TMI Blog2017 (12) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to be farmer. There should be spot inquiry. Presumption of truth is in favour of the record maintained by State revenue official in their official function. Thus, land is to be treated as agriculture land. Therefore, we allow the appeal of the assessee. We direct the AO to treat the profit earned by the assessee on sale of agriculture land as exempt under section 2(14) of the Income Tax Act, 1961. - Decided in favour of assessee. - ITA Nos. 259 /RJT/2014 AND ITA No. 99/RJT/2016 - - - Dated:- 6-12-2017 - Shri Rajpal Yadav, Judicial Member And Shri N. K. Billaiya, Accountant Member Assessee by : Shri D.M. Rindani, AR Revenue by : Shri C.S. Anjaria, DR ORDER Per Rajpal Yadav, Judicial Member These are two appeals by the assessee; one is against quantum addition made under section 143(3) and other for imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961. Both these two appeals are disposed of by this consolidated order. First we take up quantum appeal i.e. ITA No.259/Ahd/2014. 2. Sole common issue involved in this quantum appeal of the assessee relates to determination of nature of income derived by the assessee on sale of land, i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction. This would give rise a debate. Nevertheless, we have to look into the curious features of this case which will goad us on just conclusion. 5. Before we embark upon an inquiry on the facts of present case so as to find out, whether assessee is to be termed as involving in the trading of land or to be treated as a simplicitor agriculturist. We would like to refer the three basic questions formulated by ld. first appellate authority for adjudicating the controversy. These questions are as under:- i. Is the sold land agricultural 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 ? 6. Ld. first appellate authority has made a lucid enunciation of law and facts under each question. She did not accept that the land sold by the assessee was agricultural land. She accepted that the transaction was not sham or colourable transaction. 7. The assessee is not disputing conclusions of CIT(A) qua last question. Thus, the controversy between assessee and revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in respect of a portion of the land and if it was obtained in past, what was the nature of the user of the said portion of the land on the material dale: In the appellant's ease, the land was sold to SPGIL. Mumbai which had clear intention of using the land for non-agricultural purposes, for which necessary permission u/s.89A of Bombay Tenancy Act was given by the District Collector. Kutch. e. whether the land, on the relevant date, had ceased to be put to the agricultural use: if so, whether, it was put to an alternative use: whether, such a alternative user was of a permanent or temporary nature. In the appellant's case, it is not clear whether the land was being used for agricultural purpose or was lying vacant and unused. No evidence to that effect is available or submitted. g. whether the land, though entered in revenue record, had never been actually used for agriculture: whether the owner meant or intended to use it for agricultural purposes: In the appellant's case, it is not clear whether the land was being used for agricultural purpose or was lying vacant and unused. No evidence to that effect is available or submitted. h wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney 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 indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares whether intention was to 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These tests read as under: After analyzing various decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter of transaction was with 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 of transaction during the time the asset was the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal increase in price. The first possibility cannot be commented upon as no efforts have been done by the A.O. in this regard. As regards the second probability of there being a big change in the environment and the location of the land is considered, there is a large element of truth in it. This is evidenced h\ the very fact that in the same area and same vicinity the appellant himself has purchased lands at phenomenal prices as compared to last year. The area of Kuteh has seen rapid strides in development especially after the functioning of the Kandla Mundra Port Trusts, setting up of Ultra Mega Power Plants (UMPPs) and overall growth in industry. The appellant has very clearly understood the business potential and the possible gains and has therefore invested in other lands in the same area. 4. The land has been sold to a non-agriculturist with the clear intention of it being used for non-agricultural purposes. 5.19 It is clear from the above discussions that the appellant has utilized her knowledge of the market, the actual growth and the growth potential in that area and the correct entry and exit points so as to earn maximum profits. Coupled with the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short period of 7 months is to be treated as a trade asset. No doubt the profit on transfer of alleged agriculture land was quite high. But this is one of the corroborative evidences, amongst other, propounded in various case laws noticed by us. 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, she has again purchased agriculture land. She has not entered into any sale of land in earlier period of time or in subsequent period of time. She has purchased the land but ld.AO did not refer sale of land. She has not borrowed money for purchase of land and incurred interest expenditure. She got the land in gift from her father. There might be reasons for all of a sudden spurt in the price of land in the area. There could be change of policy at Government level; introduction of some project, but that type of change in the policy whether, was in the notice of the assessee ? No such factors have been brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the above, the ld.CIT(A) has observed that land was not used for agriculture purpose. This observation was made without any foundation and by merely referring the case of Shri Amitabh Bachhan. It is pertinent to mention that in the land revenue record it was mentioned as agriculture land. The record is per se admissible in evidence. It can be rebutted but by producing evidence and not by general remarks that Shri Amitabh Bacchan was also stated to be farmer. There should be spot inquiry. Presumption of truth is in favour of the record maintained by State revenue official in their official function. Thus, land is to be treated as agriculture land. Therefore, we allow the appeal of the assessee. We direct the AO to treat the profit of ₹ 68,18,800/- earned by the assessee on sale of agriculture land as exempt under section 2(14) of the Income Tax Act, 1961. 13. In the result, quantum appeal of the assessee is allowed. 14. Now coming to appeal of the assessee against imposition of penalty under section 271(1)(c), the same deserves to be allowed for the reason that quantum on which penalty has been imposed, stands deleted by us for the reasons recorded in the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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