ACIT., Circle-13(1), Hyderabad V. Sri K Janardhan, Hyderabad

ITA 1385/HYD/2014

• Counselvise Citation: 138522514 RSA 2014
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: V SRIDHAR
• Keywords: Capital asset; Business income; Search and seizure; Salary income
• Section: 132; 143(3); 2(14)

Judgement Text

ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 1 OF 19 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1385/HYD/2014 (ASSESSMENT YEAR: 2007-08) ACIT CIRCLE 13(1) HYDERABAD VS. SHRI K. JANARDHAN HYDERABAD PAN: AHHPK 6507 G (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI RAJAT MITRA, DR FOR ASSESSEE : SHRI V. SRIDHAR DATE OF HEARING : 26/02/2015 DATE OF PRONOUNCEMENT : 27 /03/2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT (A) II HYDERABAD DATED 11.06.2014 PASSED FO R A.Y 2007- 08. 2. BRIEFLY STATED, ASSESSEE IS AN INDIVIDUAL. ORIGI NALLY HE FILED HIS RETURN OF INCOME FOR A.Y 2007-08 ON 25.07.2007 ADMITTING SALARY INCOME OF RS.95,915 AND AGRICULTURAL INCOME OF RS.14,000. A SEARCH AND SEIZURE OPERATION U/S 132 W ERE CONDUCTED IN THE CASE OF SRI VENIGALLA ANANDA PRASA D, M.D. OF M/S BHAVYA CONSTRUCTIONS PVT LTD AND M/S BHAVYA CEM ENTS LTD ON 7.10.2009. DURING THE SEARCH, CERTAIN DOCUMENTS PERTAINING ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 2 OF 19 TO SALE OF AGRICULTURAL LAND BY THE ASSESSEE TO M/S VARUN CONSTRUCTIONS, A PERTNERSHIP FIRM WITH WHICH M/S BH AVYA CONSTRUCTION HAD ENTERED INTO A BUSINESS TRANSACTIO NS WERE FOUND. CONSEQUENT TO THE DOCUMENTS WHICH HAVE BEEN SEIZED DURING THE SEARCH, THE ASSESSEE WAS ISSUED NOTICE U/S 153C FOR A.YS 2006-07 TO 2011-12. IN RESPONSE TO THE NOTICE, ASSESSEE FILED RETURN OF INCOME ADMITTING TAXABLE INCOME OF RS.95,920 FOR A.Y 2007-08 AND AGRICULTURAL INCOME OF RS.14,000 AN D CLAIMED SURPLUS ON SALE OF AGRICULTURAL LAND OF RS.97,50,00 0 AS EXEMPT U/S 10. THE SAID SURPLUS HAS ARISEN ON THE SALE OF THE AGRICULTURAL LAND TO VARUN CONSTRUCTIONS DURING THE PREVIOUS YEAR 2006-07 RELEVANT TO A.Y 2007-08. THE AGRICULTU RAL LAND IS SITUATED IN SY. NO.667, DUNDIGAL VILLAGE, QUTHBULLA PUR MANDAL, RANGA REDDY DISTRICT WHICH WAS SOLD TO M/S VARUN CONSTRUCTIONS. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF AGRICULTURAL LA ND AND THE SAME WERE FURNISHED. PRIOR TO AND ALSO DURING THE C OURSE OF THE ASSESSMENT PROCEEDINGS, AO GATHERED INFORMATION ABO UT THE LAND FROM TOWN PLANNING OFFICER, ASSTT. CITY PLANNER, GH MC AND ALSO FROM THE STATEMENTS RECORDED BY DDIT FROM VILLAGE R EVENUE ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 3 OF 19 OFFICER, QUTHBULLAPUR MANDAL. ASSESSEE ALSO FURNISH ED INFORMATION PERTAINING TO THE LAND. 4. ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 153C MAKING AN ADDITION OF RS.97,50,000 UNDER THE HEAD CAPITAL GAINS TO THE RETURNED INCOME OF RS.95,920 THUS ARRIVING AT AN AS SESSED INCOME OF RS.98,45,920 AND A TAX DEMAND OF RS.56,03 ,797 (INCLUSIVE OF INTEREST). THE AMOUNT OF RS.95,50,000 IS THE DIFFERENCE BETWEEN THE SALE PRICE RS.1,00,00,000 AN D PURCHASE PRICE OF RS.2,50,000. 5. AO DISALLOWED THE CLAIM OF EXEMPTION OF SURPLUS ON SALE OF AGRICULTURAL LAND AND BROUGHT THE SAME TO TAX UNDER THE HEAD SHORT TERM CAPITAL GAINS. IN DOING SO, AO VIDE PARA 20 SUMMED UP THE BASIS FOR DISALLOWANCE OF THE CALIM OF EXEMP TION AS UNDER: THE LAND WAS NOT ASSESSED TO THE LAND REVENUE THERE IS NO CLARIFICATION WHETHER THE LAND IS BEYON D THE 8 KM FROM THE LIMIT OF GHMC THE LAND WAS NOT PUT TO AGRICULTURAL PURPOSE, BEFOR E OR AFTER SALE, EITHER BY THE ASSESSEE OR BY THE PURCHA SER. THE ASSESSEE HAD NO INTENTION TO PUT THE LAND FOR AGRICULTURAL PURPOSES, AS SEEN FROM THE PHOTOGRAPHS . PURCHASER USED THE LAND FOR CONSTRUCTION OF APARTME NTS. ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 4 OF 19 THE LAND WAS SOLD AT A WHOOPING PRICE OF RS.1.00 CR ORE PER ACRE WHICH IS VERY HIGH FROM AGRICULTURAL LAND. 6. AO RELIED ON THE STATEMENTS RECORDED BY THE DDIT FROM VRO, QUTHBULLAPUR MANDAL, MD OF BHAVYA CONSTRUCTION S AND OTHERS AND ON PHOTOGRAPHS TAKEN DURING SEARCH OPERA TIONS ON BUYER OF LAND IN COMING TO THE CONCLUSION THAT THE LANDIS NOT AGRICULTURAL LAND AND THE ASSESSEE HAS NOT CARRIED OUT AGRICULTURE, AND TEHREFORE, THE SAME SHOULD BE TAXE D UNDER THE HEAD SHORT TERM CAPITAL GAINS. THESE EVIDENCES W ERE SUBMITTED BY THE ASSESSEE BEFORE THE AO. IN FRAMIN G THE ASSESSMENT ORDER THE AO ALSO RELIED ON JUDICIAL PRO NOUNCEMENTS SUCH AS RAJA MUSTAFA ALI KHAN VS. CIT (1948) 16 ITR 330 (PC) AND SMT. SHARIFA BIBI MOHMED IBRAHIM VS.CIT (1993) 204 ITR 631 (S.C) AND THE PRINCIPLES DISCUSSED THEREIN. AO, THUS BROUGHT TO TAX THESUM OF RS.95,95,000/- AS SHORT TERM CAPIT AL GAIN. 7. BEFORE THE COMMISSIONER, THE LD COUNSEL FOR ASSESSEE DREW ATTENTION OF THE CIT TO PARA 11 ON PAGE 4 OF THE AS SESSMENT ORDER, WHEREIN THE AO OBSERVED THAT LAND IS NOT BEING REG ISTERED AS AGRICULTURAL LAND IN THE REVENUE RECORDS AND CONCL UDED THAT THE LAND WAS PUT TO NON-AGRICULTURAL USE BY THE ASSESSEE. THE LD COUNSEL FURTHER SUBMITTED THAT AO SEEMS TO H AVE ARRIVED AT THIS CONCLUSION ON THE BASIS OF VERIFICATION OF REV ENUE RECORDS IN ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 5 OF 19 RESPECT OF VARIOUS SURVEY NUMBERS IN THE AREA INCLU DING SY. NO.667 WHICH ARE ANNEXED TO ASSESSMENT ORDER. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ANNEXURE A APPEARS TO BE NOTINGS MADE BY THE OFFICIALS OF THE DEPARTMENT DURING VERIFICATION OF THE REVENUE RECORDS AND AS C AN BE SEEN THEREFROM, THE NOTING AGAINST SY.NO.667 IS NO DOCS WITH US AND NO DETAILS. THE LD COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED T HAT THE AO BASED HIS OPINION ON A VAGUE AND AMBIGUOUS RESPONSE RECEI VED DURING THE INSPECTIONS/VERIFICATION OF REVENUE RECORDS. AS SESSEE FURTHER SUBMITS THAT ON VERIFICATION OF REVENUE RECORDS WIT H RESPECT TO THELAND IN QUESTION NO DOC WITH US AND NO DETAIL S ARE THE DETAILS FOUND IN THE RECORDS. ASSESSEE