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TMI Blog2018 (11) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) reproduced in the preceding paragraphs in this regard. Therefore, we do not see any intangible reason to disturb the action for the CIT(A). - Decided against revenue X X X X Extracts X X X X X X X X Extracts X X X X ..... till AY 2009-10 has been accepted by the AO for AYs 2006-07, 2007-08 & 2008-09 in the scrutiny assessments under s.143(3) of the Act. 6. As regards sale of Sola land, the assessee contended before the AO that plotting has been done on the entire land and individual plots were sold due to its bigger size. The AO however observed that as against the purchase cost of Sola land of ₹ 35, 89, 133/-, the assessee has incurred cost of improvement ₹ 2, 05, 53, 845/-. Thus, substantial cost of improvement of about six times the cost of acquisition itself proves that the intention of the assessee was commercial motive. The AO thus disputed the characterization of income owing to substantial development costs. The AO also observed that the treatment in the books of accounts does not determine the nature of asset per se. The AO accordingly rejected the claim of the assessee for chargeability of income arising on sale of land under the head 'capital gains' and re characterized the income under the head 'business income' for its taxability at normal rates which is higher than the rates attributable to capital gains. 7. As regards claim of deduction of ₹ 1, 28, 69, 619/- under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appellant's contention and A.O.'s reason for rejection had already been discussed. As far as long term capital gain from Kalhar land are concerned, I am inclined with appellant that such sale is not the exclusive sale during previous year i.e. plots at Kalhar were sold in earlier years also by the appellant and as detailed out by appellant that such sale with sale by other co-owners were subjected to scrutiny proceedings in A.Y. 06-07 on wards and the same were held to be sale of capital assets resulting into capita! gain. Even though there was search action in the case of Navratna group being developer of such land, but in the case of appellant, Sale of such plots in search related scrutiny u/s 153C of the Act, the same were held to be long term capital gain. All the contentions and arguments including ratio of case relied on by A.O. were considered in the scrutiny asstt. of appellant's co-owner i.e. M/s Ashwamegh co. operative Housing Society Vibhage-1 as well as vibhage 2. Even Ld. CIT 4 Ahmedabad initiated proceedings u/s 263 of the Act on the same contention against the co-owner M/s Ashwamegh cooperative housing society Ltd. vibhag-1 but after considering the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005. Thereafter the appellant entered in a developing and marketing agreement with Navratna Organisers and Developers Pvt Ltd (NODL). The NODL developed the society and the project] named Kalhar Exotica. The developer sold certain plots after the development for which the sale agreements were signed by the appellant. The appellant offered the gain as capital gain in the earlier years in the return of income. Thereafter in the year 2009 the developer, NODL, decided to terminate the development agreement. Thereafter, certain plots out of the developed scheme and which could not be sold through the developer were sold by the appellant during the year. The present dispute is whether the surplus arising out of such sale is to be taxed as capital gain or business income. The AO has held that it was the intention of the appellant since the beginning to purchase the property and sell it for profit. The appellant planned and systematically purchased those properties with the intention to sell it for profit. The appellant on the other hand has submitted that if has not carried out any development work after the agreement of development with NODL was called off. It has submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter development. There was no organization and planned activity of development so far as the appellant is concerned. The appellant has rightly placed reliance on judgement of honourable Madras High Court reported in 62 ITR 578 in the case of Kasturj Estates wherein it was held that sale of land by converting into plots was not a venture in the nature of trade as it is one activity which any prudent owner of land would engage. It was held by the honourable court that in absence of evidence of any trading activity of the speculative venture the ITAT was justified by treating the surplus as capital gain. Similar view has been taken in the judgements mentioned by the appellant in the cases of Smt Radhabai, 264 ITR 272 (Delhi), Suresh Chand Goyal, 298 ITR 277 (MP), Mohammad Mohideen, 176 ITR 393 (Madras) and Premji Gopalbhai, 113 ITR 785 (Gujarat). I have also carefully perused the judgments mentioned by the AO in the order. It is noted that out of the several judgments mentioned by the AO in para 7.7 and 7.8 of his order, only two judgement appear to be related to purchase and sale of land and similar issues were involved. The other Judgements are related to purchase and sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of CIT vs. Premji gopalbhai (1978) 113 !TR 785 though relied on by A.O. but held in favor of assessee and held (with head note) "Business income-Business-Adventure in the nature of