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2016 (8) TMI 1038 - ITAT CHENNAI

2016 (8) TMI 1038 - ITAT CHENNAI - TMI - Re-opening of assessment u/s.147 - Held that:- The reassessment proceedings have rightly been initiated after forming opinion that some income chargeable to tax as escaped assessment u/s.147 of the Act, after amendment to sec.147 of the Act with effect from 01.04.1989, wide power has been given to the AO, even to reopen the cases where the assessee has fully disclosed material facts. The only condition for reassessment is that the AO should have reasoned .....

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ssee is rejected. - Treatment of sale of agricultural land as income from business - Held that:- In this case, the assessee had no record of carrying on agricultural operations. The size of the land also suggests that it was not intended to carry on agricultural operations. The assessee is engaged in trading PVC Flex Sheets, SS Coils & Other Trading, Finance, Derivatives which throws light on the intention of the parties for the purpose of trading or investment. There is no evidence on recor .....

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purchased land jointly, compel us to come to the conclusion that the purchase of land, in itself, was with an intention to sell at a profit in the form of an 'adventure in the nature of trade' and hence though it is an isolated transaction the income thereon can still be considered as business income. - Decided against assessee - I.T.A.No.1753/Mds./2016 - Dated:- 22-7-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER For The Appellant by : MrT.N.Seetharaman,A .....

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43(3) of the Act. 3. The main grievance of the assessee is that the Assessing Officer had erred in reopening the assessment u/s 148 of the IT Act 1961 stating that (i) there was no omission or failure on the part of the appellant to disclose fully and truly all material facts necessary for his assessment for the year and after due consideration the then assessing officer, had passed the order u/s 143(3) of the Act dated 30.12.2010. (ii) the predecessor assessing officer had in the original asses .....

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he assessment: It was learnt that the assessee had along with Shri Nishank Sakaria (vendor 4), Shri T Anoop Bora and Shri Pallavarajha (jointly called as the vendor No 1), Shri V Rarna Naidu, (vendor No 2) and Shri Raju,(vendor No 3) had jointly sold 30 Acres and 93 cents of land to V. G. Panneerdas & Co (P) Ltd a company registered under the companies Act 1961, who is a property developer, vide document No 3136/07 having 12 pages registered with Sub- registrar of Assurances, Maduranthagam o .....

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ora and others on 21 8 2006 vide registered document no 2998 of 2006. Summing up from the above it is clear that the vendors aggregated the land as they purchased land from various parties and lands cornprísed in various survey numbers The vendor no 4 not only jointly sold the land but also purchased the lands jointly. The vendor 4 held the land only for a very short period of 8 months As all of them jointly sold to single party they had common agenda! purpose of aggregating selling the l .....

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land as agricultural land. The land may or may not be termed as agricultural land but as the assessee s intention & actions are of real estate so the sale proceeds are not exempted from tax. For the above the AO had reason to believe that the income has escaped assessment Therefore, notice u/s 148 of the Income Tax Act, 1961 was issued on 30/01/2014 after obtaining approval of the Commissioner of Income Tax - IX, Chennai. 3.2 During the course of the original assessment proceedings u/s 143(3 .....

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such lands purchased and then jointly sold them to M/S V.G. Panneerdas & Co (P) Ltd. 3.3 On verifying the reasons mentioned above, the AO concluded that the income chargeable to tax has escaped assessment and that reopening was done as per section 147 of the IT Act. Aggrieved with the order of AO, the assessee carried the appeal before the Ld.CIT(A). 3.4. On appeal, the Ld.CIT(A) observed that the income chargeable to tax has escaped assessment within the meaning of the section 147 of the A .....

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s have rightly been initiated after forming opinion that some income chargeable to tax as escaped assessment u/s.147 of the Act, after amendment to sec.147 of the Act with effect from 01.04.1989, wide power has been given to the AO, even to reopen the cases where the assessee has fully disclosed material facts. The only condition for reassessment is that the AO should have reasoned to believe that income chargeable to tax had escapement. Such belief can be reached in any manner and is not quanti .....

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ral land as income from business. 8. The facts of the case are that the assessee had along with Shri Nishank Sakaria (Vendor 4), Shri T.Anoop Bora (Vendor No.2) and Shri Raju (Vendor No.3) had jointly sold 30 acres and 93 cents of land to V.G.Panneerdas & Co. P Ltd., a company registered under the Companies Act, 1961, who is a property developer vide document No.3136/07 having 12 pages registered with Sub-registrar of assurances, Maduranthagam on 14.03.2007. More particularly the Vendor No.4 .....

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d land from various parties and held the land only for a very short period of 8 months. As all of them jointly sold to single party, they had common agenda of aggregating selling the land and sold the land to a real estate company. In addition, the assessee did not show any agricultural income in any assessment year before purchasing the lands. They did not carry out any agricultural activity in those lands since purchasing till selling. They aggregated the lands thus purchased and sold those ag .....

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, the lower authorities treated the income from sale of land as income from business. Against this, the assessee is in appeal before us. 9. We have carefully considered the rival submissions and perused the record. It is well-known that the expression "adventure in the nature of trade" has not been defined in the Act and it is rather an impossible task to give exact and precise meaning and therefore the apex Court in the case of G. Venkataswami Naidu & Co. (35 ITR 594(SC)) consider .....

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or to come to a conclusion as to whether a particular transaction is an adventure in the nature of trade or not. 11. In the afore cited decision, the assessee firm acted as managing agents of Janardana Mills Ltd., Coimbatore, and it purchased four continuous plots of land admeasuring Acs. 5.26 under four sale deeds. After about five years these properties were sold in two lots to Janardana Mills Ltd. A question arose as to whether the amount realized in excess of the purchase price on the sale o .....

