The DCIT, Circle-1(1)(1), Ahmedabad V. Shri Nandlal Jaigopal Agrawal, Ahmedabad

ITA 2534/AHD/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2102 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 28-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA A GARWAL
• Keywords: Capital asset; Business income; Cost of acquisition; Assessment record
• Section: 143(3); 54F; 37(1); 263

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 2534/AHD/2015 WITH CROSS OBJECTION NO. 185/AHD/2015 ( ASSESSMENT YEAR : 2010-11) DCIT CIRCLE-1(1)(1), AHMEDABAD / VS. SHRI NANDLAL JAIGOPAL AGRAWAL PROP. M/S. NANDLAL AGRAWAL & CO., 3 RD FLOOR, SATYA COMPLEX, OPP. IOC PETROL PUMP, 132 FEET RING ROAD, SATELLITE, AHMEDABAD 380015 ./ ./ PAN/GIR NO. : AASPA4932B ( APPELLANT / RESPONDENT ) .. ( RESPONDENT / CROSS OBJECTOR ) / REVENUE BY : SMT. APARNA AGARWAL, CIT. D.R. / ASSESSEE BY : SHRI DHIREN SHAH, A.R. DATE OF HEARING 23/10/2018 ! / DATE OF PRONOUNCEMENT 14/11/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)-1, AHMEDABAD (CIT(A) IN SHORT), DATED 0 8.06.2015 ARISING IN THE ASSESSMENT ORDER DATED 26.03.2013 PASSED BY THE ASSESSING ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 2 - OFFICER (AO) UNDER S. 143(3) R.W.S. 144C(1) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN T HE REVENUES APPEAL PRIMARILY TO SUPPORT THE ACTION OF THE CIT(A ). 3. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA DS AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE AO IS NOT JUSTIFIED IN TREATING PART OF SALE OF CAPITAL ASSET RESULTING INTO CAPITAL GAIN AS AN ADVENTURE IN THE NATURE OF THE BUSINESS FOR AN AMOUNT OF RS.1 1,65,15,888/-. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.1,28,69,619/- U/S 54F OF THE ACT. 4. BRIEFLY STATED, THE ASSESSEE, AN INDIVIDUAL, FIL ED ITS RETURN OF INCOME FOR THE AY 2010-11 DECLARING TOTAL INCOME AT RS.14,93,79,950/-. THE RETURN OF INCOME INTER ALIA INCLUDED LONG TERM CAPITAL GAIN OF RS.14,80,64,055/- FROM LAND SALE TR ANSACTIONS WHICH IN TURN INCLUDED RS.32,25,091/- FROM SALE OF KALHAR LA ND AND RS.11,32,90,797/- FROM SALE OF SOLA LAND. THE ASSE SSEE HAD ALSO INTER ALIA CLAIMED DEDUCTION OF RS.1,28,69,619/- UNDER S.54F O F THE ACT AGAINST THE LONG TERM CAPITAL GAIN SO GENERATED. T HE RETURN WAS SUBJECTED TO SCRUTINY ASSESSMENT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT LONG TERM CAPITAL GAINS CLAIMED ON ACCOUNT OF SALE OF KALHAR LAND AND SOLA LAND IS IN THE NATURE OF BUSINESS INCOME. THE GAINS FROM OTHER FOUR LAND TRANSACTIONS WERE HOWEVER ACCEPTED AS CAPITAL GAINS SO DECLARED BY AS SESSEE. 5. AS REGARDS SALE OF KALHAR LAND, THE AO OBSERVED THAT THREE DIFFERENT ENTITIES INCLUDING THE ASSESSEE HAVE COME TOGETHER FOR DEVELOPMENT OF PLOT. AS AGAINST THIS, IT IS THE CAS E OF THE ASSESSEE THAT THE ASSESSEE ALONGWITH OTHER CO-OWNERS HOLDING / AR EA OF LAND AS CAPITAL ASSET AND IT WAS NOT FEASIBLE TO SALE THE S AID LAND AS ONE PIECE OF LAND AND THEREFORE, THE ASSESSEE ALONGWITH OTHER CO-OWNERS DIVIDED THE SAID BIG AREA OF LAND INTO PLOTS AND THE SALE O F LAND HAS BEEN ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 3 - EXECUTED ON A PIECEMEAL BASIS BY SELLING INDIVIDUAL PLOT. THE ASSESSEE ALONGWITH OTHER CO-OWNERS HAVE ENTERED INTO DEVELOP MENT AGREEMENT WITH DEVELOPER WHEREIN ENTIRE RESPONSIBILITY OF DEV ELOPMENT WORK IS OF DEVELOPER. THE ASSESSEE AND THE CO-OWNERS HAVE NOT INCURRED ANY DEVELOPMENT EXPENDITURE. THEY HAVE RECEIVED SALE C ONSIDERATION ON SALE OF LAND AND WERE NOT ENTITLED FOR ANY PROFIT O R LOSS ARISING IN DEVELOPMENT ACTIVITIES. IT WAS THUS THE CASE OF TH E ASSESSEE THAT HE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY AS ADVENT URE IN NATURE OF TRADE ON THE SAID LAND AND THE SAID LAND WAS SOLD A S CAPITAL ASSET. IT IS FURTHER POINTED OUT BY THE ASSESSEE BEFORE THE AO T HAT THE SAID LAND WAS ACQUIRED WAY BACK IN YEAR 2003 AND SINCE THEN W AS DECLARED IN THE BALANCE SHEET IN THE FORM OF A CAPITAL ASSET. SUCH DECLARATION AS CAPITAL ASSET IN THE BALANCE SHEET OF THE ASSESSEE FROM AY 2004-05 (SINCE INCEPTION) TILL AY 2009-10 HAS BEEN ACCEPTED BY THE AO FOR AYS 2006-07, 2007-08 & 2008-09 IN THE SCRUTINY ASSE SSMENTS UNDER S.143(3) OF THE ACT. 6. AS REGARDS SALE OF SOLA LAND, THE ASSESSEE CONTE NDED BEFORE THE AO THAT PLOTTING HAS BEEN DONE ON THE ENTIRE LAND A ND INDIVIDUAL PLOTS WERE SOLD DUE TO ITS BIGGER SIZE. THE AO HOWEVER O BSERVED THAT AS AGAINST THE PURCHASE COST OF SOLA LAND OF RS.35,89, 133/-, THE ASSESSEE HAS INCURRED COST OF IMPROVEMENT RS.2,05,53,845/-. THUS, SUBSTANTIAL COST OF IMPROVEMENT OF ABOUT SIX TIMES THE COST OF ACQUISITION ITSELF PROVES THAT THE INTENTION OF THE ASSESSEE WAS COMME RCIAL MOTIVE. THE AO THUS DISPUTED THE CHARACTERIZATION OF INCOME OWI NG TO SUBSTANTIAL DEVELOPMENT COSTS. THE AO ALSO OBSERVED THAT THE T REATMENT IN THE BOOKS OF ACCOUNTS DOES NOT DETERMINE THE NATURE OF ASSET PER SE. THE AO ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE F OR CHARGEABILITY OF INCOME ARISING ON SALE OF LAND UNDER THE HEAD CAPI TAL GAINS AND RE- CHARACTERIZED THE INCOME UNDER THE HEAD BUSINESS I NCOME FOR ITS TAXABILITY AT NORMAL RATES WHICH IS HIGHER THAN THE RATES ATTRIBUTABLE TO CAPITAL GAINS. ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 4 - 7. AS REGARDS CLAIM OF DEDUCTION OF RS.1,28,69,619/ - UNDER S.54F OF THE ACT. THE AO DENIED THE ELIGIBILITY TOWARDS DED UCTION ON THE GROUND THAT THE COST OF CONSTRUCTION OF RESIDENTIAL HOUSE IS RS.20 LAKHS ONLY WHICH IS VERY LOW IN PROPORTION TO THE C OST OF LAND. THE AO THUS DISALLOWED THE DEDUCTION CLAIMED UNDER S.54 F OF THE ACT. 8. AGGRIEVED, THE ASSESSEE PREFERRED THE APPEAL BEF ORE THE CIT(A). IT WAS REITERATED BEFORE THE CIT(A) THAT LAND IN QU ESTION (KALHAR LAND & SOLA LAND) BEFORE ITS SALE WAS DECLARED AS CAPITA L ASSET IN THE BALANCE SHEET INCEPTION. THUS, THE INTENTION OF TH E ASSESSEE TO HOLD THE ASSETS AS CAPITAL ASSETS WAS EVIDENT FROM THE T REATMENT GIVEN IN THE BOOKS OF ACCOUNTS. THE ASSESSEE MADE PARA-WISE REB UTTAL OF THE OBSERVATIONS OF THE AO TO PLEAD THAT THE LAND HELD BY THE ASSESSEE FOR A VERY LONG PERIOD OF TIME BEFORE ITS SALE COULD NO T BE REGARDED AS TRADING ASSET FOR ITS TAXABILITY UNDER THE HEAD BU SINESS INCOME. IT WAS CONTENDED THAT THE LAND WAS KEPT