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The Deputy Commissioner of Income Tax, Corporate Circle 6 (1) , Chennai Versus Shri S. Amar Narayana Reddy

2016 (8) TMI 81 - ITAT CHENNAI

Nature of income - gains on sale of lands - business income or agriculture income - Held that:- The mere sale of few pieces of lands here and there, now and then, irrespective of their value, as long as the said assets/lands did not lose the basic character of agricultural lands, does not constitute business activity for the assessee. Apart from this, the VAO has furnished certificate, which indicates that the land under reference are agricultural land and there was no evidence to show that the .....

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sed is not an appropriate basis to come to a conclusion that such lands are not agricultural land. Therefore, we find no force in the argument of the ld. DR that the assessee has not shown any agricultural activities. Moreover, the ld. CIT(A) has relied on various decisions and came to a right conclusion that the addition on account of treating the amount of ₹.3,04,01,161/-, which is the margin/gains to the assessee on sale of lands, as business income is not sustainable, since the lands u .....

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DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals), Tirupati, dated 23.03.2015 relevant to the assessment year 2010-11. In this appeal, the ground raised by the Revenue is that the ld. CIT(A) has erred in deleting the addition on account of treating the amount of ₹.3,04,01,161/-, which is the margin/gains to the assessee on sale of land as business is not sustainable. Further, the ld. CIT(A) has .....

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essee was selected for scrutiny and notice under section 143(2) of the Act was issued on 18.09.2012. While finalizing the assessment proceedings, the Assessing Officer added to the income returned, an amount of ₹. 3,04,01,161/- being profits earned/gained by the assessee on account of sale of three lands at Pudupakkam, with one of such land sold to M/s. Sai Care Pvt. Ltd. treating the same as profits arising from the purchase and sale of lands by the assessee. During the course of assessme .....

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ncial year relevant to the assessment year under consideration, the assessee has sold three lands which he has been holding for 2-3 years during which period he has not returned any agricultural income from such lands, though the assessee claims such lands as agricultural lands. The Assessing Officer has also observed that even though the assessee has been holding lands worth of ₹.13.78 crores, he has returned only a meagre agricultural income of ₹.4.25 lakhs and also rejected the as .....

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d. DR submits that it is clear from the balance sheet that the assessee had received huge advances for sale of land to the extent of ₹.3.21 crores and also advance money to land owners to the extent of ₹.8.58 crores for purchase of lands and held agricultural lands worth of ₹13,78 cores during the year. The break-up of land advances [₹.8.58 crores] received from as many as 54 persons were analysed and the Assessing Officer concluded that the assessee is carrying on the bu .....

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pulses, paddy, etc. She further argued that the Inspector of Income Tax has been deputed by the Assessing Officer to inspect the land. The Inspector reported that the land is full of thorny bushes and was densely covering the land as such these are never been cultivated for the last 10 years. The report of the Inspector should not be accepted since it is only based on the assumption. The ld. Counsel for the assessee has further argued that the assessee and his family have been engaged in agricul .....

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to adventure in nature of trade. Merely sale of few pieces of land did not lose the basic character of agricultural lands and constitute business activity for the assessee and as such, the sale consideration of land though credited to profit and loss account do not amount to business income. Further, the ld. Counsel for the assessee strongly supported the order passed by the ld. CIT(A) on this issue. 5. We have heard both sides, perused the materials on record and gone through the orders of aut .....

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arried out on such lands by producing pulses, paddy, etc. However, the Assessing Officer has not accepted the contention of the assessee on the ground that (a) The lands are in the name of Sri Krishnan, M/s. Sai Care India Ltd., M/s. Laryan Builders and not in the name of the assessee. From this the Assessing Officer concluded that the credit for carrying on the agricultural activity goes to owners and not the assessee who made investment on this land. (b) Inspector of Income Tax has been depute .....

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ng Officer rejected the same stating that the lands sold are nearer to Software Companies Park, Chennai and Rajiv Gandhi Information Technology Express Highway on which many multinational software companies have set up their offices and which are landmarks in the greater city of Chennai. In this regard, the Assessing Officer relied on the order of the ITAT, Chennai in I.T.A. No. 794/Mds/2011 in the case of Pallava Resorts, wherein it was held that a land pertaining to the above referred M/s. Pal .....

