M/s. Chandra Prakash Goel, New Delhi V. ITO, Hapur

ITA 3032/DEL/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6417 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 16-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DR RAKESH GUPTA; SOMIL AGARWAL S
• Keywords: Capital asset converted into stock in trade; Capital asset; Business income; Additional evidence; Cost of acquisition; Date of conversion; Fair market value; Valuation report; Tax effect
• Section: 45(2); 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B NEW DELHI BEFORE SH. AMIT SHUKLA , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 3032 /DEL/ 2014 ASSESSMENT YEAR: 2010 - 11 SH. CHANDRA PRAKASH GOEL, C/O - M/S. RRA TAXINDIA, D - 28, SOUTH EXTENSION, PART - I, NEW DELHI VS. INCOME TAX OFFICER, WARD - 1, HAPUR PAN : AATPG4288R (APPELLANT) (RESPONDENT) APPELLANT BY DR. RAKESH GUPTA & SH. SOMIL AGARWAL, ADVOCATES RESPONDENT BY SH. ANIL KUMAR SHARMA, SR.DR DATE OF HEARING 02.03.2017 DATE OF PRONOUNCEMENT 20.03.2017 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 17/02/2014 OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS), GHAZIABAD FOR ASSESSMENT YEAR 2010 - 11 , R A ISING FOLLOWING GROUNDS: 1) THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED CIT - A HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LEARNED A.O. IN MAKING ADDITION OF RS.62,39,059/ - UNDER THE HEAD INCOME FROM BUSINESS BY RE - CHARACTERIZING THE CAPITAL GAIN AS BUSINESS INCOME AND THAT TOO AS AGAINST NIL INCOME BY WAYS OF LONG TERM CAPITAL GAIN AS COMPUTED BY THE APPELLANT IN HIS RETURN OF INCOME AND IMPUGNED ADDITION HAS BEEN MADE BY RECORDING INCORRECT FACTS AND FINDING AND BY DISREGARDING THE SUBMISSIONS/ EVIDENCES OF THE ASSESSEE AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING. 2 ITA NO. 3032/DEL/2014 AY: 2010 - 11 2) THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LEARNED CIT - A IN NOT ASSESSING LONG TERM CAPITAL GAIN AT NIL AND BY ASSESSING THE BUSINESS INCOME AT RS.62,39,059/ - IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND THAT TOO BY ADOPTING WRONG FACTS AND FIGURES. 3) THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE LEARNED CIT - A HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LEARNED A O IN MAKING AGGREGATE DISALLOWANCE OF RS.3,90,000/ - UNDER THE HEAD EXPENSES OF SOIL AND PATHAI AND THAT TOO WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING AND WITHOUT BRINGING ANYTHING CONTRARY ON RECORD. 4) THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ACTION OF LEARNED A.O IN MAKING AGGREGATE DISALLOWANCE OF RS.3,90,000/ - UNDER THE HEAD EXPENSES OF SOIL AND PATHAI IS BEYOND JURISDICTI ON, ILLEGAL, BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 5) THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ACTION OF LEARNED A.O. IN MAKING THE IMPUGNED ADDITION/DI SALLOWANCE AND FRAMING THE IMPUGNED ASSESSMENT ORDER IS CONTRARY TO LAW AND FACTS, VOID AB IGNITION, BEYOND JURISDICTION, AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING, BY RECORDING INCORRECT FACTS AND FINDING ABND THE SAME IS NOT SUSTAINABLE ON VARIO US LEGAL AND FACTUAL GROUNDS. 6) THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSING THE ACTION OF LEARNED A.O. IN CHARGING INTEREST U/S 234A, 234B AND 234C OF INCOME TAX ACT, 1961. 7) THAT THE APPELLANT CRAVES AND LEAVE TO ADD, MODIFY, AMEND OR DELETE ANY OF THE GROUNDS OF APPEAL IN THE TIME OF HEARING AND ALL THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 2. THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL WAS ENGAGED IN CARRYING ON BUSINESS OF MANUFACTURING AND SALE OF BRICKS UNDER THE NAME AND STYLE OF M/S CHANDRA BRICK FIELD, HAPUR. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SOL D A PORTION OF AGRICULTURE LAND , WHICH WAS PURCHASED IN THE YEAR 1977. TH E ASSESSEE CONVERTED AGRICULTURE LAND INTO RESIDENTIAL PLOTS, BUILT SERV ICE ROAD AND DEVELOPED A COLONY, NAMELY, PRAHLAD NAGAR AND DURING THE YEAR SOLD FEW PLOTS TO 3 ITA NO. 3032/DEL/2014 AY: 2010 - 11 DIFFERENT PERSON ON DIFFERENT DATES. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE FILED RETURN OF INCOME ON 09/09/2010, DECLARING TOTAL INCOME OF RS.2,87, 080/ - . THE CASE WAS SELECTED FOR SCRUTINY AND NOTI CE UNDE R SECTION 143(2) OF THE INCOME - T AX ACT, 1961 (IN SHORT THE ACT ) WAS ISSUED AND COMPLIED WITH. THE ASSESSMENT WAS COMPLETED AT TOTA L INCOME OF RS.69,16,140/ - ON 26/03/2013 UNDER SECTION 143(3) OF THE ACT AFTER MAKING ADD ITIONS/DISALLOWANCES. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME - TAX ( APPEALS), BUT COULD NOT SUCCEED. NOW, THE ASSESSEE IS BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. IN GROUND NO S . 1 AND 2, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT - A IN CONFIRMING THE ADDITION OF RS.62,39, 050/ - TREATING THE SALE OF PART OF AGRICULTURE LAND AS BUSINESS INCOME AS AGAINST CLAIM OF THE ASSESSEE UNDER THE HEAD CAPITAL GAIN . FACTS IN RESPECT OF ISSUE IN DISPUTE ARE THAT THE ASSESSEE PURCHASED AN AGRICULTURE LAND MEASURING 14,873 SQUARE Y A R D S IN 1977 IN VILLAGE PATNA, WHICH IS SITUATED WITHIN MUNICIPAL LIMITS OF GHAZIABAD. IN THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE CONVERTED THE AGRICULTURE LAND INTO RESIDENTIA L PLOTS , BUILT SERVICE ROADS AND DEVELOPED THE ENTIRE PROPERTY IN THE NAME OF A COLONY, NAMELY, PRAHLAD NA GAR . ACCORDING TO THE ASSESSEE DURING THE YEAR , HE SOLD PLOTS MEASURING 466 5 SQUARE YARD S FOR SALE CONSIDERATION OF RS.66, 50,000 / - AND BUILT SERVICE ROADS HAVING AREA OF 1100 SQUARE YARDS DURING THE YEAR. T HE AS SESSEE CLAIMED EXPENSES OF RS.4,00, 300/ - TOWARDS DEVELOPMENT/SALES OF PLOT. ACCORDING TO THE ASSESSING OFF ICER, THE ASSE SSEE SOLD PLOTS HAVING AREA 4665 SQUARE YARDS AND 147 6 SQUARE YARDS COVERED BY SERVICE RO ADS. ACCORDING TO THE ASSESSEE , THE ENTIRE PROPERTY WAS SOLD IN THREE ASSESSMENT YEARS HAVING DETAILS AS UNDER: 4 ITA NO. 3032/DEL/2014 AY: 2010 - 11 ASSESSMENT YEAR LAND SOLD LAND USED FOR DEVELOPMENT TOTAL LAND USED SALE CONSIDERATION EXP. OF SALE 2010 - 11 4,665 1,100 5 , 765 6 , 650 , 00 400,300 2011 - 12 6,035 1,423 7,458 10,178,500 251,840 2012 - 13 604 142 746 1 , 274 , 000 25 , 480 TOTAL 11,304 2,665 13,969 18,102,500 677,620 3.1 T HE ASSESSEE COMPUTED CAPITAL GA IN ON SALE CONSIDERATION OF RS.66, 50,000/ - AND CLAIMED EXEMPTION FOR THE AMOUNT DEPOSITED IN CAPITAL GAIN ACCOUNT. 