IDLE FOR LONG PERIOD WITHOUT DOING ANY ACTIVITY OR VALUE ADDITION TO THE SAID LA ND. THUS, THE ASSESSEE HAS NOT DONE ANY DEVELOPMENT WORK ON THE S AID LAND AND THE SAME WAS SOLD AS CAPITAL ASSET SIMPLICITOR. IT WAS ALSO POINTED OUT THAT THE INTEREST INCURRED ON BORROWED FUNDS WERE ALSO C APITALIZED IN THE BOOKS OF ACCOUNT AND WAS NOT CLAIMED AS REVENUE EXP ENDITURE. IT WAS PLEADED BEFORE THE CIT(A) THAT THE ENTIRE DEVELOPME NT WORK WAS TO BE DONE BY THE DEVELOPER (NAVRATNA ORGANISER & DEVELOP ER PVT. LTD.) AND THE ASSESSEE AND OTHER CO-OWNERS HAD NOT INCURRED A NY DEVELOPMENT EXPENDITURE. AS REGARDS THE COST OF IMPROVEMENT OF SOLA LAND AMOUNTING TO RS.205.53 LAKHS, IT WAS CONTENDED THAT COSTS WERE INCURRED TO LEVEL THE UNEVEN DEEP LEVELS DUE TO EXC AVATION OF SAND FROM THE SAID AGRICULTURAL LAND FOR MANUFACTURING B RICKS BY THE VENDOR BEFORE ITS SALE TO ASSESSEE. THE ASSESSEE THUS MAD E REBUTTAL OF THE VARIOUS OBSERVATIONS BEFORE THE CIT(A) TO SUPPORT I TS CLAIM. THE CIT(A) AFTER TAKING INTO ACCOUNT VARIOUS SUBMISSION S MADE ON BEHALF OF THE ASSESSEE AS REPRODUCED IN THE APPELLATE ORDE R, AGREED WITH THE ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 5 - CLAIM OF THE ASSESSEE THAT GAIN ARISING ON SALE OF LAND CANNOT BE REGARDED AS BUSINESS INCOME AS AGAINST THE CLAIM OF THE ASSESSEE FOR ITS TAXABILITY UNDER THE HEAD CAPITAL GAINS. THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) IS REPRODUCED HEREU NDER: 5.1 (E) THE FACTS RELATED TO BOTH THESE SALE TRANS ACTIONS ARE ALREADY DISCUSSED ABOVE. THE APPELLANTS CONTENTION AND A. O.'S REASON FOR REJECTION HAD ALREADY BEEN DISCUSSED. AS FAR AS LON G TERM CAPITAL GAIN FROM KALHAR LAND ARE CONCERNED, I AM INCLINED WITH APPELLANT THAT SUCH SALE IS NOT THE EXCLUSIVE SALE DURING PREVIOUS YEAR I.E. PLOTS AT KALHAR WERE SOLD IN EARLIER YEARS ALSO BY THE APPELLANT AN D AS DETAILED OUT BY APPELLANT THAT SUCH SALE WITH SALE BY OTHER CO-OWNE RS WERE SUBJECTED TO SCRUTINY PROCEEDINGS IN A.Y. 06-07 ON WARDS AND THE SAME WERE HELD TO BE SALE OF CAPITAL ASSETS RESULTING INTO CAPITA! GAIN. EVEN THOUGH THERE WAS SEARCH ACTION IN THE CASE OF NAVRATNA GROUP BEING D EVELOPER OF SUCH LAND, BUT IN THE CASE OF APPELLANT, SALE OF SUCH PLOTS IN SEARCH RELATED SCRUTINY U/S 153C OF THE ACT, THE SAME WERE HELD TO BE LONG TERM CAPITAL GAIN. ALL THE CONTENTIONS AND ARGUMENTS INCLUDING RATIO OF CA SE RELIED ON BY A.O. WERE CONSIDERED IN THE SCRUTINY ASSTT. OF APPELLANT 'S CO-OWNER I.E. M/S ASHWAMEGH CO. OPERATIVE HOUSING SOCIETY VIBHAGE-1 A S WELL AS VIBHAGE - 2. EVEN LD. CIT 4 AHMEDABAD INITIATED PROCEEDINGS U /S 263 OF THE ACT ON THE SAME CONTENTION AGAINST THE CO-OWNER M/S ASHWAM EGH COOPERATIVE HOUSING SOCIETY LTD. VIBHAG-1 BUT AFTER CONSIDERING THE FACTS & RATIO OF VARIOUS CASE LAWS, DROPPED SUCH PROCEEDINGS. AS SUB MITTED BY APPELLANT, IT IS IMPORTANT TO LOOK INTO THE ORDER OF LD. CIT ( A) VIII, AHMEDABAD IN RESPECT OF M/S ASHWAMEGH CO OP. HOUSING SOCIETY LTD . VIBHAG-1 (APPEAL NO. CIT(A) VIII/DCIT CIR.9/272/2013-14 DT. 27.02.14 ) FOR A.Y. 10-11 AND VIBHAG-2 (APPEAL NO. CIT(A) VIII/DCIT CIR.9/273/201 3-14 DT. 27/02/2014) AS FOLLOWS: 'I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER A ND THE SUBMISSION MADE BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS, IT IS NOTED THAT THE FACTS OF THE PRES ENT CASE ARE IDENTICAL TO THE CASE OF ASHWAMEGH CO. OP HOUSING S OCIETY LIMITED VIBHAG - 2, THE APPEAL FOR WHICH HAS BEEN D ECIDED BY ME VIDE ORDER NUMBER CIT(A)VIII/DCIT, CIR. 9/273/2013- 14 OF EVEN DATE FOR THE SAME ASSESSMENT YEAR. THE FACTS OF THE PRESENT CASE ARE IDENTICAL, THE SUBMISSION OF THE APPELLANT AND THE FINDINGS GIVEN BY THE AO ARE ALSO SIMILAR. THE DECISION GIVEN BY ME F OR THAT CASE WILL THEREFORE BE APPLICABLE TO PRESENT CASE ALSO. FOR T HE SAKE OF CONVENIENCE THE FINDINGS GIVEN BY ME IN THAT CASE A RE REPRODUCED HERE UNDER: - I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER A ND THE SUBMISSION MADE BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS. THE APPELLANT HAS SOLD SOME PLOTS OF L AND DURING THE YEAR AND THE SURPLUS HAS BEEN SHOWN BY THE, APPELLA NT AS LONG TERM CAPITAL GAIN. THE AO HAS TREATED THE SURPLUS AS BUS INESS INCOME. IT WAS HELD BY HIM THAT THE APPELLANTS PURCHASE AND TH E SALE TRANSACTIONS TRANSACTION WITH RESPECT TO THE LAND P ROPERTIES IN QUESTION WAS AN ADVENTURE IN THE NATURE OF TRADE. ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 6 - THE BRIEF FACTS RELATED TO THE ISSUE ARE THAT THE A PPELLANT PURCHASED AGRICULTURAL LANDS DURING THE PERIOD FROM 92-93 TO 95- 96. THE APPELLANT, WHICH WAS FORMED AS A CO-OPERAT IVE SOCIETY WAS LATER ON CONVERTED INTO A HOUSING SOCIETY LTD. THE LAND WHICH WAS PURCHASED WAS LYING WITH THE APPELLANT SINCE THE DA TE OF ACQUISITION. THEREAFTER, IT ENTERED INTO A DEVELOP MENT AGREEMENT WITH AGARWAL ESTATE ORGANISERS PVT LTD FOR DEVELOPI NG THE LAND AND CONVERTING IN PLOTS FOR AGRICULTURE FARMS, FARMHOUS ES ET CETERA. THE AGREEMENT FOR DEVELOPMENT WAS TERMINATED AS THE APPELLANT WANTED TO SELL THE PROPERTY. THE APPELLANT PAID CE RTAIN COMPENSATION/DAMAGES TO THE DEVELOPER. THEREAFTER, THE APPELLANT ENTERED INFO AN AGREEMENT OF SALE WITH NIRMA CHEMIC AL WORKS LTD WHICH WAS A/SO TERMINATED IN THE YEAR 2005. THEREAF TER THE APPELLANT ENTERED IN A DEVELOPING AND MARKETING AGR EEMENT WITH NAVRATNA ORGANISERS AND DEVELOPERS PVT LTD (NODL). THE NODL DEVELOPED THE SOCIETY AND THE PROJECT] NAMED KALHAR EXOTICA. THE DEVELOPER SOLD CERTAIN PLOTS AFTER THE DEVELOPMENT FOR WHICH THE SALE AGREEMENTS WERE SIGNED BY THE APPELLANT. THE A PPELLANT OFFERED THE GAIN AS CAPITAL GAIN IN THE EARLIER YEA RS IN THE RETURN OF INCOME. THEREAFTER IN THE YEAR 2009 THE DEVELOPER, NODL, DECIDED TO TERMINATE THE DEVELOPMENT AGREEMENT. THEREAFTER, CERTAIN PLOTS OUT OF THE DEVELOPED SCHEME AND WHICH COULD NOT BE SOLD THROUGH THE DEVELOPER WERE SOLD BY THE APPELLANT DURING THE YEAR. THE PRESENT DISPUTE IS WHETHER THE SURPLUS ARISING OUT OF SUCH SALE IS TO BE TAXED AS CAPITAL GAIN OR BUSINESS INCOME. THE AO HAS HELD THAT IT WAS THE INTENTION OF THE AP PELLANT SINCE THE BEGINNING TO PURCHASE THE PROPERTY AND SE LL IT FOR PROFIT. THE APPELLANT PLANNED AND SYSTEMATICALLY PURCHASED THOSE PROPERTIES WITH THE INTENTION TO SELL IT FOR