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TMI Blog2013 (9) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... urety and necessary documents during the stipulated time. In that event the bid claim of the bidder would be forfeited and the assessee has to conduct fresh auction of the respective chit. In the course of fresh auction, the assessee incurs certain loss i.e., the assessee receives lesser amount than the original bid amount. This amount has been claimed by the assessee as bid loss. This loss arose in the course of assessee's normal business and incurred wholly and exclusively for the purpose of its business and it cannot be considered as non- business expenditure and it is to be allowed u/s. 37 of the Act, as the amount is incurred wholly and exclusively for the purpose of its business - Decided in favour of assessee. Disallowance of inadmissible expenditure - expenditures like donations, marriage gifts, festival expenses, Enams, etc. - Held that:- the assessee is a business concern. In the course of its business, the assessee has to incur certain incidental business expenditures. That expenditure is to be allowed except expenditure in the nature of capital expenditure or expenditure of personal nature and the expenditure incurred which is oppose to the public policy. Considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade - when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income - Decided in favour of assessee. - ITA No. 1424/Hyd/2012, ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4. Now, we will take up each issue in dispute one by one. 5. Addition of ₹ 12,97,908 under the head defaulted subscriptions , 5.1 Brief facts of this issue are that during the course of assessment proceedings, the Assessing Officer observed that the balance sheet of the company showed current liability of ₹ 7,87,32,188 under the head defaulted subscriptions . The assessee was asked to explain the actual nature of the liability. The assessee contended before the Assessing Officer that though the chit is closed and amounts become payable to the subscribers, since they are standing as 'guarantor' to other subscribers, the amount payable to them is withheld for appropriation against any default in case of the principle subscriber. The Assessing Officer observed that the amounts kept as chit lien are not actually disbursed to the defaulters even within the time allowed by the Chit Fund Act. Default in case of other person cannot be foreseen and in such case saying that the amount of another person, who is only a guarantor is withheld, is totally incomprehensible. Accordingly, the Assessing Office rejected the assessee's explanation and treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o it cannot be said that there is cessation of liability. Being so, there is no question of invoking the provisions of section 41(1) of the Act. The addition made by the Assessing Officer is not justified and the same is deleted. 6. Addition of ₹ 10 lakhs towards bid loss: 6.1 Facts of the issue are that during the accounting year relevant for the A.Y. 2009-10 the assessee debited an amount of ₹ 83,81,399 under the head Bid Loss. During the course of scrutiny assessment proceedings the assessee furnished a detailed explanation with regard to the Bid Loss. The Assessing Officer rejected the assessee's claim by observing that the assessee was serious enough in recovery of the dues. The loss could definitely have been minimised if not totally avoided. Thus, writing off the loss is nothing but a premature act on the part of the assessee- company. Accordingly, the Assessing Officer disallowed an amount of ₹ 10,00,000 as inadmissible and added back to the income returned by the assessee. 6.2 The CIT(A) observed that the observation and reasons given by the Assessing Officer are reasonable and correct. Accordingly, the CIT(A) sustained the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer that there is no further evidence produced before him by the assessee. Therefore, the disallowance of ₹ 10,00,000 made by the Assessing Officer towards 'inadmissible expenditure' is reasonable and therefore, the addition made by the assessee is correct and accordingly, sustained the same. On these three issues the assessee is in appeal before us. 7.3 We have heard both the parties and perused the material on record. The assessee claimed an expenditure of ₹ 6,47,68,153 under the head Miscellaneous Expenditure. According to the Assessing Officer this includes expenditure of ₹ 57,73,909 under the sub-head Miscellaneous Expenditure which includes expenditures like donations, marriage gifts, festival expenses, Enams, etc. It also included payment of ₹ 3,04,977 and ₹ 2,36,805 to Kakatiya School and Nakkalagutta land, respectively, which are treated as capital expenditure and thus, the Assessing Officer disallowed ₹ 10 lakhs. In our opinion, the assessee is a business concern. In the course of its business, the assessee has to incur certain incidental business expenditures. That expenditure is to be allowed except expenditure in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricultural operations such as growing jawar and paddy. Account furnished in respect of agriculture operations for the financial year 2008-09 support the same. Earlier to that there were certain teak plantations in the land. The teak plantations were continued in some part of the land and remaining part was used for agriculture operations. (e) The assessee did not carryon any non-commercial activity with reference to those land such as getting of approval for converting into sites, plotting of the same into sites, etc. Thus, the character of the land i.e., agriculture nature was continuing till the same was sold by the assessee company. (f) Because of favourable market conditions the assessee sold the land and the same fetched them a good price. 