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s in the nature of solitary transaction, it was held that it had all the elements of a business transaction and thus it was an adventure in the nature of trade. While dealing with the issue, the apex Court observed at paras 12 and 13 as under :- "This question has been the subject-matter of several judicial decisions and in dealing with it all the Judges appear to be agreed that no principle can be evolved which would govern the decision of all cases in which the character of the impugned t .....

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e. Sometimes, it is said that a single plunge in the waters of trade may partake of the character of an adventure in the nature of trade. This statement may be true; but in its application due regard must be shown to the requirement that the single plunge must be in the waters of trade. In other words, at least some of the essential features of trade must be present in the isolated or single transaction. On the other hand, it is sometimes said that the appearance of one swallow does not make a s .....

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o regard a single or an isolated transaction as one in the nature of trade because income resulting from it would inevitably lack the characteristics attributed to it by Sir George Lowndes in CIT vs. Shaw Wallace & Company (1932) 59 IA 206 : 'Income, their Lordships think', observed Sir George Lowndes, 'in this Act connates a periodical monetary return 'coming in', with some sort of regularity, or expected regularity, from definite sources'. Then the learned Judge pro .....

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, refer to the comment made by Lord Wright in Raja Bahadur Kamakshya Narain Singh of Ramgarh vs. CIT (1943) 11 ITR 513(PC), that 'it is clear that such picturesque smiles cannot be used to limit the true character of income in general'. We are inclined to think that, in dealing with the very prosaic and sometimes complex questions arising under the IT Act, use of metaphors, however poetic and picturesque, may not help to clarify the position but may instead introduce an unnecessary eleme .....

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son invests money in land intending to hold it, enjoys its income for sometime, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realization of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser, a trader and .....

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vestment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable ? What were the incidents associated with the purchase and resale ? Were they similar to the operations usually associated with trade or business? Are the transactions of purchase and sale repeated? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the el .....

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eal with the character of transactions alleged to be in the nature of trade. In considering these decisions, it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the Court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, .....

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wives of two brothers, who were partners in a firm. The two ladies purchased a piece of land admeasuring 8,479 sq. yds. (approx. Acs. 2) in Banjara Hills, Hyderabad, and shortly after purchasing the land, they carved it into four plots and sold them individually. As against the conclusion of the AO that it was an adventure in the nature of trade, the Tribunal held that the intention of the assessees while purchasing the land was to make an investment and that they had no intention of reselling .....

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sumptions while coming to the conclusion in favour of the assessees, which were not really warranted. The Tribunal refers to the 'background of the ladies' as one of the circumstances inducing it to come to the conclusion in favour of the assessees but it has not taken care to elucidate what that background was. The fact that soon after the purchase, the assessees carved out the land into plots and sold them within a few months, coupled with the other circumstances of the case, is consis .....

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the nature of trade, took note of the decision of the apex Court in the case of Raja J. Rameshwar Rao vs. CIT (1961) 42 ITR 179(SC), wherein it was held that whether the assessee intended to deal in real property or not has to be judged not from the fact that there was a time lag between the first transaction and second transaction, but from the fact whether he sought to convert the land which was originally agricultural land into building sites. Since the assessee had not sold the property as i .....

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that the purchase was with an intention to treat it as an investment, the chronology of the events of the purchase of the land, conversion of the land into house sites of smaller sizes, carrying on improvement to the land, like making provision for roads etc., would clearly show that the intention was not to set up oil mill and it was only to make profit in the form of an adventure in the nature of trade. The incidents after purchase of the land clearly depict that the purchase was "not wi .....

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ct-matter of investment. It is contended by Mr. Viswanatha Sastri that the four purchases made by the appellant represent nothing more than an investment and if by resale some profit was realized that cannot impress the transaction with the character of an adventure in the nature of trade. The appellant, however, is a firm and it was not a part of its ordinary business to make investment in lands. Besides, when the first purchase was made it is difficult to treat it as a matter of investment. Th .....

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factor in determining the character of the transaction, so would his conduct prior to the purchase be relevant if it shows a design and a purpose. As and when plots adjoining the mills were available for sale, the appellant carried out his plan and consolidated his holding of the said plots. The appellant is the managing agent of the Janardana Mills and probably it was first thought that purchasing the plots in its own name and selling them to the mills may invite criticism and so the first purc .....

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for the whole of the period during which the plots remained in its possession. Besides, it would not be easy to assume in the case of a firm like the appellant that the acquisition of the open plots could involve any pride of possession to the purchaser. It is really not one transaction of purchase and resale. It is a series of four transactions undertaken by the appellant in pursuance of a scheme and it was after the appellant had consolidated its holding that at a convenient time it sold the .....

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0 per annum which it received from the house on one of the plots. The reason given by the appellant for the purchase of the properties by the mills has been rejected by the Tribunal; and so when the mills purchased the properties it is not shown that the sale was occasioned by any special necessity at the time. In the circumstances of the case, the Tribunal was obviously right in inferring that the appellant knew that it would be able to sell the lands to the mills whenever it thought it profita .....

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ht in taking the view that, on the facts and circumstances proved in this case, the transaction in question is an adventure in the nature of trade." 10.5 A careful perusal of the observations of the apex Court would show that it would be impossible to formulate a single criterion to arrive at a conclusion as to whether the profit on sale of land gives raise to 'capital gains' or 'adventure in the nature of trade'. Whether the intention at the time of purchase of land was to .....

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