3.2 ACCORDING TO THE ASSESSING OFFICER, THE ENTIRE ACTIVITY OF CONVERTING THE AGRICULTURE LAND INTO RESIDENTIA L PLOTS, CONSTRUCTING SERVICE ROADS AND SALE OF PLOTS CONSTITUTED AN ACTIVITY AS BUSINESS IN THE NATURE OF TRADE. THE ASSESSING OFFICER COMPUTED THE PROPORTIONATE COST OF ACQUISITION OF THE LAND WHICH WAS SOLD DURING THE YEAR AT RS.1, 890/ - . HE TOOK THIS AM OUNT AS COST OF ACQUISITION AS 01/04/1981 AND AFTER INDEXATION COMPUTED THE INDEXED COST OF THE LAND AT RS.10,641/ - . THE ASSESSING OF FICER ADDED THE EXPENSES OF RS. 4,00,300/ - INCURRED FOR DEVELOPMENT OF COLONY ETC . TO THE INDEXED COST OF LAND I.E. (RS.10,6 41 + RS.4,00,300/ - = RS. 4,10,941/ - ) AND AFTER SUBTRACTING THE SAID TOTAL AMOUNT FROM THE SALE RECEIPT OF RS.66, 50,000 / - HE COMPUTED NET BUSINESS INCOME BEING ADVENTURE IN THE NATURE OF TRADE AT RS.62,39,059/ - . 3.3 BEFORE THE LEARNED CIT - A, THE ASSESSEE CL AIMED THAT AGRICULTURAL LAND I.E. THE ASSET WAS ACQUIRED WAY BACK IN 1977 I.E. 32 YEARS BACK FOR BUSINESS USE AND CONTINUOUSLY USED FOR BUSINESS SINCE THEN TILL THE DECISION WAS MADE TO SELL IT AND AS NEITHER THE ASSESSEE HAD ACQUIRED THE LAND WITH THE VIE W TO SELLING IT LATER AFTER DEVELOPING IT NOR HIS ACTIVITY CAN BE DESCRIBED AS A BUSINESS INCOME. 3.4 ALTERNATIVELY, THE ASSESSEE ALSO SUBMITTED THAT IF THE ASSESSEE HAD CARRIED ON ADVENTURE IN THE NATURE OF BUSINESS, THEN CAPITAL ASSET WAS 5 ITA NO. 3032/DEL/2014 AY: 2010 - 11 REQUIRED TO BE CONVERTED INTO A STOCK IN TRADE IN TERMS OF SECTION 45(2) OF THE ACT. THE ASSESSEE GOT VALUATION REPORT FROM APPROVED VALUER FOR COS T OF ACQUISITION AS ON 01/04/ 1981 AND FAIR MARKET VALUE OF THE LAND ON THE DATE OF CONVERSION OF STOCK IN TRADE FOR ITS BUS INESS OF REAL ESTATE IN THE FINANCIAL YEAR 2009 - 10 (CORRESPONDING TO THE ASSESSMENT YEAR CONCERNED). THE ASSESSEE COMPUTED THE LONG - TERM CAPITAL GAIN ON CONVERSION OF CAPITAL ASSET INTO PLOTS AND BUSINESS INCOME ON SALE OF THE PLOTS DURING THE YEAR AS UNDER: CAPITAL GAIN COMPUTATION: CONSIDERATION OF LAND SOLD DURING THE YEAR 72,06,250.00 (F.M.V.) (1250*5765) LESS: INDEXED COST OF 58,29,568.00 ACQUISITION(160*5765*632/100) (COST INFLATION INDEX FOR YEAR 2009 - 10 IS TAKEN) GROSS: LTCG 13,76,682.00 LESS: EXEMPTION FOR INVESTMENT IN CAPITAL 11,94,000.00 GAIN A/C =1376682*6250000/7206250 TAXABLE CAPITAL GAIN 1,82,682.00 BUSINESS INCOME CALCULATION: SALES CONSIDERATION OF CONVERTED PLOT 66,50,000.00 LESS: COST OF SUCH LAND (TREATE D AS STOCK AFTER CONVERSION) (F.M.V.) 72,06,250.00 GROSS BUSINESS INCOME (LOSS) ( - )5,56,250.00 LESS: EXPENDITURE ON SALE OF PLOTS 4,00,300.00 NET INCOME ( - )9,56,550.00 3.5 THE LEARNED CIT(A) DID NOT ACCEPT THE ABOVE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE VALUATION REPORT DATED 