9.3 However, the Assessing Officer observed that the assessee sold certain property and earned a net profit of ₹ 16,29,00,000. The assessee claimed that the profit earned is exempt from tax on certain grounds. There are many cases where even notional income and illegal income also are taxed. The intention of the statute is to subject income from every source to tax. In the case on hand, the assessee earned profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-05. The extent of the land was 32-32.75. The Assessing Officer concluded that small amount of ₹ 73,165 and ₹ 33,000 represents sale proceeds of paddy and corn disclosed by the assessee and so the agricultural operation appears to be bogus and is not acceptable. The assessee held the land holdings from the year 2004 onwards and this land was figured in the depreciation schedule of the audited accounts in the annual reports and so the assessee's submission is that the land is to be treated as agricultural land. The Assessing Officer also not disputed that this is not agricultural land. 9.6 The Assessing Officer in his order vide para 13, concluded that the transaction can be regarded as an 'adventure in the nature of trade' by saying that one has to see the motive, intention or purpose with which the asset in question is purchased and sold. As per the detailed submissions of the assessee and after verification of annual report and depreciation schedule this conclusion seems to be wrong because the assessee shown this land from the year 2004 onwards and is in possession during the year 2008-09 and sold the land during this financial year. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired as a capital asset. The assessee never treated the land as stock in trade. The assessee reflected the same in the Balance Sheet as a fixed asset. The assessee carried on agricultural operations. This agricultural land is situated beyond 25 km from the municipal limits. The Assessee has not taken any permission from the Government for making plots, as the assessee company never had any intention to make the land into plots and carry on real estate business in respect of the land. Thus, the assessee never created an asset as stock in trade but treated it as capital asset (agricultural land). The assessee has sold land admeasuring ac. 32-32.75 and retained the balance land of 11.07 acres. The same is reflected under the head fixed assets in the Balance Sheet as on 31.03.2009. Copies of pahanis of the above said land is brought on record by the assessee to prove the fact that the land held/sold by the assessee is agricultural land. 9.9 The AR submitted that the sale transaction effected by the assessee in respect of the above agriculture land constituted only sale of agriculture land, and by no stretch of imagination it can be treated as adventure in trade and so as to treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land as stock-in-trade and reflected in profit and loss account (closing stock). There was no element of trade attached to the activity of the assessee in purchase and sale of the land. A continuous business requires more activity and greater organization. This is absent in the transaction of sale of land by the assessee. Therefore, although there is profit in the transaction the transaction cannot be characterized as an adventure in the nature of trade. vi) Whether a transaction in respect of an asset is capital or business income being adventure in the nature of trade depends on the facts and circumstances of the case. There are many factors like frequency of transactions, period of holding, intention for resale etc, which determine whether the gain arising of a transaction is in the process of realisation of investment or in the course of business. The mere fact that the person has purchased a land and subsequently sold it, giving rise to a substantial profit cannot change the character of the transaction. It is the general human tendency to earn profit out of capital asset. No one invests to incur a loss. If the market condition suddenly goes up or down, it is always the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns the assessee sold the land and the same fetched them a good price. 10. Therefore, in the present case there is no dispute that the assessees acquired agricultural land. There is also no dispute that there was agricultural operation in this land before sale of this land. 10.1 The Assessing Officer was of the opinion that the amount received on sale of this agricultural property is nothing but on account of adventure in the nature of trade and the same was brought into income from business. In this case, the assessee held the land always as investment and not at all converted into stock-in-trade. The character of the land in the hands of the assessees has not changed. There is no material on record to show that the assessee carried on activities of buying and selling of land in a systematic manner so as to justify the action of the AO in treating the activities of the assessee as adventure in the nature of trade. The land was sold by the assessees in acreage and not by making plots. 10.2 Now the question as to whether a land is agricultural land or not is essentially a question of fact. The question has to be answered in each case having regard to the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, whether it was put to an alternative use? Whether such lesser and/or alternative user was of a permanent or temporary nature? 7. Whether the land, though entered in Revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes? 8. Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the land in the adjoining area were such as would indicate that the land was agricultural? 9. Whether the land itself was developed by plotting and providing roads and other facilities? 10. Whether there were any previous sales of portions of the land for non-agricultural use? 11. Whether permission under s. 63 of the Bombay Tenancy and Agricultural Land Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such non-agriculturists was for non-agricultural or agricultural user? 12. Whether the land was sold on yardage or on acreage basis? 13. Whether an agriculturist would purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue, it must be held that the land was agricultural in character at the time when it was sold. The Division Bench of the Hon'ble Gujarat High Court further held that there was nothing on record to show that the presumption rose from the long user of the land for agricultural purpose and also the presumption arising from the entries of the Revenue records are rebutted. 