Shri Hiteshkumar Ashokkumar Vaswani, Ahmedabad V. The Jt.CIT, Range-2, Ahmedabad

ITA 1010/AHD/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5892 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 22-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income
• Section: 143(3); 2(14)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.1010/AHD/2015 ( / ASSESSMENT YEAR : 2011-12) SHRI HITESHKUMAR ASHOKKUMAR VASWANI CO/O. KETAN H.SHAH, ADV. 903,SAPPHIRE COMPLEX C.G.ROAD NAVRANGPURA AHMEDABAD-380 009 / VS. JT.CIT RANGE-2 AHMEDABAD # ./ ./ PAN/GIR NO. : AAOPV 7214 K ( #& / APPELLANT ) .. ( '#& / RESPONDENT ) #&( / APPELLANT BY : SHRI KETAN H.SHAH, AR '#& )( / RESPONDENT BY : SHRI ADITYA SHUKLA, SR.DR *+ ), / DATE OF HEARING 20/04/2017 -./0 ), / DATE OF PRONOUNCEMENT 17/ 05/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-10, AHME DABAD [CIT(A) IN SHORT] DATED 02/03/1015 FOR THE ASSESSMENT YEAR (AY) 2011-12. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 2 - THE FOLLOWING GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED - 1. IN NOT APPRECIATING THE FACTS THAT THE ASSESSEE HAS SHOWN THE LAND SOLD AS INVESTMENT IN THE PAST YEARS AND ACCEP TED AS SUCH, AND THEREFORE, THERE IS NO JUSTIFICATION IN TREATIN G THE LONG TERM CAPITAL GAIN AS BUSINESS INCOME AND/OR ADVENTURE IN NATURE OF TRADE. THEREFORE, IT IS PRAYED THAT ADDITION CONFI RMED MAY PLEASE BE DELETED. 2. IN NOT APPRECIATING THE FACTS AND/OR LAW THAT T HE VOLUME OF TRANSACTION AND/OR INVESTMENT MADE THROUGH BORROWED FUND IS NOT A CRITERIA TO DECIDE AS TO WHETHER IT IS LONG TERM CAPITAL GAIN OR BUSINESS INCOME, AND THEREFORE, ERRED IN CONFIRMING THE ADDITION. 3. IN NOT APPRECIATING THE FACTS AND/OR LAW THAT T HE INCOME TAX DEPARTMENT HAS HIMSELF ACCEPTED THE SAID LAND AS IN VESTMENT FOR WEALTH TAX PURPOSES AND ACCORDINGLY WEALTH TAX HAS BEEN COLLECTED ALSO, AND THEREFORE, NO SEPARATE VIEW IS REQUIRED T O BE TAKEN FOR INCOME TAX PURPOSE, AND THEREFORE, ADDITION MADE MA Y PLEASE BE DELETED. 4. IN NOT APPRECIATING THE FACTS THAT THE WHOLE PU RPOSE OF THE ASSESSEE WAS TO MAKE INVESTMENT AS CAN BE VERIFIABL E FROM WEALTH TAX RECORDS AND ACCEPTED AS SUCH, AND THEREFORE, TH ERE IS NO QUESTION OF TREATING THE SAID LAND AS BUSINESS ASSE T AND/OR STOCK IN TRADE, AND THEREFORE, THE ADDITION CONFIRMED MAY PL EASE BE DELETED. 5. IN NOT APPRECIATING THE FACTS THAT NO WEALTH TA X IS PAYABLE ON STOCK-IN-TRADE/BUSINESS ASSETS AND SINCE THE ASSESS EE HAS SHOWN ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 3 - INVESTMENT OF THE LAND SOLD, NO DIFFERENT VIEW CAN BE TAKEN IN INCOME TAX PROCEEDINGS UNLESS THE WEALTH TAX PAID H AS BEEN REFUNDED AND THEREFORE, IT IS PRAYED THAT THE ADDIT ION MADE MAY PLEASE BE DELETED. 3. BRIEFLY STATED, THE ASSESSEE FILED RETURN OF INC OME FOR THE AY 2011- 12 AND RETURNED INCOME OF RS.2,21,27,580/-. TAX PA YABLE ATTRIBUTABLE TO LONG TERM CAPITAL GAINS (LTCGS) WAS APPLIED AT CONC ESSIONAL RATE. THE RETURN WAS SUBJECT TO SCRUTINY ASSESSMENT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) INTER-ALIA DISPUTED THE CHARGEABILITY OF AFORESAID GAINS ARISING ON SAL E OF SANTAJ LAND AND RAKANPUR LAND UNDER THE HEAD CAPITAL GAIN. THE LTCG REPORTED AT RS.2,19,25,399/- WAS THUS SOUGHT TO BE TREATED AS A DVENTURE IN THE NATURE OF TRADE UNDER THE HEAD BUSINESS INCOME AND THERE BY THE CONCESSIONAL RATE OF TAX AVAILABLE ON LTCG WAS SOUGHT TO BE DENI ED TO THE ASSESSEE. 