25/05/2013 WAS FILED FIRST - TIME BEFORE HIM SUBSEQUENT TO THE COMPLETION OF THE 6 ITA NO. 3032/DEL/2014 AY: 2010 - 11 ASSESSMENT, BUT NO REQUEST FOR ADMITTING THIS AD DITIONAL EVIDENCE UNDER RULE 4 6A OF THE INCOME T AX R ULES, 1962 WAS MADE BEFOR E HIM. THE LD. COMMISSIONER OF INCOME TAX (A PPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER RELYING ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF RAJA J RAMESHWAR RAO VS. CIT (1961) 42 ITR 179(SC) . HE REFERRED THE OBSERVATION OF THE HON BLE SUPREME COURT THAT WHERE A PERSON GOES FURTHER AND DIVIDES THE LAND INTO PLOTS, DEVELOPS THE AREA TO MAKE IT MORE ATTRACTIVE AND SELLS THE LAND NOT AS A SINGLE UNIT AND AS HE BOUGHT BUT IN PARCELS, HE IS DEALING WITH LAND AS HIS A STOCK IN TRADE; HE IS CARRYING ON BU SINESS AND MAKING A PROFIT ... AND SAID THAT IN THE INSTANT CASE ALSO THE ASSESSEE ACQUIRED THE LAND IN BULK AND SOLD IT IN SMALL PIECES CREATING AMENITIES LIKE ROADS ETC, AND THUS THE TRA NSACTIONS WAS AN ADVENTURE IN THE NATURE OF THE TRADE. 3.6 BEFORE US, THE LD. AR SUBMITTED THAT THE LAND IN QUESTION WAS PURCHASED 32 YEARS BACK AS CAPITAL ASSET AND IN THE YEAR UNDER CONSIDERATION IT WAS DIVIDED IN PIECES AND SOLD . HE SAID THAT ASSESSEE HAD NOT ACQUIRED THE LAND WITH A N INTENTION TO SELL IT LATER AFTER DEVELOPING IT, THUS IT WAS MERELY A SALE OF CAPITAL ASSET AND NOT AN ADVENTURE IN THE NATURE OF TRADE. IN SUPPORT OF THE CONTENTION HE RELIED ON THE DECISION OF THE HON BLE HIGH COURT OF RA JASTHAN IN THE CASE OF CIT VS. SOHAN KHAN 304 ITR 194(RAJ), DECISION OF THE HON BLE MADHYA PRADESH HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME T AX VS. SURESH CHANDER GOYAL , 2 98 ITR 277 (MP) , DECISION OF TRIBUNAL, RANCHI SMC BENCH IN THE CASE OF RAJESH KUMAR KABRA VS. ITO , 93 TTJ 252. 3.7 ALTERNATIVELY , THE LD. AR ALSO SUBMITTED THAT EVEN IF THE CONTENTION OF THE R EVENUE THAT THE ASSESSEE HAD CARRIED ON ADVENTURE IN THE NATURE OF BUSINESS, IS ACCEPTED THEN THE CAPITAL ASSET IS REQUIRED TO BE CONVERTED INTO A STOCK IN TRADE IN TERMS OF SECTION 45(2) OF THE ACT AND THE GAIN ARISING ON SUCH CONVERSION WAS TO BE TREATED AS CAPITAL GAIN AND 7 ITA NO. 3032/DEL/2014 AY: 2010 - 11 SUBSEQUENT PROFIT ON SALE OF STOCK IN TRADE WAS TO BE TREATED AS BUSINESS INCOME. HE REFERRED TO THE COMPUTATION OF CAPITAL GAIN SUBMIT TED BEFORE THE LD. CIT - A. H E FURTHER SUBMITTED THAT ASSESSEE HAS ALREADY INVESTED IN THE CAPITAL GAI N ACCOUNT SCHEME AND THUS ASSESSEE WAS ENTITLED FOR EXEMPTION ACCORDINGLY. 3.8 ON THE CONTRARY, THE LD. S ENIOR DR, RELIED ON THE FINDING OF THE AUTHORITIES BELOW. 3.9 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE U NDISPUTED FACTS IN THE CASE ARE THAT THE LAND IN QUESTION WAS PURCHASED IN THE YEAR 1977 AND AS SUBMITTED BEFORE THE LD. CIT - A BY THE ASSESSEE, IT WAS PURCHASED FOR BUSINESS USE AND CONTINUOUSLY USED FOR BUSINESS SINCE THEN TILL T HE DECISION WAS MADE TO SE LL IT . DURING THE YEAR, THE ASSESSEE CONVERTED THE SAID LAND INTO RESIDENTIAL PLOTS AND BUILT SERVICE ROAD FOR APPROACHING THOSE PLOTS. IN SUBSEQUENT TWO YEARS ALSO THE ASSESSEE INCURRED EXPENDITURE ON CONSTRUCTION OF ROAD S OR DEVELOPMENT OF LAND AND SOLD THE RESIDENTIAL PLOTS . THE ASSESSEE DEVELOPED THE ENTIRE AREA OF LAND IN THE FORM OF A RESIDENTIAL COLONY CALLED PRAHLADA NAGAR . 