10.7 The Hon'ble Bombay High Court in the case of CWT vs. H. V. Mungale (1983) 32 CTR (Bom) 301 : (1984) 145 ITR 208 (Bom) held that the Hon'ble Supreme Court had pointed out that the entries raised only a rebuttable presumption and some evidence would, therefore, have to be led before taxing authorities on the question of intended user of the land under consideration before the presumption could be rebutted. The Court further held that the Supreme Court had clearly pointed out that the burden to rebut the presumption would be on the Revenue. The Hon'ble Bombay High Court held that the ratio of the decision of the Supreme Court was that what is to be determined is the character of the land according to the purpose for which it was meant or set apart and can be used. It is, therefore, obvious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption from levy of capital gains under s. 54B of the Act on the ground that the land sold by her was agricultural land and the sale proceeds were invested in the purchase of agricultural land within two years. The AO rejected the claim of the assessee holding that the land sold by the assessee was not agricultural land and this was upheld by the CIT(A). On further appeal, the Tribunal accepted the claim of the assessee holding that the transaction in question duly fulfilled the conditions specified for relief. On further appeal to the High Court, the Punjab Haryana High Court found that the finding that the land had been used for agricultural purposes was based on cogent and relevant material. The Revenue record supported the claim. Even the records of the IT Department showed that the assessee had declared agricultural income from this land in her returns for the preceding two years. The land being located in commercial area or the land having been partially utilised for non-agricultural purposes or that the vendees had also purchased it for nonagricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B. 10. It is seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that mere inclusion or proximity of land to any Special zone without any infrastructure development thereupon or without establishing and proving that the land was put into use for non-agricultural purposes by the assessee does not and cannot convert the agricultural land into non-agricultural land. In the instant case, at the relevant point of sale of the land in question, the surrounding area was totally undeveloped and except mere future possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into non-agricultural land at the relevant point of time when the land was sold by the assessee. It is also an admitted position that the assessee had not applied for conversion of the land in question into non-agricultural purposes and no such permissions were obtained from the concerned authority. In the Revenue records, the land is classified as agricultural land and has not been changed from agricultural land to non-agricultural land at the relevant point of time when the land was sold by the assessee. It is also not in dispute that there was no activity undertaken by the assessee of developing the land by plotting and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kms, from the municipal limits, to render the land as a Capital Asset. 11. In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14][iii] of the Act is not attracted. 12. However, though it is contended that it is located within 8 knits,, within the municipal limits of Dasarahalli City Municipal Council in the absence of any notification issued under Clause (b) to section 2(14)(iii) of the Act, it cannot be looked in as a capital asset within the meaning of Section 2(14)(iii)(b) of the Act also and therefore though the Tribunal may not have spelt out the reason as to why the subject land cannot be considered as a 'capital asset' be giving this very reason, we find the conclusion arrived at by the Tribunal is nevertheless the correct conclusion. 10.15 Further the Kolkata Bench of the Tribunal in the case of DCIT vs. Arijit Mitra (48 SOT 544) (Kol) held as follows: 7. From the above, it is clear that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of such Municipalities or Cantonm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption arising from actual use can be rebutted by the presence of other factors. There may be cases where land which is admittedly non-agricultural is used temporarily for agricultural purposes. The determination of the question would, therefore, depend on the facts of each case. 'The assessee, Hindu, undivided family, had obtained some land on a partition in 1939. From that time, up to the time of its sale, agricultural operations were carried on in the land. There was no regular road to the land and it was with the aid of a tractor that agricultural operations were being carried on. The land was included within a draft town planning scheme. The assessee got permission of the Collector to sell the land for residential purposes and sold it. On the question whether the land was agricultural land: Held, that what had to be considered is not what the purchaser did with the land or the purchaser was supposed to do with the land, but what was the character of the land at the time when the sale took place. The fact that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property , Capital gains or Income from other sources or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service [(not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area]. [Explanation. - For the purposes of this clause, the expression local authority means - (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924); 10.20 It is also evident from the Memorandum explaining the provisions of Finance Act, 1970, whereby s. 2(14) was amended so as to include the agricultural land located within the jurisdiction of a municipality in the definition of the expression 'Capital Asset'. The relevant portion of the said memorandum is reproduced h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(14)(iii) of the Act, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. 10.22 We have carefully gone through the notification issued by the Central Government u/s. 2(1A)(c) proviso (ii)(B) and 2(14)(3b) vide No. 9447 (F. No. 164/(3)/87/ITA-I) dated 6th January, 1994 as amended by notification No. 11186 dated 28th December, 1999. In the schedule annexed to the notification dated 6.1.1994, Entry No. 17 is relating to Hyderabad wherein mentioned that the areas up to a distance of 8 km from the municipal limits in all directions. In the notification 11186 dated 28.12.1999 there is no entry relating to Hyderabad. It is clear from these notifications that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of Hyderabad Municipality (GHMC) is covered by the amended definitions of 'capital asset'. Central Government in exercise of such powers has issued the above notification, as amended latest by Notification No. 11186 dated 28.12.1999 clearly clarifies that agricultural lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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