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TMI Blog2023 (4) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... he sake of convenience and brevity. The facts as well as grounds of appeals narrated in IT(SS)A No.15/SRT/2018 for assessment year 2011-12 have been taken into consideration for deciding both these appeals en masse. 3. Gorunds of appeal raised by the assessee in lead case in IT(SS)A No.15/SRT/2018, are reproduced below: "1. The learned CIT(A) has grievously erred in law and on facts in taxing gain from sale of land as business income instead of Long Term Capital Gain disregarding the evidences and facts on record. The gain of Rs.3,99,10,520/- be treated as Long Term Capital Gain instead of Business Income. 2. The learned CIT(A) has grievously erred in law and on facts in not allowing deduction u/s 54F of the Act for investment in residential unit out of Long Term Capital Gain, despite of the facts that all conditions as per law are satisfied. The deduction of Rs.31,33,611/- should be allowed. The assessee reserves the right to add, alter, modify, amend or withdraw any of the grounds of appeal before hearing." 4. Succinctly, the factual panorama of the case is that assessee before us is an individual. A search action u/s 132 of the Act was carried out on 17.07.2012 in the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arrange plotting on his own land purchased in A.Y 2004-05. For the entire land, the buyer was not available and whenever available the consideration offered was less than value determined by State Stamp Duty Valuation Authorities. The assessee was therefore compelled to covert part of the land into Partnership Firm since other partners were ready to take only that part of the land. For remaining part no one offered the expected prices. The assessee had not developed the plots into houses or is not dealing in Real Estate. The intention of the assessee is not in the nature of "Adventure in the Nature of trade but land was held with an intention to construct farm house". However, later on the city limit was increased and it was not allowed to construct Farm House on this land due to implementation of town planning scheme. When the land was purchased the assessee never intended to sell plots or to convert the land into partnership firm. The consideration of entire facts ipso facto prove the intention of the assessee to hold the land as capital assets. 3. This was the sole transaction of plotting in view of the decision of ITAT in M. Ramanamma vs. CIT reported at 255 ITR 467, Vesta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied, the assessee was entitled to deduction under section 54F of the Act. The assessee had transferred the block no. 201 of Mota Varachha, Surat to the firm M/s Gangotri Enterprise as the capital contribution of a partner. This amount was disclosed as income from LTCG as per the partnership deed. He had sold the remaining part of the land by carrying out plotting on land by arranging a society known as "Shabridham" and the sales amount from the plots was disclosed as capital gain of Rs.1,62,11,034/- in A.Y. 2011-12 and Rs.86,46,452/- in A.Y 2012-13 and the entire capital gain has been offered to tax. The assessee had contended that he had not indulged in any activity of construction for dealing in plots or land from A.Ys 2007-08 to 2011-11 as per the return of income. It was only in A.Y 2011-12 that the assessee made the plotting on his own and converted part of the land into partnership firm since other plotting on his own and converted part of the land into partnership firm since other partners were ready to take only part of the land. The intention of the assessee was not in the nature of adventure in trade but was planning to construct a farm-house. Therefore, ld Counsel prays ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmer for the period of 6 years (from 26.10.2004 to 19.05.2010) cannot be treated as businessman (trader), hence, the "Capital Gain" shown by the assessee cannot be taxed as "Business Income". 12. We note that later on, the entire area of land of assessee, was merged and the Municipal limits of Surat Municipal Corporation and Town Planning Scheme was implemented by Surat Municipal Corporation being T.P. Scheme No. 24 approved by State Government. Since, Road was passed from the land, the assessee was allotted two final plots being Final Plot No.61/A and Final Plot No.61/B. Since the government road was passed from the assessee`s land and therefore assessee was allotted two final plots. So assessee cannot do agricultural activities on different plots, as it was inconvenient, therefore assessee made plan to sale these plots. 