TMI Blog2017 (7) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... eable under the head ‘capital gains’ as claimed by the assessee. - Appeal of the Assessee is allowed. - I.T.A. No.1010/Ahd/2015 - - - Dated:- 17-5-2017 - SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER For The Appellant : Shri Ketan H.Shah, AR For The Respondent : Shri Aditya Shukla, Sr.DR ORDER PER PRADIP KUMAR KEDIA, AM: The captioned appeal by the Assessee is directed against the order of the Commissioner of Income Tax(Appeals)-10, Ahmedabad [CIT(A) in short] dated 02/03/1015 for the Assessment Year (AY) 2011-12. 2. The grounds of appeal raised by the Assessee read as under:- The following grounds are without prejudice to each other. In view of the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred - 1. In not appreciating the facts that the assessee has shown the land sold as investment in the past years and accepted as such, and therefore, there is no justification in treating the Long Term Capital Gain as business income and/or adventure in nature of trade. Therefore, it is prayed that addition confirmed may please be deleted. 2. In not appreciating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO that the sale and purchase of land in the preset case was in the nature of adventure in trade and that income from sale of plots of land is to be assessed under the head Profits Gains of Business Profession . This is for the reasons discussed in the following paragraphs. The appellant owned forty four (44) plots of land out of which nine (9) plots were sold during the year under consideration. By any stretch of imagination, this is a huge holding for any individual who has invested in land only as investment. A perusal of the balance sheet of the appellant as on 31.03.2011 shows that the appellant's investment in land shown under Fixed Assets is around ₹ 6.64 crores while all other investments shown under Investments and Current Assets are around ₹ 1.18 crore. This may not be a decisive factor but is an important indicator forwards purpose of investment Any person who is investing only for investment purpose would have a more balanced investment portfolio. All the plots of land which have been sold were purchased as agricultural land and then the land use for the same was got converted into non-agricultural use before selling. This again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Investments are not made out of borrowed funds. The appellant has borrowed funds to purchase land. This is an indicator of the motive of the appellant in investing in land. The appellant submitted that borrowed funds and interest is not a criteria to decide that it is adventure in the nature of trade. In support of his contention, the appellant relied on the judgment of hon'ble Gujarat High Court in CIT vs. Niraj Amidhar Surti in Tax Appeal No. 836 of 2009. With due regard to the ratio of the judgment in the above case, the same is not applicable in the present case as the facts are different. In the case relied on by the appellant, the asset in question is shares and not land which is the asset involved in the present case. Further, all the plots of land which the appellant sold were not sold in the open market by selling where the appellant would have got the best price but were sold to Venus Townships (India) LLP. The appellant's father and his uncle are partners in the LLP. The AO's findings in this context are very relevant and are reproduced below: - (a) The assesses purchased huge number of plots of agricultural land. Before their sale he converted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been purchased by the appellant as. a matter of investment it would have tried either to cultivate the land, or to build on it; but the appellant did neither and just allowed the property to remain unutilized except for the net rent of ₹ 80 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 profitable so to do. Thus the appellant purchased the four plots during two years with the sole intention to sell them to the mills at a profit and this intention raises a strong presumption in favour of the view taken by the Tribunal. In regard to the other relevant facts and circumstances in the case, none of them offsets or rebuts the presumption arising from the initial intention; on the other hand, most of them corroborate the said presumption. We must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom capital gains. In view of discussion above, I hold that the AO was justified in treating income from sale and purchase of land as Income from Business Profession instead of Income from Long Term Capital Gains as shown by the appellant. Accordingly, the AO was justified in assessing the income of the appellant at ₹ 2,42,70,340/- as against income of ₹ 2,21,27,279/- declared by the appellant. This ground of appeal is dismissed. 5. Aggrieved, the assessee is in appeal before the Tribunal. 6. The Ld.AR for the Assessee Mr.Ketan H.Shah submitted that the assessee sold certain plots of land during the year under consideration and declared income arising therefrom under the head LTCG . The Ld.AR submitted that the assessee made investments in 44 plots of land out of which only 9 plots were sold during the year under consideration. The plots were purchased over several years and were declared as capital asset in its books. The Ld.AR next relied upon the Wealth Tax Returns for AY 2006-07 to 2011-12 to submit that the assessee has consistently declared the land as capital asset and accordingly such properties were subjected to wealth-tax in the past. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts sale. It was pointed out that the business income can arise only on stock-in-trade on which wealth-tax is not payable. The assessee finally submitted that the price at which the land has been sold has not been disputed. The limited dispute is on the character of the asset held prior to its sale. The Ld.AR accordingly submitted in conclusion that there is no justification whatsoever for the Revenue to treat the LTCG so declared as business income of the assessee and to deny the concessional rate of tax available on the LTCG arising on sale of land. 7. The Ld.DR, on the other hand, relied upon the order of the CIT(A) and submitted in furtherance thereto that the intention of the assessee to hold the land as stock-in-trade is evident from the fact that such land were converted into non-agricultural land prior to its sale to fetch the competitive price. The Ld.DR further pointed out that the acquisition of land was with the support of borrowed funds on which the interest has been paid. Thus, the intention of the assessee was notto acquire the land for its own use but to resale with profit motive. The Ld.DR further submitted that the land has been sold to a concern with which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee and alter the character of the asset substantially. The assessee has declared the acquisition of land in its books as investment over a period of time. We find that nothing turns on the allegation of the Revenue that land has been converted into nonagricultural land prior to its sale. On the contrary, we find that such act can only be with a view to maximize the gain on sale of property by a prudent investor for which he cannot be faulted. After conversion of such land, the sale took place to a buyer who happens to be a developer. Thus no adverse inference is permissible on this score also. Notably, what is relevant to determine the issue is to enquire into the intention at the time of acquisition of asset and not when the asset is proposed to be sold. The element of borrowed funds in the acquisition of assets in the present case, in our opinion, do not alter the aforesaid declared intention. The Revenue has not alleged any real substantive and systematic course of activity or conduct with set purpose in the instant case. While description of a particular portfolio in the balance-sheet may not be conclusive in determining the nature of transactions per se , it is ce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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