PROFIT . THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT IF HAS NOT CARRIE D OUT ANY DEVELOPMENT WORK AFTER THE AGREEMENT OF DEVELOPMENT WITH NODL WAS CALLED OFF. IT HAS SUBMITTED THAT THE BOOKS OF ACCOUNTS ARE SUBJECT TO GOVERNMENT AUDIT BY THE AUDITOR APPOINTE D BY THE REGISTRAR OF CO-OPERATIVE SOCIETY AND BALANCE SHEET AND PROFIT AND LOSS ACCOUNT CERTIFIED BY THE GOVERNMENT AUDIT. IF CAN BE SEEN FROM THOSE ACCOUNTS THAT .THERE WERE NO DEVELOPMENT EXPE NSES INCURRED BY THE APPELLANT SOCIETY IN ITS BOOKS OF ACCOUNT. T HE APPELLANT HAS FURTHER PLACED RELIANCE ON CERTAIN JUDGEMENTS OF VA RIOUS HIGH COURTS AND TRIBUNALS IN SUPPORT OF ITS CLAIM THAT C ONVERSION OF LAND INFO PLOTS AND SALE THEREAFTER WOULD NOT TANTAMOUNT TO BUSINESS ACTIVITY. AFTER CONSIDERING THE DETAILS IT IS NOTED THAT THOU GH THE LAND WAS ACQUIRED BY THE APPELLANT SOCIETY LONG BACK IT DID NOT UNDERTOOK ANY DEVELOPMENT ACTIVITY ON ITS OWN. FIRS TLY THE DEVELOPMENT WORK WAS GIVEN BY IT TO AGRAWAL ESTATE ORGANISERS. SINCE THE CONTRACT WAS CALLED OFF IT ENTERED INTO A SALE AGREEMENT WITH SOME OTHER PARTY WHICH WAS ALSO ULTIMATELY CAL LED OFF AND THEREAFTER THE LAND OF THE APPELLANT SOCIETY WAS DE VELOPED BY NODL AND DURING THE PERIOD, THE LANE WAS UNDER THE DEVEL OPMENT AGREEMENT, CERTAIN PLOTS WERE SOLD. THEREAFTER AND NODL ALSO WITHDREW FROM THE DEVELOPMENTAL ACTIVITY AND CERTAI N PLOTS REMAIN TO BE SOLD. THEREAFTER THE APPELLANT COMPANY SOLD T HE PLOTS ITSELF. THE APPELLANT DID NOT DO ANY DEVELOPMENT ACTIVITY N OR IT MADE ANY ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 7 - SYSTEMATIC EFFORTS TO SELL THE LAND. THE ACTIVITY O F SALE OF LAND WAS THEREFORE NOT A BUSINESS ACTIVITY BUT THE ACTIVITY OF SELLING OF ASSETS OWNED BY THE APPELLANT COMPANY. THE AO'S OBSERVATIO N THAT THE INTENTION OF THE APPELLANT WAS TO DO THE BUSINESS R IGHT FROM THE TIME INITIALLY, PURCHASED THE LAND IS NOT SUPPORTED BY A NY FACT. IT IS NOT NECESSARY TO SELL THE LAND IN BULK, THE LAND CAN BE SOLD IN PIECES AND YET THE ACTIVITY CANNOT BE TERMED AS BUSINESS A CTIVITY. IT IS NOTED FROM FACTS THE INITIAL PURCHASE OF LAND BY TH E ERSTWHILE MANDALI THERE IS NO PURCHASE OF LAND BY THE APPELLA NT SOCIETY IN PAST YEARS. SINCE THE LAND COULD NOT BE SOLD OUT AS ONE PIECE THE APPELLANT SOCIETY AND OTHER CO-OWNERS OF THE ADJOIN ING LAND DECIDED TO CONVERT THE SAME INTO PLOTTING SO THAT IT CAN BE EASILY DISPOSED OFF. AS IN THE CASE OF THE APPELLANT, THERE IS NO SYSTEMATIC ATTEMPT OF SELLING THE LAND AS BUSINESS ASSET. THE APPELLA NT HAS NOT HIMSELF DONE THE ACTIVITY OF DEVELOPMENT AND SALE BUT THE S AME HAS BEEN DONE BY A DEVELOPER WHO HAS HELD THE APPELLANT IN S ELLING THE LAND AFTER DEVELOPMENT. THERE WAS NO ORGANIZATION AND P LANNED ACTIVITY OF DEVELOPMENT SO FAR AS THE APPELLANT IS CONCERNED . THE APPELLANT HAS RIGHTLY PLACED RELIANCE ON JUDGEM ENT OF HONOURABLE MADRAS HIGH COURT REPORTED IN 62 ITR 578 IN THE CASE OF KASTURJ ESTATES WHEREIN IT WAS HELD THAT SALE OF LAND BY CONVERTING INTO PLOTS WAS NOT A VENTURE IN THE NATU RE OF TRADE AS IT IS ONE ACTIVITY WHICH ANY PRUDENT OWNER OF LAND WOU LD ENGAGE. IT WAS HELD BY THE HONOURABLE COURT THAT IN ABSENCE OF EVIDENCE OF ANY TRADING ACTIVITY OF THE SPECULATIVE VENTURE THE ITA T WAS JUSTIFIED BY TREATING THE SURPLUS AS CAPITAL GAIN. SIMILAR VIEW HAS BEEN TAKEN IN THE JUDGEMENTS MENTIONED BY THE APPELLANT IN THE CA SES OF SMT RADHABAI,264 ITR 272 (DELHI), SURESH CHAND GOYAL, 2 98 ITR 277 (MP), MOHAMMAD MOHIDEEN, 176 ITR 393 (MADRAS) AND P REMJI GOPALBHAI, 113 ITR 785 (GUJARAT). I HAVE ALSO CAREFULLY PERUSED THE JUDGMENTS MENTION ED BY THE AO IN THE ORDER. IT IS NOTED THAT OUT OF THE SEVER AL JUDGMENTS MENTIONED BY THE AO IN PARA 7.7 AND 7.8 OF HIS ORDE R, ONLY TWO JUDGEMENT APPEAR TO BE RELATED TO PURCHASE AND SALE OF LAND AND SIMILAR ISSUES WERE INVOLVED. THE OTHER JUDGEMENTS ARE RELATED TO PURCHASE AND SALE OF SHARES AND OTHER MATTERS AND N O DEALING RELATED TO LAND WAS INVOLVED.THE JUDGEMENT WHICH IS OF SOME RELEVANCE TO THE PRESENT CONTEXT IS THAT OF HONOURA BLE SUPREME COURT IN THE CASE OF G VENKATA SWAMI NAIDU, 35 ITR 594. IN THAT JUDGMENT THE ISSUE INVOLVED WAS THAT THE ASSESSEE W AS ACTING AS A MANAGING AGENT OF SOME MILL AND HE PURCHASED PLOTS OF LAND OF DIFFERENT SIZES. THE ASSESSEE WAS IN A POSITION TO INFLUENCE THE MILL TO PURCHASE THE LAND WHICH WAS PURCHASED BY HIM. TH EREAFTER THE MILL PURCHASED THE SAID PROPERTY. IT WAS HELD BY TH E HONOURABLE SUPREME COURT THAT SINCE THE ASSESSEE WAS INVOLVED IN THE DECISION- MAKING PROCESS OF PURCHASING THE LAND IT HAD PRIOR KNOWLEDGE AND INTENTION OF SELLING THE LAND TO THE MILL. IN THE P RESENT CASE THERE IS NO SUCH SITUATION. THERE IS NO FACT INDICATING THAT THE LAND HAS BEEN PURCHASED WITH THE INTENTION OF GETTING IT DEVELOPE D AND SELLING IT THEREAFTER. THE JUDGEMENT IS THEREFORE, RESPECTFULL Y DISTINGUISHED. THE ANOTHER CASE WHICH IS THAT OF HONOURABLE GUJARA T HIGH COURT IN THE CASE OF PREMJI GOPALBHAI 113 IJR 785. IN THA T CASE THE PROFIT EARNED ON PURCHASE AND SALE AFTER PLOTTING WAS TREA TED AS CAPITAL ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 8 - GAIN. THE INTENTION TO RESELL THE LAND AT THE PROFI T IS NOT BORNE OUT BY ANY FACT. IN VIEW OF ABOVE DISCUSSION I AM OF THE CONSIDERED OPINION THAT THE SURPLUS SHOULD BE TAXED AS LONG TERM CAPIT AL GAIN AS SHOWN BY THE APPELLANT AND THE WRITTEN AND THE ACTION OF THE AO IN TREATING THE INCOME AS BUSINESS INCOME IS THEREFORE , SET ASIDE.' FOLLOWING THE DECISION REPRODUCED ABOVE THE AO IS D IRECTED TO TAX THE SURPLUS SHOWN FROM SALE OF LAND AS LONG TERM CAPITAL GAIN. THE GROUND OF APPEAL IS ACCORDINGLY, ALLOWED' . 