13. The assessee transferred Plot No. 61B as a Capital Assets to the firm M/s Gangotri Enterprise in which he is a partner by a Registered Partnership Deed executed on 15.04.2010. Copy of Registered Partnership Deed is enclosed. (vide paper book Page 23 to 39). We note that this transfer is squarely covered by the provisions of section 45(3) of the Act. After th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling of land is incorrect; c. As per partnership deed, the Assessee is in the business of developing real estate (Copy of Partnership Deed is at Page 208 211 of PB). d. Intention at the time of acquisition of land is more important than subsequent non utilization of said land, e. The Assessee was aware of the various problems and difficulties which lay ahead and hence, it cannot be accepted that the said land was not developable 8. Before the CIT (A), the Assessee made detailed submissions which form part of paper book filed before us and appear at page 01 to 25 of the PB. The Assessee's submission are summarised hereunder: a. The Assessee is a partnership firm engaged in the activity of construction and development of real estate. For this purpose, the Assessee acquired a parcel of land at Nagpur for a total consideration of Rs.25 crores as evidenced by Sale Deed executed on 31.12.2007. The Assessee could not develop the said land due to procedural and legal tangles as have been chronicled. There is no finding by Id AO nor there is any evidence to lead that the Assessee was engaged in any manner in "trading" of land. A copy of partnership deed was submitted which at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, it would be "stock-in-trade" but if the property constitutes the 'means' through which he carries on his business, the same cannot be his "stock-in-trade" and hence, by default, it would constitute his "capital asset" Reliance is placed on the decision of Hon'ble Gujarat High Court in the case of H Mohmed & Co v. CIT (1977) 107 ITR 637(Guj) wherein it has been held that what an assessee deals in is his "stock-in-trade" and what he deals with is "capital asset". f. The contention of the AO that the land was a business asset and hence, the gain on its sale is taxable under the head "Business income" is contrary to the decision of Hon'ble Supreme Court in the case of CIT vs. Express Newspapers Ltd. (SC) [1964] 53 ITR 260. It has been held by Apex Court that: "....The fact that the capital gains are connected within the capital assets of the business cannot make them the profit of the business. They are only deemed to be income of the previous year and not the profits or gains rising from the business during that year". g. The stand of the AO is also contrary to the scheme of Income Tax Act, 1961. Section 50 of the Income Tax Act taxes gain on sale of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess or not" is "capital asset". Hence, even if an asset is connected to business, the gain on the sale is "capital gain". Even section 50 of the Income Tax Act lay down that the gain on the sale of depreciable asset used for the purpose of business is to be taxed under the head "capital gain" Therefore, according to the CIT(A), the AO had taken a myopic view of the matter by holding that merely because an asset is a business asset, the gain on its sale will be taxed as business income. b. The AO has himself recorded a finding that the said land was classified as "stock in trade" in the books of the Assessee in the earlier years. The question is whether such classification in books is be all and end all of the matter. Supreme Court in the case of G. Venkataswami Naidu & Co. vs. CIT (1959 35 ITR 594 (SC) held that all attendant facts and circumstances of the case is to be seen to determine whether the income is capital gain or business income No one test or formula can be applied as a thumb rule. The same sentiment has been echoed by the Mumbai High Court in the case of Fort Properties (P) Ltd vs. CIT (1994) 208 ITR 232 (Bom.) wherein the Hon'ble Mumbai High Court treated the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land is a business, transaction and hence, liable to be taxed under the head business income. 11. In her counter the Ld AR for the Assessee submitted that a businessman can have same asset as a "trading asset" and also as an "investment" The Id AR further submitted that the sale of land by the Assessee as an isolated transaction which was triggered as multiple impediments arose and hence, the Assessee had to shelve the idea of developing the said land Thus, the asset acquired by the Assessee became sterile She stated that even if the intention at the time of acquisition is to be seen, then too the assessee never intended to sell the said land after development but retain the same for earning rental income Hence, the purpose of acquiring the said land was always to hold the said land as "investment". She further relied upon the Resolution dated 01.06.2007 appearing on page 227 of the PB, passed by the partners of the Assessee detailing the reasons for acquiring the said land. 12. She further argued that since the facts remain undisputed by the Revenue, the decision on head of income as determined by CIT (A) cannot be interfered with. She also placed reliance on the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , any asset acquired by the firm cannot be anything but business assets. This argument overlooks the basic fact that business asset held by a firm can be in the form of a capital asset as well. For example, if a firm acquires plant and machinery for the purpose of its manufacturing activity such plant and machinery would be capital asset in the hands of the firm and any subsequent sale of such plant and machinery by the firm would only amount to transfer of a capital asset. The fallacy in the arguments of revenue in this respect lies in the fact that it is assumed that a business asset has to be a trading asset only which is not the correct position under the well established principles of accountancy. A