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TMI Blog2013 (9) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosing long term capital at Rs. Nil and the computation was as under: "Capital Gains: Long Term Capital Gain: As per Working given (Indexed, 20% Tax) 3665646 3665646 Less : Deduction / Setoff : Deduction u/s. 54EC: 1440000 11440000 Deduction u/s. 54F: 2500000 2310409 3750409 Nil" 2.1. The AO has noted that for the year under consideration; 54 plots have been sold. However, it was also noted by the AO that the assessee HUF was having agricultural land which was converted into non-agricultural land and certain development expenditure was incurred and then plots were sold in few years. According to the AO, the assessee had incurred Rs.27839/- for drainage, Rs.41,125/- for compound wall and Rs.21,087/- for road. Because of the said reason, the assessee had made plots and sold the same. The AO has held that the assessee was carrying on the business of "Real Property". According to the AO, the profit earned from such activity was required to be taxed as business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee continuously engaged in selling of plot of land for the last three financial year, the assesse erroneously stated that he had not done any business." 2.4 Thereafter, the AO has placed reliance on the following judgments. (i) Raja J. Rameshwar Rao Vs. Cit (1961) 42 ITR 179 (SC) (ii) CIT Vs. M. Krishna Rao, (1979) 120 ITR 101, 105 (AP) (iii) CIT Vs. V. A. Trivedi (1988) 172 ITR 95, 101 (Bom.) (iv) M. Krishna Rao (1978) 120 ITR 101 (v) CIT Vs. Daulat Ram Rawatmull (1973) 87 ITR 349. 2.5 Finally, the AO has computed the profit as under: "It is seen that the assessee has sold out 54 plots during the year for the total sale consideration of Rs.92,19,252/-. Since the assessee has not produce any details of expenses, the expenses of the assessee is estimate at 20% of total sale consideration keeping in mind that the assessee might have incurred such expenses for earning profits on sale of plots. As such, 20% of Rs.92,19,252/- is worked out to Rs.18,43,850/-. After deducting business expenses of Rs.18,43,850/-, net profit comes to Rs.73,75,402/- is treated as business income of the assessee for the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tables, Banana, etc. was grown on this land. This land was adjacent to the City of Navsari. There was all residential development around this land, therefore, the assesse wanted to sell the said land as it was now not fit for agriculture. Moreover, there could not be any industrial sale of this land as it was not in GIDC area and it was surrounded by residential area. Therefore, it had to be sold as residential area. Moreover, the adjacent land to the assessee was of Parmesh Diamond Factory where around 1000 workers were working. These persons used the assessee's land for to and fro to the factory and home. Even after the assessee made fencing and gate, these workers used to enter the land of the assessee for crossing the ground. Therefore, it was not possible to carry on the agricultural activities on this land. If the land was not sold, in future if the Navsari limits are extended the assessee might have lost some land in town-planning. Therefore, the assessee considered it wise to sell the land. The area of the land is quite huge - 5667 Sq. Meters of land, at S. no. 196/197/198 paiki and 19264.92 Sq. Meters of S. No. 195 -therefore, the same could not have been sold at once. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ajit Kumar Patel Vs. DCIT, Circle-1 (ITA No. 823/Ahd/2010) (iii) MadanMohan Magaldas Vs. ITO [35TTJ 134 (Ahd)] 5. From the side of the Revenue Department, Mr. J.P. Jangid has argued that the expenditure incurred for the development of the property was in the nature of business activity. The assesse has converted the agricultural land into non-agricultural land and thereafter plots were made and on sale profit was earned. By placing reliance on the order as cited in the assessment order, he has pleaded that the action of the AO deserves to be confirmed. 6. We have heard the submissions of both the sides at some length. We have perused the facts of the case in the light of the order of the authorities below as also the compilation filed. On account of following reasons, we hereby approve the argument of learned AR. (i). The land in question is an ancestral land, which was inherited by the assessee. Since, it was an ancestral land, therefore, there was no cost of acquisition. If there was no cost incurred towards acquisition of the land then naturally one of the conditions of "business activity" is missing in this case. (ii) The expenditure towards road, drainage and compound wal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the possession of the assessee. It was an automatic acquisition of land through inheritance. 6.2 We have examined the other case law, viz., V. A. Trivedi, 172 ITR 95 (Bombay) and noted that the Hon'ble Court has held that certain true character or nature of the land must be seen whether the land was put to use for agricultural purposes for a reasonable span of time. So it is clear that in a situation when a land in question has been put to use for agricultural purposes for a long span of time then the character of the land is agricultural land. In the present case, the ancestral land was in fact used as an agricultural land prior to its conversion. We have also found that in this cited precedent the Hon'ble Court has finally held that the Department had not proved that the purchase was with a view to resell, therefore, it was held that there was no adventure in the nature of trade and the profit was not assessable as business income. 6.3 Likewise, in the case of Daulat Ram Rawatmull, 87 ITR 349 (SC), the issue was about the onus on the assessee to prove that the apparent is real or not. In our opinion, in the present case, the assessee has discharged that onus of proving that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of the land was in the nature of capital gain and, therefore, not assessable as income from business." 6.5 We have also examined a unreported decision of ITAT A Bench Ahmedabad pronounced in the case of Ajit Kumar Patel Vs. DCIT, Circle-1, (ITA No.826/Ahd/2010), order dated 30th of September, 2010, wherein it was held that there was no series of transaction as it happens in a routine business transaction, meaning thereby there was no regular purchase and sale of land by the assessee; hence, not a commercial activity. It was held that there was no business intention and the land was acquired with the only motive to fetch capital appreciation. Likewise ITAT Ahmedabad in the case of Madan Mohan Magaldas Vs. ITO, 35 TTJ 134 (Ahd) has held that whereof assessee has converted ancestral land into stock in trade of his business and sold it, since sale of plot was a solitary transaction and was completed within a short period, therefore, surplus resulting from such transaction was held to be taxable as capital gains and not as business income. 6.6 Respectfully, following these decisions as cited from the side of the assessee, we hereby reverse the findings of the authorities below an ..... 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