4. AGGRIEVED BY THE ACTION OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). HOWEVER, CIT(A) ALSO REFUSED TO ENTERTAIN THE CLAIM OF THE ASSESSEE THAT PROFIT ON SALE OF PLOTS/LANDS ARE CHARGEABLE UNDER THE HEAD CAPITAL GAINS AND HENCE DISMISSED THE APPEAL. 4.1. THE RELEVANT PARA OF THE ORDER OF THE CIT(A) I S EXTRACTED HEREUNDER:- 4.3 DECISION : AFTER CONSIDERING RIVAL SUBMISSIONS I AM INCLI NED TO AGREE WITH THE AO THAT THE SALE AND PURCHASE OF LAN D IN THE PRESET CASE ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 4 - WAS IN THE NATURE OF ADVENTURE IN TRADE AND THAT IN COME FROM SALE OF PLOTS OF LAND IS TO BE ASSESSED UNDER THE HEAD P ROFITS & GAINS OF BUSINESS & PROFESSION'. THIS IS FOR THE REASONS DI SCUSSED IN THE FOLLOWING PARAGRAPHS. THE APPELLANT OWNED FORTY FOUR (44) PLOTS OF LAND O UT OF WHICH NINE (9) PLOTS WERE SOLD DURING THE YEAR UNDER CONSIDERA TION. BY ANY STRETCH OF IMAGINATION, THIS IS A HUGE HOLDING FOR ANY INDIVID UAL WHO HAS INVESTED IN LAND ONLY AS INVESTMENT. A PERUSAL OF THE BALANCE S HEET OF THE APPELLANT AS ON 31.03.2011 SHOWS THAT THE APPELLANT'S INVESTM ENT IN LAND SHOWN UNDER 'FIXED ASSETS' IS AROUND RS.6.64 CRORES WHILE ALL OTHER INVESTMENTS SHOWN UNDER 'INVESTMENTS' AND 'CURRENT ASSETS' ARE AROUND RS.1.18 CRORE. THIS MAY NOT BE A DECISIVE FACTOR BU T IS AN IMPORTANT INDICATOR FORWARDS PURPOSE OF INVESTMENT ANY PERSON WHO IS INVESTING ONLY FOR INVESTMENT PURPOSE WOULD HAVE A MORE BALAN CED INVESTMENT PORTFOLIO. ALL THE PLOTS OF LAND WHICH HAVE BEEN SOLD WERE PUR CHASED AS AGRICULTURAL LAND AND THEN THE LAND USE FOR THE SAM E WAS GOT CONVERTED INTO NON-AGRICULTURAL USE BEFORE SELLING. THIS AGAI N INDICATES THE MOTIVE OR PURPOSE OF INVESTING IN LAND/PURCHASING LAND. FU RTHER, THIS IS CONFIRMED BY THE FACT THAT THE APPELLANT HAS NOT SH OWN ANY AGRICULTURAL INCOME .FROM ALL THE AGRICULTURAL LAND THAT HE HOLD S. AS SAID ABOVE ALSO, THE APPELLANT OWNS FORTY FOUR (44) PLOTS OF LAND. B UT NO AGRICULTURAL INCOME HAS BEEN SHOWN. IF A PERSON HAS MADE INVESTM ENTS IN ANY ASSET, THE LEAST HE WOULD EXPECT FROM THAT INVESTMENT IS T O GET SOME RETURN ON INVESTMENT. IN CASE OF AGRICULTURAL LAND, THIS WOUL D BE IN THE FORM OF AGRICULTURAL INCOME. BUT THE APPELLANT, WHOSE INVES TMENT IN AGRICULTURAL LAND IS AROUND RS.6.64 CRORES (AS SHOWN IN HIS BALA NCE SHEET), IS GETTING NIL RETURN ON THIS HUGE INVESTMENT. THE APPELLANT A S PER HIS OWN ADMISSION STARTED MAKING INVESTMENT IN LAND IN F.Y .2005-06 AND WE ARE IN F.Y.2010-11. ALL THESE YEARS, INVESTMENT OF CROR ES HAS NOT FETCHED ANY RETURN. WHICH PRUDENT INVESTOR WOULD MAKE SUCH INVE STMENTS THAT FETCH HIM NO RETURN? THE APPELLANT CONTENDED THAT HE HAS AGRICULTURAL INCOME ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 5 - WHICH IS SHOWN IN REVENUE RECORDS. THIS CONTENTION IS OF NO HELP TO THE APPELLANT SINCE WHAT IS RELEVANT FOR PURPOSE OF TAX ING INCOME UNDER THE INCOME TAX ACT, 1961 IS WHAT