business asset whether in the hands of the firm or an individual or a company or any other entity carrying on business can comprise of capital assets as well as trading assets. Where the transfer is of a capital asset it would give rise to income chargeable to tax under the head capital gain and where the transfer is of a trading asset such receipts are to be considered under the head "Profits and gains of business or profession. What is, therefore, required to be determined in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee due to circumstances which are enlisted hereinabove. This transaction cannot be classified as an adventure in the nature of trade. It was not a transaction which was actively intended at the time of acquisition of land. 17. The judgments of courts relied upon by the Id. AR for the Assessee is squarely applicable to the facts of the case on hand. The Ld. DR of the Assessee has not brought on record any contra decision or shown that the decisions relied upon by the Assessee and as relied upon by the CIT (A) are overruled. Further, the Id. DR has neither raised any additional argument other than what the AO has stated and already dealt with by the CIT (A) in an elaborate order nor stated as to why the findings and reasoning of CIT(A) is incorrect either on facts or in law. Hence, we uphold the order oi CIT(A) on this ground and hold that the Assessee has rightly offered the gain on sale of Nagpur land under the head "Capital Gain" 16. Thus, taking into account the entire facts, as narrated above, we note that assessee was farmer for six years and he sold the land due to compulsion and pressure since, government made a Road in the assessee`s land. The assessee was holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's appeal is allowed. 19. Now we shall take assessee's appeal ITA No.691/SRT/2018, wherein the grounds of appeal raised by the assessee are as follows: "1. The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.15,00,000/- u/s 68 of the Act simply on the ground of denial by one depositor and non compliance of notice u/s 133(6) by another depositor without appreciating the evidences of name, address, PAN, confirmation, balance-sheet, bank statement, computation of income and acknowledgment of I.T. Return of depositors submitted by assessee. The addition of Rs.15,00,000/- should therefore be deleted." 20. Succinct facts qua the issue are that during the course of assessment proceedings, the Assessing Officer issued notices u/s 133(6) of the Act on 28.11.2016 to eight (8) parties from whom the assessee had taken unsecured loans. In response to the notice u/s 133(6) of the Act, one Shri Navneet Haribhai Pimpale attended the office of the assessing officer and denied the transaction with assessee. The Assessing Officer also noted that one Shri Madanbhai Bhagwanbhai Dangi, who had given the unsecured loan of Rs.5,00,000/- had not submitted any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o, then the burden placed by section 68 cannot be said to be discharged by the assessee and it could not be held that the assessee had explained the credits satisfactorily. Under these circumstances, the Assessing Officer can make addition of the amount credited u/s 68. However, neither the nature and extent of material required to be brought on record by a party, nor the circumstances under which it should be brought are fixed, they will vary according to the issue involved, the nature of the evidence required to be produced, the time period elapsed since the event generating evidence took place, and the position and competence of the parties required to produce the evidence. Looking to this aspect of vulnerability of discharge of onus the law has given enough discretion to the Assessing Officer by putting the word "May" and not "Shall" before he draws any adverse inference against the assessee. Merely because an assessee is not able to discharge the onus shifted back on him should not make the Assessing Officer to jump to the conclusion that addition is required to be made. He has to give weightage to the underlying circumstances under which the assessee is not able to discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the Assessing Officer, and he cannot go into the realm of suspicion. The Assessing Officer cannot burden the assessee with tax liability merely on the ground that summons issued to the creditors were returned back with the endorsement not traceable. 26. Thus, we note that once the assessee had produced all documents establishing the identity and capacity of creditors and genuineness of transactions, the initial onus cast upon the assessee was discharged and the onus shifted to the assessing officer to bring material on record to the effect that in spite of identity and creditworthiness of the creditor being proved, the transaction was still not genuine. However, the Assessing Officer has not made any further inquiries and has not brought any material on record to controvert the documentary evidence submitted by the assessee. Therefore, considering the legal and factual matrix of the case, as stated above, we delete the addition. 27. In the result, ground raised by the assessee is allowed. 28. In combined result, both appeals f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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