE

Treatment of gains arising on sale of plot - Capital gain v/s business income - nature of activity - intention - Held that:- The intention at the time of purchase of land was for the purpose of investment and merely because the bigger plot was sub divided into smaller plots does not establish that the assessee’s intention was to carry on the business activity. In this regard, other circumstances of the case have to be kept in mind i.e. as against the investment in August, 2000, as against part d .....

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t the Assessing Officer to compute the income under the head ‘income from long term capital gains’. - Decided in favour of assessee - ITA No. 629/PN/2014 - Dated:- 20-5-2016 - Ms. Sushma Chowla, JM And Shri Pradip Kumar Kedia, AM For the Appellant : Shri C.H. Naniwadekar For the Respondent : Shri S.K. Rastogi, CIT ORDER Per Sushma Chowla, JM This appeal filed by the assessee is against the order of CIT(A)-IT/TP, Pune, dated 30.01.2014 relating to assessment year 2009-10 against order passed unde .....

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ns and not as a business income. 3. The issue arising in the present appeal is with regard to treatment of gains arising on sale of plot. The case of the assessee before the authorities below was that the same is to be assessed as income from long term capital gains, whereas the same has been assessed as income from business in the hands of assessee. 4. Briefly, in the facts of the case, the assessee was engaged in the business of builder and developer. The assessee had purchased NA property mea .....

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sessee sold one of the plots which he claims to have held as investment and worked out the income from long term capital gains by indexing the cost of plot. The claim of assessee before the authorities below was that it had only one investment in immovable property which was purchased with an intention of investment. However, since the land was situated within municipal limits, the assessee decided to start new activity as builder and out of 12 plots plotted in the plot owned by the assessee, th .....

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nd converted into nonagricultural property by resorting to very complicated, costly and time consuming process in the revenue authorities offices. Further, as per the Assessing Officer, where the assessee had divided NA property into various sub plots for sale and also built commercial and residential units on the property and where the assessee had disposed of the sub plots to various parties for erection of bungalows over a period of time, the intention of assessee at the time of purchase of p .....

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e from business. The Assessing Officer stressed that the intention of assessee right from the date of purchase of said property was to earn profit by converting it into NA and then plotting it and selling subsequently to various purchasers at very high prices being NA properties. Another point noted by the Assessing Officer was that the conversion into NA was vide Collector s order dated 11.06.2001 i.e. after purchase of the said plot on 30.08.2000. The Assessing Officer thus, computed the incom .....

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eafter, developing and selling the said plots. The learned Authorized Representative for the assessee before the CIT(A) stressed that the Assessing Officer was wrong in observing that the assessee had purchased agricultural land which was converted into NA land, in fact the assessee had purchased NA land and in support the CTS extracts were produced. Further, the assessee pointed out that there was big time gap between investment in land and sale of plots, where the investment in plot was made i .....

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mounted to adventure in the nature of trade. In this regard, he placed reliance on the ratio laid down by the Hon ble Supreme Court in P M Mohammed Meerkhan Vs. CIT (1969) 73 ITR 753 (SC). Applying the test laid down by the Hon ble Supreme Court, the CIT(A) was of the view that the assessee s case was adventure in the nature of trade because he had sold the plots of land after sub dividing into and providing internal roads and constructing residential and commercial properties in the neighbourho .....

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f CIT(A). 7. The learned Authorized Representative for the assessee after taking us through the facts of the case pointed out that the assessee had purchased the said land within municipal limits and because of the land being of large area i.e. 5300 sq.mtrs. in April, 2001, it had sub divided the same into sub plots. Thereafter, he decided to construct housing scheme of ownership flats and the profits from the same were declared in assessment year 2005-06, where the assessee also declared short .....

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hs and the income arising therefrom was offered as income from long term capital gains. The learned Authorized Representative for the assessee stressed that in the earlier years the Revenue Department had accepted the conversion of his investment into stock in trade on which he had offered tax which was accepted by the Department. The learned Authorized Representative for the assessee pointed out that the assessee owned one piece of land and was still holding the balance land. He further stresse .....

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ned Authorized Representative for the assessee further pointed out that there was no change in facts and only mode was changed. He further brought to our notice that even after 14 years, the assessee was holding balance land. 8. The learned Departmental Representative for the Revenue drew our attention to the order of conversion to NA plot dated 11.06.2001, which is placed at page 8 of the Paper Book. The learned Departmental Representative for the Revenue pointed out that the assessee applied f .....