INCOME HE HAS DISCLOSE D IN HIS RETURN OF INCOME AND THE APPELLANT HAS NOT SHOWN ANY AGRICULT URAL INCOME. IN THIS CONTEXT, THE APPELLANT HAS RELIED ON JUDGMENT OF HO N'BLE ITAT, HYDERABAD IN GOUTHAM CONSTRUCTIONS CO. VS. ITO (IT APPEAL NO. 307(HYD) OF 2011). WITH DUE REGARD TO RATIO OF JUDG MENT IN THIS CASE, THE SAME IS NOT APPLICABLE IN THE PRESENT CASE AS THE F ACTS ARE DIFFERENT. IN THE CASE RELIED ON BY THE APPELLANT, THE ASSESSEE WAS C ARRYING ON BUSINESS OF SALE AND PURCHASE OF LAND AND THE BUSINESS OF DEVEL OPING REAL ESTATE AND SELLING THE SAME. THE NEXT IMPORTANT FACTOR THAT GOES TO INDICATE THA T THE SALE & PURCHASE OF LAND BY THE APPELLANT IS ADVENTURE IN T HE NATURE OF TRADE IS THE FACT THAT MAJORITY INVESTMENT IN LAND HAS BEEN MADE BY THE APPELLANT FROM BORROWED FUNDS. AS PER HIS BALANCE SHEET AS ON 31.03.2011, HE HAS LOANS OF ABOUT RS.4.39 CRORES. THE AO HAS MENTIONED IN PARA 3.4 OF THE ASSESSMENT ORDER THAT THE APPELLANT HAS PURCHASED A LL PLOTS OUT OF LOAN RAISED FROM SAFFRON ENTERTAINMENT & SAFFRON TRADER AND PAID INTEREST ON LOANS FROM YEAR TO YEAR. IN GENERAL THE PURPOSE OF MAKING INVESTMENT IS TO INVEST ONE'S OWN FUNDS IN AN ASSET IN ORDER TO G ET MAXIMUM RETURN. INVESTMENTS ARE NOT MADE OUT OF BORROWED FUNDS. THE APPELLANT HAS BORROWED FUNDS TO PURCHASE LAND. THIS IS AN INDICAT OR OF THE MOTIVE OF THE APPELLANT IN INVESTING IN LAND. THE APPELLANT SUBMI TTED THAT BORROWED FUNDS AND INTEREST IS NOT A CRITERIA TO DECIDE THAT IT IS ADVENTURE IN THE NATURE OF TRADE. IN SUPPORT OF HIS CONTENTION, THE APPELLANT RELIED ON THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN CIT VS. N IRAJ AMIDHAR SURTI IN TAX APPEAL NO. 836 OF 2009. WITH DUE REGARD TO T HE RATIO OF THE JUDGMENT IN THE ABOVE CASE, THE SAME IS NOT APPLICA BLE IN THE PRESENT CASE AS THE FACTS ARE DIFFERENT. IN THE CASE RELIED ON BY THE APPELLANT, THE ASSET IN QUESTION IS SHARES AND NOT LAND WHICH IS T HE ASSET INVOLVED IN THE PRESENT CASE. ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 6 - FURTHER, ALL THE PLOTS OF LAND WHICH THE APPELLANT SOLD WERE NOT SOLD IN THE OPEN MARKET BY SELLING WHERE THE APPELL ANT WOULD HAVE GOT THE BEST PRICE BUT WERE SOLD TO VENUS TOWNSHIPS (INDIA) LLP. THE APPELLANT'S FATHER AND HIS UNCLE ARE PARTNERS IN THE LLP. THE A O'S FINDINGS IN THIS CONTEXT ARE VERY RELEVANT AND ARE REPRODUCED BELOW: - '(A) THE ASSESSES PURCHASED HUGE NUMBER OF PLOTS OF AGRICULTURAL LAND. BEFORE THEIR SALE HE CONVERTED THEIR LAND USE FROM AGRICULTURAL USE TO NON-AGRICULTURAL FROM GOVERNMENT AUTHORITIES SO AS TO BRING THE LAND TO A MORE MARKETABLE CONDITION. (B) SUBSEQUENTLY IN ORDER TO EARN PROFIT, THE PL OTS OF LAND WERE SOLD TO VENUS TOWNSHIPS (INDIA) LLP (DEVELOPER). (C) VENUS TOWNSHIPS (INDIA) LLP (DEVELOPER) CONS ISTED OF DESIGNATED PARTNERS SRI DEEPAKBHAI VASWANI & RAJESH S. VASWANI AND AUTHORISED SIGNATORY SRI ASHOK S VASWANI (ASSESSEE'S FATHER). RAJESH S. VASWANI PARTNER IN THE LLP AND AUTHORISED SIGNATORY SRI ASH OK S VASWANI ARE REAL BROTHERS. THE OTHER PARTNER IN THE LLP IS ALSO A CLOSE RELATIVE OF THE ASSESSEE. (D) THUS ALL THE MAIN PERSONS OF THE LLP ARE CLO SELY RELATED TO ASSESSEE. THE LLP WAS FORMED AFTER