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laimed by the assessee under section 2(14) cannot be accepted. 6. On appeal, the ld. CIT(A) has observed that based on the facts of the case two issues have mainly arisen in this case. First issue is whether the lands under reference, which are claimed to be agricultural lands, located within the vicinity of city of Chennai constituted capital assets as defined in Sec. 2(14) of the I.T. Act or not. Second issue is whether the three instances of sale of lands by the assessee during the year const .....

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the issue under reference was well debated to arrive at the conclusion by the CIT(A) concerned, that the lands are agricultural. The basic contention of the AO were that the appellant did not carry out agricultural operations on the said lands for last few years, and the agricultural incomes earned on such lands is disproportionate to the value of the lands under reference. In this regard, it may be relevant to observe that the conclusions drawn on non-carrying of agricultural operation was base .....

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h Court held that for the purpose of land being agricultural land, actual agricultural operation or cultivation of the land is not necessary, and what is to be seen is whether such land is capable of agricultural operation being carried on. 5.6.2 Potential of non-agricultural use is not material for determining the question whether the land was agricultural land or not. In the case of CIT Vs Officer-in-charge (105 ITR 133) Hon ble Supreme Court held that agricultural land must be a land which co .....

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e recent years. The certificate furnished by the VRO clearly indicates that the lands under reference are agricultural lands. Further, there was no evidence to show that the assessee has applied for change of the land for non-agricultural purposes. In this case, it may be reasonable to hold that the AO relied on various case laws rather than considering the facts of the case under reference and examining the applicability of those case laws, to the facts of the case. The lands held and sold by t .....

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decided by the CIT(A) for A.Y. 2007-08, holding that the lands held by the assessee, are agricultural lands. 5.6.3 On similar facts, where high valued lands located at Shamirpet, in the vicinity of Hyderabad, purchased on in year 1998 for ₹ 27.68 lakhs, were sold for a consideration of ₹ 135.00 lakhs in 2006, was in held to be agricultural land, by ITAT, A Bench, Hyderabad in the case of Shri Tulsidas, L/R Late Smt. K. Renuka Devi of Secunderabad Vs ITO, (ITA No. 93/Hyd/08), where in .....

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purpose and user and not mere possibility of the user of land by some possible future owner. In the case of CIT vs. Borhat Tea Company Ltd (138 ITR 783) the Calcutta High Court held that for the purposes of land being agricultural land, actual agricultural operation or cultivation of the land is not necessary, and what is to be seen is whether such land is capable of agricultural operation being carried thereon. Potential of non-agricultural use is not material for determining the question whet .....

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6.5 However, Hon ble Supreme Court had stated that whether a land is an agricultural land or not essentially a question of fact, and such question has to be answered in each case having regard to the facts and circumstances of that case. It was also stated that there may be factors both for and against particular point of view and court has to answer the question on a consideration of all of them by a process of evaluation and reference has to be drawn on a cumulative consideration of all releva .....

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paid by the assessee and the records still showing them to be agricultural lands. Being in the vicinity of city would be different from being within the prescribed limits, from the Municipality/Corporation. In this case it was not the case of the AO to prove that the said lands are within the limits prescribed from the Municipal Corporation of Chennai City. The AO has not brought any evidence on record to show that the land was developed for commercial exploitation, in spite of proximity to the .....

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land as business or adventure in trade, it may be relevant to refer to the whole set of facts of the case, rather than referring to particular instance/instances. As held by pending-case law catena of judicial decisions, there is no standard procedure to describe an activity as an adventure of business/trade or otherwise. In the instant case, where the appellant derived income from rents, from other sources, agricultural income, apart from gains on sale of lands, have credited all these incomes .....

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lant/assessee is not established to be carrying on any business activity. 5.7.1 The other reasons stated and quoted by the AO was that, the assessee incurred an amount of ₹ 9,58,419/- towards development cost, to indicate the business activity, if the assessee In this regard, it may be relevant to mention that such expenses was claimed in computing the gains on sale of lands, but neither debited to P&L A/c nor claimed as business expenses. In fact it has been admitted and clarified by .....

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A) considered each and every aspects and passed a detailed speaking order and also distinguished the case law relied on by the Assessing Officer and concluded that the holding of lands by the assessee and carrying on the activity of agriculture continuously on the lands, without any conversion of such lands into further developments such as commercialisation/plotting of lands, do not amount to adventure in nature of trade. The mere sale of few pieces of lands here and there, now and then, irresp .....

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