ALSO SUBMITT ED THAT THE AO BASED HIS OPINION ON THIS NOT SO CLEAR INFORMATION IN DETERMING THE NATURE OF THE LAND. THE PHRASE NO DOC WITH US AND NO DETAILS DOES NOT IN ANY WAY REFLECT THE USE OF LAND AND DOE S NOT IN ANY WAY PROVE THAT THE LAND IS NONAGRICULTURAL LAND AND MOR E IMPORTANTLY IT DOES NOT BY ANY STRETH OF IMAGINATION SHOW THAT THE LANDIS NOT PUT TO AGRICULTURAL USE (OR IN THE WORDS OF THE AO THE LAND IS PUT TO NON AGRICULTURAL USE). ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 6 OF 19 THE LD COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED T HAT IT CAN BE CLEARLY SEEN FROM THE INTIMATION LETTER FROM ASSTT. CITY PLANNER, QUTHBULLAPUR CIRCLE 15 GHMC, FURNISHED BY THE ASSES SEE AND ALSO FROM THE STATEMENT OBTAINED BY THE AO HIMSELF FROM TOWN PLANNING OFFICER, GHMC, HO WHO STATED THAT THE SAID LAND IN QUESTION IS NOT SITUATED WITHIN GHMC LIMITS. THE LD COUNSEL FOR THE ASSESSEE PRAYED BEFORE THE C IT A CERTIFICATE FROM THE DIRECTOR PLANNING, HMDA CLARIFYING TO THE EFFECT THAT THELAND IN SY.NO.667 OF DUNDIGAL VILLAGE QUTHUBULLA PUR MANDAL IS MORE THAN 8 KMS OUTSIDE THE LIMITS OF MUNICIPALITY. IN OTHER WORDS, THE LAND IS NOT WITHIN 8 KMS FROM THE MUNICIPAL LIM ITS. THE SAID CLARIFICATION IS ALSO SUPPORTED BY THE CERTIFICATE FROM DY.COLLECTOR AND TAHSILDAR, QUTHUBULLAPUR MANDAL. THE 1 ACRE SOL D BY THE ASSESSEE TO VARUN CONSTRUCTIONS IS LOCATED IN SY.NO .667. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED AS FOLLOW S: THAT APART FROM THE INTIMATION LETTER REFERRED TO B Y THE AO IN PARA 7 ON PAGE 3 OF THE ASSESSMENT ORDER, THE ASSESSEE HAD BROUGHT ON RECORD SUFFICIENT EVIDENCE TO INDICATE THAT THE LAN D IN QUESTION IS BEYOND 8 KMS FROM THE MUNICIPAL LIMITS AND THE AO H IMSELF HAD INFORMATION ON RECORD THAT THE LAND IS BEYOND 8 KMS . ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 7 OF 19 IT CAN BE SEEN THAT FOR EXCLUSION OF LAND FROM THE DEFINITION OF CAPITAL ASSET, TWO CONDITIONS ARE PRESCRIBED, ONE I T SHOULD NOT BE WITHIN THE JURISDICTION OF WHETHER KNOWN AS A MUNIC IPALITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOW N AREA COMMITTEE, TOWN COMMITTEE OR BY ANY OTHER NAME OR A CANTONMENT BOARD AND WHICH HAS A POPULATIONOF NOT LESS THAN TE N THOUSAND OR TWO IT SHOULD NOT BE LOCATED IN ANY AREA WITHIN SUC H DISTANCE NOT BEING MORE THAN 8 KMS FROM THE LIMITS OF ANY MUNICI PALITY AS MAY BE NOTIFIED. THE SECTION IN CONNECTION WITH THE FACTS AND CIRCUM STANCES OF THE ASSESSEES CASE WOULD APPLY AS UNDER: A) THE LAND IN SY.NO.667 DUNDIGAL VILLAGE, QUTHBULLAPU R MANDAL SHOULD NOT BE SITUATED WITHIN THE JURISDICTION OF A MUNICIPALITY (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORA TION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE OR BY ANY OTHER NAME OR A CANTONMENT BOARD AND WHIC H HAS A POPULATION OF NOT LESS THAN TEN THOUSAND) OR B) IT SHOULD OT BE SITUATED WITHIN A DISTANCE OF BEING MORE THAN 8 KMS OF ANY MUNICIPALITY OR CANTONMENT REFERRED TO I N (A) ABOVE AS NOTIFIED BY THE CENTRAL GOVT. ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 8 OF 19 THAT THE LAND IN SY. NO.667 SATISFIES BOTH THE COND ITIONS LAID DOWN BY SECTION 2(14)(III) (THE CERTIFICATES FROM CONCER NED AUTHORITIES CONFIRM THIS FACT) AND AS SUCH IT IS OUTSIDE THE DE FINITION OF THE TERM CAPITAL ASSET AND AS SUCH THE AO ERRED IN LAW AND O N FACT IN TREATING IT AS A CAPITAL ASSET SO AS TO BRING TO TA X THE SURPLUS ARISING ON SALE OF LAND AS SHORT TERM CAPITAL GAIN. THAT THE AO IS INCORRECT IN STATING THAT THE LAND W AS OT PUT TO AGRICULTURAL PURPOSES BY THE ASSESSEE, BEFORE SALE. ONE OF THE GROUNDS/BASIS IN BRINGING TO TAX THE SURPLUS ON SAL E OF LAND BY THE AO IS THAT THE LAND WAS NOT PUT TO AGRIL. PURPOSES , BEFORE OR AFTER SALE, EITHER BY THE ASSESSEE OR BY THE PURCHASER. THE LD COUNSEL FOR THE ASSESSEE DREW ATTENTION OF T HE COMMISSIONER THROUGH LETTERS FILED BY THE ASSESSEE BEFORE THE DDIT AND ALSO BEFORE THE AO FROM WHICH IT CAN BE SE EN THAT THE ASSESSEE CATEGORICALLY STATED BEFORE THE DDIT AS WE LL AS BEFORE THE AO THAT THE LAND HAS ACTUALLY BEEN PUT TO AGRICULTU RAL USE, CROPS HAVE BEEN GROWN AND AGRICULTURAL INCOME DERIVED. THAT THE STATEMENT OF VRO AND PHOTOGRAPHS RELIED UP ON BY THE AO, DO NOT IN ANY WAY CONFIRM THAT THE ASSESSEE HAD NOT CARRIED OUT ANY AGRICULTURAL ACTIVITY IN THE SAID LAND. ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 9 OF 19 AO BLIENDLY BELIEVED THE STATEMENT OF VILLAGE REVEN UE OFFICER, BOWRAMPET, QUTHBULLAPUR MANDAL WHO STATED THAT AS P ER HIS KNOWLEDGE NO LAND WERE BEING CULTIVATED IN THAT ARE A AND THAT THESE LANDS COULD NOT BE CULTIVATED EASILY. THE ASS ESSEE SUBMITTED THAT THE AO BROUGHT THE WORDS OF VRO WITHOUT DOCUME NTARY EVIDENCE APPARENTLY BECAUSE IT IS IN FAVOUR OF THE REVENUE. EVEN OTHERWISE, NOWHERE IN ANNEXURE B WHICH IS A ST ATEMENT OF SRI B. NARSA REDDY, VILLAGE REVENUE OFFICER, BOWRAMPET, QUTHBULLAPUR MANDAL RECORDED BY THE DDIT (IN)-II(2) IT IS MENTIONED THAT THESE LANDS COULD NOT BE EASILY CULT IVATED FOR AGRIL. PURPOSES. THAT THE SURMISES AND PRESUMPTIONS UNDERLYING THE A SSESSMENT ARE EVIDENT FROM THE REMARK OF THE AO THE ASSESSEE HAD NO INTENTION TO PUT THE LAND FOR AGRICULTURAL PURPOSES, AS SEEN FROM THE PHOTOGRAPHS. THAT THE PHOTOGRAPHS NOWHERE SPEAK THE INTENTIONS O F AN ASSESSEE. THEY ARE MERE PICTURES TAKEN AT A PARTICULAR POINT OF TIME AND DEPICT THINGS AS THEY STAND AT THAT TIME. THAT THE LAND WAS SOLD BY THE ASSESSEE IN THE YEAR 2006-07 (12-03- 2007) RELEVANT TO A.Y 2007-08 AND SEARCH AND SEIZUR E OPERATIONS U/S 132 OF THE I.T. ACT,1961 WERE CONDUCTED IN THE CASE OF SRI ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 10 OF 19 VENGILLA ANANDA PRASAD, MD OF M/S BHAVYA CONSTRUCTI ONS (P) LTD AND M/S BHAVYA CEMENTS LTD IN THE YEAR 2009 (ON 7.1 0.2009) I.E. 2 YEARS FROM 7 MONTHS AFTER THE ASSESSEE SOLD THELAND TO M/S. VARUN CONSTRUCTIONS. THE PHOTOGRAPHS (EVIDENCE RELIED UPO N BY THE AO VIDE ANNEXURE D) WERE TAKEN DURING POST SEARCH ENQU IRES ON 26.12.2009 (ALMOST 3 YEARS AFTER THE SALE). FURTHER IN THE COURSE OF ASSESSMENT PROCEEDINGS, AS SESSEE WAS ASKED EVIDENCE WITH RESPECT OF SALE OF PRODUCE ETC. AS STATED EARLIER, ASSESSEE CARRIED OUT AGRIL. ACTIVITY IN 20 05-06 & 2006-07 AND THE AO HAS CALLED FOR THE EVIDENCE AS ABOVE IN THE YEAR 2013 I.E. ALMOST 7 YEARS AFTER THE ACTIVITY HAS TAKEN PL ACE. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAVING ACCEPTED THE AGRICULTURAL INCOME IN QUANTUM CANNOT SAY THAT THE AGRICULTURAL ACTIVITY HAS NOT BEEN CARRIED OUT. AO RELIED ON THE FACT THAT THE LAND WAS SOLD AT A W HOOPING PRICE OF RS.1.00 CRORE PER ACRE WHICH IS MORE THAN THE NORMA L PRICE WHICH IS SOLD AS PER ACRE VIS--VIS VALUING THE LAND AS P ROPERTY YIELDING AGRICULTURAL PRODUCE ON THE BASIS OF ITS YIELD. THE LD COUNSEL FOR THE ASSESSEE PRAYED TO BRING TO THE NOTICE OF THE COMMISSIONER AND PRAYS TO PLACE RELIANCE ON THE FOL LOWING JUDICIAL PROUNOUNCEMENTS IN SUPPORT OF THE CONTENTI ON THAT THE ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 11 OF 19 SURPLUS ARISING OUT OF SALE OF AGRICULTURAL LAND I. E. RS.97,50,000 CANNOT BE SUBJECTED TO TAX AND THE LAND PURCHASED A ND SOLD BY THE ASSESSEE IS NOT A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) OF THE INCOME TAX ACT AND THEREFORE, IS EXEMPT FROM TAX: I) INCOME TAX OFFICER VS. P. PRAKASAM (2014) 62 SOT 12 7 CHENNAI II) GOUTHAN CONSTRUCTIONS CO. VS. INCOME TAX OFFICER (2 013) 39 TAXMANN.COM 181 (HYD.TRIB). III) CIT VS. RAJSHIBHAI MERAMANBHAI ODEDRA (2014) 42 TAXMANN.COM 497 (GUJ.) IV) LAND ACQUISITION COLLECTOR CUM ACA, PUNJAB URBAN PLANNING & DEV. AUTHORITY (PUDA) VS. INCOME TAX OFF ICER, TDS CIRCLE RANGE III JALANDHAR (2011) 12 TAXMANN.CO M 446 (P&H) . V) CIT VS. SMT. DEBBIE ALEMAO (2011) 196 TAXMANN.230 (BOM.) VI) HINDUSTAN INDUSTRIAL RESOURCES LTD VS. ACIT (2009) 180 TAXMANN 114 (DEL.) 221 CTR 270 (335) ITR 77. 8. THE LD CIT (A) HELD THAT T HE INFORMATION ON RECORD IS CAREFULLY CONSIDERED. THE ASSESSEE PURCHASED ONE AC RE OF LAND ON 29.03.2005 AND SOLD IT ON 12.03.2007 TO ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 12 OF 19 M/S. VARUN CONSTRUCTIONS WHICH IS IN REAL ESTATE BUSINESS. PURCHASE PRICE WAS RS.2.5 LACS AND SALE P RICE WAS RS.1 CRORE. THE LD CIT (A) OBSERVED THAT ACCORD ING TO THE AO AGRICULTURAL OPERATIONS WERE NEVER CARRIE D ON AND THERE IS NO PROOF SUBMITTED BY THE ASSESSEE THA T THE LAND IS LOCATED BEYOND 8 KMS FROM THE MUNICIPAL LIM ITS, THEREFORE, LIABLE TO SHORT TERM CAPITAL GAINS, AS T HE PERIOD BETWEEN THE PURCHASE AND SALE IS LESS THAN 3 YEARS. 9. ACCORDING TO THE CIT, THE ISSUES FOR CONSIDERATI ON WERE AS FOLLOWS: (A) WHETHER THE LAND WAS AGRICULTURAL LAND OR NOT? (B) WHETHER IT IS A CAPITAL ASSET U/S.2(14)(III) O R NOT? (C) WHETHER THE TRANSACTION IS ADVENTURE IN NATURE OF TRADE OR NOT? 10. REGARDING THE FIRST ISSUE THE CIT (A) OBSERVED THAT THE ASSESSEE HAS PRODUCED COPY OF PURCHASE DEED AND SALE DEED AND AS PER THESE DEEDS, THE LAND WAS RECO RDED AS AGRICULTURAL LAND. AS PER THE PAHANI - ADANGAL T HE LAND WAS RECORDED AS DRY LAND AND THE LAND IS PUT T O AGRICULTURAL OPERATIONS BY GROWING JOWAR. THE CIT ( A) HELD THAT EVEN IN INCOME-TAX RETURN FILED ON 25.07. 2007, ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 13 OF 19 I.E., BEFORE THE DATE OF SEARCH ON 07.10.2009 IN CA SE OF M/S. BHAVYA CONSTRUCTIONS, AGRICULTURAL INCOME OF RS.14,000/-WAS SHOWN IN HIS INDIVIDUAL RETURN, WHEREAS THERE WAS INCOME FROM ANCESTRAL LANDS TAXAB LE IN HUF CAPACITY. , SINCE HUF DOES NOT HAVE ANY OTHE R TAXABLE INCOME, NO RETURN WAS FILED. THE LAND WAS PURCHASED IN MARCH, 2005, THEREFORE, AGRICULTURAL INCOME WAS OFFERED IN F.Y.2006-07 FOR A.Y.2007-08 I N HIS INDIVIDUAL RETURN AS THE LAND WAS PURCHASED IN INDIVIDUAL CAPACITY AND CARRYING OUT AGRICULTURAL OPERATIONS WAS QUESTION OF FACT. IT WAS POINTED OUT BY THE LD CIT (A) THAT ENQUIRIES CONDUCTED BY THE DEPARTMENT WERE ONLY SUBSEQUENT TO THE DATE OF SEAR CH I.E. 07.10.2009, WHEREAS THE LAND WAS SOLD ON 12.03.2007 ITSELF. IT WAS FURTHER POINTED OUT THAT IN THE STATEMENT RECORDED, THE VRO BOWRAMPET, QUTUBULLAPUR MANDAL HASD STATED THAT NORMALLY THESE LANDS ARE VACANT LANDS, HOWEVER, IT IS PERTINENT TO MENTION T HAT SURVEY NOS. REFERRED TO IN HIS STATEMENT DO NOT INC LUDE THE ASSESSEES SURVEY NO.667. 11. WITH RESPECT TO T HE SECOND ISSUE IS WHETHER THE LAND IS A CAPITAL ASSET AS PER SECTION 2(14)(III), IN TH IS REGARD ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 14 OF 19 THE DEFINITION OF CAPITAL ASSET AS PER THE SAID SEC TION WAS REPRODUCED BY THE CIT (A). 12. THE LD CIT (A) POINTED OUT THAT THE CERTIFICATE GIVEN BY DIRECTOR (PLANNING) HMDA, DATED 23.05.2012 READ AS UNDER: (THIS IS TO STATE THAT THE LAND IN SY.NOS.667, 668 AND 669 OF DUNDIGAL (V), QUTBULLAPUR MANDA AS ON 15-3- 2007 ARE LOCATED OUTSIDE THE MUNICIPAL LIMITS AND A S PER THE AVAILABLE BASE MAPS IN HMDA ARE AT AN AERIAL DISTANCE FROM THE FOLLOWING MUNICIPAL LIMITS : (A) APPROX. 15.50 KM FROM ERSTWHILE MUNICIPAL CORPORATION OF HYDERABAD (MCH) LIMITS (B) APPROX. 9.30 FROM ERSTWHILE KUKATPALLY MUNICIPA LITY LIMITS. ' 13. THE CIT (A) OBSERVED THAT AS PER THE CERTIFICAT E GIVEN BY THE DIRECTOR (PLANNING) HMDA, THE LAND DOE S NOT FALL WITHIN THE PRESCRIBED MUNICIPAL LIMITS, THEREFORE, CANNOT BE TREATED AS CAPITAL ASSET U/S.2(14)(III). 14. WITH RESPECT TO THE THIRD ISSUE BEING WHETHER T HE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE, THE LD CIT (A) OBSERVED THAT THE ASSESSING O FFICER RELIED ON THE DECISION OF G.VENKATASWAMY & CO., VS. CIT 35 ITR 494 (SC). ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 15 OF 19 15. THE CIT (A) OPINED THAT THE FACTS OF THE CASE O F THE ASSESSEE ARE TOTALLY DIFFERENT. THE CIT (A) OBSERVED THAT THE ASSESSEE IS NOT A TRADER, HE SIMPLY INVESTED IN LAND AND HAS RECEIVED CAPITAL ACCRETION OUT OF IT, REALI SATION OF INVESTMENT CONSISTING OF PURCHASE AND SALE THOUG H PROFITABLE ARE CLEARLY OUTSIDE THE DOMAIN OF ADVENT URE IN THE NATURE OF TRADE, THE PROPERTY WAS SOLD AS IT IS WITHOUT ANY ACCRETION OR IMPROVEMENT OR ADDITION TO THE ASSET TO MAKE IT MORE MARKETABLE, THERE WERE NO REPETITION OF SUCH TRANSACTIONS BY THE ASSESSEE, AND MORE IMPORTANTLY THERE IS NOTHING ON RECORD TO SUGGE ST THAT THERE WAS AN INTENTION ON THE PART OF THE ASSE SSEE TO ENGAGE IN TRADING ACTIVITY. THE CIT (A) NOTED TH AT THE ASSESSEE PURCHASED THE LAND AND ENCASHED ON REAL ESTATE BOOM. THE LD CIT (A) RELIED ON THE DECISION OF ITAT, B BENCH, HYDERABAD IN THE CASE OF KAPIL CHIT FUNDS PVT. LTD. IN ITA NO, 1424/HYD/2012 DATED 05.09.2013 HELD AS UNDER: 10.24 FURTHER WE MAKE IT CLEAR THAT WHEN THE LAND WHICH DOES NOT JALL 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 ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 16 OF 19 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 W AS NOT AN ADVENTURE IN THE NATURE OF TRADE SO AS TO TAX THE INCOME ARISING OUT OF THIS TRANSACTION AS BUSINESS INCOME. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 16. THE LD CIT (A) CONCLUDED AS FOLLOWS: THE FUNDAMENTAL FACTORS IN THIS CASE WERE, THAT THE LAND WAS RECORDED AS AGRICULTURAL LAND IN REVENUE RECORDS NAMELY ADANGAL/PAHANI, GROWING CROPS LIKE JOWAR. THE LAND WAS RECORDED AS AGRICULTURAL LAND IN PURCHASE AND SALE' DEEDS ALSO. FURTHER, THE COMPETENT MUNICIPAL LIMITS AND 9.3 KMS. OUTSIDE ERSTWHILE KUKATPALLY MUNICIPALITY AUTHORITY HAS CERTIFIED THAT THE LAND IS LOCATED AT 15 KMS. DISTANCE OUTSIDE GREATER HYDERABAD, THEREFORE, THE LAND CANNOT BE CONSIDERED AS CAPITAL ASSET U/S.2(14)(III). THEREFORE, THE GAIN ON SALE O F LAND CANNOT BE BROUGHT TO TAX. . : 17. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE U S. DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS: 1. THE LD CIT (A) IS ERRED IN DELETING THE ADDITIO N MADE BY THE AO BY HOLDING THE SALE OF LAND TO BE AGRICULTURAL LAND 2. THE LD CIT (A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE LAND WAS NEVER PUT TO AGRICULTURAL PURPOSE AND THAT THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE IN SUPPORT OF ANY AGRICULTURAL ACTIVITY DONE ON THE SAID LAND. ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 17 OF 19 3. THE LD CIT (A) OUGHT TO HAVE TAKEN INTO CONSIDERATION THE RECORDED STATEMENT OF VILLAGE REVENUE OFFICER AND THE EVIDENCE OF PHOTOGRAPHS OF THE LAND TAKEN BY THE INVESTIGATION WING AS PER WHI CH IT CLEARLY INDICATES THAT THE LAND IS A FALLOW LAND NOT SUITABLE FOR CULTIVATION . 18. WE FIND THAT RELEVANT EVIDENCE/DOCUMENTS WERE N OT PRODUCED DURING THE ASSESSMENT PROCEEDINGS WITH RES PECT TO CARRYING OUT AGRICULTURAL ACTIVITIES. ALSO INCOME F ROM SALE OF AGRICULTURAL PRODUCE (JOWAR) WAS NOT SUBSTANTIATED BY SUPPORTING THE CLAIM AND FURNISHING BILLS AND VOUCH ERS. 19. THE PHOTOGRAPHS WHICH WERE TAKEN DURING THE POS T SEARCH CLEARLY DEPICTS THAT THE LAND WAS NOT USED FOR CULT IVATING AGRICULTURE CROPS, AS IT CONTAINS BOULDERS AND WILD GRASS APPEARS TO BE GROWN ON THE LAND. HENCE AS COULD BE SEEN FRO M THE PHOTOGRAPHS THE LAND SEEMS TO BE UNPLOUGHED AND UNU TILIZED, WHEREAS ACCORDING TO THE ASSESSEE, THE LAND HAS BEE N ACTUALLY PUT TO USE FOR AGRICULTURAL PURPOSE. 20. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION T HAT THE ISSUE OF LAND BEING AGRICULTURAL LAND HAS NOT BEEN PROVED BEYOND DOUBT AND HENCE THE ISSUE IS SET ASIDE TO THE FILE OF THE AO WHO SHALL VERIFY ALL THE NECESSARY DOCUMENTS AS WELL AS THE BILLS AND VOUCHERS FOR THE SALE OF AGRICULTURAL PRODUCE BEFOR E CONCLUDING WHETHER THE LAND IS AGRICULTURAL LAND. ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 18 OF 19 21. FURTHER FOR THE EXCLUSION OF LAND FROM THE DEFI NITION OF CAPITAL ASSET, THE DEFINITION OF CAPITAL ASSET IS T O BE AS PER SECTION 2(14)(III). HENCE, THE AO SHALL VERIFY WHETHER THE LAND IS A CAPITAL ASSET AS PER SECTION 2(14)(III) WHICH READ AS FOLLO WS: (14) 'CAPITAL ASSET' MEANS PROPERTY OF ANY KIND HEL D BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINES S OR PROFESSION, BUT DOES NOT INCLUDE- (III) AGRICULT URAL LAND IN INDIA, NOT BEING LAND SITUATE- (A) IN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICT ION OF A MUNICIPALITY (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOW N AREA COMMITTEE, TOWN COMMITTEE, OR BY ANY OTHER NAM E) OR A CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND [ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR] ; OR (B) IN ANY AREA WITHIN SUCH DISTANCE, NOT BEING MORE TH AN EIGHT KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITEM (A), 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 BEHA LF BY NOTIFICATION IN THE OFFICIAL GAZETTE. THE FOLLOWING ITEM (B) SHALL BE SUBSTITUTED FOR THE EXISTING ITEM (B) OF SUB-CLAUSE (III) OF CLAUSE (14) OF SECT ION2 BY THE FINANCE ACT, 2013 W.E.F. 1.4.2014: (C) IN ANY AREA WITHIN THE DISTANCE, MEASURED AERIALLY, - (I) NOT BEING MORE THAN TWO KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFE RRED TO IN ITEM (A) AND WHICH HAS A POPULATION OF MORE T HAN TEN THOUSAND BUT NOT EXCEEDING ONE LAKH; OR (II) NOT BEING MORE THAN SIX KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFE RRED TO IN ITEM (A) AND WHICH HAS A POPULATION OF MORE T HAN ONE LAKH BUT NOT EXCEEDING TEN LAKH; OR (III) NOT BEING MORE THAN EIGHT KILOMETRES, FROM THE ITA NO.1385 OF 2014 K JANARDHAN HYDERABAD PAGE 19 OF 19 LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOAR D REFERRED TO IN ITEM (A) AND WHICH HAS A POPULATION OF MORE THAN TEN LAKH. 22. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 27 TH MARCH, 2015. VNODAN/SPS COPY TO: 1. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 13(1) 2 ND FLOOR AAYAKAR BHAVAN, BASHEERBAGH HYDERABAD 2. SHRI K. JANARDHAN, NO.102, PRATAP SHIV SADAN APARTM ENTS, NEW NALLAKUNTA, HYDERABAD 3. THE CIT(A) - II HYDERABAD 4. CIT-1, HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER