ITO, Non Corporate Ward 14(5), Chennai V. E.D Rajan, Chennai

ITA 129/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5043 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 09-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P RANGA RAMANUJAM
• Keywords: Capital asset; Business income
• Section: 54B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !', $ '% BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NOS.127 & 129/CHNY/2018 ' (' / ASSESSMENT YEARS : 2010-11 & 2012-13 THE INCOME TAX OFFICER, NON CORPORATE WARD 14(5), CHENNAI - 600 034. V. SHRI E.D. RAJAN, PROP. RAJAN BUILDERS, NO.11/5, MURUGAN STREET, PUZHUTHIVAKKAM, CHENNAI - 600 091. PAN : AAIPR 7133 D (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI SRIDHAR DORA, JCIT ,-*+ . / / RESPONDENT BY : SH.P. RANGA RAMANUJAM, CA 0 . 1$ / DATE OF HEARING : 14.05.2019 23( . 1$ / DATE OF PRONOUNCEMENT : 31.05.2019 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAI NST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 14, CHENNAI, DATED 29.06.2017 AND PERTAIN TO ASSESS MENT YEARS 2010-11 AND 2012-13. SINCE COMMON ISSUES ARISE FOR CONSIDE RATION IN BOTH THE APPEALS, WE HEARD BOTH THE APPEALS TOGETHER AND DIS POSING THE SAME BY THIS COMMON ORDER. 2 I.T.A. NOS.127 & 129/CHNY/18 2. SHRI SRIDHAR DORA, THE LD. DEPARTMENTAL REPRESEN TATIVE INVITED OUR ATTENTION TO THE GROUNDS OF APPEAL RAISED BEFOR E THIS TRIBUNAL AND THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2010-11. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS PURCHASED 10.08 ACR ES OF LAND BY MEANS OF REGISTERED SALE DEED DATED 18.09.2006. AC CORDING TO THE LD. D.R., THERE WAS SOME LITIGATION AND THE ASSESSEE GO T THE CLEAR TITLE OF THE LAND ONLY ON 09.01.2008. ACCORDING TO THE LD. D.R. , THE ASSESSEE IS PURCHASING SMALL BITS OF LAND AND CONSOLIDATING INT O A BIGGER LAND AND SELLING TO COMPANIES. ON A QUERY FROM THE BENCH WH ETHER THE ASSESSEE IS FREQUENTLY PURCHASING LAND AND FREQUENTLY SELLIN G THE SAME, THE LD. D.R. VERY FAIRLY CLARIFIED THAT THE ASSESSEE IS PUR CHASING THE LAND AND SOLD THE SAME BY MEANS OF SINGLE DOCUMENT / SINGLE TRANS ACTION. ACCORDING TO THE LD. D.R., THE ASSESSEE IS AGGREGATING AGRICULTU RAL LANDS AND SELLING THE SAME. ON A QUERY FROM THE BENCH WHETHER AGGREG ATION OF CAPITAL ASSET AND SELLING THE SAME BY MEANS OF A SINGLE SAL E DEED / TRANSACTION, CAN IT BE TREATED AS A BUSINESS TRANSACTION? THE L D. D.R. COULD NOT CLARIFY HOW IT WOULD BE A BUSINESS TRANSACTION. AC CORDING TO THE LD. D.R., THE ASSESSEE IS IN THE BUSINESS OF CIVIL CONSTRUCTI ON, NAMELY, CONSTRUCTION OF FLATS. THEREFORE, THE ASSESSING OFFICER BY PLAC ING RELIANCE ON THE JUDGMENT OF APEX COURT IN G. VENKATASWAMI NAIDU & C O. V. CIT (1959) 35 ITR 594, FOUND THAT THE ASSESSEE IS ENGAGED IN T HE BUSINESS OF REAL 3 I.T.A. NOS.127 & 129/CHNY/18 ESTATE, THEREFORE, THE ASSESSEE UNDER THE GUISE OF AGRICULTURAL LAND HAS SOLD THE LAND. HENCE, ACCORDING TO THE LD. D.R., T HE ASSESSING OFFICER HAS TREATED THE ENTIRE TRANSACTION AS BUSINESS TRAN SACTION AND ASSESSED THE PROFIT ACCORDINGLY. ON A QUERY FROM THE BENCH WHAT IS THE BASIS FOR THE ASSESSING OFFICER TO OBSERVE THAT THE ASSESSEE ACQUIRES SMALL BITS OF LAND AND CONSOLIDATES THE SAME AND MAKING IT A BIG FACTORY SITE, THE LD. D.R. VERY FAIRLY SUBMITTED THAT THERE IS NO MATERIA L / BASIS FOR MAKING SUCH AN OBSERVATION BY THE ASSESSING OFFICER. 