CONVERSION OF TH E COMPANY M/S VENUS TOWNSHIPS (INDIA) (P) LTD., WHICH WAS ALSO A DEVELOPER. (E) THE ASSESSEE PURCHASED ALL THE PLOTS OUT OF LOAN RAISED FROM SAFFRON ENTERTAINMENT & SAFFRON TRADERS AND PAID IN TEREST ON LOAN FROM YEAR TO YEAR. THE ASSESSEE IS PARTNER IN THE FIRM S AFFRON ENTERTAINMENT ALONGWITH SRI DEEPAKBHAI VASWANI & RAJESH S. VASWAN Y, HAVING 5% SHARES EACH IN THE FIRM, WHO ARE ALSO DESIGNATED PA RTNERS IN VENUS TOWNSHIPS (INDIA) LLP TO WHICH ALL THE PLOTS WERE S OLD BY ASSESSEE. (F) IT IS SEEN THAT PRINCIPAL BUSINESS OF THE V ASWANI FAMILY (VENUS GROUP) IS OF DEVELOPMENT AND SALE OF LAND AND IMMOV ABLE PROPERTIES. (G) PURCHASE & SALE OF LAND WAS MADE IN AN ORGAN IZED MANNER. ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 7 - (H) ALL THESE FACTS AND CIRCUMSTANCES PROVE THAT THE PURCHASE OF THE PLOTS OF LAND AND SALE THEREOF WAS MADE WITH THE MO TIVE OF MAKING BUSINESS PROFIT THUS THE SAME IS IN THE NATURE OF T RADE.' FROM THE ABOVE, IT IS CLEAR THAT THE MOTIVE, BEHIND SALE AND PURCHASE OF LAND WAS ONLY TO EARN BUSINESS PROFIT. I AM INCLINED TO AGREE WITH THE AO THAT IF THE TEST S LAID DOWN BY HON'BLE SUPREME COURT IN CIT VS H. HOICK LARSEN (19 86) 160 ITR 67 TO DISTINGUISH BETWEEN INVESTMENT AND TRADE, ARE APPLI ED IN THE CASE OF THE APPELLANT, THE RESULT WOULD INDICATE THAT ACTIVITY OF SALE AND PURCHASE OF LAND WAS IN THE NATURE OF ADVENTURE IN TRADE. FURTH ER, I AM INCLINED TO AGREE WITH THE AO THAT THE RATIO OF JUDGMENT OF HON 'BLE SUPREME COURT IN G. VENKATASWAMY NAIDU & CO. VS. CIT (1959) 35 ITR 5 94 (SC) IS SQUARELY APPLICABLE IN THE PRESENT CASE WHERE HON'B LE APEX COURT HAS HELD AS FOLLOWS: - 'IF THE PROPERTY HAD BEEN PURCHASED BY THE APPELLAN T AS. A MATTER OF INVESTMENT IT WOULD HAVE TRIED EITHER TO CULTIVA TE THE LAND, OR TO BUILD ON IT; BUT THE APPELLANT DID NEITHER AND JUST ALLOWED THE PROPERTY TO REMAIN UNUTILIZED EXCEPT FOR THE NET RE NT OF RS. 80 PER ANNUM WHICH IT RECEIVED FROM THE HOUSE ON ONE OF TH E PLOTS. THE REASON GIVEN BY THE APPELLANT FOR THE PURCHASE OF T HE PROPERTIES BY THE MILLS HAS BEEN REJECTED BY THE TRIBUNAL; AND SO WHEN THE MILLS PURCHASED THE PROPERTIES IT IS NOT SHOWN THAT THE S ALE WAS OCCASIONED BY ANY SPECIAL NECESSITY AT THE TIME. IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS OBVIOUSL Y RIGHT IN INFERRING THAT THE APPELLANT KNEW THAT IT WOULD BE ABLE TO SELL THE LANDS TO THE MILLS WHENEVER IT THOUGHT IT PROFITABL E SO TO DO. THUS THE APPELLANT PURCHASED THE FOUR PLOTS DURING TWO Y EARS WITH THE SOLE INTENTION TO SELL THEM TO THE MILLS AT A PROFI T AND THIS INTENTION RAISES A STRONG PRESUMPTION IN FAVOUR OF THE VIEW T AKEN BY THE TRIBUNAL. IN REGARD TO THE OTHER RELEVANT FACTS AND CIRCUMSTANCES IN THE CASE, NONE OF THEM OFFSETS OR REBUTS THE PRE SUMPTION ARISING ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 8 - FROM THE INITIAL INTENTION; ON THE OTHER HAND, MOST OF THEM CORROBORATE THE SAID PRESUMPTION. WE MUST, THEREFOR E, HOLD THAT THE HIGH COURT WAS RIGHT IN TAKING THE VIEW THAT, O N THE FACTS AND CIRCUMSTANCES PROVED IN THIS CASE, THE TRANSACTION IN QUESTION IS AN ADVENTURE IN THE NATURE OF TRADE.' THE APPELLANT IN SUPPORT OF