3.9.1 IN THE PRESENT CASE THE ISSUE INVOLVED IS WHETHER THE ENTIRE TRANSACTIONS OF PURCHASE OF AGRICULTURE LAND AND SUBSEQUENT RESALE OF DEVELOPED RESIDENTIAL PLOTS CONSTITUTE AN ACTIVITY OF ADVENTURE IN THE NATURE OF TRADE OR MERELY A SALE OF CAPITAL ASSET AN D ALTERNATIVELY, WHETHER THE CONVERSION OF AGRICULTURE LAND INTO RESIDENTIAL PLOTS SHOULD BE TREATED AS CONVERSION OF CAPITAL ASSET INTO A STOCK IN TRADE LIABLE FOR CAPITAL GAINS UNDER SECTION 45(2) OF THE ACT AND SUBSEQUENT PROFIT ON SALE OF PLOTS AS B USINESS PROFIT LIABLE FOR TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION . 8 ITA NO. 3032/DEL/2014 AY: 2010 - 11 3.9.2 FIRST , WE EXAMINE WHETHER THE ENTIRE TRANSACTION OF PURCHASE OF AGRICULTURE LAND AND SUBSEQUENT SALE IN THE FORM OF RESIDENTIAL PLOTS , IS AS AN ADVENTURE IN THE NATURE OF TRADE. 3.9.3 THE LD. AR ARGUED THAT THE TRANSACTION WAS NOT AN ADVENTURE IN THE NATURE OF THE TRADE BECAUSE AT THE TIME OF PURCHASE OF THE LAND THERE WAS NO INTENTION TO RESALE IT AT A PROFIT. FOR THE PROPOSITION THAT EXISTENC E OF INTENTION TO SALE THE PROPERTY AT PROFIT, IS ESSENTI AL FOR HOLDING THE TRANSACTION A S A DVENTURE IN THE NATURE OF TRADE , THE LD. AR RELIED ON THE JUDGMENT OF THE HON BLE HIGH COURT OF RAJASTHAN IN THE CASE OF CIT VS. SOHAN KHAN (SUPRA). IN THE SAID CA SE , HON BLE HIGH COURT RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF G. VENKATASWAMI NAIDU & CO. VS. CIT (1959) 35 ITR 594 (SC). 3.9.4 IN THAT CASE, HON BLE SUPREME COURT SAID THAT IT IS IMPOSSIBLE TO EVOLVE ANY FORMULA WHICH CAN BE APPLIED IN DETERMINING THE CHARACTER OF ISOLATED TRANSACTION AS ADVENTURE IN THE NATURE OF TRADE OR CAPITAL GAIN. FURTHER THE HON BLE SUPREME COURT MADE A GENERAL OBSERVATION THAT IF A PERSON INVEST MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME , AND THEN SELLS IT AT A PROFIT, IT WOULD BE CLEAR CASE OF CAPITAL CREATION AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE . F URTHER, THE HON BLE SUPREME COURT PROPOSED TO EXAMINE EXISTENCE OF VARIOUS FACTORS AS FOLLOWS IN CASES OF REALIZATION OF INVESTMENT CONSISTING OF PURCHASE AND RESALE FOR DECIDING WHETHER THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE: (I) WHETHER THE PURCHASER A TRADER AND WHE THER THE PURCHASE OF THE COMMODITY AND ITS RESALE , ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT ; (II) NATURE OF COMMODITY PURCHASED AND SOLD AND ITS QUANTITY PURCHASED AND SOLD ; 9 ITA NO. 3032/DEL/2014 AY: 2010 - 11 (III) WHETHER THE PURCHASER BY ANY ACT SUBSEQUENT TO THE PURCHASE IMPROVE TH E QUALITY OF THE COMMODITY PURCHASED AND THERE WERE MADE IT MORE READILY SALEABLE AND; (IV) WHETHER THE INCIDENT ASSOCIATED WITH PURCHASE AND SALE ARE SIMILAR TO OPERATIONS USUALLY ASSOCIATED WITH TRADE OR BUSINESS (V) WHETHER THE TRANSACTION