3. SHRI SRIDHAR DORA, THE LD. D.R. FURTHER SUBMITTE D THAT THERE WAS NO MENTION ABOUT THE MACHINERY / EQUIPMENT USED FOR THE PURPOSE OF CULTIVATION. ON A QUERY FROM THE BENCH WHAT WOULD BE THE POSSIBLE EQUIPMENTS / MACHINERY WHICH IS REQUIRED FOR CULTIV ATION IN RURAL PART OF INDIA? THE LD. D.R. COULD NOT EXPLAIN THE ACTUAL M ACHINERY / EQUIPMENT REQUIRED FOR CULTIVATION. 4. FOR THE ASSESSMENT YEAR 2012-13, APART FROM THE ISSUE OF SALE OF AGRICULTURAL PROPERTIES, THE REVENUE HAS ALSO RAISE D AN ISSUE WITH REGARD TO EXPENDITURE OF 7,64,595/-. ACCORDING TO THE LD. D.R., THE ASSESSI NG OFFICER DISALLOWED 20% OF THE EXPENDITURE SINCE THE ASSESSEE COULD NOT PRODUCE THE DETAILS. THE CIT(APPEALS), HOWEVER, RE STRICTED THE SAME TO 5%. ACCORDING TO THE LD. D.R., THE CIT(APPEALS) OU GHT TO HAVE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER AT 20%. THE 4 I.T.A. NOS.127 & 129/CHNY/18 ASSESSEE HAS ALSO SOLD 8.52 ACRES OF LAND TO HIS SO NS FOR A TOTAL CONSIDERATION OF 42,60,000/-. IT IS ALSO CONSIDERED BY THE ASSESSIN G OFFICER AND FOUND THAT IT IS A BUSINESS TRANSACTION . HOWEVER, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) DELETED THE ADDITION ON THE GROUND THAT IT IS A SETTLEMENT OF PROPERTY BETWEEN FATHER AND SONS . ACCORDING TO THE LD. D.R., THE ASSESSEE EXECUTED A SALE DEED IN RESP ECT OF 8.52 ACRES OF LAND IN FAVOUR OF HIS SONS. THEREFORE, ACCORDING T O THE LD. D.R., IT CANNOT BE CONSTRUED AS SETTLEMENT OF PROPERTIES BETWEEN FA THER AND SONS. 5. ON THE CONTRARY, SHRI P. RANGA RAMANUJAM, THE LD . REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE PURCHASED 10.08 ACRES OF LAND BY MEANS OF A REGISTERED SALE D EED DATED 18.09.2006, A COPY OF WHICH IS AVAILABLE AT PAGE 24 OF THE PAPER-BOOK. ON THE DATE OF PURCHASE, ACCORDING TO THE LD. REPRE SENTATIVE, THE VENDOR MORTGAGED PROPERTY WITH INDIAN BANK FOR THE LOAN BO RROWED AND THERE WAS A PROLONGED LITIGATION BEFORE THE DEBT RECOVERY TRIBUNAL. THE LITIGATION REACHED THE HIGH COURT AND ULTIMATELY IT WAS SETTLED ON 09.01.2008. ACCORDING TO THE LD. REPRESENTATIVE, IT DOES NOT MEAN THAT THE TITLE TO THE PROPERTY WAS CLEARED ONLY ON 09.01 .2008. THE VENDOR WAS THE TITLE HOLDER OF THE PROPERTY AND THE PROPERTY W AS MORTGAGED FOR BORROWAL OF LOAN. THE PROPERTY WAS SOLD TO THE ASS ESSEE WITH SUBSISTING MORTGAGE. THEREFORE, ACCORDING TO THE LD. REPRESEN TATIVE, THE VENDOR 5 I.T.A. NOS.127 & 129/CHNY/18 CONTINUES TO BE THE OWNER OF THE PROPERTY AND THE T ITLE PASSED ON THE ASSESSEE ON THE DATE OF EXECUTION OF SALE DEED. HE NCE, ACCORDING TO THE LD. REPRESENTATIVE, IT IS NOT CORRECT TO SAY THAT T HE ASSESSEE GOT CLEAR TITLE ONLY ON 09.01.2008. ACCORDING TO THE LD. REPRESENT ATIVE, THE ASSESSEE GOT THE PROPERTY WITH CLEAR TITLE ON THE DATE OF EX ECUTION OF SALE DEED, I.E. ON 12.09.2006. 