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Shailesh Gangaram Ramani C/o. Gayatri Hardware Store Versus ITO, Ward – 2, Bhuj

2017 (12) TMI 524 - ITAT RAJKOT

Profit on sale of land - nature of land - gain realized on sale of such land was claimed exempt u/s.2(14) - Business income or capital gain - Held that:- Merely if an assessee is getting a higher volume of sale consideration, then it could not be construed that transaction would take colour of a business transaction. The assessee is basically an agriculturist; purchases land at a distance of more than 20 kms. away from municipality and close to his native village. After sale of this land, he has .....

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ve been brought on record by the AO. It is also pertinent to observe that whether the assessee could anticipate such substantial increase in the sale price of the land because of any policy introduced by the Government, no such factors have been brought on record. Facts are to be view keeping in view perspective the assessee, i.e. from where he belongs; whether he has ventured in any trading activities of similar nature; his educational background etc. - Even the entire transaction is being .....

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l of the assessee and direct the AO to treat the assessee as an investor in the agriculture land. Entire land sold to be treated as agriculture land and gain on sale of this land is beyond the purview of the capital gain under section 2(14) - Decided against revenue - ITA Nos. 260 & 294/Rjt/2014 - Dated:- 4-12-2017 - Shri Rajpal Yadav, Judicial Member And Shri N. K. Billaiya, Accountant Member Revenue by : Shri M. J. Ranpura, A.R. Assessee by : Smt. Hargovind Singh, D.R. ORDER Per Rajpal Yadav, .....

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ale of land is to be assessed as business income or under the head capital gain. 3. The brief facts of the case are that assessee has filed his return of income on 21.01.2010 declaring total income at ₹ 9,48,823/-. His case was selected for scrutiny assessment and notices u/s. 143(2) and 142(1) were issued and served upon the assessee. On scrutiny of accounts it revealed to the Assessing Officer that assessee has derived income from trading in plastic, cotton and steel, also shown profit o .....

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He confirmed the assessment of ₹ 2,60,55,922/- under the head business income and accepted the contention of the assessee qua the balance amount. The revenue is challenging the order of ld.CIT(A) qua the amount, which has been accepted as assessable under the head capital gain and exempt from tax being arisen on sale of agriculture land. On the other hand, assessee is impugning the order of the ld.CIT(A) for assessing the balance amount of ₹ 2,60,55,922/- under the head business inco .....

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gather the intention of an assessee while he entered into the transaction. The expression intention as defined in Meriam Webster Dictionary means, what one intends to accomplish or attain, it implies little more than what one has in mind to do or bring out. It suggests clear formulation or deliberation. Thus, it is always difficult to enter into the recess of the mind of an assessee to find out the operative forces exhibiting the intention for entering into the transaction. This would give rise .....

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ricultural land ? ii. Whether the transaction carried out by the appellant was adventure in the nature of trade and the profits thus required to be taxed as business income ? iii. Is the transaction a sham transaction and can it be labeled as a colourable device ? 8. Ld. first appellate authority has made a lucid enunciation of law and facts under each question. She accepted that the land sold by the assessee was agricultural land. She also accepted that the transaction was not sham or colourabl .....

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the asset possessed by the assessee was not a capital asset within the meaning of section 2(14)(iii) of the Act. 10. Thus, at this stage, let us first note the facts in a little more detail. It is pertinent to observe that assessee is an agriculturalist by inheritance. He purchased agricultural land comprised in Survey No.563/2 and 564 admeasuring 10.18 Acre at village Paddhar Tal. Bhuj in Kutch District in the month of April 2005 for consideration of ₹ 84,600/-. Brother of the assessee h .....

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sessee. Such details read as under:- Sr. No. Survey No. of Village Paddhar Name of purchaser Date of sale Sale consideration 1. 567/1/1 Naru Kheraj Gadhvi 29.08.08 42,70,112 2. 564 Vejanand Vira Gadhvi 29.07.08 63,05,664 3. 568/3 Rana Parbat Gadhvi 22.07.08 24,00,088 4. 563/2 Vejanand Vira Gadhvi 29.07.08 29,42,672 5. 568/1 Rana Parbat Gadhvi 22.07.08 19,34,986 6. 560/3 Harsur Kheraj Gadhvi 22.07.08 72,00,115 7. 568/2 Rana Parbat Gadhvi 22.07.08 19,49,960 8. 567/2 Naru Kheraj Gadhvi 03.10.08 84, .....

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ril 2005 as exempt u/s.2(14) of the I. T. Act. However, with regard to the land purchased in the month of Feb-March 2007, he treated the gain arisen to the assessee as business income. This action of the ld.CIT(A) is being impugned by the assesses in his appeal, whereas rest is being impugned by the revenue. 13. While appreciating the controversy, ld. First appellate authority took into consideration. The broad principles laid down by the Hon'ble Jurisdictional High Court in the case of CIT .....

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land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue? Yeas the land is classified in the revenue records as agricultural land. 2. Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? Yes the land was used for agricultural purpose. 3. Whether such user of the land was for long period or whether it was of a temporary character or by any or a stopgap arrangement? It was not for stop .....

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in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? Not applicable as the land was converted into NA and was sold as agricultural land. 6. Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/or alternative user was of a .....

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tics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? In surrounding area there are adjoining agricultural land only and the area was not developed. 9. Whether the land itself was developed by plotting and providing roads and other facilities? No the appellant being agriculturist has carried out agricultural activities and sold to the agriculturist. 10. Whether there were any previous sales of portions of the land for n .....

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ructure (P) Ltd. v. ACIT (2009) 120 TTJ 216 has also considered issue whether an assessee deserves to be treated as a trader or investor . Though the issue involved in that case relates to investment/trading in shares, but broad principle carved out by the ITAT is applicable on all sorts of transactions, where adjudicator is required to find out whether transaction was entered into by the assessee with a pre-dominant intention of trading or investment. The following tests are worth to note: 13. .....

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stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchase and disposal in that particular item? If purchase and sale are frequent, or there are substantial transaction in that item, if would indicate trade. Habitual dealing in that particular item is in .....

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enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assessee) is authorized i .....

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and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real. 8. The mere fact of credit of sale proceeds of shares ( or for that matter any other item in question) in a particular account or not so much frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. 9. One has to find out what are the legal .....

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os, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. 11. Not one or two factors out of above alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors has to be seen. 15. The Hon ble Gujarat High Court had also an occasion to consider this issue in the case of Commissioner of Income Tax vs. Riva Sh .....

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ith the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter .....

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e to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorizes such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transaction of purchase and sale .....

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G. Venkataswami Naidu & Co. Vs. CIT, 35 ITR 594 (SC) and Janki Ram Bahadur Ram Vs. CIT, 57 ITR 21 (SC). Conclusions briefly drawn by the CIT(A) are on page no.35 of the impugned order. It reads as under: 1. The appellant's case is required to be broken into two parts to get the correct perspective. 2. The appellant had purchased eight pieces of land. Two pieces were held for more than three years while the remaining six pieces were held for less than ten to fifteen months. There has been .....

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at the appellant was very much aware of the developments in that area and in respect of the six pieces of lands which have been held for less than ten to fifteen months, he has sensed the business opportunity of making a kill and has therefore purchased these lands and sold them after a short period. This conduct on the part of the appellant can definitely point to these transactions being in the nature of business activity or adventure in the nature of trade. 7.19 However, the above logic canno .....

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the business profits as above. 17. Thus, an analysis of complete record would indicate that basic point which weigh with the ld.CIT(A) for treating the assessee partly as trader is the fact that the increase in sale price is 800%. In other words, volume of profit resulted to the assessee persuaded the ld.CIT(A) to habour a belief that the land purchased in the year of 2007 and sold after 15-16 months is to be treated as a trade asset. No doubt the profit on transfer of alleged agriculture land w .....

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