2025 (4) TMI 1221 - AT - Income Tax

Unexplained investment in property - Addition u/s 69C - CIT(A) deleted the said addition made u/s 69 of the Act and remanded the matter to the AO for verification of certain facts and decision afresh in respect thereof - HELD THAT - As appellant has not brought to our notice either by way of any informatory application or in the course of arguments that the appellant has challenged said assessment order dated 2.4.2024 before the Commissioner of Income Tax(A). In the given situation when vide impugned order Learned CIT(A) deleted the first mentioned addition and remanded the matter to the Assessing Officer and the Assessing Officer passed fresh order as regards the first addition present appeal as regards said first addition challenging the impugned order passed by Learned CIT(A) is not maintainable. Addition on profit on sale of land - Nature of land sold - AO concluded that the said transactions of sale of immovable property were having the element of business transaction and adventure in the nature of trade - HELD THAT - No merit in the contention of learned AR for the appellant that the period for which land is held by the landowner is not a significant factor. We confirm the decision of the Ld. CIT(A) whereby the view of the Assessing Officer has been confirmed that this is a case of an adventure in the nature of trade and the addition as regards profit on sale of land has been sustained.

The core legal issues considered in this appeal are twofold: (1) the validity of the addition made by the Assessing Officer under section 69C of the Income Tax Act, 1961, concerning unexplained investment in property amounting to Rs. 49,02,320/-; and (2) the correctness of the addition of Rs. 2,44,17,300/- on account of profit earned from the sale of immovable property, specifically whether such profit is taxable as business income or exempt as capital gain on agricultural land situated in a rural area.

Regarding the first issue, the Assessing Officer made an addition on the ground that the source of investment for the property purchase was unexplained. The assessee claimed that the funds were borrowed from RDS Buildcon, supported by bank statements. The CIT(A) deleted this addition but remanded the matter to the Assessing Officer for verification of certain facts. Subsequently, the Assessing Officer passed an order on remand after the present appeal was filed. The Tribunal observed that since the assessee participated in the remand proceedings and did not challenge the fresh order before the Commissioner of Income Tax (Appeals), the present appeal against the deletion and remand order was not maintainable.

The second issue concerns the classification of the profit on sale of immovable property. The assessee contended that the land sold was agricultural land situated in a rural area, thereby qualifying as a capital asset under section 2(14) of the Act, and the profit should be exempt from tax as capital gain. The assessee also submitted that the land was sold only 25 days after purchase due to a sudden increase in price, but maintained that the intention was to cultivate the land.

The Assessing Officer rejected this contention, observing that the land was vacant, no cultivation or construction was undertaken, and the only purpose of purchase was resale at a profit. The sale was made shortly after purchase at a substantially higher price, indicating an adventure in the nature of trade rather than a capital asset transaction. The Assessing Officer relied on precedents including G. Venkataswami Baidu & Co. v. CIT and DCIT v. Gopal Ramarayan Kasat to support the addition.

The CIT(A) upheld the Assessing Officer's addition, and the Tribunal affirmed this view. The Tribunal emphasized that the question of whether a transaction is an adventure in the nature of trade depends on all relevant facts and circumstances, including the magnitude of the transaction, nature of the commodity, and manner of disposal, as held by the Supreme Court in P.M. Mohammed Meerakhan v. CIT.

The Tribunal considered the appellant's reliance on several High Court and ITAT decisions supporting the agricultural land exemption but found these distinguishable since none involved sale within such a short period (25 days) after purchase. The Tribunal also referred to the Supreme Court's decision in Smt. Sarifabibi Mohmed Ibrahim v. CIT, where land sold shortly after purchase without intention to cultivate was held to be an adventure in the nature of trade.

The Tribunal further analyzed the Supreme Court's decision in Smt. Indramani Bai v. Additional Commissioner of Income-tax, which held that rapid resale and carving of land into plots shortly after purchase indicated intention to trade rather than to invest. The Tribunal noted the admitted facts that the land was sold only 25 days after purchase for a large profit without any cultivation or use, confirming the trading nature of the transactions.

Regarding the appellant's attempt to produce additional evidence during the appeal, including a sale deed of other agricultural land and an affidavit, the Tribunal rejected this application. It observed that these documents were not produced before the authorities below without explanation and were irrelevant to the subject land sold within 25 days.

The Tribunal concluded that the period of holding the land is a significant factor in determining the nature of the transaction and that the facts clearly indicated an adventure in the nature of trade. Therefore, the addition on profit on sale of land was rightly sustained.

In summary, the Tribunal held as follows:

1. The appeal challenging the deletion of the addition under section 69C relating to unexplained investment was dismissed as not maintainable, since the assessee had accepted the remand order and not challenged it through proper channels.

2. The addition of Rs. 2,44,17,300/- on account of profit from sale of immovable property was upheld. The Tribunal affirmed the view that the transaction was an adventure in the nature of trade and not a capital gain on agricultural land exempt from tax.

Crucial legal reasoning preserved verbatim includes the following observations from the Assessing Officer's order:

"The lands in question were vacant sites and they brought no income to the assessee. During the time that the assessee was in possession of these lands the assessee made no effort to put up any structures on them or to cultivate them; and so it was clear that the only object with which the assessee had purchased these lands was to sell them to the RDS Buildcon Pvt. Ltd. at a profit. Therefore, it is clear that that the lands had been purchased by the assessee wholly and solely with the idea of selling them at profit to the RDS Buildcon Pvt. Ltd."

The Tribunal also reiterated the principle from the Supreme Court in P.M. Mohammed Meerakhan v. CIT:

"The question whether a transaction is an adventure in the nature of trade is to be decided on a consideration of all the relevant facts and circumstances which are proved in the particular case. The answer to the question does not depend upon the application of any abstract rule or principle or formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case."

Further, the Tribunal relied on the Supreme Court's approach in Smt. Indramani Bai's case:

"The fact that soon after the purchase, the assessee's carved out the land into plots and sold them within a few months, coupled with the other circumstances of the case, is consistent more with the theory of adventure in the nature of trade than with the other theory accepted by the Tribunal."

In conclusion, the Tribunal confirmed the addition on profit from sale of land as business income arising from an adventure in the nature of trade, and dismissed the appeal against the deletion and remand of the unexplained investment addition as not maintainable.

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