HIS CONTENTION THAT INC OME FROM SALE & PURCHASE OF LAND WAS CAPITAL GAINS AND NOT BUSINESS INCOME SUBMITTED THAT IN HIS WEALTH TAX RETURNS HE HAS SHOWN THE SAI D LANDS AS INVESTMENT AND THIS HAS BEEN ACCEPTED BY THE DEPARTMENT. THIS CONTENTION DOES NOT HELP APPELLANT SINCE THE DECLARATION BY THE APPELLA NT IN THE WEALTH TAX RETURN DOES NOT BIND THE AO WHILE SCRUTINIZING AN I NCOME TAX RETURN. FURTHER, THE CONTENTION OF THE APPELLANT THAT DURIN G A.Y.2008-09 ALSO HE HAD SOLD LAND AND SHOWN INCOME FROM THE SAME AS SHO RT TERM CAPITAL GAIN AND THE SAME WAS ACCEPTED BY THE AO WHILE PASS ING ASSESSMENT ORDER U/S. 143(3) OF THE ACT, ALSO DOES NOT HELP TH E APPELLANT. THIS IS BECAUSE IN A.Y.2008-09 HE SOLD ONLY TWO PLOTS OF LA ND WHILE IN THE YEAR UNDER CONSIDERATION HE SOLD NINE PLOTS OF LANDS. LO OKING AT THE BEHAVIOR OF THE APPELLANT FROM A. Y. 2008-09 TO A.Y.2011-12, THE AO CAN ALWAYS RECONSIDER HIS EARLIER VIEW. FURTHER, THE COURTS HA VE HELD THAT IF A MISTAKE HAS HAPPENED ONCE, THAT DOES NOT MEAN THAT THE MISTAKE SHOULD BE ALLOWED TO PERPETUATE. THEREFORE, THE AO CAN ALW AYS RECTIFY ITS EARLIER STAND. FURTHER, WITH DUE REGARD TO RATIO OF JUDGMEN TS RELIED ON BY THE APPELLANT IN SUPPORT OF HIS VARIOUS CONTENTIONS, TH E SAME ARE NOT APPLICABLE IN THE PRESENT CASE AS THE FACTS OF THES E CASES ARE DIFFERENT FROM THE FACTS OF THE PRESENT CASE. IN THE CONTEXT OF DECIDING WHETHER INCOME FROM SALE OF LAND, SHARES ETC. IS CAPITAL GAINS OR BUSINESS INCOME, THE COURT S HAVE HELD THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EF FECT OF ALL'THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WEATHER IN A GIVE N CASE, THE LAND, SHARES ETC. ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE AND THAT SUCH DECISION IS TO BE TAKEN BY KEEPING THE PA RTICULAR FACTS OF EVERY INDIVIDUAL CASE IN VIEW. AS DISCUSSED IN THE ABOVE PARAGRAPHS, AFTER ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 9 - CONSIDERING THE EFFECT OF VARIOUS PRINCIPLES LAID D OWN AND AFTER CONSIDERING FACTS OF THE CASE AT HAND, IT IS CLEAR THAT THE SALE AND PURCHASE OF LAND BY THE APPELLANT IS IN THE NATURE OF ADVENTURE IN TRADE AND THEREFORE INCOME FROM SALE AND PURCHASE OF LAND IS TO BE TREATED AS BUSINESS INCOME INSTEAD OF INCOME FROM CAPITAL GAIN S. IN VIEW OF DISCUSSION ABOVE, I HOLD THAT THE AO WA S JUSTIFIED IN TREATING INCOME FROM SALE AND PURCHASE OF LAND AS INCOME FROM BUSINESS & PROFESSION INSTEAD OF INCOME FROM LONG TERM CAPITAL GAINS AS SHOWN BY THE APPELLANT. ACCORDINGLY, THE AO WAS JUSTIFIED IN ASSESSING THE INCOME OF THE APPELLANT AT RS.2,42,70 ,340/- AS AGAINST INCOME OF RS.2,21,27,279/- DECLARED BY THE APPELLAN T. THIS GROUND OF APPEAL IS DISMISSED. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD.AR FOR THE ASSESSEE MR.KETAN H.SHAH SUBMI TTED THAT THE ASSESSEE SOLD CERTAIN PLOTS OF LAND DURING THE YEAR UNDER CONSIDERATION AND DECLARED INCOME ARISING THEREFROM UNDER THE HEA D LTCG. THE LD.AR SUBMITTED THAT THE ASSESSEE MADE INVESTMENTS IN 44 PLOTS OF LAND OUT OF WHICH ONLY 9 PLOTS WERE SOLD DURING THE YEAR UNDER CONSIDERATION. THE PLOTS WERE PURCHASED OVER SEVERAL YEARS AND WER E DECLARED AS CAPITAL ASSET IN ITS BOOKS. THE