OF PURCHASE AND SALE REPEATED 3.9.5 THE HON BLE SUPREME COURT OBSERVED THAT THE PRESENCE OF ALL THE RELEVANT CIRCUMSTANCES MENTIONED OR ANY OF THEM MAY HELP THE COURT TO DRAW A N INFERENCE BUT IT IS NOT A MATTER OF MERELY COUNTING THE NUMBER OF FACTS AND CIRCUMSTANCES, PROS AND CONS AND WHAT IS IMPORTANT TO CONSIDER IS THE DISTINCTIVE CHARACTER. IN EACH CASE , IT IS THE TOTAL EFFECT OF ALL THE RELEVANT FACTORS AND CIRCUMSTANCES THAT DETERMINES THE NATURE OF THE TRANSACTION. 3.9.6 THEREAFTER, REGARDING INTENTION TO SELL WITH PROFIT, THE HON BLE SUPREME COURT OBSERVED THAT THE PRESENCE OF SUCH INTENTION IS NO DOUBT A RELEVANT FACTOR AND UNLESS IT IS OFFSET BY PRESENCE OF OTHER FACTORS , IT WOULD RAISE A STRONG PRESUMPTION THAT THE TRA NSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE AND IT IS CONCEIVABLE THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE, THE COURT MAY DESPITE THE SAID INITIAL INTENTION, BE INCLINED TO HOLD THAT T HE TRANSACTION WAS NOT AN ADVENTURE IN THE NATURE OF TRADE. THE HON BLE SUPREME COURT THEN HELD THAT THE DECISION ABOUT THE CHARACTER OF A TRANSACTION IN THE CONTEXTS CANNOT BE BASED SOLELY ON THE APPLICATION OF ANY ABSTRACT RULE, PRINCIPAL TEST AND MUST B E IN EVERY CASE DEPEND UPON THE RELEVANT FACTS AND CIRCUMSTANCES. 3.9.7 IN THE CASE OF SURESHCHANDRA GOYAL (SUPRA) , ALSO THE HON BLE HIGH COURT OF MADHYA PRADESH HELD THE ISSUE WHETHER THE CONVERTING OF THE LAND INTO PLOTS AND SUBSEQUENT SALE WOULD BE CAPITAL GAIN OR 10 ITA NO. 3032/DEL/2014 AY: 2010 - 11 ADVENTURE IN THE NATURE OF THE TRADE, IS A QUESTION OF FACT. IN THE SAID CASE TAX EFFECT INVOLVED WAS LESS THAN RS. 2.00 LAKHS AND THE APPEAL WAS FINALLY DISMISSED BY THE HON BLE HIGH COURT IN VIEW OF CIRCULAR ISSUED BY THE CBDT FOR NOT FIL ING OR WITHDRAWING APPEALS IN LOW TAX RATE CASES. 3.9.8 IN THE CASE OF RAJESH KUMAR KABRA(SUPRA), THE TRIBUNAL HAS EXAMINED THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF G VENKTASWAMI NAIDU & CO. (SUPRA) AND IN THE FACTS AND CIRCUMSTANCES OF TH E CASE HELD THE INCOME FROM SALE OF LAND A S LIABLE FOR LONG - TERM CAPITAL GAIN. 3.9.9 THUS , WE CONCLUDE THAT INTENTION TO ACQUIRE THE LAND WITH A VIEW TO SELLING IT LATER CANNOT BE A SOLE CRITERIA, FOR DECIDING WHETHER THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE AND IT DEPENDS ON THE OTHER FACTS AND CIRCUMSTANCES COUPLED WITH THE SAID TRANSACTION. 3.9.10 IN THE INSTANT CASE, THE ASSESSEE PURCHASED LAND AS CAPITAL ASSET FOR BUSINESS USE AND CONTINUOUSLY USED FOR THE BUSINESS FOR 32 YEARS PRI OR TO CONVERTING T HE SAME FOR RESIDENTIAL PURPOSE . AFTER CONVERTING T HE LAND INTO RESIDENTIAL PLOTS, THE ASSESSEE BUILT SERVICE ROADS SO AS TO MAKE THE PLOTS SALEABLE. THE ASSESSEE ALSO INCU RRED EXPENSES OF MORE THAN RS. 4 LAKHS DURING THE YEAR FOR DEVEL OPING THE LAND. THE ASSESSEE ALSO BUILT SERVICE ROADS AND INCURRED EXPENSES IN SUBSEQUENT YEARS FOR DEVELOPMENT OF PLOT OF LAND . FOR SELLING THE PLOTS OF LAND , THE AS SESSEE NAMED THE ENTIRE COLONY AS PRAHLAD NAGAR. THERE ARE M ULTIPLE TRANSACTIONS OF SALES ALSO. 3.9.11 ALL THESE FACTS AND CIRCUMSTANCES MANIFEST THAT ENTIRE TRANSACTIONS OF PURCHASE OF AGRICULTURE LAND AND SALE OF DEVELOPED RESIDENTIAL PLOTS IN FULL, CANNOT BE TREATE D AS SALE OF CAPITAL ASSET ONLY. SIMULTANEOUSLY , THE ENTIRE TRANSACTION ALS O CANNOT BE TREATED AS ADVEN TURE IN THE NATURE OF THE TRADE . IN OUR OPINION, THE ENTIRE TRANSACTION NEED TO BE DIVIDED INTO TWO PARTS. THE FIRST PART IS PURCHASE OF AGRICULTURE 11 ITA NO. 3032/DEL/2014 AY: 2010 - 11 LAND AND CONVERSION OF SAME INTO THE RESIDENTIAL PLOTS. THE SECOND PART OF THE TRANSACTION IS DEVELO PMENT OF THE CONVERTED LAND AND SALE OF THOSE RESIDENTIAL PLOTS. IN THE ALTERNATIVE SUBMISSION BEFORE THE LD. CIT - A, THE ASSESSEE HAS ALSO ACCEPTED THA T RESIDENTIAL PLOTS CONSTITUTED STOCK IN TRADE OF HIS BUSINESS OF REAL ESTATE IN THE FINANCIAL YEAR 2009 - 10 ( I.E. FINANCIAL YEAR CORRESPONDING TO THE ASSESSMENT YEAR IN CONSIDERATION) . ALL THE FACTS AND CIRCUMSTANCES OF THE CASE ALSO MAKE IT EVIDENT THAT THE SECOND PART OF TRANSACTION OF THE CONVERSION OF LAND INTO RESIDENTIAL PLOTS AN D SALE THEREOF WAS AN ADVENTURE IN THE NATURE OF TRADE OR A BUSINESS ACTIVITY AND SHOULD BE TAXED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS/PROFESSION AND FIRST PART OF THE TRANSACTION BECOMES LIABLE FOR CAPITAL GAIN TAX IN TERMS OF SECTION 45(2) OF T HE ACT, WHICH READS AS UNDER: CAPITAL GAINS. 45. (1) .. (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOCK - IN - TRADE OF A BUSINESS CARRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME - TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK - IN - TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48 , THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. 3.9.12 THE ASSESSEE ALSO SUBMITTED COMPUTATION OF CAPITAL GAIN ON FIRST PART OF THE TRANSACTION AND BUSINESS INCOME FROM THE SECOND PART OF THE TRANSACTION BEFORE THE LD. CIT (A). WE FIND THAT EVIDENC ES REQUIRED FOR COMPUTATION OF CAPITAL GAIN WERE NOT REQUESTED BY THE ASSESSEE FOR ADMISSION AS ADDITIONAL EVIDENCE AND THUS LD. CIT - A DID NOT DECIDE THE 12 ITA NO. 3032/DEL/2014 AY: 2010 - 11 SUBMISSION OF THE ASSESSEE. IN VIEW OF ABOVE CIRCUMSTANCES, WE FEEL IT APPROPRIATE TO RESTORE THE ISSU E TO THE FILE OF THE ASSESSING OFFICER TO COMPUTE CAPITAL GAIN IN TERMS OF SECTION 45 (2) OF THE ACT AND BUSINESS INCOME FROM THE TRANSACTION, IN VIEW OF OUR FINDING ABOVE. WHILE COMPUTING THE CAPITAL GAIN, THE ASSESSING OFFICER MAY EXAMINE THE FARE MARK ET VALUE OF THE LAND IN ACCORDANCE WITH LAW. IT IS NEEDLESS TO MENTION THAT ASSESSEE SHALL BE AFFORDED SUFFICIENT OPPORTUNITY OF HEARING. THE GROUNDS 1 AND 2 OF APPEAL ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 4. IN GROUND NO. 3 AND 4, THE ASSESSE E HAS CHALLENGED THE ACTION OF THE LD. CIT - A IN CON FIRMING THE DISALLOWANCE OF RS.3, 90,000/ - UNDER THE HEAD EXPENSES OF SOIL AND PATHAI . 4.1 DURING THE YEAR ASSESSEE CLAIMED EXPENSES UNDER THE HEAD SOIL AT RS.4,52, 480/ - AND UNDER THE HEAD PATHAI AT RS.10, 37,992/ - . ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COULD NOT JUSTIFY ITS CLAIM EXCEPT REPLYING THAT THE EXPENSES WERE RECORDED AND VOUCHED. THE ASSESSING OFFICER DISALLOWED SOIL EXPENSES OF RS.1, 80,000/ - AND PATHAI EXPENSES OF RS. 2, 10, 000/ - TOTALLING TO RS.3, 90,000/ - . BEFORE THE LD. CIT - A THE ASSESSEE FURNISHED A COMPARATIVE CHART OF EXPENSES ON SOIL AND PATHAI OF PREVIOUS AND SUBSEQUENT YEAR AND HE STATED THAT EXPENSES DURING THE YEAR UNDER CONSIDERATION WERE IN COMPARATIVE RANGE. THE RELEVANT CHAR T IS REPRODUCED AS UNDER: ASSESSMENT YEAR OPENING STOCK SALE CLOSING STOCK PRODUCTIO N PATHAI % SOIL % A B C D E=(A=B - C) F G=F/E % H I=H/E % 2009 - 10 0 1,415,503 2,076,470 3,491,973 524,300 15% 262,150 8% 2010 - 11 2,076,470 5,856,014 3,903,8 67 7,683,411 1,037,992 14% 452,480 6% 2011 - 12 3,903,867 7,055,151 5,988,933 9,140,217 1,067,390 12% 424,641 5% 13 ITA NO. 3032/DEL/2014 AY: 2010 - 11 4.2 THE LD. CIT - A DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE. 4 .3 B EFORE US , THE LD. AR SUBMITTED THAT D ISALLOWANCE HAS BEEN MADE ON AD - HOC BASIS BY THE ASSESSING OFFICER AND THE SAME HAVE BEEN SUSTAINED BY THE LD. CIT - A . HE SAID THE UNDER THE HEAD SOIL , 40% OF THE TOTAL EXPENSES HAVE BEEN DISALLOWED , WHEREAS UNDER THE HEAD PATHAI APPROXIMATELY 20% OF TH E TOTAL EXPENSES DEBITED HAVE BEEN DISALLOWED. HE SUBMITTED THAT DISALLOW ANCE MADE IN ARBITRARY AND AD - HOC MANNER , NEED TO BE DELETED. 4.5 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE THE ASSESSING OFFICER, THE AS SESSEE COULD NOT JUSTIFY ITS CLAIM OF RELEVANT EXPENSES EXCEPT RELYING THAT SAME WAS RECORDED AND VOUCHED AN D COMPARABLE WITH SIMILAR CASES . ON PERUSAL OF THE COMPARATIVE CHART FURNISHED BEFORE THE LD. CIT(A), WE FIND THAT EXPENSES ON SOIL AND PATHAI VARIE D FROM YEAR TO YEAR AND THE ASSESSEE COULD NOT EXPLAIN SUCH VARIATION IN EXPENSES. THE ASSESSEE HAS NOT FURNISHED ANY COMPARISON OF EXPENSES WITH OTHER ENTITIES ENGAGED IN SIMILAR ACTIVITY. WE ALSO NOTE THAT THE EXPENSES UNDER RESPECTIVE HEADS ARE MORE IN PERCENTAGE TERMS COMPARED TO SUBSEQUENT YEAR BUT LESS AS COMPARED TO LAST YEAR. IN VIEW OF THE CIRCUMSTANCES, WE FEEL IT APPROPRIATE TO RESTRICT THE DISALLOWANCE AT THE RATE OF 10% OF THE TOTAL EXPENSES DEBITED UNDER THE HEAD SOIL AND PATHAI . THUS , THE ADDITION TO THE EXTENT OF RS. 45,248/ - UNDER THE HEAD SOIL AND RS. 1,03,799/ - UNDER THE HEAD PATHAI IS SUSTAINED AND THE REMAINING ADDITION IS DIRECTED TO BE DELETED. ACCORDINGLY, GROUND NO. 3 AND 4 OF THE APPEAL ARE PARTLY ALLOWED. 5. GROUND NO. 5 A ND 7 BEING GENERAL IN NATURE ARE NOT REQUIRED TO BE ADJUDICATED UPON SPECIFICALLY. GROUND NO. 6 IS CONSEQUENTIAL IN NATURE AND HENCE NOT REQUIRED TO BE ADJUDICATED UPON. 14 ITA NO. 3032/DEL/2014 AY: 2010 - 11 6. IN THE RESULT, THE APPEAL IS ALLOWED PARTLY FOR STATISTICAL PURPOSE. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 2 0 T H MARCH , 201 7 . S D / - S D / - ( AMIT SHUKLA ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 0 T H MARCH , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI