TMI Blog2016 (10) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... several years in many cases before its sale. Coupled with this, we also take note of the fact that assessee has large capital of its own at its disposal which is far in excess of the corresponding investments made in land/properties over years. On cumulative reading of these glaring facts, we fail to comprehend the action of the Revenue in holding capital gains earned on sale as declared to be a business venture. It is manifest that the AO as well as CIT(A) misdirected themselves in law and on facts in holding the land/properties to be in the nature of trading asset merely on the ground that some of the agricultural land were converted into non- Agricultural land and some agreements were entered for the development of the land in the year under appeal acquired and held for decades in many cases. We find considerable weight in the plea of the assessee that intention at the time of purchase to hold impugned land/properties as a capital asset is manifest on records. The balance-sheet filed by the assessee over years, wealth-tax returns filed by the assessee, adequacy of its own capital clearly underscore the intention of the assessee to hold land/properties as capital asset as clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that five appeals pertaining to the Assessment Years (AYs) 2007-08, 2009-10, 2010-11, 2011-2 2012-13 emanates from the common order of the Commissioner of Income Tax (Appeals) [CIT(A) in short) and appeal pertaining to AY 2008-09 arises from separate order of the CIT(A). We were also informed in the course of hearing that the facts in all these assessment years under appeals are similar and therefore AY 2012-13 may be taken as a lead year for the purpose of adjudication of common issue in all these appeals. We have proceeded accordingly as per suggestions made. 2. Thus, we shall take up the appeal in ITA No.371/Ahd/2016 for Asst.Year 2012-13 first. The grounds of appeal raised by the assessee read as under:- 3. The assessee in the course of hearing has not pressed ground No.3 of the appeal challenging disallowance of expenditure u/s.14A of the Act. Accordingly, ground No.3 of the assessee s appeal is dismissed as not pressed. This leaves us with ground Nos.1 2, whereby the assessee has assailed the action of the AO in treating the capital gains arising on sale of property as business income . 4. Facts in brief as emanating from the records are that a search acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where the developers are confirming party. (E)The number of properties sold by the assessee for the year under consideration was fifteen. II. Events as narrated in the preceding paras vividly brings out the facts that the owners of the land have dealt with the land in same way as a dealer in it would ordinarily do like purchasing the land, converting it into nonagricultural, developing it and then selling it in small pieces. It is worthwhile to mention here that Shri Anil Bholabhai R Patel is a well known builder and is also a partner in M/s. Sai Developers and M/s. Siddharth Developers and other related Developers with whom the development agreement was entered into. In the light of above fact the purpose of transaction of purchase and sale is clearly discernible. III. Here it is more than apparent that the operations involved in the transaction are of the same kind and carried on in the same way as those which are characteristic of ordinary trading in the line of business in which the transaction was made. IV. Here the agricultural land is in the close vicinity of city and was purchased solely with the intention to resell at the profit and purchaser had no intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. VIII. The assessee has placed reliance on the decision of the Bombay High Court in the case of Commissioner of Income-Tax Vs Dhable, Bobde Parose, Kale, Lute and Choudhari (202 ITR 98). Here the facts of the case with that of case cited by the assessee are easily distinguishable. In the case cited Supra, the transaction was an isolated transaction of purchase and sale of agricultural land by the assessee. While, here, the assessee is actively engaged in the purchase of land and this is not an isolated instant. Moreover, assessee in its balance sheet has shown Advances received against land . This shows the magnitude of the trading in land. It is well settled law that if the commodity purchased is generally the subject Inaner of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment of personal use, possession or enjoyment. IX. Assessee's other contention that he is not holding land as stock-in-trade and has shown the same as fixed assets does not have any force. The consistent methods followed by the assessee have nothing to do with the chargeability of the correct income. Moreover, Income-tax Authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005-06 88373 2 1979044 AO ---- No Appeal pending 3 2006-07 --- 6 6602026 --- ITAT Appeal admitted by Hon. High Court 4 2007-08 128952 6 1519732 --- AO CIT(A) Pending appeal 5 2008-09 8 5459715. --- CIT(A) Present Appeal (ITAT) 8. The Id. AR has also submitted the copy of ITAT order for A.Y.2006-07 wherein the issue has been decided against the appellant after considering the earlier decision of ITAT for A.Y.2004-05 wherein the issue was decided in favour of the appellant and after distinguishing the same. The relevant portion of the order of the ITAT is reproduced as under: 6. We have heard the rival contentions and perused the material on record. The past history of the case show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in appellant's own case in pre-search regular assessments u/s 143(3). While AY 04-05 is conclusively covered in favour of the appellant, AY 06-07 is decided in favour of the Department. In view of the facts noted as above that a later decision of the Hon. ITAT on the issue in controversy is against the appellant which has been rendered after considering and distinguishing the earlier decision of the same Bench in appellant's own case, I would respectfully need to follow the later decision. The Ld. AR, during the course of appeal proceedings, could not point out the reason or basis upon which I can and I should not follow the later judgment (supra) in appellant's own case covering the controversy in favour of the Department, except pointing out that the HC has admitted the appeal of the appellant against the ITAT order being relied upon by me. In view of the duty and need to follow later ITAT decision, discussion on the rival contentions available before me is both academic and meaningless. Moreover, I find 'that the number of transactions of dealing in land/immovable properties have been generally increasing from year to year. Accordingly, respectfully followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in balance-sheet prepared. Thus, the intention of the assessee at the time of purchase and continued intention to hold the impugned land and properties as capital asset is loud and clear in the given facts. It was contended that merely because the ultimate sale of the impugned land and properties have given rise to substantial profits owing to accretion in value, no adverse inference against the assessee is called for. Secondly, the parcel of land which were non agriculture in nature were reported in the wealth-tax return of the assessee being capital asset. The Ld.AR in the same vain, pointed out that the land being capital assets were chargeable to wealth-tax in contrast to the trading assets which are not chargeable to wealth-tax at all. Thus, the action of Assessee to hold the land as capital asset was detrimental to it in so far as wealth tax statute is concerned. Thirdly, the Ld.AR pointed out with reference to the written submissions placed before the AO as well as before the CIT(A) that the assessee was a co-owner in most of these land and properties giving rise to the impugned gains. He pointed out that similar gains have also accrued in the hands of other co-owners whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... local laws could be sold to other agriculturists only and therefore not available for free trade. Thus, the sale of agricultural land acquired and held for long time out of its own capital resources cannot be termed as trading asset. The Ld.AR thereafter referred to the objections of the Revenue and submitted that the number of properties sold by the assessee for the year under consideration was mere 15 in number which includes agricultural land and house properties, the rent generated wherefrom has been charged to tax under the head income from house property in the earlier years. The Ld.AR thereafter contended that other objection of the AO; namely that development agreements have been entered into with various persons by the assessee and agricultural land purchased was converted into non-agricultural land by the appropriate authority as a reason to deny the benefit of chargeability under the head capital gain is also a damp squib. The Ld.AR contended that, as pointed out earlier, the land were ordinarily held for number of years prior to its sale. The intention at the time of acquisition or purchase is a relevant criteria for determination of taxability under the head capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee, the assessee referred to a statement showing agricultural income from AYs 2003-04 to 2016-17. He thus submitted that the Tribunal order relevant to AY 2006-07 loses its precedence value on facts and cannot be applied. The Ld.AR thereafter submitted that the assessee held around 86 parcels of lands in AY 2006-07 out of which only 12 plots were sold in that year and therefore the frequency and volume of sale of land was quite low as compared to the investments held. This crucial fact has gone unnoticed by the Hon ble Tribunal in AY 2006-07 while holding against the assessee. The Ld.AR also pointed out that the land were accepted by the Tribunal in AY 2004-05 to be investment and the fact that the wealthtax was paid in accordance with law has not been taken cognizance in the later decision of the Tribunal relevant to AY 2006-07. The Ld.AR further observed that the status of the land has to be seen with reference to the date of purchase and not when it was converted into NonAgricultural land or when it purportedly became stock-in-trade at a later point of time. He submitted that it is an admitted fact on record that the land purchase were held as investment since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, the