LD.AR NEXT RELIED UPON THE WEALTH TAX RETURNS FOR AY 2006-07 TO 2011-12 TO SUBMIT THAT THE ASSESS EE HAS CONSISTENTLY DECLARED THE LAND AS CAPITAL ASSET AND ACCORDINGLY SUCH PROPERTIES WERE SUBJECTED TO WEALTH-TAX IN THE PAST. HE POINTED OU T THAT AS PER THE SCHEME OF THE ACT, NO WEALTH TAX IS PAYABLE ON TRADING ASS ETS. THEREFORE, THE ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 10 - INTENTION OF THE ASSESSEE TO HOLD THE PLOTS/LANDS AS CAPITAL ASSET WAS LOUD AND CLEAR. THE LD.AR POINTED OUT THAT THE OBSERVA TION OF THE REVENUE THAT NO AGRICULTURAL ACTIVITY WAS CARRIED OUT ON T HESE PARCEL OF LAND IS NOT CORRECT. THE ASSESSEE DID CARRY OUT AGRICULTURAL A CTIVITY IN THE PAST BEFORE THE SAID LAND WAS CONVERTED INTO NON AGRICULTURE AS CAN BE SEEN FROM REVENUE RECORDS, I.E.7/12 EXTRACT. THE LD.AR THERE AFTER SUBMITTED THAT SOME BORROWED FUNDS ARE INVOLVED FOR ACQUISITION OF THE PLOTS/LANDS ON WHICH INTEREST HAS BEEN PAID. HOWEVER, IN THE SAME VAIN, THE LD.AR SUBMITTED THAT EMPLOYMENT OF BORROWED FUNDS BY ITSE LF IS NOT SOLE DETERMINATIVE FACTOR FOR ASCERTAINING THE CHARACTER OF THE ASSET. THE LD.AR THEREAFTER SUBMITTED THAT FOR THE AY 2008-09, THE ASSESSMENT ORDER WAS PASSED UNDER S.143(3) WHEREIN ALSO THE ASSESSEE HAS SOLD RAKANPUR LAND WHICH WAS ACCEPTED AS A CAPITAL GAIN. HOWEVER , INTEREST COST CLAIMED THEREIN WAS NOT ALLOWED AS COST OF IMPROVEM ENT UNDER S.48 OF THE ACT. HE THUS SUBMITTED THAT THERE IS NO REASON T O TAKE A DIFFERENT VIEW IN THE SUBSEQUENT YEAR UNDER APPEAL. THE LD.AR SUB MITTED THAT THESE LANDS WERE SHOWN AS INVESTMENT IN THE BOOKS OF ACCO UNTS MAINTAINED IN PERSONAL CAPACITY WHICH HAS NOT BEEN REJECTED UNDER S.145(3) OF THE ACT. IT WAS CLAIMED THAT THE ASSESSEE IS MAINTAINING SEP ARATE ACCOUNTS FOR DISCLOSURE OF ITS LAND PORTFOLIO IN DISTINCTION WIT H THE STOCK-IN-TRADE. THE LD.AR SUBMITTED THAT THE ASSESSEE DID NOT WANT TO CARRY OUT THE AGRICULTURAL ACTIVITIES BECAUSE OF THE COSTS INVOLV ED. THE LAND WAS SOLD TO M/S.VENUS TOWNSHIP (INDIA) LLP WHERE THE ASSESSEE D OES NOT HAVE ANY ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 11 - DIRECT INTEREST. THE LD.AR NEXT CONTENDED THAT A GRICULTURAL LAND WAS CONVERTED INTO NON-AGRICULTURAL LAND TO FETCH BETTE R PRICE AND MORE CUSTOMERS WHICH IN ITSELF CANNOT IMPINGE UPON THE I NTENTION OF THE ASSESSEE TO HOLD THE LAND PORTFOLIO AS CAPITAL ASSE T. IT WAS CLAIMED THAT VENUS TOWNSHIP (INDIA) LLP IS ENGAGED IN THE BUSINE SS OF REAL ESTATE BUT NEITHER THE ASSESSEE NOR HIS FATHER HAD ANY SUBSTAN TIAL INTEREST THEREIN. THE LD.AR CONTENDED THAT THE ASSESSEE HAS PAID WEAL TH-TAX ON THE BASIS OF INVESTMENT IN LAND AND THEREFORE THE DEPARTMENT IS NOW PRECLUDED IN THE INCOME-TAX ASSESSMENT TO SAY THAT IT WAS TRADIN G ASSET GIVING RISE TO BUSINESS INCOME AS ITS SALE. IT WAS POINTED OUT T HAT THE BUSINESS INCOME CAN ARISE ONLY ON STOCK-IN-TRADE ON WHICH WEALTH-TA X IS NOT PAYABLE. THE ASSESSEE FINALLY SUBMITTED THAT THE PRICE AT WHICH THE LAND HAS BEEN SOLD HAS NOT BEEN DISPUTED. THE LIMITED DISPUTE IS ON T HE CHARACTER OF THE ASSET HELD PRIOR TO ITS SALE. THE LD.AR ACCORDINGLY SUBM ITTED IN CONCLUSION THAT THERE IS NO JUSTIFICATION WHATSOEVER FOR THE R EVENUE TO TREAT THE LTCG SO DECLARED AS BUSINESS INCOME OF THE ASSESSEE AND TO DENY THE CONCESSIONAL RATE OF TAX AVAILABLE ON THE LTCG ARIS ING ON SALE OF LAND. 7. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DER OF THE CIT(A) AND SUBMITTED IN FURTHERANCE THERETO THAT THE INTEN TION OF THE ASSESSEE TO HOLD THE LAND AS STOCK-IN-TRADE IS EVIDENT FROM THE FACT THAT SUCH LAND WERE CONVERTED INTO NON-AGRICULTURAL LAND PRIOR TO ITS SALE TO FETCH THE COMPETITIVE PRICE. THE LD.DR FURTHER POINTED OUT T HAT THE ACQUISITION OF ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 12 - LAND WAS WITH THE SUPPORT OF BORROWED FUNDS ON WHIC H THE INTEREST HAS BEEN PAID. THUS, THE INTENTION OF THE ASSESSEE WAS NOTTO ACQUIRE THE LAND FOR ITS OWN USE BUT TO RESALE WITH PROFIT MOTIVE. THE LD.DR FURTHER SUBMITTED THAT THE LAND HAS BEEN SOLD TO A CONCERN WITH WHICH THE ASSESSEE IS CLOSELY ASSOCIATED. THE AFORESAID CONC ERN IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND THEREFORE THE ENTIRE EX ERCISE WAS TO EXPLOIT THE PLOT/LAND COMMERCIALLY IN THE NATURE OF ADVENTURE W HICH IS AKIN TO BUSINESS. THEREFORE, THE ACTION OF THE REVENUE IS FULLY JUSTIFIED. ADDRESSING THE ARGUMENT OF THE LD.AR THAT THE ASSET S HAVE BEEN INCLUDED FOR WEALTH-TAX PURPOSE AND WEALTH-TAX PAID THEREON THE LD.DR CONTENDED THAT IT IS NOT AN INDICATOR OF ANY SORT. THE ASSES SEE HAS SUO MOTU INCLUDED THE PROPERTY AS CAPITAL ASSET WHICH HAS BE EN ACCEPTED AS SUCH. SUCH PASSIVE ACT CANNOT OPERATE AS ESTOPPEL AGAINST THE REVENUE. THE LD.DR THEREFORE SUBMITTED THAT THE ORDER OF THE CIT (A) IS ON LEGALLY SOUND BASIS AND NO INTERFERENCE IS CALLED FOR. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND THE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE CIT(A) APPEALED AGAINST. THE SUBSTANTIVE ISSUE IN THE PRESENT APPEAL IS WHET HER GAINS ARISING ON SALE OF PLOT/LAND BY THE ASSESSEE IN THE RELEVANT A SSESSMENT YEAR IS REQUIRED TO BE TAXED UNDER THE HEAD CAPITAL GAINS AS OFFERED BY THE ASSESSEE OR IS TO BE TREATED AS BUSINESS INCOME O F THE ASSESSEE. THE ISSUE IS ESSENTIALLY FACTUAL IN NATURE AND DEPENDS ON THE FACTS AND ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 13 - CIRCUMSTANCES PREVALENT IN A GIVEN CASE. IT IS TH E CASE OF THE ASSESSEE THAT PLOT/LAND WAS ACQUIRED/PURCHASED OVER SEVERAL YEARS AND HELD AS CAPITAL ASSET IN THE NATURE OF INVESTMENT. FROM TH E WRITTEN SUBMISSIONS OF THE ASSESSEE EXTRACTED BY THE CIT(A), WE NOTE THAT THE ASSESSEE HAS SOLD ONLY FEW PLOTS DURING THE YEAR AS AGAINST THE LARGE LAND PORTFOLIO AND THERE IS CONSIDERABLE TIME LAG BETWEEN THE PURCHAS E AND SALE OF LAND. SIMULTANEOUSLY, IT IS NOTICED THAT LAND/PROPERTIES HAVE BEEN DECLARED AS CAPITAL INVESTMENT BY THE ASSESSEE ALL ALONG. WE A LSO TAKE NOTE OF THE FACT THAT SOME AGRICULTURAL PRODUCE WERE RECORDED IN 7/1 2 EXTRACT AND THEREFORE THE ASSESSEE EARNED SOME MONEY BY WAY OF YIELD ON SUCH INVESTMENTS. THE LAND SO HELD PRIOR TO SELL WERE SHOWN AS INVESTMENT AND SUBJECTED TO WEALTH-TAX WHICH FURTHER UNDERSCOR ES THE INTENTION OF THE ASSESSEE TO HOLD THE PROPERTIES AS CAPITAL ASSET. THE USAGE OF BORROWED FUNDS NO DOUBT GIVES SOME IMPRESSION ON THE INTENTI ON TO ACQUIRE THE LAND FOR TRADING PURPOSES. HOWEVER, IN THE SAME VA IN, WE NOTE THAT SUCH ACT OF USAGE OF BORROWED FUNDS BY ITSELF IS NOT SUF FICIENT TO SUBSTITUTE THE DECLARED INTENTION OF THE ASSESSEE AND ALTER THE CH ARACTER OF THE ASSET SUBSTANTIALLY. THE ASSESSEE HAS DECLARED THE ACQUI SITION OF LAND IN ITS BOOKS AS INVESTMENT OVER A PERIOD OF TIME. WE FIND THAT NOTHING TURNS ON THE ALLEGATION OF THE REVENUE THAT LAND HAS BEEN CO NVERTED INTO NON- AGRICULTURAL LAND PRIOR TO ITS SALE. ON THE CONTRA RY, WE FIND THAT SUCH ACT CAN ONLY BE WITH A VIEW TO MAXIMIZE THE GAIN ON SAL E OF PROPERTY BY A PRUDENT INVESTOR FOR WHICH HE CANNOT BE FAULTED. A FTER CONVERSION OF ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 14 - SUCH LAND, THE SALE TOOK PLACE TO A BUYER WHO HAPP ENS TO BE A DEVELOPER. THUS NO ADVERSE INFERENCE IS PERMISSIBLE ON THIS SC ORE ALSO. NOTABLY, WHAT IS RELEVANT TO DETERMINE THE ISSUE IS TO ENQUI RE INTO THE INTENTION AT THE TIME OF ACQUISITION OF ASSET AND NOT WHEN THE A SSET IS PROPOSED TO BE SOLD. THE ELEMENT OF BORROWED FUNDS IN THE ACQUIS ITION OF ASSETS IN THE PRESENT CASE, IN OUR OPINION, DO NOT ALTER THE AFO RESAID DECLARED INTENTION. THE REVENUE HAS NOT ALLEGED ANY REAL SUBSTANTIVE AN D SYSTEMATIC COURSE OF ACTIVITY OR CONDUCT WITH SET PURPOSE IN THE INST ANT CASE. WHILE DESCRIPTION OF A PARTICULAR PORTFOLIO IN THE BALANC E-SHEET MAY NOT BE CONCLUSIVE IN DETERMINING THE NATURE OF TRANSACTION S PER SE , IT IS CERTAINLY AN IMPORTANT FACTOR TO ASCERTAIN THE INTENTION OF A CQUISITION OF ASSETS. WE FIND THAT THE ACTION OF THE AO WAS SIMPLY GUIDED BY THE CONSIDERATIONS OF THE REVENUE ALONE TO COLLECT MORE TAXES WITHOUT BRI NGING ANY CONCRETE MATERIAL ON RECORD TO JUSTIFY THAT THE ACQUISITION OF LAND UNDER SALE WAS INDUCED BY COMMERCIAL SPIRIT. AT THIS JUNCTURE, WE OBSERVE THAT SECTION 2(14) OF THE ACT STIPULATES THAT PROPERTY CAN BE C APITAL ASSET EVEN IF CONNECTED WITH BUSINESS OF THE ASSESSEE. THEREFORE , THE ASSESSEE IS ENTITLED IN LAW TO HOLD CERTAIN CLASS OF ASSETS AS CAPITAL ASSET EVEN WHILE HE IS DEALING WITH THE ASSET OF SIMILAR NATURE IN B USINESS WITH COMMERCIAL OBJECTIVES. THUS, IN THE TOTALITY OF CIRCUMSTANC ES EXISTING IN THE PRESENT CASE, WE FIND THAT PLEA OF THE ASSESSEE HAS MERITS AND DESERVES ACCEPTANCE. WE ACCORDINGLY HOLD THAT LAND/PROPERTI ES WERE HELD BY THE ASSESSEE AS CAPITAL ASSETS BEFORE ITS SALE AND CO NSEQUENTIAL GAINS ARISING ITA NO. 1010/AH D/2015 HITESHKUMAR A. VASWANI VS. JT.CIT ASST.YEAR 2011-12 - 15 - ON SALE THERETO IS CHARGEABLE UNDER THE HEAD CAPIT AL GAINS. ACCORDINGLY, THE AO IS DIRECTED TO CONSIDER THE CAPITAL GAINS AR ISING ON SALE OF LAND/PROPERTIES AS CHARGEABLE UNDER THE HEAD CAPI TAL GAINS AS CLAIMED BY THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 17/ 05/2017 SD/- SD/- ( ) ( ) ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 17/ 05 /2017 4..*,.*../ T.C. NAIR, SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '#& / THE RESPONDENT. 3. 567, 8, / CONCERNED CIT 4. 8, ( ) / THE CIT(A)-10, AHMEDABAD 5. 9:;,*67 , 67 0 , 5 / DR, ITAT, AHMEDABAD 6. ;<+ / GUARD FILE. / BY ORDER, '9,, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD