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2016 (9) TMI 1002 - ITAT PUNE

2016 (9) TMI 1002 - ITAT PUNE - TMI - Gain arose on sale of the rural agricultural lands - Held that:- We have no hesitation to hold that the impugned land was purchased with an intention to sell the same to the identified buyers to achieve commercial objectives outright. As noted earlier, section 2(13) of the Act seek to explain the term of ‘business’ by way of inclusive definition. As per section 2(13) expression ‘business’ include not only trade or commerce, etc. but definition further extend .....

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res the character of ‘business income’ chargeable under S. 28 of the Act. - We concur with the view of the Assessing Officer and the CIT(A) in bringing the income arising on sale of land under the head ‘business income’. - Decided against assessee. - ITA No.1960/PN/2014 - Dated:- 12-8-2016 - SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri S. N. Doshi For The Respondent : Shri P. L. Kureel and Shri Hitendra Ninawe ORDER PER PRADIP KUMAR KEDIA, AM : The captione .....

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ing the fact that appellant being an agriculturist acquired those lands with the predominant intention of making investments and cultivating those agricultural lands. 2. On the facts and in the circumstances of the case the CIT(A) has erred in holding that the agricultural income declared is not commensurate with the quantum of land holding and thereby inferring that appellant is not agriculturist. 3. On the facts and in the circumstances of the case CIT(A) has erred in holding that since the pa .....

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he agricultural lands as investments. The above grounds of appeal may kindly be allowed to be altered, amended, and modified, etc in the interest of natural justice. 3. The relevant facts, in short, are that the assessee is an Advocate by profession. During the year under consideration, the assessee has shown professional receipts of ₹ 5,77,280/- on which net profits have been shown at ₹ 1,89,522/-. The case of the assessee was selected for scrutiny assessment as per Annual Informati .....

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y the assessee for a consideration of ₹ 93,36,000/-. Similar adjacent agricultural land bearing different Gat Numbers were simultaneously purchased by wife of the assessee for a consideration of ₹ 46,64,000/-. The properties were bought by the assessee and his wife on 17.10.2008. The aforesaid land altogether including land owned by wife of the assessee (involving nearly 45 Acres 28 Gunthas) were sold for a total consideration of ₹ 2,00,00,000/- on 28.11.2008. The property were .....

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on 17.10.2008. The assessee took a stand that these lands sold were agricultural land and situated beyond 8 kilometers of the municipal limits/cantonment area etc. and therefore, not being a capital asset is exempt from capital gains. The Assessing Officer, however, discredited the claim of the assessee for exemption of the alleged capital gains. The Assessing Officer observed that these parcels of lands acquired by the assessee were not with any intention to hold it for capital accretion, enjoy .....

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rit in the contention of the assessee that said parcel of agricultural land were to be excluded from the definition of the capital asset and consequently income from sale thereof was not liable to be taxed. The Assessing Officer simultaneously with reference to the Revenue records (7/12 extracts) observed that the major portion of these agricultural lands were Pad (not useful for cultivation) and in the remaining portion of land, the cultivation of crop was Jowar . The Assessing Officer next obs .....

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fficer concluded that entire activity of purchase and immediate sale of land by the assessee falls within the domain of adventure in nature of trade . He accordingly treated the proportionate profit of ₹ 35,86,980/- relatable to assessee (in exclusion to share of profits of wife) arising on sale of land as business income under section 28(i) r.w.s. 2(13) of the Act. For such action, he also relied upon the decision of the Hon ble Bombay High Court in the case of DCIT vs. Gopal Ramnarayan K .....

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g Officer in holding that activities carried out by the assessee towards purchase and sale of impugned land as adventure in nature of trade and thus a business activity chargeable to tax. 4.1 Aggrieved further by the order of the CIT(A), the assessee is in second appeal before the Tribunal. 5. The Ld. Authorized Representative (AR) for the assessee Shri S. N. Doshi contended that the assessee had purchased the impugned agricultural land in question primarily for the purposes of cultivation. He s .....

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iends of the assessee and at the request of the assessee, they advanced him ₹ 1,00,00,000/- from their company in which they were directors to enable the assessee to purchase the impugned agricultural land. It was further explained that with this loan amount, the assessee purchased the land and was intending to put it to the agricultural use, similar to other lands held by him for agricultural purposes. It was stated that the two Porwal brothers, however, asked the assessee to return their .....

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hase and therefore the transactions cannot be treated as an adventure in the nature of trade as wrongly held by the revenue authorities. 5.1 Apart from the aforesaid argument, the Ld. AR also contended that the land in question cannot be treated as a capital asset being agricultural land located more than 8 kilometers away from Shirur Municipality, which is nearest municipality to the land in question nor is the land located at any cantonment or such similar bodies. 5.2 Thus, firstly, the impugn .....