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not be applied. The learned Departmental Representative for the Revenue stressed that the basic question to be seen is the intention of assessee at the time of purchase, where the land was purchased in August, 2000 and within 8 months, the same was divided into smaller plots and as per the layout, even roads were made, so the intention was clear from the transaction itself. 9. The learned Authorized Representative for the assessee in rejoinder stressed that the order placed at page 8 of Paper B .....

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n the hands of assessee was being completed in the month of December, 2011, still no action was taken against the earlier assessment years, where the income has been assessed in the hands of assessee. The learned Authorized Representative for the assessee further pointed out that the intention had to be looked at the time of purchase and the intention to convert into plots was different, wherein the plots were sub divided, but the investment is being held till date. 10. We have heard the rival c .....

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rking of plots. Out of 12 plots on the said piece of land, the assessee had utilized six plots for construction activity. The construction on plot Nos.7, 8 and 12 was completed in assessment year 2005-06 and the income arising therefrom was offered as short term capital gains i.e. the assessee declared income from conversion of investment held by it into stock in trade and offered the same to tax, in addition to profits on sale of flats. Further, plot Nos.9, 10 and 11 were also utilized by the a .....

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ld two plots and the income arising therefrom was offered as income from long term capital gains. The Assessing Officer did not accept the contention of assessee and was of the view that the income is to be assessed as income from business. The first objection of the Assessing Officer was that the assessee had purchased the land as agricultural land and converted into NA property by resorting to very complicated, costly and time consuming process in the Revenue authorities office. Further, the v .....

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re in the nature of trade. 11. The first bone of contention between the assessee and Revenue is the nature of land purchased by the assessee. The assessee has time and again pointed out before the authorities below and even before us that the land purchased by it was not an agricultural land, but non-agricultural land. The assessee has attached the extract of property card which is placed at page 7 of the Paper Book, under which the said land holding is declared to be residential non-agricultura .....

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yout plan reflects that the assessee had divided the plot into two while providing road in between, since the plot owned by the assessee was three side open and municipal roads were already available on each side of the land. On plot Nos.7, 8 and 12, the assessee has developed the flats on ownership basis. Further, on plot Nos.9, 10 and 11, the assessee also developed flats and offered the same on ownership basis. The assessee for both these transactions had offered the income first on conversio .....

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thorities below. The first objection was that where the assessee had purchased an agricultural land and had converted into NA property by resorting to very complicated, costly and time consuming process, the same was for carrying on the business activity and as per the CIT(A), it was adventure in the nature of trade. This contention of the authorities below is not correct as the extract of property card itself which is dated 05.09.2001, copy of which reflects the land to be residential non-agric .....

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land, the conversion fee is high. However, the assessee categorically states and relies on the evidence produced before the authorities below and even before us that the land purchased by it was NA land on the date on which the assessee purchased. 13. Now, coming to the next evidence filed by the assessee by way of NA order, which is placed at page 8 of the Paper Book, under which sum of ₹ 3,595/- was paid by the assessee in order to sub divide the plot. The date of application for sub div .....

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In such circumstances, it could not be said that the assessee had got involved in complicated process of sub division of plot. On one side of the sub divided plot, the assessee carried out the commercial activity of building two projects and on the other side, though there was sub division of plots, but as against the property purchased in 2001, the first sale of plots was made in financial year 2008-09 and some of the plots are being held by the assessee till date. One aspect to be considered h .....

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3.2009. In such circumstances, can it be held that the assessee was involved into business activity or adventure in the nature of trade? It may further be pointed out that the assessee had sold ownership flats on the two projects developed by it and the profit on sale of plots shown in the earlier years was on account of conversion of investment into stock in trade and also profit on sale of ownership flats by adopting 8% to 10% of GP to work-in-progress, since the assessee was following project .....

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ked out the income from short term capital gains / long term capital gains respectively, which was accepted by the authorities below, undoubtedly, by intimation passed under section 143(1) of the Act. However, the transaction of investment in the said plot of land has been accepted by the Department in the hands of assessee even after scrutiny proceedings were completed under section 143(3) of the Act in the hands of assessee relating to assessment year 2009-10. No action was taken against the i .....

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was obtained by the assessee for sub division of plots and not for conversion from agricultural land to NA agricultural land, we hold that the income arising to the assessee is to be assessed as income from capital gains in the hands of assessee. Though the rule of consistency does not apply to the income tax proceedings, but where the facts of the case remain unchanged, then a consistent approach should be applied in assessing the income in the hands of assessee. The assessee in the earlier yea .....

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