6. SHRI P. RANGA RAMANUJAM, THE LD. REPRESENTATIVE FOR THE ASSESSEE, FURTHER SUBMITTED THAT ADMITTEDLY THE SUB JECT LAND IS AN AGRICULTURAL LAND. THIS FACT IS NOT DISPUTED BY TH E ASSESSING OFFICER. MOREOVER, ACCORDING TO THE LD. REPRESENTATIVE, THE CHITTA AND ADANGAL CLEARLY DISCLOSE THAT IT IS AN AGRICULTURAL LAND / WET LAND SUBJECT TO CULTIVATION. THEREFORE, ACCORDING TO THE LD. REPRE SENTATIVE, THE CONTENTION OF THE LD. D.R. THAT IN THE GUISE OF AGRICULTURAL L AND, THE ASSESSEE SOLD THE SAME IS NOT CORRECT. IN FACT, ACCORDING TO THE LD. REPRESENTATIVE, THE SALE OF AGRICULTURAL PROPERTY WAS REPORTED TO THE ASSESS ING OFFICER IN THE RETURN OF INCOME, THEREFORE, IT IS NOT A CASE OF CONCEALME NT. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE PURCHASED THE PROP ERTY ON 12.09.2006 AND SOLD THE SAME ON 18.01.2010. IN BETWEEN, THE A SSESSEE CULTIVATED THE PROPERTY AND THE ASSESSEE ALSO DISCLOSED THE AG RICULTURAL INCOME. IN FACT, ACCORDING TO THE LD. REPRESENTATIVE, FOR THE ASSESSMENT YEAR 2010- 11, THE ENTIRE 10.08 ACRES OF LAND WAS PURCHASED BY MEANS OF SINGLE SALE 6 I.T.A. NOS.127 & 129/CHNY/18 DEED AND IT WAS SOLD BY MEANS OF SINGLE SALE DEED O N 18.01.2010. THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE W AS TO HOLD THE PROPERTY AND CULTIVATE THE SAME, THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, IT CANNOT BE CONSTRUED TO BE A BUSINESS TRANSACTION. 7. REFERRING TO THE STATEMENT RECORDED DURING THE C OURSE OF SURVEY OPERATION, THE LD. REPRESENTATIVE SUBMITTED THAT IN RESPONSE TO QUESTION NO.6, THE ASSESSEE EXPLAINED THAT FROM THE MORNING HE USE TO SUPERVISE THE CONSTRUCTION OF MULTISTORIED BUILDING AND WEEKL Y ONCE OR TWICE, HE USE TO SUPERVISE THE AGRICULTURAL CULTIVATION AT PAPPAR AMBAKKAM AND KOPPUR. THE ASSESSEE, ACCORDING TO THE LD. REPRESENTATIVE, STATED THAT HE IS NOT ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OR PRO PERTY. IN FACT, ACCORDING TO THE LD. REPRESENTATIVE, THE BUSINESS O F THE ASSESSEE IS NOT PURCHASE AND SALE OF LAND. THE BUSINESS OF THE ASS ESSEE IS ONLY CONSTRUCTION OF MULTISTORIED RESIDENTIAL COMPLEXES, OTHERWISE KNOWN AS CONSTRUCTION OF FLATS. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN SAYING THAT T HE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS. 8. MOREOVER, ACCORDING TO THE LD. REPRESENTATIVE, T HE SALE CONSIDERATION OF THE SALE OF 10.08 ACRES OF LAND WA S UTILISED FOR PURCHASE OF 8.52 ACRES OF MANGO GARDEN. THEREFORE, ACCORDIN G TO THE LD. REPRESENTATIVE, THE SALE CONSIDERATION OF THE AGRIC ULTURAL PROPERTY WAS 7 I.T.A. NOS.127 & 129/CHNY/18 UTILISED FOR PURCHASING ANOTHER AGRICULTURAL PROPER TY TO THE EXTENT OF 8.52 ACRES OF MANGO GARDEN. THIS FACT IS ALSO NOT IN DI SPUTE. DURING THE ASSESSMENT YEAR 2012-13, ACCORDING TO THE LD. REPRE SENTATIVE, THE ASSESSEE EXECUTED A SALE DEED IN RESPECT OF THE ABO VE SAID MANGO GARDEN OF 8.52 ACRES, WHICH WAS PURCHASED BY UTILIZ ING THE SALE CONSIDERATION OF AGRICULTURAL PROPERTY SOLD IN THE ASSESSMENT YEAR 2010- 11, TO THE ASSESSEES SONS. THEREFORE, ACCORDING T O THE LD. REPRESENTATIVE, WHAT WAS SOLD TO THE ASSESSEES SON S IS A MANGO GARDEN, WHICH WAS ADMITTEDLY PURCHASED BY UTILIZING THE SAL E CONSIDERATION OF AGRICULTURAL PROPERTY IN THE ASSESSMENT YEAR 2010-1 1. 9. REFERRING TO THE ASSESSMENT ORDER, MORE PARTICUL ARLY, THE EXTRACT MADE BY THE ASSESSING OFFICER FROM THE JUDGMENT OF APEX COURT IN G. VENKATASWAMI NAIDU & CO. (SUPRA), THE LD. REPRESENT ATIVE FOR THE ASSESSEE SUBMITTED THAT THE SUPREME COURT ITSELF CL ARIFIED THAT IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELL IT AT A PROFIT, IT WOULD BE A C LEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM ADVENTURE IN THE NATURE OF TRADE. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE JUDGMENT OF APEX COURT IN G. VENKATASWAMI NAIDU & CO. (SUPRA) SUPPOR TS THE CASE OF ASSESSEE AND NOT THE REVENUE. REFERRING TO THE ASS ESSMENT ORDER, THE LD. REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFF ICER FOUND THAT THE 8 I.T.A. NOS.127 & 129/CHNY/18 ASSESSEE ACQUIRES SMALL BITS OF LAND AND CONSOLIDAT ES THE SAME AND MAKING IT BIG FACTORY SITE. ACCORDING TO THE LD. R EPRESENTATIVE, ADMITTEDLY IT IS AN AGRICULTURAL LAND, THEREFORE, THE QUESTION OF MAKING FACTORY LAND/ SITE DOES NOT ARISE FOR CONSIDERATION. AGGREGATION OF AGRICULTURAL LAND BY PURCHASING SMALL BITS WOULD NOT BE AN ADVENTURE IN THE NATURE OF TRADE AS HELD BY THE APEX COURT IN G. VENKATASWAMI NAIDU & C O. (SUPRA). ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE P URCHASED THE LAND WITH THE INTENTION TO HOLD, CULTIVATE THE SAME AND DISCLOSED THE AGRICULTURAL INCOME IN THE REGULAR RETURN AND ENJOY ED IT FOR SOME TIME. THEREAFTER, ACCORDING TO THE LD. REPRESENTATIVE, TH E SAID LAND WAS SOLD FOR PROFIT AND SUCH A CAPITAL ACCRETION OR PURCHASE OF SMALL BITS OF LAND WOULD NOT IN ANY WAY BE AN ADVENTURE IN THE NATURE OF TRA DE. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEES BUSINESS IS ONLY CONSTRUCTION OF MULTISTORIED BUILDING AND NOT PURCHASE AND SALE OF LAND. THE ASSESSING OFFICER HAS MISCONSTRUED HIMSELF, HENCE, ACCORDING TO THE LD. REPRESENTATIVE, THE CIT(APPEALS) HAS RIGHTLY ALLOWE D THE CLAIM OF THE ASSESSEE. 10. FOR THE ASSESSMENT YEAR 2012-13, COMING TO THE GROUNDS OF APPEAL WITH REGARD TO DISALLOWANCE OF EXPENDITURE O F 7,64,595/-, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED 20%, HOWEVER, THE CIT(APPEALS) RESTRICTE D THE SAME TO 5%. 9 I.T.A. NOS.127 & 129/CHNY/18 THE ASSESSEE HAS NOT FILED APPEAL CHALLENGING THE C ORRECTNESS OF DECISION. ACCORDING TO THE LD. REPRESENTATIVE, THE CIT(APPEALS) HAS RIGHTLY RESTRICTED TO 5%, THEREFORE, NO INTERFERENC E IS CALLED FOR. 11. COMING TO THE ISSUE OF SALE OF 8.52 ACRES OF LA ND TO THE ASSESSEES SONS, THE LD. REPRESENTATIVE FOR THE ASS ESSEE SUBMITTED THAT IT IS AN AGRICULTURAL LAND PURCHASED BY INVESTING THE SALE PROCEEDS OF 10.08 ACRES OF AGRICULTURAL LAND IN THE ASSESSMENT YEAR 2 010-11. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE MANGO GARD EN PURCHASED BY THE ASSESSEE CONTINUES TO BE THE AGRICULTURAL LAND. TH E PROFIT ON SALE OF MANGO GARDEN IS EXEMPTED FROM TAXATION. THE ASSESS ING OFFICER, ACCORDING TO THE LD. REPRESENTATIVE, MISCONSTRUED H IMSELF WITH REGARD TO LETTING OUT OF 9 ACRES OF ANOTHER LAND TO A GODOWN FOR MONTHLY RENT. WHAT WAS SOLD TO THE ASSESSEES SONS IS 8.52 ACRES OF MA NGO GARDEN. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, LET TING OUT OF 9 ACRES OF ANOTHER LAND FOR A GODOWN ON MONTHLY RENT CANNOT BE A REASON TO DISALLOW THE CLAIM OF THE ASSESSEE. THEREFORE, ACCO RDING TO THE LD. REPRESENTATIVE, THE CIT(APPEALS) HAS RIGHTLY ALLOWE D THE CLAIM OF THE ASSESSEE. THE LD. REPRESENTATIVE FOR THE ASSESSEE PLACED HIS RELIANCE ON THE DECISION OF COCHIN BENCH OF THE TRIBUNAL IN DCIT V. SMT. THANKAMMA SIMON (2015) 55 TAXMANN.COM 331, DECISION OF THIS TRIBUNAL IN N. JAYAMURUGAN V. DCIT (2016) 70 TAXMANN.COM 24, JUDGMENT OF 10 I.T.A. NOS.127 & 129/CHNY/18 MADRAS HIGH COURT IN PR. CIT V. MANSI FINANCE CHENN AI LTD. (2016) 73 TAXMANN.COM 312 AND JUDGMENT OF BOMBAY HIGH COURT I N CIT V. SMT. DEBBIE ALEMAO (2011) 196 TAXMAN 230. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FOR THE ASSESSMENT YEAR 2010-11, THE ONLY ISSUE ARISES FOR CONSIDERATI ON IS SALE OF AGRICULTURAL LAND CONSIDERED BY THE ASSESSING OFFIC ER AS BUSINESS INCOME. THE ASSESSING OFFICER MAINLY PLACING HIS R ELIANCE ON THE STATEMENT RECORDED DURING THE COURSE OF SURVEY OPER ATION, CAME TO A CONCLUSION THAT THE PROFIT ON SALE OF AGRICULTURAL LAND OF 10.08 ACRES IS A BUSINESS PROFIT. FROM THE STATEMENT RECORDED DURIN G THE COURSE OF SURVEY IN RESPONSE TO QUESTION NO.5, THE ASSESSEE CLEARLY EXPLAINED THAT IN YEAR 1975, HE HAD A TEXTILE SHOP IN TIRUVOTRIYUR. FROM THE YEAR 1985, HE WAS ENGAGED IN CONSTRUCTION OF SMALL HOUSES FOR THOSE W HO REQUESTED. AFTER 1996, THE ASSESSEE IS ENGAGED IN THE CONSTRUCTION O F MULTISTORIED RESIDENTIAL APARTMENTS. IT IS OBVIOUS FROM THE ABO VE STATEMENT RECORDED BY THE REVENUE AUTHORITIES DURING THE COURSE OF SUR VEY OPERATION THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF SMALL HOUSES AND ALSO ENGAGED IN THE CONSTRUCTION OF MULTISTORIED RE SIDENTIAL COMPLEXES FROM THE YEAR 1996. 11 I.T.A. NOS.127 & 129/CHNY/18 13. IN RESPONSE TO QUESTION NO.6, THE ASSESSEE EXPL AINED BEFORE THE ASSESSING OFFICER THAT FROM THE MORNING HE USED TO SUPERVISE THE CONSTRUCTION OF MULTISTORIED RESIDENTIAL COMPLEXES ON DAILY BASIS AND WEEKLY ONCE OR TWICE HE USED TO SUPERVISE THE AGRIC ULTURAL CULTIVATION AT PAPARAMBAKKAM AND KOPPUR. IT IS ALSO EXPLAINED THA T ONE OF SONS OF THE ASSESSEE SHRI GOVINDHARAJAN IS A PRACTICING ADVOCAT E AND ANOTHER SON SHRI YUVARAJ IS AN ARCHITECT. THE THIRD SON SHRI D AYANIDHI HAS COMPLETED HIS BACHELOR DEGREE IN BCA. NOWHERE IN THE STATEME NT, THE ASSESSEE HAS SAID THAT EITHER HIS SONS OR HIMSELF ARE IN THE BUSINESS OF BUYING AND SELLING OF LAND. IT IS TRUE THAT THE ASSESSEE IS P URCHASING / ACQUIRING LANDS FROM THE YEAR 1998. EVEN THOUGH THERE WAS FREQUENT PURCHASE, THERE IS NO FREQUENT SALE OF THE PROPERTY. THE ASSESSEE, IN FACT, HOLDING THE PROPERTY CONSIDERABLY LONG TIME, CULTIVATING THE SA ME, DISCLOSING AGRICULTURAL INCOME IN THE RETURN OF INCOME AND SEL LING THE SAME OCCASIONALLY. THE QUESTION ARISES FOR CONSIDERATIO N IS WHETHER THE PURCHASE OF LAND REGULARLY AND AGGREGATING THE CAPI TAL ASSET AND SELLING OCCASIONALLY WOULD AMOUNT TO ADVENTURE IN THE NATUR E OF TRADE OR COMMERCE? THE APEX COURT HAS EXAMINED THIS ISSUE I N G. VENKATASWAMI NAIDU & CO. (SUPRA). THE APEX COURT F OUND AS FOLLOWS AT PAGE 609 AND 610:- AS WE HAVE ALREADY OBSERVED IT IS IMPOSSIBLE TO EVO LVE ANY FORMULA WHICH CAN BE APPLIED IN DETERMINING THE CHA RACTER OF 12 I.T.A. NOS.127 & 129/CHNY/18 ISOLATED TRANSACTIONS WHICH COME BEFORE THE COURTS IN TAX PROCEEDINGS. IT WOULD BESIDES BE INEXPEDIENT TO MAKE ANY ATTEMPT TO EVOLVE SUCH A RULE OR FORMULA. GENERALLY SPEAKING, IT WOULD