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requires to be deleted. 5.3 The Ld. AR vehemently assailed the findings of the CIT(A) and alleged that the CIT(A) has proceeded on factually wrong premise at different places while coming to a wrongful conclusion and has also failed to take vital facts into consideration. To lend support to such allegations, the Ld. AR pointed out with reference to para 4 of the order of CIT(A) that the major portion of land are classified as Pad which is factually not correct. He adverted our attention to the R .....

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bmitted that admittedly a sum of ₹ 1,01,845/- was declared in the return of income under assessment towards the agricultural income. With reference to para 4.1.2 of the CIT(A) order, the Ld. AR for the assessee pointed out that the CIT(A) has wrongly observed that a permission for a non-agricultural use of land has been obtained. He stressed that no such permission has been obtained. He next submitted that no activity of development was carried out on the land in question. He thereafter co .....

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ned land sold was rural agricultural land and not an urban agricultural land as wrongly observed by the CIT(A). He next submitted that the CIT(A) proceeded on yet another incorrect assumption of fact that the land has already been plotted and roads and others facilities are provided. 5.4 He, thus, in nutshell submitted that the order of the CIT(A) is marred with grave factual errors and therefore deserves to be set-aside and reversed. The Ld. AR also relied on certain judicial precedents to prop .....

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. DR thus contended that no interference with the order of the CIT(A) is called for. 7. We have heard the parties and perused the materials on record as well as the orders of the revenue authorities. We have also applied our mind to the decisions placed before us. The assessee acquired certain parcel of land at Annapur villege, Tal. Shirpur, Dist. Pune and thereafter re-sold within a very short span of above one and half months or so. The transaction of impugned purchase and sale has given rise .....

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to stand of the revenue seeking to treat the land so acquired as a trading asset and thus taxing resultant profits on its sale as business income under S. 28 of the Act. Secondly, it is the case of the Assessee that the impugned land is an agricultural land. Thirdly, the impugned agricultural land is situated in rural area outside the jurisdiction of municipality or cantonment board etc. is thus outside the purview of definition of capital asset defined under S 2(14) of the Act in view of the e .....

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ess the asset transferred is a capital asset as defined under S. 2(14) of the Act. It is the case of the assessee that the transaction is capital in nature and the impugned land not being a capital asset , the gain arising on sale of property not being a capital asset is not chargeable to tax all. The revenue on the other hand disputes capital nature of transaction as claimed by the Assessee. It is the case of the revenue that the sequence of events in the impugned transaction lends credence to .....

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ture of trade or commerce etc. Thus, in the context of case in hand, first and foremost controversy that calls for our adjudication is whether the impugned transaction is a business transaction or a capital transaction. 7.3 In this context, we note that there is a qualitative difference between profits arising from sale of capital assets and that of trading assets under the Act. Section 2(13) defining business and S. 2(14) defining capital assets operates in mutual exclusion. To put it different .....

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e, commerce or manufacture." [underline is ours] 7.4 Before we proceed to deal with the objective facts of the present case in appeal, it would be pertinent to refer to the decision of Hon ble Bombay High Court in the DCIT vs. Gopal Ramnarayan Kasat (Bom) 328 ITR 556 relied upon by the AO where nuanced understanding of expression adventure in the nature of trade has been provided as under: 20. In this background, let us examine the observations of the Tribunal while affirming the findings o .....

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. The work 'venture' in its turn is defined as a commercial activity in which there is a risk of loss as well as a chance of gain. During the course of hearing before us, this question has also been cropped up whether the impugned activity had fallen under the terminology 'trade'. A 'trade' in the context of the definition of the expression 'business' is a wider concept and once this term is associated with the term 'adventure' the scope has further enlarg .....

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t is not necessary that there should be a series of transactions i.e. both of purchase and of sales. To our humble understanding based upon the above discussion, a single transaction of purchase and sale may be outside the assessee's line of business, can constitute an adventure in the nature of trade. Therefore, neither respective nor continuity of similar transaction is necessary to constitute a transaction as an adventure in the nature of trade. Once there is a continuity of transaction t .....

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t the motive can never be irrelevant to be inferred by surrounding circumstances and the intention behind the said activity. The motive of the seller, his intention behind sale, his overall activity of accomplish, the desired goal are all in conjunction with the conduct of the assessee so as to establish that the adventure as taken by him was within the sphere of trade activity. Though these facts can also not be ruled out that not one of the consideration mentioned in the foregoing paras by its .....

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of trade. 7.5 The claim of the Assessee is that the intention at the time of purchase of land was to hold it for his enjoyment and to earn regular yield thereon and thus is a capital transaction. Needless to say, these intentions are incapable of any proof. These can only be inferred on the basis of facts and circumstances of each case. We find the facts of the case as narrated above to be quite peculiar. As noted, the assessee has purchased large tracts of land for a substantial consideration .....

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action of such purchase and sale. Immediately after the impugned purchase, a sale deed was executed on 26.11.2008 between Porwals and the assessee and his wife jointly. The land is claimed to be an agricultural land by the assessee. Pertinently, the buyer (Porwals) had earlier advanced a sum ₹ 1,00,00,000/- to the Assessee through Demand Draft (DD) dated 13.08.2008 i.e. two months before assessee had purchased the property i.e. on 17.10.2008. Evidently, assessee did not possess any own liq .....

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sale other agricultural land in his possession to return the money borrowed from Porwals which did not fructify. For this purpose, some Memorandum agreement was referred to by way of an additional evidence. However, there is nothing on record to show justify the circumstances which prevented the assessee to produce the impugned agreement before revenue authorities. No perceptible reasons have been assigned. Notwithstanding, we were informed at the bar that purported agreement for sale of other a .....

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recorded in the purported agreement was capable of matching the borrowals is also not available on record. The relevant financial data proving the financial capacity of the Assessee is not available to justify the stand. Mere averments of generic nature based on some documents which were neither verified by the revenue nor acted upon in any manner cannot in our view be taken as source of explanation for transaction of such magnitude. The assessee has made out a case that owning to the pressure f .....

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re and for its capital appreciation and therefore the transactions cannot be regarded as an adventure in the nature of trade as held by the Assessing Officer. We find such explanation to be shallow and superficial. The return of income filed by the assessee shows that the source of regular income is not commensurate with the magnitude of the land transaction. A person intending to hold a land of this value for its own exploitation and enjoyment and not investing any money of his own are quite co .....

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uire the same land without any demur which was purchased from the aforesaid money and that too at a very large differentials in such a very short span. These facts when combined together gives a common thread to belief that entire transaction was systematic and pre ordained one, ventured into with a clear trappings of commercial spirit where the assessee identified the land on behalf of the existing and known buyer and transferred it to him as soon as the title of the land was obtained and in th .....

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ors in the form of purchase financed entirely by the ultimate buyer and consequent transfer of land to the ultimate buyer almost immediately on its acquisition cannot be simply brushed aside. Clearly, the assessee was interested in exploiting commercial opportunity for quick gains in a very short time horizon. The attendant facts also points out that the purchase of land was far beyond the earning capacity of the assessee and thus claim of the Assessee that the land was intended for personal use .....

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It was therefore contended that adverse inference against the assessee is not justified. We are not impressed by this argument either. The mere presence of other holdings of agricultural land would not grant any indefeasible right to claim any and every transaction of land to be of capital nature. Similarly, solitary transaction of such nature is also of no bearing for determination of the nature of transaction. The issue for determination depends on totality of facts of each case. As noted, the .....

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le transaction. The encumbrance if any, thereon can also be weighed by the ultimate buyer for his comfort in purchase. Also, by registration prior to sale, the huge potential of gain can be harnessed without any possible interference. This has all been done with the money of the ultimate buyer without any commitment of his own. The transaction is clearly driven by commerce. The intention to exploit the land for its own agricultural use is not borne out on these facts. As per records, the assesse .....

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depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction. 7.9 Thus, the cumulative facts and circumstances seen holistically and read in conjunction the tests or parameters laid down by judicial precedents provides sound basis to infer the intention of commercial gain in the impugned transaction. 8. Having regard to the totality of facts and circumstances, we have no hesitation to hol .....

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g ticket land purchase without employing any fund of his own and almost immediate re-sale thereof clearly demonstrates the implicit intention of the assessee that the transaction entered was nothing but an adventure in the nature of trade i.e. a business transaction under extended definition of S. 2(13) of the Act. Consequently, profits arising therefrom acquires the character of business income chargeable under S. 28 of the Act. 9. Several judicial precedents were quoted on behalf of the assess .....

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t serves as one of the crucial indicators of the intention read in conjunction with other facts in the present case. Similarly, decisions in the case of Marigold Merchanise (P) Ltd. 164 TTJ 448 (Del.) ; Surendra Keshavlal Shah vs. DCIT ITA no. 1308/ PN/2011 order dated 24/07/2015 & ACIT vs. Alpana Surendra Sancheti ITA No. 1081/ PN/ 2011 order dated 22/03/2013 referred to and relied upon at the time of hearing were perused and found to be materially different in facts qua the facts of this c .....

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