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2017 (12) TMI 529

Determination of nature of income derived on sale of land - profit on sale of land to be assessed as business income or under the head capital gain - Held that:- The only reason adopted by the Revenue for treating all these persons as traders was that they have earned profit on sale of their land which is more than 800 times than ordinary profit in this year. In our opinion, it is one of the corroborative factors amongst other. This transaction might be boon because of their geographical locatio .....

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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, 1 .....

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According to the assessee, the said land was purchased by the assessee s father for ₹ 54,000/- and gifted to her. The ld.AO did not accept contentions of the assessee and treated her as a trader in the land. He assessed the alleged profit and sale of land as business income. On appeal, the ld.CIT(A) has confirmed action of the AO by treating the assessee as trader in land and assessed the profit as business income. In this way, assessee is challenging order of the ld.CIT(A). Thus, the iss .....

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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 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 .....

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the nature of trade and thus the profit resulted to her has been assessed as a business income. 8. 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 vs. Siddharth J. Desai [1983] 139 ITR Page 628/10. Alongwith the test propounded by Hon ble jurisdictional High Court, ld. first appellate authority has considered the reply given by the assessee as to how his trans .....

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the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land'. The appellant has not shown any agricultural income in her return of income. The appellant has only submitted one sale bill of GUAR to the tune of ₹ 61,674/-. However, there is no evidence that any agricultural operations were carried out by the appellant on this land and this GUAR is the produce from this land only. d. whether the permission under section 65 .....

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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 whether the land was situate in a developed area\ whether its physical characteristics, surrounding situation and use of the .....

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nt to observe that ITAT Lucknow Bench in the case of Sarnath Infrastructure (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 .....

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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 .....

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s of holdings. If the assessee is able to discharge the primary onus 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 .....

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ider this issue in the case of Commissioner of Income Tax vs. Riva Sharkar A Kothari reported in 283 ITR 338. Hon ble court has made reference to the test laid by it in its earlier decision rendered in the case of Pari Mangaldas Girdhardas vs. CIT reported in 1977 CTR 647. 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 wheth .....

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his factor, though not conclusive, can afford good and cogent evidence 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, freq .....

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ome. 2. The appellant has been shown to be an agriculturist in the purchase deed. This may be true as per Government records. However, if the profile of the appellant is carefully scrutinized, by no iota of imagination can he be described to be an agriculturist. The appellant is getting income mainly from house property and other sources. Getting herself classified as an agriculturist is very, similar to the famous case in Maharashtra of Shri Amitabh Bachchan declaring Himself to be an agricultu .....

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nt 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 wit .....

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be a colourable device. Because there was a substantial uain in a relatively short period and the gain was shown to be exempt from taxation due to the asset sold being outside the purview of S.45, it cannot be said that this is a sham transaction. There are no attributes to label it as a colourable device or a sham transaction. The contention of the A.O. is therefore not held to be correct. 5.23 In light of the above discussion, the following conclusions emerge:- 1. The land sold is NOT agricul .....

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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 agri .....

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her educational background etc. Even the entire transaction is being looked into with that angle, then it would reveal that she has not been trading in the land, rather it was a simplicitor investment for agriculture operation, but on account of getting good price land has been sold. The ld.CIT(A) was of the view that once assessee came to know about rapid development after setting up of Ultra Megha Power Plants in the area of Kutch and functioning of Kandla and Mundra Ports she could have anti .....

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adopted by the Revenue for treating all these persons as traders was that they have earned profit on sale of their land which is more than 800 times than ordinary profit in this year. In our opinion, it is one of the corroborative factors amongst other. This transaction might be boon because of their geographical location of the land near to power plant. It was not a case that they have anticipated many fold rise of agriculture land price, and therefore, ventured into trade. Apart from the abov .....

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