NOT BE DIFFICULT TO DECIDE WHETHER A GIVEN TR ANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE OR NOT. IT IS T HE CASES ON THE BORDER LINE THAT CAUSE DIFFICULTY. IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCO ME FOR SOME TIME, AND THEN SELLS IT AT A PROFIT, IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM AN AD VENTURE IN THE NATURE OF TRADE. CASES OF REALISATION OF INVEST MENTS CONSISTING OF PURCHASE AND RESALE, THOUGH PROFITABL E, ARE CLEARLY OUTSIDE THE DOMAIN OF ADVENTURES IN THE NAT URE OF TRADE. IN DECIDING THE CHARACTER OF SUCH TRANSACTIO NS SEVERAL FACTORS ARE TREATED AS RELEVANT. WAS THE PURCHASER A TRADE AND WERE THE PURCHASE OF THE COMMODITY AND ITS RESA LE ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT? AFFIRMATIVE ANSWERS TO THESE QUESTION MAY FURNISH RELEVANT DATA FOR DETERMINING THE CHARACTER OF THE TRANSACTION. WHAT IS THE NATURE OF THE COMMODITY PURCHASED AND RESOLD AND IN WHAT QUANTITY WAS IT PURCHASED AND RESOLD? IF THE COMMOD ITY PURCHASED IS GENERALLY THE SUBJECT-MATTER OF TRADE, AND IF IT IS PURCHASED IN VERY LARGE QUANTITIES, IT WOULD TEND T O ELIMINATE THE POSSIBILITY OF INVESTMENT FOR PERSONAL USE, POS SESSION OR ENJOYMENT. DID THE PURCHASER BY AN ACT SUBSEQUENT T O THE PURCHASE IMPROVE THE QUALITY OF THE COMMODITY PURCH ASED AND THEREBY MADE IT MORE READILY RESALEABLE? WHAT WERE THE INCIDENTS ASSOCIATED WITH THE PURCHASE AND RESALE? WERE THEY SIMILAR TO THE OPERATIONS USUALLY ASSOCIATED WITH T RADE OR BUSINESS? ARE THE TRANSACTIONS OF PURCHASE AND SALE REPEATED? IN REGARD TO THE PURCHASE OF THE COMMODITY AND ITS SUBSEQUENT POSSESSION BY THE PURCHASER, DOES THE EL EMENT OF PRIDE OF POSSESSION COME INTO THE PICTURE? A PERSON MAY PURCHASER A PIECE OF ART, HOLD IT FOR SOME TIME AND IF A PROFITABLE OFFER IS RECEIVED MAY SELL IT. DURING TH E TIME THAT THE PURCHASER HAD ITS POSSESSION HE MAY BE ABLE TO CLAIM PRIDE OF POSSESSION AND AESTHETIC SATISFACTION; AND IF SU CH A CLAIM IS UPHELD THAT WOULD BE A FACTOR AGAINST THE CONTENTIO N THAT THE TRANSACTION IS IN THE NATURE OF TRADE. THESE AND OT HER CONSIDERATIONS ARE SET OUT AND DISCUSSED IN JUDICIA L DECISIONS 13 I.T.A. NOS.127 & 129/CHNY/18 WHICH DEAL WITH THE CHARACTER OF TRANSACTIONS ALLEG ED TO BE IN THE NATURE OF TRADE. IN CONSIDERING THESE DECISIONS IT WOULD BE NECESSARY TO REMEMBER THAT THEY DO NOT PURPORT TO L AY DOWN ANY GENERAL OR UNIVERSAL TEST. THE PRESENCE OF ALL THE RELEVANT CIRCUMSTANCES MENTIONED IN ANY OF THEM MAY HELP THE COURT TO DRAW A SIMILAR INFERENCE; BUT IT IS NOT A MATTER OF MERELY COUNTING THE NUMBER OF FACTS AND CIRCUMSTANCES PRO AND CON; WHAT IS IMPORTANT TO CONSIDER IS THEIR DISTINCTIVE CHARACTER. IN EACH CASE, IT IS THE TOTAL EFFECT OF ALL RELEVANT F ACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION; AND SO, THOUGH WE MAY ATTEMPT TO DERIV E SOME ASSISTANCE FROM DECISIONS BEARING ON THIS POINT, WE CANNOT SEEK TO DEDUCE ANY RULE FROM THEM AND MECHANICALLY APPLY IT TO THE FACTS BEFORE US. IN THIS CONNECTION IT WOULD BE RELEVANT TO REFER TO ANOTHER TEST WHICH IS SOME TIMES APPLIED IN DETERMINING THE CHARACTER OF THE TRANSACTION. WAS THE PURCHASE MADE WITH THE INTENTION TO RESELL IT AT A PROFIT? IT IS OFTEN SAID THAT A T RANSACTION OF PURCHASE FOLLOWED BY RESALE CAN EITHER BE AN INVEST MENT OR AN ADVENTURE IN THE NATURE OF TRADE. THERE IS NO MIDDL E COURSE AND NO HALF-WAY HOUSE. THIS STATEMENT MAY BE BROADL Y TRUE; AND SO SOME JUDICIAL DECISIONS APPLY THE TEST OF TH E INITIAL INTENTION TO RESELL IN DISTINGUISHING ADVENTURES IN THE NATURE OF TRADE FROM TRANSACTIONS OF INVESTMENT. EVEN IN THE APPLICATION OF THIS TEST DISTINCTION WILL HAVE TO BE MADE BETWE EN INITIAL INTENTION TO RESELL AT A PROFIT WHICH IS PRESENT BU T NOT DOMINANT OR SOLE; IN OTHER WORDS, CASES DO OFTEN AR ISE WHERE THE PURCHASER MAY BE WILLING AND MAY INTEND TO SELL THE PROPERTY PURCHASED AT PROFIT, BUT HE WOULD ALSO INT END AND BE WILLING TO HOLD AND ENJOY IT IF A REALLY HIGH PRICE IS NOT OFFERED. THE INTENTION TO RESELL MAY IN SUCH CASES BE COUPLE D WITH THE INTENTION TO HOLD THE PROPERTY. CASES MAY, HOWEVER, ARISE WHERE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSIV ELY WITH THE INTENTION TO RESELL AT A PROFIT AND THE PURCHAS ER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OT HERWISE ENJOYING OR USING IT. THE PRESENCE OF SUCH AN INTEN TION IS NO DOUBT A RELEVANT FACTOR AND UNLESS IT IS OFFSET BY THE PRESENCE OF OTHER FACTORS IT WOULD RAISE A STRONG PRESUMPTIO N THAT THE 14 I.T.A. NOS.127 & 129/CHNY/18 TRANSACTIONS IS AN ADVENTURE IN THE NATURE OF TRADE . EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE; AND IT IS CONCEI VABLE THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE, THE COURT MAY, DESPITE THE SAID INITIAL INTENTION, BE I NCLINED TO HOLD THAT THE TRANSACTION WAS NOT AN ADVENTURE IN THE NA TURE OF TRADE. WE THUS COME BACK TO THE SAME POSITION AND T HAT IS THAT THE DECISION ABOUT THE CHARACTER OF A TRANSACT ION IN THE CONTEXT CANNOT BE BASED SOLELY ON THE APPLICATION OF ANY ABSTRACT RULE, PRINCIPLE OR TEST AND MUST IN EVERY CASE DEPEND UPON ALL THE RELEVANT FACTS AND CIRCUMSTANCES. 14. IN VIEW OF THE ABOVE OBSERVATION OF THE APEX CO URT, IT IS OBVIOUS THAT THE CHARACTER OF TRANSACTION CANNOT BE BASED S OLELY ON THE APPLICATION OF ANY ABSTRACT RULE, PRINCIPLE OR TEST . IT WOULD DEPEND UPON VARIOUS FACTS AND CIRCUMSTANCES. IN THE CASE BEFOR E US, IT IS CLEARLY ESTABLISHED THAT THE ASSESSEE PURCHASED THE LAND FR OM 1998 ONWARDS. THE ASSESSEE WAS HOLDING THE PROPERTY FOR A LONG PE RIOD. IN FACT, THE ASSESSEE CULTIVATED THE LAND. THE AGRICULTURAL INC OME WAS DISCLOSED TO THE REVENUE AUTHORITIES RIGHT FROM ASSESSMENT YEAR 2000-01 TO 2010-11. THEREFORE, THE INTENTION OF THE ASSESSEE IS OBVIOUS THAT THE PROPERTY WAS PURCHASED FOR CULTIVATION AND HELD IT AS AGRICULTUR AL LAND. THEREFORE, AT THE TIME OF PURCHASE OF THE PROPERTY, THE ASSESSEE HAD NO INTENTION TO SELL THE SAME. AFTER PURCHASING CONSIDERABLE SIZE OF AG RICULTURAL LAND, IT WAS SOLD IN THE YEAR 2010 AND 2011. IT DOES NOT MEAN T HAT THERE WAS BUSINESS ACTIVITY. THE APEX COURT IN THE CASE OF G . VENKATASWAMY NAIDU & CO. (SUPRA) HAS CLEARLY EXPLAINED THIS AS F OLLOWS:- 15 I.T.A. NOS.127 & 129/CHNY/18 IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELLS IT AT A PR OFIT, IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE. CASES OF REALISATION OF INVESTMENTS CONSISTING OF PURCHASE AND RESALE, T HOUGH PROFITABLE, ARE CLEARLY OUTSIDE THE DOMAIN OF ADVEN TURES IN THE NATURE OF TRADE. 