AO has merely applied his mind to the taxability of profit arising on sale of land for chargeability under one head or another head. The impugned income was already declared in the return of income filed prior to search. Thus, there is no nexus between the action of the AO with that of search action. Hence, in the garb of proceedings u/s.153A of the Act, the AO has reopened the assessment and sought to determine the purported correct head for chargeability of declared income in section 153A proceedings which is not permissible in law. To support his contention, the Ld.AR relied upon the decision of Hon ble High Court in the case of CIT vs. Raj Kumar Arora reported in (2014) 52 taxmann.com 172 (Allahabad) and also adverted our attention to the decision of the Coordinate Bench of Tribunal in the case of Rawal Das Jaswani vs. ACIT reported in (2015) 169 TTJ (Raipur) (UO), copy of which has been placed in file. The Ld.AR pointed out that the aforesaid legal ground was raised before the CIT(A) which remained to be disposed of. The Ld.AR finally submitted that the action of the assessee in treating the gain in arising on sale of land and other properties under the head cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other properties. Simultaneously, the land/properties have been declared as capital investment by the assessee all along. We also take note of the fact that some of the properties were let out and rent thereon was earned as a yield on such investments. Agricultural income has been consistently declared year-after-year on agricultural land so held before its sale. The non-agricultural land so held were shown as investment and subjected to wealth tax being capital asset. On perusal of the written submissions as reproduced by the CIT(A) in para-6 of his order, we note that the land/properties were purchased and held for several years in many cases before its sale. Coupled with this, we also take note of the fact that assessee has large capital of its own at its disposal which is far in excess of the corresponding investments made in land/properties over years. On cumulative reading of these glaring facts, we fail to comprehend the action of the Revenue in holding capital gains earned on sale as declared to be a business venture. It is manifest that the AO as well as CIT(A) misdirected themselves in law and on facts in holding the land/properties to be in the nature of trading asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit in the plea of the assessee. We accordingly hold that land/properties were held by the assessee as capital asset before its sale and consequential gains arising on sale thereto is chargeable under the head of capital gains . Accordingly, the AO is directed to consider the gains arising on sale of land/properties under the head capital gains . In the light of the facts noted above, the AO is further directed to de novo consider the relief as and where claimed by the assessee u/s.54B relevant to assessment years under appeals in accordance with law after affording requisite opportunity to the assessee. We accordingly set aside the issue towards eligibility of relief claimed u/s.54B of the Act back to the file of the Assessing Officer for fresh consideration. 12. Thus, the appeal of the Assessee in ITA No.371/Ahd/2016 relevant to A.Y. 2012-13 is partly allowed in terms of directions noted above. 13. For parity of reasoning, our decision as noted above relevant to AY 2012-13 in ITA No.371/Ahd/2016 shall apply mutatis mutantis to all the remaining appeals captioned above. 14. Now we shall address ourselves to the legal issue raised relevant to AY 2007-08 in IT(ss)A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. We also take cognizance of the fact that the income tax return relevant to assessment was filed prior to the search in the normal course suo motu disclosing the impugned capital gain on sale of land/properties in question. The return so filed in the ordinary course were accepted u/s.143(1) of the Act and as such no assessment was pending on the date of initiation of search which would abate in consequence of search. In the light of these facts, we are of the view that mere realignment of income from one head to another made by the AO is clearly beyond the scope of authority vested u/s.153A of the Act in the absence of any incriminating material or evidence detected as a result of search. Pertinent to note that no reference to such incriminating material is found in the orders of the authorities below for the purpose of impugned realignment. This legal issue emanating in the present case that in the absence of incriminating document/material, no addition can be sustained u/s.153A of the Act is no longer res integra in view of the decision of the Hon ble Allahabad High Court in the case of CIT vs. Rajkumar Arora(supra) and also the Coordinate Bench of Raipur in the case of Rawal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. 39. The question framed by the Court is answered in favour of the Assessee and against the Revenue. 40. The appeals are accordingly dismissed but in the circumstances no orders as to costs. 14.3. The judicial precedence noted above has underscored need for Revenue to unearth the materi ..... 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