5.1(F) IT IS THEREFORE, IN THE CASE OF APPELLANT FO R THE PART OF SUCH TRANSACTION OF KALHAR LAND RELATED TO IMPUGNED PREV IOUS YEAR CANNOT BE HELD AS ADVENTURE IN THE NATURE OF TRADE/ BUSINESS. AS FAR AS FACTS OF SUCH TRANSACTIONS ARE CONCERNED, THERE IS NO CHANGE COMPARE TO EARLIER YEARS AND IT IS ONLY THE LEFT OV ER PLOTS WHICH WERE SOLD DURING PREVIOUS YEAR FOR WHICH APPELLANT EXECUTED/ CONVEY THE SALE DEED. ! AM INCLINED WITH APPELLANT THAT RATIO OF VARIOUS CASE LAWS AS RELIED ON BY APPELLANT TO HOLD THE PRINCIPLE OF CONTINUITY HAS TO BE FOLLOWED. IT IS ALSO IMPORTANT THAT IN THE CASE OF CO-OWNERS FOR IMPUGNED PREVIOUS YEAR NO SUCH PRE POSITION WERE HELD RELATED TO SALE OF KALHAR PLOTS. HON'BLE GUJAR AT HIGH COURT IN THE CASE OF CIT VS. PREMJI GOPALBHAI (1978) 113 !TR 785 THOUGH RELIED ON BY A.O. BUT HELD IN FAVOR OF ASSESSEE AND HELD (WITH HEAD NOTE) 'BUSINESS INCOMEBUSINESS-ADVENTURE IN THE NATURE O F TRADESALE OF ANCESTRAL AGRICULTURAL LAND AFTER CONVERSION INT O NON- AGRICULTURAL AND DIVISION IN PLOTSPROFITS ASSESSED AS CAPITAL GAINSTWO PLOTS SOLD REPURCHASED AND SOLD AGAIN FOR RESULTING IN SURPLUSASSESSEE NOT DEALER IN REAL PROPERTY AND LA ND NOT TREATED AS STOCK-IN-TRADESOLITARY TRANSACTION OF PURCHASE AND SALE NOT AN ADVENTURE IN THE NATURE OF TRADE HELD IT IS, CLEAR THAT THE BURDEN OF PROVING THAT THE PA RTICULAR TRANSACTION WAS AN ADVENTURE IN THE NATURE OF TRADE IS ON THE REVENUE. OF COURSE, THAT BURDEN CAN BE DISCHARGED B Y POINTING TO CIRCUMSTANCES WHICH LEAD TO THE CONCLUSION THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. HOWEVER, EVEN IF LAND WHICH IS NOT A COMMERCIAL COMMODITY IS PURCHASED AND IT CAN BE SHOWN THAT THE PURCHASE OF THE LAND WAS MADE SOLELY AND EXCLUS IVELY WITH AN INTENTION TO RESELL IT AT A PROFIT, IT WOULD BE A S TRONG FACTOR THAT THE TRANSACTION WOULD BE AN ADVENTURE IN THE NATURE OF TRADE. IN THE INSTANT CASE, NO SUCH STRONG FACTOR EMERGES FROM TH E FACTS OF THE CASE. IT IS NOT POSSIBLE TO HOLD THAT THE ASSESSEE WAS A DEALER IN LAND OR WAS TREATING LAND AS HIS STOCK-IN-TRADE. IT MAY BE POINTED OUT THAT WHEN THE ASSESSEE SOLD DIFFERENT PLOTS OUT OF SURVEY NO. 335 IN THE PAST, THAT IS, PRIOR TO 1968-69, THE PRO FIT REALISED BY THE ASSESSEE FROM THOSE SALES WERE TREATED AS CAPITAL G AINS. THE VERY FACT THAT HE REPURCHASED PLOTS OUT OF ORIGINAL SURV EY NO. 335 IS A FACTOR WHICH GOES IN HIS FAVOUR. THERE SEEMS TO BE A CONSIDERABLE ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 9 - SUBSTANCE IN THAT FACTOR, THAT THE ASSESSEE WAS NOT DEARER IN THE PAST AND WAS ONLY DISPOSING OF HIS CAPITAL ASSET IN THE LAND AND APART FROM THIS SOLITARY INSTANCE OF PURCHASE AND S ALE NO OTHER REPURCHASE HAD BEEN MADE BY THE ASSESSEE. THE REVEN UE HAS NOT DISCHARGED THE BURDEN OF ESTABLISHING THAT THE REPU RCHASE AND SALE OF THESE TWO PLOTS WAS AN ADVENTURE IN THE NATURE O F TRADE; IT CANNOT BE SAID IN VIEW OF THE TOTALITY OF THE CIRCU MSTANCES OF THE CASE THAT THIS WAS THE SOLE INTENTION OF THE ASSESS EE AT THE TIME WHEN HE REPURCHASED THE LAND IN 1964 TO SELL THE TW O PLOTS AT A PROFIT. UNDER THESE CIRCUMSTANCES, THE CONCLUSION R EACHED BY THE TRIBUNAL THAT THE AMOUNT SHOULD BE TREATED AS CAPIT AL GAINS AND ASSESSED AS SUCH AND NOT AS BUSINESS PROFITS, IS CO RRECT.D.S. VIRANI VS. C1T (1S73) 90 ITR 255 (GUJ.) : TC12R.628 FOLLOWED.' IT IS THEREFORE AS FAR AS LONG TERM CAPITA! GAIN FR OM KALHAR LAND OF RS. 32,25,091 /- IS CONCERNED, THE SAME CAN NOT BE HELD AS ADVENTURE IN THE NATURE OF BUSINESS. THE A.O. IS DI RECTED TO FOLLOW THE CONSISTENT VIEW TAKEN IN THE CASE OF APPELLANT IN EARLIER YEAR RELATED TO TRANSACTION OF SALE OF KALHAR PLOT AS WE LL AS VIEW TAKEN IN THE CASE OF CO-OWNERS AND TREAT THE SAME AS TRAN SACTION RELATED TO SALE OF CAPITAL ASSETS RESULTING INTO CAPITAL GA IN. 5.1(G) IN REFERENCE TO SALE TRANSACTION RELATED W S OLA LAND SURVEY NO. 604/1,2 & 60 ARE CONCERNED, THE FACTS ARE NOT DIFFE RENT THAN THAT OF KALHAR LAND. THE A.O. HIMSELF MENTIONED WHILE PUTTI NG REASONS FOR TREATING THE TRANSACTION AS AN ADVENTURE IN THE NAT URE OF TRADE THAT ALL SUCH CONTENTIONS & CASE LAWS ARE APPLICABLE AS CONS IDERED IN KALHAR LAND TRANSACTIONS. IT SEEMS THAT A.O. GOT CARRIED AWAY B Y THE FACT OF HUGE CAPITAL GAIN REALIZED BY APPELLANT I.E. OF RS. 11.3 3 CRORE ON ONE HAND AND 'BY HUGE COST OF IMPROVEMENT ON OTHER HAND. I AM NO T INCLINED WITH A.O. ON THE GROUND THAT CONSIDERING THE VOLUMINOUS SPURT IN THE LAND PRICES, SUCH OLD INVESTMENT IN 2006 WITH THAT OF LAND RELAT ED TO BRICK KLIN BUSINESS CAN BE HELD WITH INITIAL INTENTION FOR THE BUSINESS. ONE CANNOT ASSUME IN 2006 WHEN PROPERTY PRICES ARE AT MINIMAL LOW THAT LAND USED FOR BRICK KLIN WILL FATCH SUCH HUGE REALIZATION IN NEXT FIVE TO SIX YEARS HENCE INTENTION OF BUSINESS AT THE TIME OF PURCHASE NOT LOGICAL. THE APPELLANT OVER THE YEARS REFLECTED SUCH LAND AS CAP ITAL ASSET AND IT IS VERIFIABLE FROM THE WEALTH TAX RECORDS (AS CALLED D URING THE APPEAL PROCEEDINGS THAT APPELLANT REFLECTED THE SAME AS WE ALTH AND PAID TAXES CONSIDERING IT URBAN LAND. THE QUESTION OF INCURRIN G HUGE EXPENDITURE OF RS. 2.06 CRORE AGAINST THE PURCHASE PRICE OF RS. 35 .89 LAC IS ON ACCOUNT OF IMPROVING THE PHYSIBILITY OF SUCH LAND FOR SALE. HO N'BLE MADRAS HIGH COURT IN THE CASE OF KASTURI ESTATES (P) LTD- (SUPRA) AND RELIED ON BY APPELLANT DEALT WITH THIS FACT AS FOLLOWS: 'DEVELOPING LAND INTO BUILDING SITES WITH A VIEW TO REALIZE THE BEST PRICE WITHOUT ANYTHING MORE, IS CONSISTENT WITH REA LIZATION OF A CAPITAL INVESTMENT. IF A LAND OWNER DEVELOPED HIS L AND, EXPENDED MONEY ON IT, LAID ROADS, CONVERTED THE LAND, INTO H OUSE SITES AND WITH A VIEW TO GET A BETTER PRICE FOR THE LAND, EVE NTUALLY SOLD THE PLOTS FOR A CONSIDERATION YIELDING A SURPLUS, IT CO ULD HARDLY BE SAID THAT THE TRANSACTION IS ANYTHING MORE THAN A REALIZ ATION OF A CAPITAL INVESTMENT OR CONVERSION OF ONE FORM OF ASSET .INTO ANOTHER. THE SURPLUS IN SUCH A CASE WILL NOT BE TRADING OR BUSIN ESS PROFIT BECAUSE THE TRANSACTION IS ONE OF REALIZATION OF AS SETS IN INVESTMENT ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 10 - RATHER THAN ONE IN THE COURSE OF TRADE CARRIED ON B Y THE ASSESSEE OR AN ADVENTURE IN THE NATURE OF TRADE.' THE APPELLANT DURING APPEAL SUBMITTED THAT AGRICULT URAL LAND OF THESE SURVEY WAS USED BY ITS ORIGINAL OWNER SHRI AMBALAL PRAJAPTI AND HIS FAMILY MEMBERS FOR MANUFACTURING O F BRICKS. TO SUBSTANTIATE THIS FACT, THE APPELLANT SUBMITTED COP Y OF 'VILLAGE FORM NO. 7 AND 12'. THIS LAND WAS ORIGINALLY PURCHA SED FROM SHRI AMBALAL PRAJAPATI & FAMILY MEMBERS BY M/S ASHWAMEGH COOP. HOUSING SOCIETY VIBHAG-1 IN 1995 AND HELD AS SUCH U P TO 2005. THE UNEVEN LAND WITH 5 TO 7 FT. DEEP EXCAVATION OF LAND WERE REMAINED AS SUCH SINCE MEMBER OF SOCIETY WERE NOT HAVING SUF FICIENT FUNDS. THE APPELLANT PURCHASED THIS LAND IN 2006 FROM M/S ASHWAMEGH COOP. HSG. SOC. LTD. VIBHAG-1. THE