15. IN VIEW OF THE ABOVE OBSERVATION, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT PURCHASE OF LAND FROM 1998 TO 2006 AND SALE OF LAND IN 2010 AND 2011 BY THE ASSESSEE IS OUTSIDE TH E DOMAIN OF ADVENTURE IN THE NATURE OF TRADE. MOREOVER, THE AS SESSEE WAS ALSO REGULARLY RETURNING THE AGRICULTURAL INCOME. IN SU CH CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE LAND IN QUESTION IS NOT A CAPITAL ASSET AND IT IS ALSO AN AGRICULTURAL LAND. HENCE, THE PROFIT ON SALE OF SUCH LAND CANNOT BE SUBJECT TO TAXATION UNDER TH E INCOME-TAX ACT. 16. IN THE YEAR 2012-13, THE ASSESSEE SOLD 8.52 ACR ES OF LAND TO HIS SONS. IT IS A MANGO GARDEN. THIS WAS ADMITTEDLY P URCHASED BY THE ASSESSEE IN INVESTING THE SALE PROCEEDS OF THE LAND SOLD IN THE ASSESSMENT YEAR 2010-11. THE ASSESSEE, IN FACT, IS ELIGIBLE FOR EXEMPTION UNDER SECTION 54B OF THE ACT ALSO FOR INV ESTING IN ANOTHER AGRICULTURAL LAND OF 8.52 ACRES. THIS 8.52 ACRES O F MANGO GARDEN WAS SOLD TO THE ASSESSEES SONS FOR A CONSIDERATION OF 42,60,000/-. SINCE THE NATURE OF PROPERTY IS ONLY MANGO GARDEN, THIS T RIBUNAL IS OF THE CONSIDERED OPINION THAT IT IS AGRICULTURAL LAND, HE NCE, ELIGIBLE FOR 16 I.T.A. NOS.127 & 129/CHNY/18 EXEMPTION. THE ASSESSING OFFICER OBSERVED IN HIS O RDER THAT THE ASSESSEE CONSOLIDATES SMALL PIECE OF LAND INTO A BI G FACTORY SITE. ON A QUERY FROM THE BENCH ON WHAT BASIS THE ASSESSING OF FICER MADE THIS OBSERVATION? THE LD. D.R. VERY FAIRLY SUBMITTED TH AT THERE IS NO BASIS. IT IS NOT THE CASE OF THE REVENUE THAT EITHER THE ASSE SSEE OR THE ASSESSEES SONS HAS ANY FACTORY. THEREFORE, THE OBSERVATION O F THE ASSESSING OFFICER THAT THE ASSESSEE WAS CONSOLIDATING SMALL B ITS OF LAND INTO A BIG FACTORY SITE IS NOT BASED ON ANY MATERIAL AVAILABLE ON RECORD. THEREFORE, THE PROFIT ON SALE OF 8.52 ACRES OF MANGO GARDEN TO THE ASSESSEES SONS ALSO CANNOT BE SUBJECT MATTER OF TAXATION UNDER THE INCOME-TAX ACT. 17. NOW COMING TO THE EXPENDITURE OF 7,64,595/-, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE COULD NOT PRODUCE D ETAILS OF THE EXPENDITURE. THEREFORE, HE ESTIMATED THE DISALLOWA NCE AT 20% OF THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE. THE REV ENUE HAS NOT DISPUTED THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSING OFFICER RESTRICTED THE SAME AT 20%. HOWEVER, THE C IT(APPEALS) IN EXERCISE OF HIS DISCRETION RESTRICTED THE SAME TO 5 %. SINCE THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT DISPUTE D OR DENIED, THE CIT(APPEALS) HAS RIGHTLY RESTRICTED THE EXPENDITURE TO 5%. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 17 I.T.A. NOS.127 & 129/CHNY/18 18. IN VIEW OF THE ABOVE DISCUSSION, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY FOR BOTH THE ASSESSMENT YEARS AND ACCORDINGLY THE SAME IS CONFIR MED. 19. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE STAND DISMISSED. ORDER PRONOUNCED IN THE COURT ON 31 ST MAY, 2019 AT CHENNAI. SD/- SD/- (. !') ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 31 ST MAY, 2019. KRI. . ,167 87(1 /COPY TO: 1. *+/ APPELLANT 2. ,-*+/ RESPONDENT 3. 0 91 () /CIT(A)-14, CHENNAI 4. PRINCIPAL CIT-10, CHENNAI 5. 7: ,1 /DR 6. ;' < /GF.