trade-sale of ancestral agricultural land after conversion into nonagricultural and division in plots-Profits assessed as capital gains-Two plots sold repurchased and sold again for resulting in surplus-Assessee not dealer in real property and land not treated as stock-in-trade-solitary transaction of purchase and sale not an adventure in the nature of trade Held It is, clear that the burden of proving that the particular transaction was an adventure in the nature of trade is on the Revenue. Of course, that burden can be discharged by pointing to circumstances which lead to the conclusion that the transaction is an adventure in the nature of trade. However, even if land which is not a commercial commodity is purchased and it can be shown that the purchase of the land was made solely and exclusively with an intention to resell it at a profit, It would be a strong factor that the transaction would be an adventure in the nature of trade. In the instant case, no such strong fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat considering the Voluminous spurt in the land prices, such old investment in 2006 with that of land related to Brick Klin business can be held with initial intention for the business. One cannot assume in 2006 when property prices are at minimal low that land used for brick klin will fatch such huge realization in next five to six years hence intention of business at the time of purchase not logical. The appellant over the years reflected such land as capital asset and it is verifiable from the wealth tax records (as called during the appeal proceedings that appellant reflected the same as wealth and paid taxes considering it urban land. The question of incurring huge expenditure of ₹ 2.06 crore against the purchase price of ₹ 35.89 lac is on account of improving the physibility of such land for sale. Hon'ble Madras high court in the case of Kasturi Estates (P) Ltd- (supra) and relied on by appellant dealt with this fact as follows: "Developing land into building sites with a view to realize the best price without anything more, is consistent with realization of a capital investment. If a land owner developed his land, expended money on it, laid roads, convert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of business, the A.O., should have reduced the cost of acquisition from the full value of sale realization and claim of expenses in the form of cost of improvement has to be dealt as per provisions u/s. 37(1) of the Act where capital expenses in the form of stamp duty is not allowable. It is therefore, considering the facts and reasoning as held in respect of Kalhar plot sale, the transaction related to these sola plot sale cannot be held as adventure in the nature of business. As per purchase of such land originally by M/s. Ashwamegh CoOp. Housing society vibhag-1 in 1995 and by appellant from such society in 2005 with deformity of land as used for brick klin cannot be held with intention to earn profit and such facts are identical as that were there in kalhar plot sale. It is therefore A.O. is directed to treat such transaction as sale of capital asset resulting into capital gain. The legal preposition is already discussed while discussing the sale of kalhar land. It is therefore, the A.O. is not justified in treating part of sale of capital asset resulting into capital gain as an adventure in the nature of business for an amount of ₹ 116515888/- This ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urvey No. 386/1 & 2 (1/2 Part) 1, 44, 05, 000 Deposit with IOB in capital gain tax Scheme Account 20,00,000 1,64, 05, 000 (iii) Calculation of Exemption claimed u/s 54F 16094710 X 16405000 20516048 1, 28, 69, 619 (b) The appellant further clarified the position of claim in view of provisions of 54F of the Act with reference to residences already held as follows: 01-04-2009 Owned following houses: (1) Satyawati Farm (Rajpath Bunglow) (2) Agarwal House, Satellite 26-11-2009 Sold Agarwal House, Satellite 19-02-2010 Sold Kalhar plots against which 54F claimed (On date of sale only one house held) 09-05-2010 (For 54F exemption purchased Sarkhej Land and Deposited ₹ 20 lakhs in Capital Gain Account) (c) The appellant submitted a copy of Return of income filed by Shri Kunal Nandlal Agarwal (son of appellant) for A.Y. 10-11, e-filed on 28/09/10 with PAN : AGIPA8313L and total income of ₹ 866846/- which reflect long term capital gain of Rs, 16542375/-from sale of Makarba land and he claimed deduction u/s 54F of the Act out of it for an amount of ₹ 15809331/- for purchase of land / construction of house & investment in capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of ₹ 2.72 Crore equally share by him and his son. (h) In reference to electricity connection the appellant contended that such land was in interior and away from main road. In the absence of any existing sub station the?"' demand of electric connection for a single house will cost big amount being laying of cables, installation of transformer etc. and therefore the appellant was managing its requirement of electricity through an old existing D.G. Set. The electricity connection cannot justify the completion of construction. (i) All the bills related to construction were produced before A.O. and no adverse finding were given by her. (j) In reference to legal objection, without prejudiced it was contended that A.O. has treated long term capital gain in respect of Makarba land, Sattelite bungalow in aggregate of ₹ 3.21 Crore and therefore such claim of deduction u/s. 54F of the Act can be given from such capital gain. 5(B).3 I am inclined with the contention of appellant that claim of deduction u/s. 54F of the Act are available. As I have already held that transaction from sale of Kalhar land and Sola land are to be treated as sale of capital assets he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year also, the assessee has executed six different transactions of land located at different places. While the AO has accepted all other transactions of land sold under the head 'capital gains', it has excluded the gain arising from the sale of Kalhar Plot-Sola and Sola land for no cogent reasons. The learned AR pointed out that Kalhar plot was bought in September 2003 and thus held for nearly seven years before its sale. Similarly, Sola land was bought in April 2006 and held for nearly 31/2 years before its sale. The learned AR thereafter referred to the wealth tax return and submitted that the assessee has paid wealth tax on the impugned agricultural land in question being a 'capital asset'. The learned AR pointed out that the wealth tax is not exigible on assets held in the course of business as stock-in-trade. He therefore stressed that the intention of the assessee is more than evident by the longibity of holding of land in question together with other parcels of land, the entries in the books of accounts, inclusion of such land for the purposes of wealth tax etc. and capitalization of interest costs. The learned AR thereafter submitted that in AY 2010-11, out of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses on the said land. The assessee pointed out that copy of bills of payments to Ahmedabad Municipal Corporation in respect of municipal tax reflects tenement number and residential construction area. Based on the documentary evidence, the CIT(A) has granted relief to the assessee and reversed wrongful conclusion of the AO. The learned AR accordingly submitted that no interference is called for with the order of the CIT(A). 14. The learned AR thereafter referred to various judicial decisions and submitted that the burden of proving that the particular transaction was a business transaction is on the Revenue. In the instant case, the Revenue has failed to bring out any strong factor against the assessee to enable it to draw adverse inference. 15. We have carefully considered the rival submissions and perused the orders of the authorities below and materials referred to and relied upon in the course of hearing. The assessee has inter alia acquired certain parcels of land at Kalhar and Sola in the earlier FY and declared the same as investment in land as a 'capital asset' in the earlier years all along. During the assessment year in question, the assessee is stated to have sold the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come and submissions made before the lower authorities, we note that there is a considerable time lag between the purchase and the sale of lands in question and other parcels of land/albeit profits from which is not disputed at all. It is demonstrated on behalf of the assessee that the land/properties have been declared as 'capital investment' by the assessee all along and reflected in the books and the financial statement in this manner. We also take note of the significant plea that while the AO has disputed the capital nature of land parcels at Kalhar and Sola, it has accepted the declared position of capital gains in respect of other parcels of land. We also take notice of the emphatic plea on behalf of the assessee that land so held were subjected to wealth tax year after year being capital asset. It is apparent from the record that land/properties were purchased and held for several years before sale. The explanation towards cost of improvement after acquisition of land to enable the land to be sub divided into smaller plots keeping in mind feasibility for sale also appears quite reasonable and does not call for any adverse view. The intention at the time of purchase is relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus which lay upon it to enable it guage a commercial intention and consequently change the character of income. Thus, we find no merit whatsoever in the appeal of the Revenue. We consequently decline to interfere with the order of the CIT(A). 19. In the result, Ground No.1 of the Revenue's appeal is dismissed. 20. Ground No.2 concerns claim of deduction under s.54F of the Act. The CIT(A) inter alia noted that the assessee has demonstrated and substantiated the completion of the house construction with reference to receipt of AMC for property tax. The cost of construction is made out of the capital gain deposit scheme where the assessee deposited ₹ 20 Lakhs and the evidences were found by the CIT(A) to establish direct link between withdrawals and the payment made for construction etc. The Revenue could not rebut the findings of the CIT(A) reproduced in the preceding paragraphs in this regard. Therefore, we do not see any intangible reason to disturb the action for the CIT(A). 21. In the result, Ground No.2 of the appeal of the Revenue is dismissed. 22. In the result, the appeal of the Revenue is dismissed and cross objection of the assessee is allowed. This Order prono ..... X X X X Extracts X X X X X X X X Extracts X X X X
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