APPELLANT FAILED TO DISPOSE OF SUCH LAND AS IT WHERE IT BASIS BECAUSE OF NON PHYSI BILITY OF LAND AND TOTAL AREA OF LAND. 5.1(H) IT IS FURTHER OBSERVED FROM THE DETAILS SUBM ITTED BY APPELLANT THAT OUT OF THE TOTAL PLOT SOLD 24 IN NUMBERS, 10 PLOTS WERE PURCHASED BY SINGLE PARTY GROUP I.E. M/S. ASIAN TUBES LTD. /ASIAN MILLS PVT. LTD. AND FOUR PLOTS BY BHAVESH B. PARIKH, B.B. PARIKH GROUP-THE DETAILS OF VARIOUS EXPENSES AS SUBMITTED BY APPELLANT REFLECT THAT MAJORITY OF EXPENSES WERE INCURRED FOR LEVELING OF LAND, LABOUR FOR EARTH FILLING, APP ROACH ROAD ETC. IN AGGREGATE OF RS. 21549517/-. FURTHER BECAUSE OF DIS TRESSED SALE, THE APPELLANT INCURRED COST OF SALE OF LAND OF RS. 1012 1675/- IN THE FORM OF STAMP EXPENSES, REGISTRATION FEES, TYPING & OTHER C HARGES AND COMMISSION ETC. IT IS FURTHER OBSERVED THAT A.O. HAS NOT CONSI DERED AND APPRECIATED THE FACTS RELATED TO THESE TRANSACTION AND SIMPLY O N THE BASIS OF CERTAIN CASE LAWS TREATED LONG TERM CAPITAL GAIN AS BUSINES S WITHOUT DISTURBING THE INDEXED COST OF ACQUISITION ON ONE HAND WHILE A LLOWING ALL THE EXPENSES OF IMPROVEMENT ON OTHER HAND THOUGH IN THE EVENTUALLY OF TREATING SUCH TRANSACTION AS ADVENTURE IN THE NATUR E OF BUSINESS, THE A.O., SHOULD HAVE REDUCED THE COST OF ACQUISITION FROM TH E FULL VALUE OF SALE REALIZATION AND CLAIM OF EXPENSES IN THE FORM OF CO ST OF IMPROVEMENT HAS TO BE DEALT AS PER PROVISIONS U/S. 37(1) OF THE ACT WHERE CAPITAL EXPENSES IN THE FORM OF STAMP DUTY IS NOT ALLOWABLE. IT IS T HEREFORE, CONSIDERING THE FACTS AND REASONING AS HELD IN RESPECT OF KALHAR PL OT SALE, THE TRANSACTION RELATED TO THESE SOLA PLOT SALE CANNOT BE HELD AS A DVENTURE IN THE NATURE OF BUSINESS. AS PER PURCHASE OF SUCH LAND ORIGINALLY B Y M/S. ASHWAMEGH CO- OP. HOUSING SOCIETY VIBHAG-1 IN 1995 AND BY APPELLA NT FROM SUCH SOCIETY IN 2005 WITH DEFORMITY OF LAND AS USED FOR BRICK KL IN CANNOT BE HELD WITH INTENTION TO EARN PROFIT AND SUCH FACTS ARE IDENTIC AL AS THAT WERE THERE IN KALHAR PLOT SALE. IT IS THEREFORE A.O. IS DIRECTED TO TREAT SUCH TRANSACTION AS SALE OF CAPITAL ASSET RESULTING INTO CAPITAL GAI N. THE LEGAL PREPOSITION IS ALREADY DISCUSSED WHILE DISCUSSING THE SALE OF K ALHAR LAND. IT IS THEREFORE, THE A.O. IS NOT JUSTIFIED IN TREAT ING PART OF SALE OF CAPITAL ASSET RESULTING INTO CAPITAL GAIN AS AN ADV ENTURE IN THE NATURE OF BUSINESS FOR AN AMOUNT OF RS. 116515888/- THIS GROU ND IS TREATED AS ALLOWED. THE CIT(A) IN CONCLUSION SET ASIDE THE ACTION OF TH E AO AND RESTORED THE CLAIM OF THE ASSESSEE TOWARDS LONG TERM CAPITAL GAIN. ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 11 - 9. AS REGARDS THE DEDUCTION CLAIM UNDER S.54F OF TH E ACT, THE CIT(A) FOUND MERIT IN THE CLAIM OF THE ASSESSEE THA T CONSTRUCTION OF THE RESIDENTIAL HOUSE ON THE LAND WAS COMPLETE AND IS SUPPORTED BY ELECTRICITY BILLS, PROPERTY TAX ETC. THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) IS REPRODUCED HEREUNDER: 5(B).1 GROUND NO. II WITH SUB GROUND 1 TO 5 ARE AG AINST THE DISALLOWANCE OF CLAIM OF DEDUCTION OF RS. 12869619/- U/S. 54F OF THE ACT. AS DISCUSSED IN EARLIER PARA 5(A) THAT APPELLANT IN RETURN OF IN COME CLAIMED DEDUCTION U/S. 54F OF THE ACT FOR RS. 12869619/-. THE APPELLA NT SUBMITTED EXPLANATION WITH DETAILS IN RESPONSE TO SHOW CAUSE ISSUED BY A.O. WHICH WAS REJECTED BY A.O. ON THE GROUND THAT APPELLANT F AILED TO SUBMIT COMPLETION OF CONSTRUCTION CERTIFICATE, ANY ELECTRI CITY BILLS ETC. TO EVIDENCE AND SUBSTANTIATE CLAIM. THE A.O. IN VIEW O F HUGE COST OF LAND AT RS. 14405000/- WITH COST OF CONSTRICTION OF ONLY RS . 20 LAC RAISED DOUBTS AS DISCUSSED IN IMPUGNED ORDER. THE A.O. EXAMINED T HE BILLS FOR CONSTRUCTION WHICH ARE RELATED TO MATERIAL PURCHASE , ROAD WORK, TRANSPORT ETC. AND ACCOUNT FOR 95% OF CONSTRUCTION EXPENSES H ENCE HE HOLD THAT SUCH CONSTRUCTION WAS NOT COMPLETED WITHIN THREE YEARS A S REQUIRED U/S 54F OF THE ACT. THE A.O. FURTHER HELD (WITHOUT PREJUDICED) THAT SINCE SHE HAD ALREADY HOLD SALE OF KALHAR LAND AND SOLA PLOT SALE AS BUSINESS TRANSACTION, SUCH DEDUCTION IS NOT ALLOWED OUT OF S UCH BUSINESS PROFIT. IT IS THEREFORE THE A.O. DISALLOWED SUCH CLAIM OF DEDU CTION ON FACTS THAT APPELLANT FAILED TO SUBSTANTIATE THE COMPLETION OF CONSTRUCTION AND COST OF CONSTRUCTION IS TOO LOW AS AGAINST THE COST OF LAND WHILE ON LEGAL ISSUE OF THE FACT THAT KALHAR LAND SALE IS TREATED AS AN ADV ENTURE IN THE NATURE OF TRADE. 5(B).2 BEFORE ADJUDICATION, IT IS IMPORTANT TO KNOW THE FACTS RELATED TO THIS ISSUE. (A) AS CALLED FROM APPELLANT & SUBMITTED BEFORE ME, THE DEDUCTION U/S 54F OF WERE CLAIMED OUT OF THE SONG TERM CAPITAL GA IN FROM SALE OF KALHAR LAND SALE AS FOLLOWS: (I) COST (23/09/2003) 32,39,050 SALE CONSIDERATION (19/02/2010) 2,05,16,048 INDEXED COST (632) 44,21,338 LONG TERM CAPITAL GAIN 1,60,94,710 (II). INVESTMENT IN LAND AT SARKHEJ, SURVEY NO. 386/1 & 2 (1/2 PART) 1,44,05,000 DEPOSIT WITH IOB IN CAPITAL GAIN TAX SCHEME ACCOUNT 20,00,000 1,64,05,000 (III) CALCULATION OF EXEMPTION CLAIMED U/S 54F ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 12 - 16094710 X 16405000 20516048 1,28,69,619 (B) THE APPELLANT FURTHER CLARIFIED THE POSITION O F CLAIM IN VIEW OF PROVISIONS OF 54F OF THE ACT WITH REFERENCE TO RESI DENCES ALREADY HELD AS FOLLOWS: 01-04-2009 OWNED FOLLOWING HOUSES: (1) SATYAWATI FARM (RAJPATH BUNGLOW) (2) AGARWAL HOUSE, SATELLITE 26-11-2009 SOLD AGARWAL HOUSE, SATELLITE 19-02-2010 SOLD KALHAR PLOTS AGAINST WHICH 54F CLAI MED (ON DATE OF SALE ONLY ONE HOUSE HELD) 09-05-2010 (FOR 54F EXEMPTION PURCHASED SARKHEJ LAND AND DEPOSITED RS.20 LAKHS IN CAPITAL GAIN ACCOUNT) (C) THE APPELLANT SUBMITTED A COPY OF RETURN OF I NCOME FILED BY SHRI KUNAL NANDLAL AGARWAL (SON OF APPELLANT) FOR A.Y. 1 0-11, E-FILED ON 28/09/10 WITH PAN : AGIPA8313L AND TOTAL INCOME OF RS. 866846/- WHICH REFLECT LONG TERM CAPITAL GAIN OF RS, 16542375/-FRO M SALE OF MAKARBA LAND AND HE CLAIMED DEDUCTION U/S 54F OF THE ACT OUT OF IT FOR AN AMOUNT OF RS. 15809331/- FOR PURCHASE OF LAND / CONSTRUCTION OF H OUSE & INVESTMENT IN CAPITAL GAIN DEPOSIT SCHEME. THIS IS TO SUBSTANTIAT E THAT SHRI KUNAL NANDLAL THOUGH OWNED OF THE SARKHEJ LAND INVESTME NT (BALANCE IS BY THE APPELLANT) BUT CONSTRUCTED A HOUSE SEPARATELY I .E. THE CONSTRUCTION ON SURVEY NO. 386/1 & 2 AT SARKHEJ ARE TWO DIFFERENT R ESIDENTIAL HOUSE, ONE BY APPELLANT AND ONE BY HIS SON. (D) THE APPELLANT FURTHER CONTENDED THAT AS FAR AS LOCATION OF LAND IS CONCERNED, ITS PRICE ARE VERY HIGH BUT COST OF CONS TRUCTION IS AS PER REQUIREMENT OF RESIDENCE. THE APPELLANT FURTHER SUB MITTED COPIES OF HOUSE TAX, CESS, WATER CHARGES PAID BY APPELLANT AS WELL AS BY HIS SON TO AMDAVAD MUNICIPAL CORPORATION (AMC) FOR F.Y. 11-12 ONWARDS TO SUBSTANTIATE THAT CONSTRUCTION WAS COMPLETE AND AMC CHARGED SUCH TAX. IN THESE RECEIPTS, THE DIFFERENT RESIDENTIAL HOUSE OF APPELLANT AS WELL AS OF HIS SON ARE CLEARLY MENTIONED FOR THE SAME ADDRESS. THE DETAILS IN RESPECT OF APPELLANT FROM THE COPIES OF COMPUTERIZED PRINT OUT TAKEN FROM WEBSITE OF AMC ARE AS FOLLOWS: TENEMENT NO.: 06384530010002R OCCUPIER NAME : NANDLAL J. AGARWAL ADDRESS: SURVEY NO. 386/1, OPP. APPLE WOOD TOWN SHI P, S.P. RING ROAD, NR. PANCHATALAV, SARKHEJ, A'BAD. YEAR CH. NO. CHALLAN NO. AMOUNT 2011-12 890545 1305272403008 897 2012-13 890545 1305272403008 897 2013-14 935825 140616-2209-055 1650 ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 13 - 2014-15 935824 140616-2202-042 2154 (E) THE APPELLANT SUBMITTED COPY OF BANK PASS BOOK FOR CAPITAL GAIN ACCOUNT NO. 0125010000200002 OPENED ON 09/09/10 AT INDIAN OVERSEAS BANK, STADIUM ROAD BRANCH, A'BAD TO REFLECT THAT RS . 20 LAC DEPOSITED ON 20/09/2010 WERE UTILIZED FOR CONSTRUCTION OF HOUSE. THE APPELLANT ALSO SUBMITTED COPY OF ANOTHER SUCH PASS BOOK FOR CAPITA L GAIN ACCOUNT NO. 01250100002,00001 OPENED IN THE NAME OF SHRI KUNAL NANDLAL AGARWAL (SON OF APPELLANT) WHERE RS. 20 LAC DEPOSITED AND U TILIZED BY HIM FOR CONSTRUCTION OF HIS SEPARATE HOUSE ON THE I/A SHARE OF LAND AT SARKHEJ. (F) THE APPELLANT CONTENDED THAT SINCE SUCH LAND WA S NOT UNDER THE T.P. SCHEME OF AUDA, THERE WAS NO NEED FOR ANY APPR OVED PLAN AND COMPLETION CERTIFICATE BUT AFTER CONSTRUCTION, SUCH TP SCHEME WAS THERE AND AMC CHARGED THE PROPERTY TAX AND CESS. (G) THE APPELLANT SUBMITTED A COPY OF REGISTERED DO CUMENTS BEARING REGISTERED NO. AHD-4, PALDI/6908/2010 FOR, PURCHASE OF LAND AT SARKHEJ VIDE THIS DEED DT. 04/05/2010 FOR A CONSIDERATION O F RS. 2.72 CRORE EQUALLY SHARE BY HIM AND HIS SON. (H) IN REFERENCE TO ELECTRICITY CONNECTION THE APPE LLANT CONTENDED THAT SUCH LAND WAS IN INTERIOR AND AWAY FROM MAIN ROAD. IN THE ABSENCE OF ANY EXISTING SUB STATION THE?'' DEMAND OF ELECTRIC CONN ECTION FOR A SINGLE HOUSE WILL COST BIG AMOUNT BEING LAYING OF CABLES, INSTALLATION OF TRANSFORMER ETC. AND THEREFORE THE APPELLANT WAS MA NAGING ITS REQUIREMENT OF ELECTRICITY THROUGH AN OLD EXISTING D.G. SET. TH E ELECTRICITY CONNECTION CANNOT JUSTIFY THE COMPLETION OF CONSTRUCTION. (I) ALL THE BILLS RELATED TO CONSTRUCTION WERE PROD UCED BEFORE A.O. AND NO ADVERSE FINDING WERE GIVEN BY HER. (J) IN REFERENCE TO LEGAL OBJECTION, WITHOUT PREJUD ICED IT WAS CONTENDED THAT A.O. HAS TREATED LONG TERM CAPITAL GAIN IN RES PECT OF MAKARBA LAND, SATTELITE BUNGALOW IN AGGREGATE OF RS. 3.21 CRORE A ND THEREFORE SUCH CLAIM OF DEDUCTION U/S. 54F OF THE ACT CAN BE GIVEN FROM SUCH CAPITAL GAIN. 5(B).3 I AM INCLINED WITH THE CONTENTION OF APPELLA NT THAT CLAIM OF DEDUCTION U/S. 54F OF THE ACT ARE AVAILABLE. AS I H AVE ALREADY HELD THAT TRANSACTION FROM SALE OF KALHAR LAND AND SOLA LAND ARE TO BE TREATED AS SALE OF CAPITAL ASSETS HENCE SUCH DEDUCTION IS AVAI LABLE TO APPELLANT. I AM ALSO INCLINED WITH APPELLANT THAT SUCH DEDUCTION IS AVAILABLE FROM THE LTGC OF SALE OF MAKARBA LAND AND SATELLITE BUNGALOW . NOW THE ONLY CONTENTION REMAINED IS RELATED TO COMPLETION, OF. S UCH CONSTRUCTION. AS DISCUSSED ABOVE, THE APPELLANT THROUGH RECEIPT OF A MC FOR PROPERTY TAX DEMONSTRATED AND SUBSTANTIATED THAT HOUSE CONSTRUCT ION WAS COMPLETE IN F.Y. 11-12 FOR WHICH AMC CHARGED SUCH TAXES THEREAF TER. THE DISCREPANCY OF HUGE LAND COST COMPARE TO CONSTRUCTION COST IS D ULY EXPLAINED BY APPELLANT WITH THE FACT THAT HIS SON GOT CONSTRUCTE D A SEPARATE HOUSE ON HIS HALF SHARE OF LAND AT SARKHEJ. THE COST OF CONS TRUCTION IS MET OUT FROM THE CAPITAL GAIN DEPOSIT SCHEME WHERE APPELLANT DEP OSITED RS. 20 LAC AND EVIDENCES WERE SUBMITTED ESTABLISHING DIRECT LINK B ETWEEN WITHDRAWAL FOR SUCH ACCOUNT AND PAYMENT MADE FOR (CONSTRUCTION AS EVIDENCED FROM BILLS. I AM INCLINED WITH APPELLANT THAT BILLS FOR ELECTRI CITY OR ELECTRIC ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 14 - CONNECTION DOES NOT HAVE ANY DIRECT LINK WITH COMPL ETION OF CONSTRUCTION. IT IS THEREFORE, THE APPELLANT FULFILLS ALL THE ELI GIBLE CONDITIONS FOR CLAIM OF DEDUCTION U/S. 54F OF THE ACT. THE A.O. IS DIRECTED TO ALLOW SUCH DEDUCTION OF RS. 12869619/-. THE APPELLANT GETS REL IEF ACCORDINGLY. THIS GROUND IS TREATED AS ALLOWED. 10. AGGRIEVED BY THE ACTION OF THE CIT(A) IN GRANTI NG RELIEF TO THE ASSESSEE TOWARDS CHARACTERIZATION OF GAINS ARISING ON SALE OF LAND AND DEDUCTION UNDER S.54F OF THE ACT AS CLAIMED, THE RE VENUE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 11. THE LEARNED CITDR FOR THE REVENUE RELIED UPON T HE ORDER OF THE AO. 12. THE LEARNED AR FOR THE ASSESSEE, ON THE OTHER H AND, RELIED ON VARIOUS SUBMISSIONS MADE BEFORE LOWER AUTHORITIES A ND POINTED OUT THAT THE LAND SOLD DURING THE YEAR IN QUESTION WAS PURCHASED SEVERAL YEARS BACK AND WERE HELD AS CAPITAL ASSET IN THE BO OKS OF ACCOUNTS. THE LEARNED AR THEREAFTER ADVERTED OUR ATTENTION TO THE LAND INVESTMENT DETAILS PLACED BY THE ASSESSEE (PAGE NO. 11 OF THE PAPER BOOK) AND SUBMITTED THAT THE LAND AT SOLA IS NOT TH E ONLY LAND HELD BY THE ASSESSEE. THE ASSESSEE HOLDS LAND AT DIFFERENC E PLACES AS SCHEDULED AT PAGE NO.11 OF THE PAPER BOOK AND REFLE CTED AS CAPITAL INVESTMENT IN THE BALANCE SHEET. THE LEARNED AR TH EREAFTER ADVERTED OUR ATTENTION TO THE COMPUTATION OF TOTAL INCOME AP PEARING AT PAGE NO.2 OF THE PAPER BOOK AND POINTED OUT THAT DURING THE YEAR ALSO, THE ASSESSEE HAS EXECUTED SIX DIFFERENT TRANSACTIONS OF LAND LOCATED AT DIFFERENT PLACES. WHILE THE AO HAS ACCEPTED ALL OT HER TRANSACTIONS OF LAND SOLD UNDER THE HEAD CAPITAL GAINS, IT HAS EX CLUDED THE GAIN ARISING FROM THE SALE OF KALHAR PLOT-SOLA AND SOLA LAND FOR NO COGENT REASONS. THE LEARNED AR POINTED OUT THAT KALHAR PL OT WAS BOUGHT IN SEPTEMBER 2003 AND THUS HELD FOR NEARLY SEVEN YEARS BEFORE ITS SALE. SIMILARLY, SOLA LAND WAS BOUGHT IN APRIL 2006 AND H ELD FOR NEARLY 31/2 YEARS BEFORE ITS SALE. THE LEARNED AR THEREAFTER R EFERRED TO THE WEALTH ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 15 - TAX RETURN AND SUBMITTED THAT THE ASSESSEE HAS PAID WEALTH TAX ON THE IMPUGNED AGRICULTURAL LAND IN QUESTION BEING A CAP ITAL ASSET. THE LEARNED AR POINTED OUT THAT THE WEALTH TAX IS NOT E XIGIBLE ON ASSETS HELD IN THE COURSE OF BUSINESS AS STOCK-IN-TRADE. HE THEREFORE STRESSED THAT THE INTENTION OF THE ASSESSEE IS MORE THAN EVI DENT BY THE LONGIBITY OF HOLDING OF LAND IN QUESTION TOGETHER WITH OTHER PARCELS OF LAND, THE ENTRIES IN THE BOOKS OF ACCOUNTS, INCLUSION OF SUCH LAND FOR THE PURPOSES OF WEALTH TAX ETC. AND CAPITALIZATION OF I NTEREST COSTS. THE LEARNED AR THEREAFTER SUBMITTED THAT IN AY 2010-11, OUT OF SAID LAND AT SOLA, THE ASSESSEE EXECUTED THE SALE DEED IN FAV OUR OF THE BUYER AS A LAND OWNER AND OFFERED THE LONG TERM CAPITAL GAINS IN THE RETURN OF INCOME AS A SALE OF CAPITAL ASSET. THE LEARNED AR ALSO OBSERVED THAT OUT OF THE TOTAL AREA OF THE LAND, THE BALANCE AREA OF LAND APPROXIMATELY 1282 SQ.MTRS. WHICH REMAINED UNSOLD I N FY 2009-10 RELEVANT TO AY 2010-11 WAS CONTINUED TO BE SHOWN AS CAPITAL ASSET IN THE BALANCE SHEET AND INCLUDED THE SAME FOR THE PUR POSES OF COMPUTATION OF WEALTH TAX. THE LEARNED AR THEREAFT ER SUBMITTED THAT LAND AT SOLA COULD NOT BE SOLD AS ONE PIECE OF LAND AND ACCORDINGLY THE SAME WAS DIVIDED IN SMALL PIECES AFTER DOING LEVELI NG OF THE PLOT OF THE LAND SO THAT IT BECOMES FEASIBLE FOR SALE. THE ASSESSEE COULD NOT FIND ANY SINGLE BUYER FOR SALE OF ENTIRE PIECE OF L AND. THE ASSESSEE ESSENTIALLY HAS NOT CARRIED OUT ANY DEVELOPMENT WOR K AS ALLEGED EXCEPT NECESSARY BASIC REQUIREMENTS LIKE LEVELING, APPROAC H ROAD FROM PUCCA ROADS AND OTHER STATUTORY REQUIREMENTS NECESSARY FO R PLOTTING OF SAID LAND AS PER DIRECTIONS OF THE AUTHORITY FOR SALE OF INDIVIDUAL PLOTS. THE ASSESSEE, IN ESSENCE, HAS SOLD THE LAND BY DIVIDING INTO PIECES OF LAND AND PROFIT THEREFROM HAS BEEN OFFERED AS CAPITAL GA IN IN SYNC WITH THE DECLARED POSITION IN THE REGARD. THE LEARNED AR OB SERVED THAT THE ASSESSEE ALSO EARNED CAPITAL GAINS ON SALE OF PLOTS AT MAKARBA, PROFIT EARNED FROM WHICH WAS ACCEPTED AS CAPITAL GAINS IN AYS. 2006-07, 2007-08 & 2008-09. THE LEARNED AR THUS SUBMITTED T HAT EXCEPT THE ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 16 - IMPUGNED LAND IN QUESTION, THE REVENUE ITSELF HAS A CCEPTED THE DECLARED POSITION OF THE ASSESSEE IN RESPECT OF OTH ER LAND IN THE EARLIER YEARS AS WELL AS IN THE CURRENT ASSESSMENT YEAR. T HE LEARNED AR SUBMITTED THAT NO PERCEPTIBLE JUSTIFICATION CAN BE ASSIGNED FOR SUCH DEPARTURE IN THE MATTER OF CHARACTERIZATION OF INCO ME IN RESPECT OF THE LAND PARCELS IN QUESTION. THE LEARNED AR ACCORDING LY SUBMITTED THAT THE CIT(A) HAS CORRECTLY APPRECIATED THE FACTS IN P ERSPECTIVE AND NO INTERFERENCE THEREOF IS CALLED FOR. 13. AS REGARDS DEDUCTION CLAIMED UNDER S.54F OF THE ACT IN RESPECT OF PROFIT FROM SALE OF PLOTS, THE ASSESSEE CONTENDE D THAT IT PURCHASED THE LAND AND CONSTRUCTION OF HOUSE WAS CARRIED OUT ON THE SAID LAND. THE ASSESSEE HAD DEPOSITED RS.20 LAKHS IN THE CAPIT AL GAIN ACCOUNT SCHEME AND FROM THE SAID BANK, THE PAYMENTS WERE MA DE FOR THE CONSTRUCTION OF RESIDENTIAL HOUSES ON THE SAID LAND . THE ASSESSEE POINTED OUT THAT COPY OF BILLS OF PAYMENTS TO AHMED ABAD MUNICIPAL CORPORATION IN RESPECT OF MUNICIPAL TAX REFLECTS TE NEMENT NUMBER AND RESIDENTIAL CONSTRUCTION AREA. BASED ON THE DOCUME NTARY EVIDENCE, THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE AND REVER SED WRONGFUL CONCLUSION OF THE AO. THE LEARNED AR ACCORDINGLY S UBMITTED THAT NO INTERFERENCE IS CALLED FOR WITH THE ORDER OF THE CI T(A). 14. THE LEARNED AR THEREAFTER REFERRED TO VARIOUS J UDICIAL DECISIONS AND SUBMITTED THAT THE BURDEN OF PROVING THAT THE P ARTICULAR TRANSACTION WAS A BUSINESS TRANSACTION IS ON THE RE VENUE. IN THE INSTANT CASE, THE REVENUE HAS FAILED TO BRING OUT A NY STRONG FACTOR AGAINST THE ASSESSEE TO ENABLE IT TO DRAW ADVERSE I NFERENCE. 15. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND MATERIALS R EFERRED TO AND RELIED UPON IN THE COURSE OF HEARING. THE ASSESSEE HAS INTER ALIA ACQUIRED CERTAIN PARCELS OF LAND AT KALHAR AND SOLA IN THE E ARLIER FY AND ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 17 - DECLARED THE SAME AS INVESTMENT IN LAND AS A CAPIT AL ASSET IN THE EARLIER YEARS ALL ALONG. DURING THE ASSESSMENT YEA R IN QUESTION, THE ASSESSEE IS STATED TO HAVE SOLD THE KALHAR PLOT AS WELL AS PART OF SOLA LAND WHICH YIELDED GAINS OF RS.11,65,15,888/- IN AG GREGATE FROM SALE OF SUCH LAND. THIS APART, THE ASSESSEE ALSO SOLD C ERTAIN OTHER PLOTS AS DETAILED IN THE COMPUTATION OF INCOME SHEET. THE A GGREGATE CAPITAL GAIN FROM SALE OF ALL THESE PLOTS WAS DECLARED AT R S.14,80,64,055/-. THE AO HAS DISPUTED THE TRANSACTIONS OF IMPUGNED PU RCHASE AND SALE OF KALHAR PLOT AND SOLA LAND WHICH HAS GIVEN RISE T O THE AGGREGATE PROFIT OF RS.11.65 CRORE AND STAMPED THE SAME WITH THE CHARACTER OF BUSINESS INCOME UNDER S.28 OF THE ACT AND THEREBY CONCESSIONAL TAX TREATMENT AVAILABLE ON LONG TERM CAPITAL GAIN WAS S OUGHT TO BE DENIED TO THE ASSESSEE. THE AO DISCREDITED THE CLAIM OF T HE ASSESSEE THAT THE LAND IN QUESTION WERE HELD AS CAPITAL ASSET UNDER S.2(14) OF THE ACT AND CONSEQUENTLY, DISPUTED THE CAPITAL GAINS ARISIN G THEREFROM DECLARED TO BE CHARGEABLE UNDER THE HEAD CAPITAL G AINS. THE ACTION OF THE AO WAS REVERSED IN FIRST APPEAL BEFORE CIT(A ) WHO ACCEPTED THE TAXABILITY OF GAINS UNDER THE HEAD CAPITAL GAINS INSTEAD OF BUSINESS INCOME. THE REVENUE IS THUS AGGRIEVED BY THE ACTIO N OF THE CIT(A). THE ASSESSEE SEEKS TO DEFEND THE ACTION OF CIT(A) O N SEVERAL COUNTS. 16. THE ISSUE INVOLVED IS THUS DETERMINATION OF CHA RACTER OF INCOME UNDER ONE HEAD (CAPITAL GAINS) OR THE OTHER (BUSINE SS INCOME) AND IS ESSENTIALLY FACTUAL IN NATURE AND DEPENDS ON THE FA CTS PREVALENT IN A GIVEN CASE. NO SINGLE LEGAL TEST OR FORMULA CAN BE APPLIED TO DETERMINE WHETHER A TRANSACTION IS A BUSINESS VENTU RE OR NOT. THE ANSWER TO THE QUESTION NECESSARILY DEPENDS ON THE T OTAL IMPRESSION AND EFFECT OF ALL RELEVANT FACTORS AND CIRCUMSTANCES. IT IS THE CASE OF THE ASSESSEE THAT THE PURCHASE AND SALE TRANSACTIONS OF IMPUGNED LAND IS THE TRANSACTION OF CAPITAL NATURE AND CONSEQUENTLY, GAINS ARISING THEREFROM IS CHARGEABLE UNDER S. 45 OF THE ACT UNDE R THE HEAD CAPITAL GAINS IN CONTRAST TO THE STAND OF THE REVENUE SEEK ING TO TREAT THE LAND ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 18 - SO ACQUIRED AS A TRADING ASSET AND THUS, TAXING T HE RESULTANT PROFITS ON ITS SALE AS BUSINESS INCOME UNDER S.28 OF THE ACT. TO AUGMENT ITS CASE, IT IS PLEADED ON BEHALF OF THE ASSESSEE THAT THE IMPUGNED LAND AS WELL AS MANY OTHER PARCELS OF LAND WERE ACQUIRED/PU RCHASED OVER SEVERAL YEARS AND HELD AS CAPITAL ASSET IN THE NA TURE OF CAPITAL INVESTMENT. 17. FROM THE DETAILS PROVIDED IN THE COMPUTATION OF INCOME AND SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES, WE N OTE THAT THERE IS A CONSIDERABLE TIME LAG BETWEEN THE PURCHASE AND THE SALE OF LANDS IN QUESTION AND OTHER PARCELS OF LAND/ALBEIT PROFITS F ROM WHICH IS NOT DISPUTED AT ALL. IT IS DEMONSTRATED ON BEHALF OF T HE ASSESSEE THAT THE LAND/PROPERTIES HAVE BEEN DECLARED AS CAPITAL INVE STMENT BY THE ASSESSEE ALL ALONG AND REFLECTED IN THE BOOKS AND T HE FINANCIAL STATEMENT IN THIS MANNER. WE ALSO TAKE NOTE OF THE SIGNIFICANT PLEA THAT WHILE THE AO HAS DISPUTED THE CAPITAL NATURE O F LAND PARCELS AT KALHAR AND SOLA, IT HAS ACCEPTED THE DECLARED POSIT ION OF CAPITAL GAINS IN RESPECT OF OTHER PARCELS OF LAND. WE ALSO TAKE NOTICE OF THE EMPHATIC PLEA ON BEHALF OF THE ASSESSEE THAT LAND S O HELD WERE SUBJECTED TO WEALTH TAX YEAR AFTER YEAR BEING CAPIT AL ASSET. IT IS APPARENT FROM THE RECORD THAT LAND/PROPERTIES WERE PURCHASED AND HELD FOR SEVERAL YEARS BEFORE SALE. THE EXPLANATION TOW ARDS COST OF IMPROVEMENT AFTER ACQUISITION OF LAND TO ENABLE THE LAND TO BE SUB- DIVIDED INTO SMALLER PLOTS KEEPING IN MIND FEASIBIL ITY FOR SALE ALSO APPEARS QUITE REASONABLE AND DOES NOT CALL FOR ANY ADVERSE VIEW. THE INTENTION AT THE TIME OF PURCHASE IS RELEVANT FACTO R. THE AO HAS ATTRIBUTED COMMERCIAL MOTIVES IN SUCH TRANSACTIONS WITHOUT ANY SIGNIFICANT BASIS. NOT ONLY THE GAINS ARISING ON S ALE OF OTHER LAND IN THE YEAR UNDER QUESTION HAS BEEN ADMITTED TO BE CAP ITAL IN NATURE BY THE AO, THE REVENUE IN THE EARLIER ASSESSMENT YEARS HAVE ALSO ACCEPTED THE GAINS ARISING ON SALE OF LAND AS CAPIT AL GAINS IN THE EARLIER ASSESSMENT YEARS. NOTICEABLY, THE ASSESSEE HAS DER IVED INCOME FROM ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 19 - SALARY AND HOUSE PROPERTY AS WELL AS AGRICULTURE IN COME. THERE IS NOTHING TO SHOW FROM RECORDS THAT THE ASSESSEE WAS ENGAGED IN ANY KIND OF SYSTEMATIC OR ORGANIZED BUSINESS ACTIVITY O F LAND SALE WITH DEGREE OF REGULARITY. 18. ON A CUMULATIVE READING OF SUCH GLARING FACTS, WE FAIL TO COMPREHEND THE ACTION OF THE AO IN HOLDING CAPITAL GAINS EARNED ON SALE TO BE A BUSINESS VENTURE. IT IS MANIFEST THAT THE AO HAD MIS- DIRECTED HIMSELF IN LAW AND ON FACTS IN HOLDING THE LAND/PROPERTIES TO BE IN THE NATURE OF TRADING ASSET MERELY ON THE GRO UND THAT SOME EXPENSES HAVE BEEN INCURRED FOR DEVELOPMENT OF THE LAND AND LAND WAS SUB-DIVIDED BEFORE SALE. IT IS THE CASE OF THE ASS ESSEE THAT SOME AGREEMENTS WERE ENTERED FOR DEVELOPMENT OF THE LAND IN THE YEAR UNDER APPEAL WITHOUT ACTUALLY FASTENING ANY RESPONSIBILIT Y IN THE DEVELOPMENT. WE FIND CONSIDERABLE WEIGHT IN THE PL EA RAISED ON BEHALF OF THE ASSESSEE THAT THE INTENTION AT THE TI ME OF PURCHASE TO HOLD IMPUGNED LAND/PROPERTIES AS CAPITAL ASSET IS MANI FEST ON RECORDS. THE BALANCE SHEET FILED BY THE ASSESSEE OVER YEARS, WEALTH TAX RETURN FILED BY THE ASSESSEE, ADEQUACY OF OWN CAPITAL (RS. 17.69CRORES AGAINST THE LAND INVESTMENT OF RS.1.79CRORES) CLEARLY UNDER SCORES THE INTENTION OF THE ASSESSEE TO HOLD THE IMPUGNED LAND /PROPERTIES AS CAPITAL ASSET AS CLAIMED. THE CAPITILISATION OF IN TEREST COSTS ON BORROWED FUNDS INSTEAD OF CLAIMING THE SAME TO BE R EVENUE EXPENDITURE ONLY REINFORCES THE DECLARED INTENTION OF THE ASSESSEE. THE PAST ASSESSMENT RECORDS AND SELECTIVE APPROACH IN RESPECT OF SOME OF THE LAND PARCELS IN THE CURRENT ASSESSMENT YEAR CLEARLY DEMONSTRATES THAT THE ACTION OF THE AO WAS SIMPLY GUIDED BY THE CONSIDERATIONS OF REVENUE ALONE AND IS OUTSIDE THE BOUNDS OF RATIONAL ITY. WE ARE THUS DISPOSED TO HOLD THAT THE CIT(A), IN THE GIVEN SET OF FACTS AND CIRCUMSTANCES, HAVE RIGHTLY CONCLUDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE AO. THE AO HAS CLEARLY FA ILED TO DISCHARGE THE ONUS WHICH LAY UPON IT TO ENABLE IT GUAGE A COM MERCIAL INTENTION ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 20 - AND CONSEQUENTLY CHANGE THE CHARACTER OF INCOME. T HUS, WE FIND NO MERIT WHATSOEVER IN THE APPEAL OF THE REVENUE. WE CONSEQUENTLY DECLINE TO INTERFERE WITH THE ORDER OF THE CIT(A). 19. IN THE RESULT, GROUND NO.1 OF THE REVENUES APP EAL IS DISMISSED. 20. GROUND NO.2 CONCERNS CLAIM OF DEDUCTION UNDER S .54F OF THE ACT. THE CIT(A) INTER ALIA NOTED THAT THE ASSESSEE HAS DEMONSTRATED AND SUBSTANTIATED THE COMPLETION OF THE HOUSE CONST RUCTION WITH REFERENCE TO RECEIPT OF AMC FOR PROPERTY TAX. THE COST OF CONSTRUCTION IS MADE OUT OF THE CAPITAL GAIN DEPOSIT SCHEME WHER E THE ASSESSEE DEPOSITED RS.20 LAKHS AND THE EVIDENCES WERE FOUND BY THE CIT(A) TO ESTABLISH DIRECT LINK BETWEEN WITHDRAWALS AND THE P AYMENT MADE FOR CONSTRUCTION ETC. THE REVENUE COULD NOT REBUT THE FINDINGS OF THE CIT(A) REPRODUCED IN THE PRECEDING PARAGRAPHS IN TH IS REGARD. THEREFORE, WE DO NOT SEE ANY INTANGIBLE REASON TO D ISTURB THE ACTION FOR THE CIT(A). 21. IN THE RESULT, GROUND NO.2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 22. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 14/11/2018 S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- $. / REVENUE 2. / ASSESSEE THIS ORDER PRONOUNCED IN OPEN COURT ON 14/11/2018 ITA NO. 2534/AHD/15 WITH CO NO. 185/AHD/2015 [DCIT VS. SHRI NANDLAL J. AGRAWAL] A.Y. 2010-11 - 21 - &. '() * / CONCERNED CIT 4. *- / CIT (A) -. ./0 122()3 ()!3 45' / DR, ITAT, AHMEDABAD 6. 078 9 / GUARD FILE. BY ORDER / 3 TRUE COPY /4 ()!3 45' 1.DATE OF DICTATION ON 31.10.2018 & 02.11.2018 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E OTHER MEMBER 05.11.2018 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER