R.P.Darmalingam, CHENNAI V. DCIT, CHENNAI

ITA 70/CHNY/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86363 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 12-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: N DEVANATHAN
• Keywords: Capital asset; Business income; Competent authority
• Section: 2(14); 63

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI .. , ! , ' #$ BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ ITA NO. 70/MDS/2012 ' % &% / ASSESSMENT YEAR : 2008-09 R P DARRMALINGAM, NO.1379 C GOLDEN VILLA, I BLOCK, 6 TH STREET, VALALAR KUDIYERUPPU, 18 TH MAIN ROAD, ANNA NAGAR, CHENNAI-6000040 / VS. DY.COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(13), CHENNAI-600034 ( !' / APPELLANT) .. ( ()!' / RESPONDENT) ./ ITA NO. 593/MDS/2012 ' % &% / ASSESSMENT YEAR : 2008-09 ASSTT. COMMISSIONER OF INCOME TAX COMPANY CIRCLE II (3), NO.121, UTHAMAR GANDHI SALAI, CHENNAI-600034 / VS. R P DARRMALINGAM, NO.1379 C GOLDEN VILLA, I BLOCK, 6 TH STREET, VALALAR KUDIYERUPPU, 18 TH MAIN ROAD, ANNA NAGAR, CHENNAI-6000040 ( !' / APPELLANT) .. ( ()!' / RESPONDENT) ! ./ *+ ./PAN/GIR NO. :AEAPD7363R !' , / ASSESSEE BY SHRI N DEVANATHAN ()!' - , / REVENUE BY SHRI A V SREEKANTH . - / / DATE OF HEARING : 03.02.2015 01& - / /DATE OF PRONOUNCEMENT: 11.03.2015 ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 2 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 26.12.2011 PASSED BY LD CIT(A)-III, CHENNAI AND THE Y RELATE TO THE ASSESSMENT YEAR 2008-09. BOTH THE APPEALS WERE HEA RD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAK E OF CONVENIENCE. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF L D CIT(A) IN CONFIRMING THE ASSESSMENT OF CAPITAL GAIN ARISING O N SALE OF AGRICULTURAL LAND AS BUSINESS INCOME OF THE ASSESSEE. 3. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN DELETING THE DISALLOWANCE OF PART OF DEVELOPMENT EXPENSES AS EXCESSIVE. 4. THE FACTS RELATING TO THE ABOVE SAID ISSUES AR E STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LAND DEVELOP MENT AND SALE. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERA TION, THE ASSESSEE DECLARED BUSINESS PROFIT ON LAND DEVELOPMENT AND SA LE. BESIDES THE ABOVE, THE ASSESSEE ALSO DECLARED GAIN ON SALE OF AGRICULT URAL LAND, WHICH IS EXEMPT FROM TAXATION. THE AGRICULTURAL LANDS WERE L OCATED AT THREE PLACES VIZ., KUNDRATHUR VILLAGE, PERUMBAKKAM VILLAGE AND T HIRUMUDIVAKKAM VILLAGE. THE AO COMPARED THE GROSS PROFIT RATE AND NET PROFIT RATE DECLARED BY THE ASSESSEE IN BOTH THE ACTIVITIES, I. E., IN THE ACTIVITY OF DEVELOPMENT AND SALE OF LAND AND IN THE SALE OF AGR ICULTURAL LAND. HE FOUND THAT THE RATE OF PROFIT SHOWN ON SALE OF AGRI CULTURAL LAND WAS VERY HIGH. HENCE, THE AO FORMED THE VIEW THAT THE PROF IT DECLARED ON SALE OF AGRICULTURAL LAND DID NOT APPEAR TO BE CREDIBLE. 5. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT HE H AS MAINTAINED SEPARATE ACCOUNT FOR EACH OF HIS ACTIVITY, I.E., FO R BUSINESS ACTIVITY AND INVESTMENT ACTIVITY. HE FURTHER SUBMITTED THAT THE AGRICULTURAL LAND WAS ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 3 SHOWN AS HIS INVESTMENT AND HENCE THE GAIN ARISING ON ITS SALE WAS SHOWN AS CAPITAL GAIN AND ACCORDINGLY EXEMPTION WAS CLAIM ED. THE ASSESSEE PLACED RELIANCE ON THE CIRCULAR NO.4/2007 DATED 15- 06-2007 AND SUBMITTED THAT THE CBDT HAS RECOGNIZED THAT AN ASSESSEE CAN H OLD THE SHARES IN TWO PORTFOLIOS, VIZ., AS INVESTMENT AND STOCK IN TRA DE. THE ASSESSEE FURTHER SUBMITTED A CERTIFICATE OBTAINED FROM LOCAL PANCHAY AT OFFICE ALSO TO SHOW THAT THESE LANDS WERE HELD AS AGRICULTURAL LAND ONL Y. THE ASSESSEE HAD ALSO DECLARED AGRICULTURAL INCOME FROM OUT OF THESE LANDS. 6. HOWEVER, THE AO WAS NOT CONVINCED WITH THE EXPL ANATIONS OF THE ASSESSEE AND ACCORDINGLY HELD THAT THE GAIN ARISING ON SALE OF THESE LANDS SHOULD ALSO BE ASSESSED AS BUSINESS INCOME. THE RE ASONING OF THE AO IS SUMMARIZED BELOW:- (A) THE LANDS HAVE BEEN ACQUIRED THROUGH POWER OF ATTORNEY OR SALE AGREEMENT AND WERE NOT REGISTERED IN THE NAME OF TH E ASSESSEE. (B) THE ASSESSEE IS A PROPERTY DEVELOPER AND IS EN GAGED IN PURCHASE OF LAND. HENCE THE PURCHASE AND SALE OF L AND IS HIS REGULAR BUSINESS ACTIVITY. (C) THE ASSESSEE DID NOT CARRY ON ANY AGRICUL TURAL ACTIVITY. (D) SOME OF THE LANDS SOLD BY THE ASSESSEE HAVE BE EN CATEGORIZED AS RESIDENTIAL LAND BY THE SUB-REGISTRAR OFFICE. HOWEVER, IN RESPECT OF REMAINING LANDS, THE DETAILS OF WHICH WE RE FILED BY THE ASSESSEE, THEY HAVE BEEN CATEGORIZED AS WET LAND SINGLE CROP. (E) THE LANDS HAVE BEEN SOLD IN SMALL PLOTS, WHIC H POINTS OUT THAT THE LAND HAS BEEN PURCHASED BY THE INTENDING PURCHA SER FOR INVESTMENT OR CONSTRUCTION AND NOT FOR CARRYING ON AGRICULTURAL ACTIVITY. (F) THE LANDS HAVE BEEN SOLD AT AROUND 1.75 LACS T O 2 LACS PER CENT AND NORMALLY AGRICULTURAL LANDS DO NOT FETCH SUCH A HIGH PRICE. (G) THE LANDS ARE SITUATED IN A FAST DEVELOPING AR EA WHERE INDUSTRIES ARE COMING UP. ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 4 (H) THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD (100 ITR 706) HAS HELD THAT IF A TRANSACTION IS IN THE ASSESSEES ORDINARY LINE OF BUSINESS, THERE CAN BE NO DIFFICULTY IN HOLDING THAT IT IS IN THE NATUR E OF TRADE. THE HONBLE APEX COURT HAS HELD IN THE CASE OF SARIFABI BI MOHAMED IBRAHIM AND OTHERS VS. CIT (204 ITR 631) THAT THE U LTIMATE DECISION ON WHETHER THE PROFIT ARISING FROM SALE OF A PARTIC ULAR LAND IS EXEMPT BEING AGRICULTURAL LAND WOULD DEPEND UPON CUMULATIV E CONSIDERATION OF NUMBER OF FACTS. IN THE CASE OF SARIFABIBI MOHA MED IBRAHIM (SUPRA), THE ASSESSEE THEREIN WAS NOT A PERSON ENGA GED IN THE BUSINESS OF TRADING OF LAND. HOWEVER, IN THE INSTA NT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF L AND. THUS IT IS SEEN THAT THE ASSESSING OFFICER HAS TAKE N THE VIEW THAT THE ASSESSEE HAS HELD THESE LANDS AS HIS BUSINESS ASSET S ONLY. THOUGH THE AO HAS NOT EXPRESSLY STATED THAT THE IMPUGNED LANDS WE RE NOT AGRICULTURAL LANDS, BUT THE REFERENCE MADE BY HIM TO THE CLASSIF ICATION OF THE SUB- REGISTRAR OFFICE, OBSERVATIONS ABOUT AGRICULTURAL A CTIVITY ETC. WOULD SHOW THAT THE ASSESSING OFFICER APPEARS TO DOUBT ABOUT T HE CHARACTER OF LAND AS AGRICULTURAL LAND. ACCORDINGLY, HE REJECTED THE CL AIM OF THE ASSESSEE AND ASSESSED THE PROFIT ARISING ON SALE OF AGRICULTURAL LAND AS BUSINESS INCOME OF THE ASSESSEE. 7. DURING THE YEAR UNDER CONSIDERATION, THE ASS ESSEE HAD ALSO DECLARED PROFIT FROM SALE OF DEVELOPED LAND AS HIS BUSINESS INCOME. FROM THE COMPUTATION OF BUSINESS PROFITS, THE AO NOTICED THA T THE ASSESSEE HAS CLAIMED DEVELOPMENT EXPENSES OF RS.26.56 CRORES, WH ICH WAS ABOUT NINE TIMES OF THE COST OF LAND. HENCE, THE AO CONSIDERE D THE SAME ON HIGHER SIDE AND ACCORDINGLY CALLED FOR DETAILS. HOWEVER, THE ASSESSEE DID NOT FURNISH THE DETAILS CALLED FOR BY AO. THE AO FURTH ER NOTICED THAT IDENTICAL ISSUE WAS CONSIDERED BY HIM IN THE ASSESSEES SISTE R CONCERN NAMED M/S JUBILEE PLOT AND HOUSING PVT LTD, WHEREIN THE ASSES SEE HELD 99% OF THE SHARES. IN THE ABOVE SAID CASE, THE EXPENSES WERE RESTRICTED TO 43.06% OF THE SALE RECEIPTS. ACCORDINGLY, THE ASSESSING OFFI CER ALSO RESTRICTED THE ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 5 CLAIM OF THE ASSESSEE ON DEVELOPMENT EXPENSES TO 43 .06% OF THE SALE RECEIPTS AND THE SAME RESULTED IN A DISALLOWANCE OF RS.12.09 CRORES. 8. IN THE APPEAL FILED BEFORE LD CIT(A), THE FI RST APPELLATE AUTHORITY HELD THAT THE DOMINANT INTENTION OF THE ASSESSEE WAS TO HOLD THESE AGRICULTURAL LANDS AS STOCK IN TRADE ONLY, SINCE HE IS IN THE BU SINESS OF DEVELOPMENT OF LANDS. HE FURTHER HELD THAT THE AGRICULTURAL INCOM E DECLARED BY THE ASSESSEE WAS ONLY INCIDENTAL. HE FURTHER HELD THAT THE METHOD OF EXPLOITATION OF LAND IS OF LEAST SIGNIFICANCE, WHEN THE INTENTION OF THE ASSESSEE IS ONLY TO ENJOY THE FRUITS OF APPRECIATIO N AND NOT TO REAP THE BENEFIT BY WAY OF CULTIVATION. ACCORDINGLY HE UPH ELD THE ACTION OF THE AO IN ASSESSING THE CAPITAL GAINS REALIZED ON SALE OF IMPUGNED LANDS AS BUSINESS INCOME OF THE ASSESSEE. THUS, IT IS SEEN THAT THE LD CIT(A) DID NOT FIND IT NECESSARY TO EXAMINE THE CHARACTER OF L AND CLAIMED AS AGRICULTURAL LAND. WITH REGARD TO THE DISALLOWANCE MADE OUT OF DEVELOPMENT EXPENSES, THE LD CIT(A) NOTICED THAT TH E AO HAD FOLLOWED HIS DECISION TAKEN IN THE CASE OF M/S JUBILEE PLOT & HO USING PVT LTD. HE FURTHER NOTICED THAT THE ADDITION MADE IN THE CASE OF ABOVE SAID CONCERN HAS SINCE BEEN DELETED BY THE LD CIT(A) IN ITA NO.4 88/09-10/A-III DATED 18.3.2011 AND ITA NO.800/10-11/A-III DATED 15.04.20 11 RELATING TO AY 2007-08 AND 2008-09 RESPECTIVELY. ACCORDINGLY, BY F OLLOWING THE DECISION OF LD CIT(A) RENDERED IN THE CASE OF M/S JUBILEE PL OT & HOUSING PVT LTD, THE FIRST APPELLATE AUTHORITY ALSO DELETED THE DISA LLOWANCE MADE BY THE AO OUT OF DEVELOPMENT EXPENSES. AGGRIEVED BY THE ORDE R OF LD CIT(A), BOTH THE PARTIES HAVE FILED THESE APPEALS ON THE POINTS DECIDED AGAINST EACH OF THEM. 9. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSEE. THE GROUND NO. 1 IS GENERAL IN NATURE AND HENCE REQUIRES NO AD JUDICATION. THE GROUND NO.2 RELATES TO THE VALIDITY OF THE ACTION OF THE A O IN ASSUMING JURISDICTION AGAINST THE SCRUTINY NORMS. HOWEVER, AT THE TIME O F HEARING, THE ASSESSEE ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 6 DID NOT ADVANCE ANY ARGUMENT ON THIS ISSUE AND ACCO RDINGLY, THE SAID GROUND ALSO REQUIRES NO ADJUDICATION. THE REMAININ G GROUNDS RELATE TO (A) CHARACTER OF LAND, I.E., WHETHER THEY ARE AGR ICULTURAL LAND OR NOT. (B) WHETHER THE LANDS WERE HELD AS INVESTMENT OR AS STOCK IN TRADE. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE IM PUGNED LANDS WERE LOCATED BEYOND THE PRESCRIBED MUNICIPAL LIMITS. IF THESE LANDS WERE CONSIDERED TO HAVE BEEN HELD BY THE ASSESSEE AS ST OCK IN TRADE, THEN THE PROFIT REALIZED ON THEIR SALE IS ASSESSABLE AS BUSI NESS PROFITS OF THE ASSESSEE, EVEN IF THE CHARACTER OF LAND REMAINS AGR ICULTURAL LAND. ON THE OTHER HAND, IF THEY WERE CONSIDERED TO HAVE BEEN HE LD BY THE ASSESSEE AS INVESTMENT, THE GAIN REALIZED ON THEIR SALE WOULD RESULT IN TAXABLE CAPITAL GAINS, IF THEY ARE NOT AGRICULTURAL LANDS AND WOULD BE EXEMPT FROM TAXATION U/S 10(1) R.W.S. 2(1A)(A) AND 2(14) OF THE ACT, IF THEY ARE HELD AS AGRICULTURAL LANDS. 10. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICE FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAS DECLARED THE PROFIT REALIZED ON LAND DEVELOPMENT AND SALE AS HIS BUSINESS INCOME. IT HAS BEEN FURTHER CLAIMED THAT THE AGRICULTURAL LANDS HAVE BEEN HELD AS INVESTMENT AND ACCORDINGLY THE GAIN REALIZED ON THEIR SALE WAS CLA IMED TO BE CAPITAL GAINS EXEMPT FROM TAXATION. THIS BIFURCATION, PRIMA FACI E, WOULD SHOW THAT THE ASSESSEE HAS HELD THE LANDS BOTH AS INVESTMENT AN D AS STOCK IN TRADE. WE ALSO NOTICE THAT THE ASSESSEE HAS SUBMITTED THAT HE HAS DEMARCATED LANDS AS STOCK IN TRADE AND INVESTMENT IN THE B OOKS OF ACCOUNTS. 11. WE NOTICE THAT BOTH THE TAX AUTHORITIES HAVE REJECTED THE CONTENTIONS OF THE ASSESSEE, MAINLY ON THE REASONING THAT THE ASSESSEE, BEING ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT AND SAL E, COULD NOT HAVE PURCHASED ANY LAND TO HOLD IT AS INVESTMENT. HOW EVER, THE VIEW SO EXPRESSED BY THE TAX AUTHORITIES DOES NOT APPEAR TO BE IN ACCORDANCE WITH ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 7 THE SETTLED PROPOSITION LAID DOWN BY THE VARIOUS CO URTS. THE CBDT CIRCULAR NO.4/2007 DATED 15.06.2007 ALSO STATES THAT AN ASSE SSEE IS ENTITLED TO HOLD TWO SEPARATE PORTFOLIOS, VIZ., ONE FOR INVEST MENT AND ANOTHER FOR STOCK IN TRADE. IN THE ABOVE SAID CIRCULAR, THE CBDT HAS REFERRED TO THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE C ASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD ( 82 ITR 586), WHERE IN THE HONBLE APEX COURT HAS OBSERVED AS UNDER:- WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE E VIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINC TION BETWEEN THOSE SHARES WHICH ARE ITS STOCK IN TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. FURTHER, THE HONBLE JURISDICTIONAL MADRAS HIGH COU RT HAS ALSO RECOGNIZED THE ABOVE SAID PRINCIPLE IN THE CASE OF FELSPAR CRE DIT AND INVESTMENT (P) LTD VS. CIT (2012)(27 TAXMANN.COM 137). FURTHER, T HE HONBLE MADRAS HIGH COURT HAS OBSERVED IN THE CASE OF CIT VS. S. R AMAAMIRTHAM (306 ITR 239) THAT THERE IS NOTHING IN LAW WHICH PROHIBITS A TRADER IN SHARES TO INVEST IN SHARES AND THE INTENTION OF THE ASSESSEE IS RELEVANT TO DETERMINE WHETHER HE IS CARRYING ON THE BUSINESS IN SHARES OR INVESTMENTS. THOUGH THE ABOVE SAID CIRCULAR WAS ISSUED AND THE DECISION OF HONBLE MADRAS HIGH COURT WAS RENDERED IN THE CONTEXT OF SHARE TRANSACT IONS, YET WE ARE OF THE VIEW THAT THE PRINCIPLE LAID DOWN THEREIN EQUALLY A PPLIES TO THE PRESENT CASE ALSO. IN THE INSTANT CASE, THE ASSESSEE IS E NGAGED IN THE BUSINESS OF LAND DEVELOPMENT AND SALE AND HENCE THE NORMAL PRES UMPTION WOULD BE THAT HE WOULD HAVE PURCHASED THE LAND ONLY WITH THE INTENTION TO HOLD THE SAME AS STOCK IN TRADE. HOWEVER, AS OBSERVED BY TH E HONBLE COURTS, THE ASSESSEE CANNOT BE PRECLUDED FROM HOLDING SOME OF T HE LANDS AS HIS INVESTMENTS. THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 8 LAND WOULD NORMALLY DECIDE AS TO WHETHER THE LAND F ORMS PART OF HIS STOCK IN TRADE OR IT WOULD FORM PART OF HIS INVESTMENT. 12. THE NEXT QUESTION THAT ARISES IS AS TO HOW TO ASCERTAIN THE INTENTION OF THE ASSESSEE IN ORDER TO DETERMINE ABOUT THE CLA SSIFICATION OF ASSETS, I.E., WHETHER THEY WERE HELD AS INVESTMENT OR AS STOCK IN TRADE. IN THIS REGARD, THE SETTLED PROPOSITION IS THAT THE AN SWER TO THE ABOVE SAID QUESTION WOULD DEPEND UPON CUMULATIVE CONSIDERATION OF A NUMBER OF FACTS. THE CIRCULAR ISSUED BY THE CBDT AND THE COU RTS HAVE LISTED OUT VARIOUS CRITERIA FOR THIS PURPOSE. WE MAY OBSERVE THAT THE CRITERIA SO LISTED OUT ARE NOT THE EXHAUSTIVE LIST, BUT THEY WERE IN T HE NATURE OF GUIDING FACTORS ONLY. ONE HAS TO CONSIDER ALL THE FACTORS IN A HOLISTIC MANNER IN ORDER TO DECIDE THE ABOVE SAID QUESTION. 13. WE NOTICE THAT THE LD CIT(A) HAS CORRECTLY POINTED OUT THAT THE MAIN FACTOR/CRITERIA IS THE DOMINANT INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF AN ASSET. IT IS ALSO PERTINENT TO N OTE THAT THE ENTRIES MADE IN THE BOOKS OF ACCOUNT ARE ONLY ONE OF THE FACTORS TO BE CONSIDERED, BUT THE SAME CANNOT BE THE SOLE DECIDING FACTOR. HOWEV ER, ONCE IT IS FOUND THAT THE ASSESSEE HAS HELD THE SHARES AS INVESTMEN T, THEN THE GAIN ARISING ON ITS SALE CAN BE ASSESSED AS CAPITAL GAIN S ONLY AND NOT AS BUSINESS PROFIT, AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. YATISH TRADING CO. PVT LTD (ITA NO. 1007 OF 2011 DATED 28-01- 2013). 14. THE JODHPUR BENCH (THIRD MEMBER) OF THE T RIBUNAL, IN THE CASE OF SMT. SUPRIYA KANWAR V/S ITO IN IT APPEAL NO. 362 (JU) OF 2010 (AY 2007-08) VIDE ORDER DATED 20.3.2014 HAS CONSIDE RED AN IDENTICAL ISSUE. THE RELEVANT OBSERVATIONS MADE BY THE THIRD MEMBER ARE EXTRACTED BELOW:- THE ISSUE AS TO WHETHER A PARTICULAR TRANSACTION AM OUNTS TO MERE SALE OF INVESTMENT OR AN ADVENTURE IN THE NATURE OF TRADE WAS SUBJECT MATTER OF SEVERAL JUDICIAL DECISIONS AND TH E APEX COURT HAVE ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 9 TIME AND AGAIN OBSERVED THAT NO PRINCIPLE CAN BE EV OLVED WHICH WOULD GOVERN THE DECISION OF ALL CASES IN WHICH THE CHARACTER OF THE IMPUGNED TRANSACTION FALLS TO BE CONSIDERED. IN THE CASE OF G. VENKATASWAMI NAIDU & CO. ( SUPRA ) THE COURT OBSERVED THAT EVEN AN ISOLATED TRANSACTION CAN SATISFY THE DESCRIPTION OF ADVENTURE IN THE NATURE OF TRADE AND METAPHORICALLY OBSERVED THAT A SINGLE PLUNGE IN THE WATERS OF TRADE MAY PARTAKE OF THE CHARACTER OF AN ADVENTURE IN THE NATURE OF TRADE BUT AT THE SAME TIME CAUTION ED THAT THE 'SINGLE PLUNGE MUST BE IN THE WATERS OF TRADE'. THE HON'BLE COURT OBSERVED THAT IT IS IMPOSSIBLE TO EVOLVE ANY FORMUL A WHICH CAN BE APPLIED IN DETERMINING THE CHARACTER OF ISOLATED TR ANSACTIONS; IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELLS IT AT A PROFIT, IT WO ULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE. MERELY BECAUSE IT IS SOLD AT A PRO FIT IT CANNOT BE ASSUMED THAT IT IS AN ADVENTURE IN THE NATURE OF TR ADE UNLESS OTHER CHARACTERS OF SUCH TRANSACTION SUPPORT SUCH STAND. IN DECIDING THE CHARACTER OF SUCH TRANSACTION SEVERAL FACTORS ARE T REATED AS RELEVANT - WAS THE PURCHASER A TRADER AND WERE THE PURCHASE OF THE COMMODITY AND ITS RESALE ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT? DID THE PURCHASER, BY ANY ACT SUB SEQUENT TO THE PURCHASE, IMPROVE THE QUALITY OF THE LAND AND THERE BY MADE IT MORE READILY RESALEABLE? WHAT WERE THE INCIDENTS AS SOCIATED WITH THE PURCHASE AND RESALE? - ETC. WILL HAVE TO BE TAK EN INTO CONSIDERATION AND A HOLISTIC VIEW HAS TO BE TAKEN. 15. WE SHALL EXAMINE THE FACTS PREVAILING IN THE IN STANT CASE UNDER VARIOUS FACTORS/CRITERIA. (A) WE NOTICE THAT THE ASSESSEE, IN HIS ACTIVITY O F DEVELOPMENT OF LAND AND SALE, WAS USED TO DIVIDE THE LAND INTO DIF FERENT PLOTS OF SMALL SIZES AFTER EARMARKING MAJOR PORTION OF LAND FOR ROADS, PUBLIC FACILITIES ETC. THE LAY OUT PLAN IS ALSO REQUIRED TO BE APPROVED BY A COMPETENT AUTHORITY. ANOTHER IMPORTANT FACTOR IS T HAT THE ASSESSEE WAS REQUIRED TO INCUR HUGE EXPENDITURE ON SUCH KIND OF DEVELOPMENT OF LAND. HOWEVER, IN THE CASE OF ASSETS HELD AS INVESTMENTS, NO SUCH DEVELOPMENT ACTIVITY SHALL B E CARRIED OUT. IN THE INSTANT CASE, THE ASSESSEE HAS INCURRED HUGE DE VELOPMENT EXPENSES IN RESPECT OF LAND HELD AS STOCK IN TRADE . IN FACT, THE ASSESSING OFFICER HIMSELF HAS DISALLOWED A MAJOR PA RT OF DEVELOPMENT EXPENSES. HOWEVER, IT IS AN ADMITTED FACT THAT THE ASSESSEE DID NOT DEVELOP THE LANDS HELD AS INVESTMENTS AND HE HAS SOLD THEM IN THE SAME CONDITION IN WHICH THEY WERE PURCHASED. ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 10 (B) WE HAVE ALREADY NOTICED THAT THE ASSESSEE H AS SUBMITTED THAT HE HAS DEMARCATED THE LANDS HELD AS STOCK IN TRADE AND THAT HELD AS INVESTMENT IN SEPARATE ACCOUNT. (C) FURTHER, WE NOTICE THAT THE ASSESSEE HAS SUBMI TTED THAT THE LANDS HELD AS STOCK IN TRADE HAS BEEN SOLD AFTER DE VELOPING THE LAND; CONVERTING THEM INTO PLOTS OF VARIOUS SIZES AFTER L AYING APPROACH ROADS. HOWEVER, THE LANDS HELD AS INVESTMENT HAS B EEN SOLD WITHOUT LAYING APPROACH ROADS, MEANING THEREBY THE LANDS WERE SOLD IN CONTINUOUS STRETCH. IT IS IN THE COMMON KNOWLED GE OF EVERYBODY THAT THE APPROACH ROADS ARE VITAL PART OF ANY DEVEL OPMENT ACTIVITY AND HENCE WITHOUT APPROACH ROADS, NOBODY WOULD COME TO PURCHASE THE PLOTS. THE FACT THAT THE ASSESSEE HAS SOLD THE LAND WITHOUT APPROACH ROADS ONLY PROVES THAT HE HAS SOLD THE LAN DS AS LAND ONLY. (D) THE LANDS HELD AS STOCK IN TRADE HAS BEEN SOLD WITHIN 1 3 YEARS. HOWEVER, THE LANDS HELD AS INVESTMENTS HA VE BEEN SOLD AFTER EXPIRY OF 4 YEARS. IF THE ASSESSEE HAD INTEN DED TO HOLD THE LANDS AS STOCK IN TRADE, HE WOULD HAVE STARTED THE DEVELOPMENT ACTIVITIES IMMEDIATELY AFTER ITS PURCHASE, SO THAT HE COULD MAKE QUICK PROFIT THERE FROM. THE FACT THAT THE ASSESSE E DID NOT CARRY ON ANY DEVELOPMENT ACTIVITY COUPLED WITH THE FACT THAT HE HAS HELD THEM FOR A LONG PERIOD OF ABOVE FOUR YEARS WOULD, I N FACT, SUPPORT THE CLAIM OF THE ASSESSEE. (E) THE ASSESSEE HAS SOLD THE LANDS HELD AS AGRI CULTURAL LANDS ONLY. HE DID NOT APPLY FOR RECLASSIFICATION OF LAND AS N ON-AGRICULTURAL. IF THE ASSESSEE HAD INTENDED TO HOLD AS STOCK IN TRAD E, HE WOULD HAVE APPLIED FOR RECLASSIFICATION OF LAND. (F) THE ASSESSEE HAS DECLARED AGRICULTURAL INCOME IN HIS RETURN OF INCOME, MEANING THEREBY, THE ASSESSEE WAS USING THE LAND AS AGRICULTURAL LAND, WHICH FURTHER FORTIFIES THE FACT THAT THE ASSESSEE HAS INTENDED TO HOLD THE LAND AS INVESTMENT ONLY. ALL THE ABOVE SAID FACTORS SUPPORT THE CASE OF THE ASSESSEE THAT HE HAS HELD THE IMPUGNED LANDS AS INVESTMENT ONLY. 16. THE NEXT ISSUE THAT REQUIRES TO BE CONSIDER ED IS ABOUT THE CHARACTER OF LAND. IN THIS REGARD WE MAY GAINFULLY REFER TO THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL MADRAS HIGH COURT IN THE CASE OF MRS. SAKUNTHALA ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 11 VEDACHALAM & MRS. VANITHA MANICKAVASAGAM VS. THE AC IT (TAX CASE (APPEAL) NOS. 566 AND 567 OF 2013 ORDER DATED 06- 08-2014) TO ASCERTAIN THE PRINCIPLES TO BE FOLLOWED IN ORDER TO ANSWER THIS QUESTION. IN THE ABOVE SAID CASE, THE ASSESSEES THEREIN SOLD CER TAIN LANDS WHICH WERE CLAIMED TO BE AGRICULTURAL LANDS. IN SUPPORT OF TH E SAID CLAIM, THEY DID NOT FURNISH ANY DOCUMENT BEFORE THE AO AND HENCE HE REJ ECTED THE CLAIM OF THE ASSESSEES. HOWEVER, BEFORE LD CIT(A), THEY FUR NISHED A COPY OF ADANGAL EXTRACT AND ALSO CLAIMED THAT THERE WERE CA SUARINAS CROPS GROWN IN THOSE LANDS AS SHOWN IN THE CHITTA ADANGAL, WHIC H INDICATED THAT THE LANDS WERE AGRICULTURAL LANDS. ACCORDINGLY, THE LD CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE, BUT HIS DECISION WAS REVERSED BY T HE TRIBUNAL BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. SIDDHARTH J DESAI (139 ITR 628). THE HONBLE GUJARAT HIGH CO URT, IN THE ABOVE CITED CASE HAD LAID DOWN VARIOUS TESTS THAT HAVE TO BE CO NSIDERED IN ORDER TO ASCERTAIN THE TRUE NATURE AND CHARACTER OF LAND. T HE HONBLE MADRAS HIGH COURT HAS EXTRACTED THE FOLLOWING OBSERVATIONS MADE BY THE HONBLE GUJARAT HIGH COURT:- ON A CONSPECTUS OF THESE CASES, SEVERAL FACTORS AR E DISCERNIBLE WHICH WERE CONSIDERED AS RELEVANT AND WHICH WERE WE IGHED AGAINST EACH OTHER WHILE DETERMINING THE TRUE NATURE AND CH ARACTER OF THE LAND. IT MAY BE USEFUL TO EXTRACT FROM THOSE DECIS IONS SOME OF THE MAJOR FACTORS WHICH WERE CONSIDERED AS HAVING A BEA RING ON THE DETERMINATION OF THE QUESTION. THOSE FACTORS ARE: (1) WHETHER THE LAND WAS CLASSIFIED IN THE REVENU E RECORDS AS AGRICULTURAL AND WHETHER IT WAS SUBJECT TO THE PAYM ENT OF LAND REVENUE? (2) WHETHER THE LAND WAS ACTUALLY OR ORDINARILY US ED FOR AGRICULTURAL PURPOSES AT OR ABOUT THE RELEVANT TIME ? (3) WHETHER SUCH USER OF LAND WAS FOR A LONG PERIO D OR WHETHER IT WAS OF TEMPORARY CHARACTER OR BY WAY OF A STOP-GAP ARRANGEMENT? ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 12 (4) WHETHER THE INCOME DERIVED FROM THE AGRICULTUR AL OPERATIONS CARRIED ON IN THE LAND BORE ANY RATIONAL PROPORTION TO THE INVESTMENT MADE IN PURCHASING THE LAND? (5) WHETHER THE PERMISSION UNDER S. 65 OF THE BOM BAY LAND REVENUE CODE WAS OBTAINED FOR THE NON-AGRICULTURAL USE OF THE LAND? IF SO, WHEN AND BY WHOM (THE VENDOR OR VENDEE)? WH ETHER SUCH PERMISSION WAS IN RESPECT OF THE WHOLE OR A PORTION OF LAND? IF THE PERMISSION WAS IN RESPECT OF A PORTION OF THE LAND AND IF IT WAS OBTAINED IN THE PAST, WHAT WAS THE NATURE OF THE US ER OF THE SAID PORTION OF THE LAND ON THE MATERIAL DATE? (6) WHETHER THE LAND, ON THE RELEVANT DATE, HAD C EASED TO BE PUT TO AGRICULTURAL USE? IF SO, WHETHER IT WAS PUT TO AN ALTERNATIVE USE? WHETHER SUCH USER AND/OR ALTERNATIVE USER WAS OF A PERMANENT OR TEMPORARY NATURE? (7) WHETHER THE LAND, THOUGH ENTERED IN REVENUE R ECORDS, HAD NEVER BEEN THERE WERE ACTUALLY USED FOR AGRICUL TURE, THAT IS, IT HAD NEVER BEEN PLO1UGHED OR TILLED? WHETHER THE OW NER MEANT OR INTENDED TO USE IT FOR AGRICULTURAL PURPOSES? (8) WHETHER THE LAND WAS SITUATE IN A DEVELOPED AR EA? WHETHER ITS PHYSICAL CHARACTERISTICS, SURROUNDING S ITUATION AND USE OF LANDS IN THE ADJOINING AREA WERE SUCH AS WOULD INDI CATE THAT THE LAND WAS AGRICULTURAL? (9) WHETHER THE LAND ITSELF WAS DEVELOPED BY PLOT TING AND PROVIDING ROADS AND OTHER FACILITIES? (10) WHETHER THERE WERE ANY PREVIOUS SALES OF POR TIONS OF LAND FOR NON-AGRICULTURAL USE? (11) WHETHER PERMISSION UNDER S. 63 OF THE BOMBAY TENANCY AND AGRICULTURAL LANDS ACT, 1948, WAS OBTAI NED BECAUSE THE SALE OR INTENDED SALE WAS IN FAVOUR OF A NON-AG RICULTURIST? IF SO, WHETHER THE SALE OR INTENDED SALE TO SUCH NON-AGRIC ULTURISTS WAS FOR NON-AGRICULTURAL OR AGICULTURE USER? (12) WHETHER THE LAND WAS SOLD ON YARDAGE OR ON AC REAGE BASIS? (13) WHETHER AN AGRICULTURIST WOULD PURCHASE THE LAND FOR AGRICULTURAL PURPOSES AT THE PRICE AT WH ICH THE LAND WAS SOLD AND WHETHER THE OWNER WOULD HAVE EVER SOLD TH E LAND VALUING ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 13 IT AS A PROPERTY YIELDING AGRICULTURAL PRODUCE ON T HE BASIS OF ITS YIELD? AT THE RISK OF REPETITION, WE MAY MENTION THAT NOT ALL OF THESE FACTORS WOULD BE PRESENT OR ABSENT IN ANY CASE AND THAT IN EACH CASE ONE OR MORE OF THOSE FACTORS MAY MAKE APPEARANCE AND THAT THE ULTIMATE DECISION WILL HAVE TO BE REACHED ON A BALANCED CONS IDERATION OF THE TOTALITY OF CIRCUMSTANCES. THE TRIBUNAL, IN THE CASE BEFORE THE HONBLE MADRAS HIGH COURT, HAD HELD THAT THE ASSESSEES, IN THE ABOVE CITED CASE, COULD NOT SATISFY ANY OF THE CONDITIONS EXCEPT CONDITION NOS. 1, 5, 11 AND 12 AN D ACCORDINGLY HELD THAT THE ASSESSEES COULD NOT PROVE THAT THE LANDS WAS AC TUALLY OR ORDINARILY USED FOR AGRICULTURAL PURPOSES. THIS VIEW OF THE T RIBUNAL WAS NOT ACCEPTABLE TO THE HONBLE MADRAS HIGH COURT. THE R ELEVANT OBSERVATIONS MADE BY THE HIGH COURT IN THIS REGARD ARE EXTRACTED BELOW:- 13....THIS REASONING DOES NOT APPEAR TO BE CORREC T IN VIEW OF THE ABOVE SAID DECISION OF THE GUJARAT HIGH COURT, WHER EIN IT WAS CLEARLY HELD IN CLAUSE (1) IN PARAGRAPH 11 THAT WHETHER THE LAND WAS CLASSIFIED IN THE REVENUE RECORDS AS AGRICULTURAL A ND WHETHER IT WAS SUBJECT TO THE PAYMENT OF LAND REVENUE HAS TO BE CO NSIDERED FOR GRANT OF EXEMPTION. 14. THUS IT IS EVIDENT FROM THE ABOVE, WHICH CL EARLY STATES THAT ANY ONE OF THE ABOVE FACTORS CAN BE PRESENT IN A CA SE TO QUALIFY FOR THE BENEFIT OF CLASSIFICATION AS AGRICULTURAL LANDS . IN THIS CASE, THE ASSESSEES HAVE QUALIFIED UNDER CLAUSE 11(1) SINCE A S PER THE ADANGAL RECORDS, THESE LANDS WERE CLASSIFIED AS AGR ICULTURAL LANDS AND THE ASSESSEES HAVE ALSO PAID REVENUE KIST, NAME LY, REVENUE PAYMENT. THEREFORE, THE TRIBUNAL HAS MISCONSTRUED THE JUDGMENT OF THE GUJARAT HIGH COURT (SUPRA) THAT ALL CONDITIONS LAID DOWN IN PARAGRAPH 11 SHOULD BE SATISFIED, WHICH IS NOT A CO RRECT INTERPRETATION. THE HONBLE MADRAS HIGH COURT FURTHER REJECTED THE CONTENTIONS OF THE REVENUE THAT HE ADJACENT LANDS ARE PUT TO COMMERCIA L USE BY WAY OF PLOTS. THE FOLLOWING OBSERVATIONS MADE BY THE HIGH COURT A RE RELEVANT HERE:- 17. YET OTHER REASON GIVEN BY THE TRIBUNAL IS THA T THE ADJACENT LANDS ARE PUT TO COMMERCIAL USE BY WAY OF PLOTS AND THEREFORE, THE ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 14 VERY CHARACTER OF THE LANDS OF THE ASSESSEES IS DOU BTED AS AGRICULTURAL IN NATURE. THE MANNER IN WHICH THE ADJ ACENT LANDS ARE USED BY THE OWNER THEREIN IS NOT A GROUND FOR THE T RIBUNAL TO COME TO A CONCLUSION THAT THE ASSESSEES LANDS ARE NOT A GRICULTURAL IN NATURE. THE REASON GIVEN BY THE TRIBUNAL THAT THE ADJACENT LANDS HAVE BEEN DIVIDED INTO PLOTS FOR SALE WOULD NOT MEA N THAT THE LANDS SOLD BY THE ASSESSEES WERE FOR THE PURPOSE OF DEVEL OPMENT OF PLOTS. ALSO THE REASONING GIVEN BY THE TRIBUNAL NO AGRICU LTURISTS WOULD HAVE PURCHASED THE LAND SOLD BY THE ASSESSEE FOR PU RSUING ANY AGRICULTURAL ACTIVITY IS BASED ON MERE CONJECTURES AND SURMISES. 18. THE PLEA OF THE LEARNED STANDING COUNSEL APPEA RING FOR THE REVENUE THAT THERE WAS NO AGRICULTURAL OPERATIONS P RIOR TO THE DATE OF SALE IS OF NO AVAIL AS THE DEFINITION UNDER SECT ION 2(14) OF THE INCOME TAX ACT HAS THE ANSWER TO SUCH A PLEA RAISED . FURTHERMORE, IT IS ALSO ON RECORD THAT THE LANDS ARE AGRICULTURA L LANDS CLASSIFIED AS DRY LANDS, FOR WHICH KISTS HAS BEEN PAID. 19. THE VIEW OF THE ASSESSEE IS FORTIFIED BY THE DECISION REPORTED IN (1937) 32 ITR 466 (COMMISSIONER OF INCOME TAX V RAJA BENOY KUMAR SAHAS ROY) WHEREIN, IT IS HELD AS FOLLOWS: THERE WAS AUTHORITY FOR THE PROPOSITION THAT THE E XPRESSION AGRICULTURAL LAND MENTIONED IN ENTRY 21 OF LIST I I OF THE SEVENTH SCHEDULE TO THE GOVERNMENT OF INDIA ACT, 19 35, SHOULD BE INTERPRETED IN ITS WIDER SIGNIFICANCE AS INCLUDING LANDS WHICH ARE USED OR ARE CAPABLE OF BEING USED F OR RAISING ANY VALUABLE PLANTS OR TREES OR FOR ANY OTHER PURPO SE OF HUSBANDRY (SEE SAROJINIDEVI V. SHRI KRISHNA ANJANNE YA SUBRAHMANYAM AND OTHER (1) AND MEGH RAJ V. ALLA RAK HIA (2)). ACCORDINGLY, THE HONBLE MADRAS HIGH COURT REVERSED THE DECISION OF THE TRIBUNAL AND RESTORED THE ORDER OF LD CIT(A) 17. WE SHALL NOW APPLY THE PRINCIPLES DISCUSSED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF MRS. SAKUNTHALA VEDHACHAL AM AND MRS. VANITHA MANICKAVASAGAM (SUPRA) TO THE FACTS PREVAILING IN T HE INSTANT CASE. WE SHALL FIRST EXAMINE THE VARIOUS CRITERIA LAID DOWN BY THE HONBLE GUJARAT HIGH COURT TO THE FACTS OF THE INSTANT CASE. ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 15 (A) THE LAND HAS BEEN CLASSIFIED AS AGRICULTURAL L AND IN REVENUE RECORDS. (B) THE ASSESSEE HAS DECLARED AGRICULTURAL INCOME, MEANING THEREBY, HE HAS USED THE LANDS FOR AGRICULTURAL PUR POSES. (C) THE ASSESSEE HAS HELD THE LAND FOR MORE THAN FOUR YEARS, MEANING THEREBY IT WAS NOT A STOP-GAP ARRANGEMENT. (D) THE AGRICULTURAL INCOME DISCLOSED BY THE ASS ESSEE FOR THE YEAR UNDER CONSIDERATION WAS RS.4,60,000/- AND THE COST OF INVESTMENT IN PURCHASE OF LANDS WAS RS.1.36 CRORES. THE CORRECTNE SS OR OTHERWISE OF THIS INCOME WAS NOT ASCERTAINABLE. (E) THE ASSESSEE HAS SUBMITTED THAT HE HAS SOLD T HE LANDS AS AGRICULTURAL LANDS ONLY AND NO PERMISSION WAS OBTAI NED FOR NON- AGRICULTURAL USE OF THE LAND. (F) THERE IS NO FINDING OF TAX AUTHORITIES THAT T HE LAND HAS BEEN CEASED TO BE PUT TO AGRICULTURAL USE. (G) THERE IS NO FINDING OF TAX AUTHORITIES THAT T HE LAND HAS NEVER BEEN ACTUALLY USED FOR AGRICULTURE. (H) ACCORDING TO THE AO, THE LANDS WERE LOCATED I N FAST DEVELOPING AREA, WHERE INDUSTRIES ARE COMING UP. HOWEVER, ACC ORDING TO HONBLE MADRAS HIGH COURT, THE MANNER OF USAGE OF A DJACENT LANDS WAS NOT A GROUND TO COME TO THE CONCLUSION THAT THE ASSESSEES LANDS ARE NOT AGRICULTURAL IN NATURE. (I) THE LANDS HAVE NOT BEEN DEVELOPED BY PLOTTING AND PROVIDING ROAD AND OTHER FACILITIES. (J) THERE WAS NO INSTANCE OF SALE OF PORTION OF IM PUGNED LANDS FOR NON-AGRICULTURAL USE. (K) NO PERMISSION WAS OBTAINED FOR NON-AGRICULTUR AL USE BEFORE SALE. (L) THE LANDS HAVE NOT BEEN SOLD ON YARDAGE BASIS, BUT HAVE BEEN SOLD ON CENTS/ACREAGE BASIS. ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 16 (M) THE QUESTION AS TO WHETHER AN AGRICULTURIST WO ULD PURCHASE THE LAND FOR AGRICULTURAL PURPOSES AT THE PRICES AT WHI CH THE LAND WAS SOLD, WAS NOT ASCERTAINABLE. THUS, WE NOTICE THAT THE LANDS SOLD BY THE ASSESSEE SATISFY MOST OF THE CRITERIA PRESCRIBED BY THE HONBLE GUJARAT HIGH COU RT. WE HAVE ALSO NOTICED THAT THE HONBLE MADRAS HIGH COURT HAS HELD THAT IT WAS NOT NECESSARY THAT THE LAND SHOULD SATISFY ALL THE CRIT ERIA PRESCRIBED BY THE HONBLE GUJARAT HIGH COURT. HENCE, WE HAVE NO HESI TATION IN HOLDING THAT THE IMPUGNED LANDS SHOULD BE ACCEPTED AS AGRICULTU RAL LANDS ONLY. 18. THE REASONS GIVEN BY THE AO FOR REJECTING TH E CLAIM OF AGRICULTURAL LAND WERE DISCUSSED BY US IN AN EARLIER PARAGRAPH. WE SHALL NOW EXAMINE THEM WITH THE PRINCIPLES LAID DOWN BY THE HONBLE C OURTS ALONG WITH THE SUBMISSIONS MADE BY THE ASSESSEE IN THAT REGARD. (A) THE LANDS HAVE BEEN ACQUIRED THROUGH POWER OF ATTORNEY OR SALE AGREEMENT AND WERE NOT REGISTERED IN THE NAME OF TH E ASSESSEE. SUBMISSSION OF THE ASSESSEE:- POWER OF ATTORNEY IS COUPLED WITH INTEREST MAKES THE ASSESSEE IS OWNER U/S 2(47) OF T HE ACT. FURTHER THERE IS NO DISPUTE WITH REGARD TO THE OWNERSHIP AN D ENJOYMENT OF PROPERTY. SEC. 2(47) OF THE INCOME TAX ACT PROVIDE S FOR TAXATION OF POWER OF ATTORNEY TRANSACTIONS. RIGHT TO EXPLOIT I S A CAPITAL ASSET AS HELD BY HONBLE MADRAS HIGH COURT IN THE CASE OF A. R.KRISHNAMURTHY AND A.R. RAJAGOPALAN VS. CIT (133 ITR 922). (B) THE ASSESSEE IS A PROPERTY DEVELOPER AND IS EN GAGED IN PURCHASE OF LAND. HENCE THE PURCHASE AND SALE OF LAND IS HIS R EGULAR BUSINESS ACTIVITY. SUBMISSION OF THE ASSESSEE:- THE ASSESSEE IS ENTIT LED TO MAINTAIN TWO DIFFERENT PORTFOLIOS, ONE FOR STOCK IN TRADE AND ANOTHER ONE FOR INVESTMENT AS PER THE DECISIONS OF VARIOUS HIGH C OURTS. THE INTENTION OF THE ASSESSEE WAS TO HOLD THESE AGRICUL TURAL LANDS AS INVESTMENT ONLY. (C) THE ASSESSEE DID NOT CARRY ON ANY AGRICULTURAL ACTIVITY. SUBMISSION OF THE ASSESSEE:- THE ASSESSEE HAS DECL ARED AGRICULTURAL INCOME IN THE RETURNS OF INCOME FILED BY HIM. FURTH ER, THE ASSESSEE ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 17 HAS ALSO FILED CERTIFICATES OBTAINED FROM VILLAGE A DMINISTRATIVE OFFICER TO PROVE THE FACT OF USE AS AGRICULTURAL LANDS. (D) SOME OF THE LANDS SOLD BY THE ASSESSEE HAVE BE EN CATEGORIZED AS RESIDENTIAL LAND BY THE SUB-REGISTRAR OFFICE. HO WEVER, IN RESPECT OF REMAINING LANDS, THE DETAILS OF WHICH WERE FILED BY THE ASSESSEE, THEY HAVE BEEN CATEGORIZED AS WET LAND SINGLE CROP. SUBMISSION OF THE ASSESSEE:- THE CLASSIFICATION IS MADE IN THE SUB- REGISTRAR OFFICER FOR THE PURPOSE OF COLLECTION OF STAMP DUTY AND HENCE SUCH CLASSIFICATION WOULD NOT DETERMINE THE C HARACTER OF LAND. THE FACT REMAINS THAT THE ASSESSEE HAS CULTIVATED T HE LANDS AND HAS DECLARED AGRICULTURAL INCOME, WHICH IS ALSO SUPPORT ED BY THE CERTIFICATE OF THE VILLAGE ADMINISTRATIVE OFFICER. (E) THE LANDS HAVE BEEN SOLD IN SMALL PLOTS, WHIC H POINTS OUT THAT THE LAND HAS BEEN PURCHASED BY THE INTENDING PURCHASER FOR INVESTMENT OR CONSTRUCTION AND NOT FOR CARRYING ON AGRICULTURAL A CTIVITY. SUBMISSION OF THE ASSESSEE:- THIS IS AGAINST THE F ACTS. THE ASSESSEE DID NOT DEVELOP THESE LANDS BY FORMING ROA DS ETC., BUT HAS SOLD AS AGRICULTURAL LANDS ONLY IN CENTS AND ACRES AND NOT IN SQUARE FEET, WHICH IS THE NORMAL CASE IN CASE OF HOUSING PLOTS. LANDS HAVE BEEN SOLD IN CONTINUOUS STRETCHES WITHOUT CREATING ANY ROAD FOR ACCESS. (F) THE LANDS HAVE BEEN SOLD AT AROUND 1.75 LACS T O 2 LACS PER CENT AND NORMALLY AGRICULTURAL LANDS DO NOT FETCH SUCH A HIG H PRICE. SUBMISSION OF THE ASSESSEE:- FUTURE POTENTIAL IS N OT RELEVANT AND THE CHARACTER OF LAND AS ON THE DATE OF SALE IS MOR E RELEVANT AS HELD BY THE HYDERABAD BENCH OF ITAT IN THE CASE OF DCIT VS. M. KALYAN CHAKRAVARTHY (ITA NO.729/HYD/2013 DATED 24.10.2014) AND THE THIRD MEMBER DECISION OF JODHPUR IN SUPRIYA KANWAR VS. ITO (ITA NO.362/JU/2010 DATED 13.5.2014). IN THE CASE OF M. KALYAN CHAKRAVARTHY (SUPRA), THE HYDERABAD BENCH HAS FOLLO WED THE DECISION RENDERED BY THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF M.S. SRINIVASA NAICKER AND OTHERS VS. ITO ( 292 ITR 481). (G) THE LANDS ARE SITUATED IN A FAST DEVELOPING AR EA WHERE INDUSTRIES ARE COMING UP. SUBMISSION OF THE ASSESSEE:- IN THE CASE OF MRS. S AKUNTHALA VEDACHALAM AND MRS. VANITHA MANICKAVASAGAM (SUPRA), THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT THE MANNER IN WHICH THE ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 18 ADJACENT LANDS ARE USED BY THE OWNER THEREIN IS NOT A GROUND TO COME TO A CONCLUSION THAT THE ASSESSEES LANDS ARE NOT AGRICULTURAL LANDS. (H) THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD (100 ITR 706) HAS HE LD THAT IF A TRANSACTION IS IN THE ASSESSEES ORDINARY LINE OF BUSINESS, THE RE CAN BE NO DIFFICULTY IN HOLDING THAT IT IS IN THE NATURE OF TRADE. SUBMISSION OF THE ASSESSEE:- THE PRINCIPLE THAT TH E ASSESSEE CAN HOLD ASSETS EITHER AS STOCK IN TRADE OR AS INVES TMENT IS NOW RECOGNIZED. 19. ON A COMBINED CONSIDERATION OF THE REASONS GIVEN BY THE ASSESSING OFFICER AND THE SUBMISSIONS MADE BY THE ASSESSEE, W E ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS OF THE ASSESSEE, IN VIEW OF THE PRINCIPLES DISCUSSED IN VARIOUS DECISIONS RENDERED BY THE HON BLE HIGH COURTS, WHICH WE HAVE DISCUSSED IN DETAILED MANNER IN THE EARLIER PARAGRAPHS. FURTHER, WE NOTICE THAT THE LD CIT(A) HAS UPHELD THE VIEW OF THE ASSESSING OFFICER WITHOUT EXAMINING THE FACTS PREVAILING IN THIS CASE . HENCE, WE ARE UNABLE TO SUSTAIN HIS ORDER. THE LD A.R ALSO CONTENDED TH AT THE GAIN ARISING ON SALE OF AGRICULTURAL LANDS, WHICH ARE SITUATED OUTS IDE THE PRESCRIBED LOCAL LIMITS SHOULD BE CONSIDERED AS AGRICULTURAL INCOME EXEMPT U/S 10(1) OF THE ACT AND IN SUPPORT OF THIS CONTENTION, THE LD A.R A LSO PLACED RELIANCE ON FEW CASE LAWS. HOWEVER, WE DO NOT FIND IT NECESSAR Y TO EXAMINE THIS CONTENTION, IN VIEW OF OUR DECISION DISCUSSED ABOVE . ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRE CT THE AO TO DELETE ASSESSMENT OF GAIN ARISING ON SALE OF AGRICULTURAL LAND. 20. NOW WE SHALL TAKE UP THE APPEAL FILED BY THE RE VENUE. WE HAVE ALREADY NOTICED THAT THE AO HAS DISALLOWED THE CLAI M OF DEVELOPMENT EXPENDITURE TO THE TUNE OF RS.12.09 CRORES. THE AS SESSEE HAD CLAIMED THE DEVELOPMENT EXPENSES OF RS.26.56 CRORES IN HIS BUSI NESS VENTURE OF LAND DEVELOPMENT AND SALE. BEFORE THE AO, THE ASSESSEE DID NOT FURNISH THE EVIDENCES IN SUPPORT OF THE CLAIM OF DEVELOPMENT EX PENSES. THE AO ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 19 NOTICED THAT THE ASSESSING OFFICER HAD DISALLOWED P ART OF DEVELOPMENT EXPENSES CLAIMED IN THE CASE OF ASSESSEES SISTER C ONCERN NAMED M/S JUBILEE PLOT AND HOUSING PVT LTD. THE EXPENSES ALL OWED IN THE ABOVE SAID SISTER CONCERN WORKED OUT TO 43.06% OF THE GROSS SA LE RECEIPTS. ACCORDINGLY, THE AO RESTRICTED THE DEVELOPMENT EXPE NSES TO 43.06% OF THE GROSS SALE RECEIPTS AND DISALLOWED THE BALANCE AMOU NT. 21. HOWEVER, THE LD. CIT(A) NOTICED THAT THE IDE NTICAL DISALLOWANCE MADE IN THE ASSESSEES SISTER CONCERN M/S JUBILEE PLOT A ND HOUSING PVT. LTD HAS BEEN DELETED BY HIM AND ACCORDINGLY HE DELETED THE ADDITION MADE IN THE ASSESSEES CASE ALSO. AGGRIEVED, THE REVENUE HAS F ILED APPEAL CHALLENGING THE DECISION OF LD CIT(A) ON THIS ISSUE. 22. THE LD. DR SUBMITTED THAT THE ASSESSEE IN THE P RESENT CASE DID NOT FURNISH EVIDENCES TO SUBSTANTIATE THE CLAIM OF DEVE LOPMENT EXPENSES. HOWEVER, IN THE CASE OF M/S JUBILEE PLOT AND HOUSIN G PVT. LTD., THE ASSESSEE THEREIN HAD FURNISHED EVIDENCES BEFORE THE AO AND ADDITION WAS MADE ON THE GROUND THAT THERE WERE SELF MADE VOUCHE RS. ACCORDINGLY, THE LD. DR SUBMITTED THAT THERE IS NO PARITY OF FACTS B ETWEEN THE ASSESSEES CASE AND THAT OF M/S JUBILEE PLOT AND HOUSING PVT. LTD. AND HENCE THE ASSESSEE COULD NOT DRAW SUPPORT FROM THE SAID DECIS ION. 23. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION BY FOLLOWING THE ASS ESSMENT ORDER PASSED IN THE CASE OF M/S JUBILEE PLOT AND HOUSING PVT. LTD. THE ADDITION SO MADE IN THE HANDS OF ABOVE SAID ASSESSEE HAS BEE N DELETED BY THE LD CIT(A) AND HIS ORDER HAS SINCE BEEN APPROVED BY THE TRIBUNAL VIDE ITS ORDER DATED 21.6.2013 PASSED IN ITA NO.1097/MDS/201 1 AND ITA NO.1315/MDS/2011 RELATING TO ASSESSMENT YEARS 2007- 08 AND 2008-09 RESPECTIVELY. ACCORDINGLY, THE LD. AR SUBMITTED T HAT THERE WAS NO BASIS OR MATERIAL WITH THE AO TO MAKE THE IMPUGNED DISALLOWA NCE AND ACCORDINGLY PRAYED THAT THE ORDER OF LD. CIT(A) ON THIS ISSUE S HOULD BE UPHELD. ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 20 24. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE AND PERUSED THE RECORD. THE FACT REMAINS THAT THE ASSESSEE HAS DE VELOPED THE LAND, I.E., HE HAS LAID ROADS, DIVIDED THE LAND INTO VARIOUS PL OTS AFTER LEVELING ETC. IT IS IN THE COMMON KNOWLEDGE OF EVERYBODY THAT THE AS SESSEE SHOULD HAVE INCURRED HUGE EXPENDITURE, WITHOUT WHICH HE COULD N OT HAVE SOLD THE PLOTS. WE FURTHER NOTICE THAT THE AO HAS FOLLOWED THE METH OD ADOPTED IN THE CASE OF M/S JUBILEE PLOT AND HOUSING PVT. LTD. FOR COMPUTING THE DISALLOWANCE I.E. THE AO ALLOWED ONLY 43.06 % OF TH E TOTAL RECEIPTS AS DEVELOPMENT EXPENSES, MEANING THEREBY THE ASSESSING OFFICER HAS ACCEPTED THE EXPENDITURE CLAIM TO THE TUNE OF ABOUT 57% ONLY. THERE SHOULD NOT BE ANY DISPUTE THAT THE QUANTUM OF DEVEL OPMENT EXPENSES WOULD VARY FROM PLACE TO PLACE AND THE SAME WOULD D EPEND UPON VARIOUS FACTORS, LIKE CHARACTERISTICS OF THE LAND I.E., WHE THER THEY ARE PLAIN OR NOT, ITS DEPTH FROM THE ROAD LEVEL, EXTENT OF THE LAND, SIZE AND PATTERN OF LAND, ITS LOCATION, NUMBER OF PLOTS TO BE CARVED OUT, WID TH AND LENGTH OF THE ROADS ETC. ACCORDINGLY, WE ARE OF THE VIEW THAT TH E AO WAS NOT RIGHT IN FOLLOWING THE ASSESSMENT ORDER IN THE CASE OF M/S J UBILEE PLOT AND HOUSING PVT LTD, WITHOUT BRINGING ANY MATERIAL ON RECORD TO SHOW THAT THERE WAS PARITY OF FACTS BETWEEN THE ASSESSEES LAND AND THE LAND DEVELOPED BY M/S JUBILEE PLOT AND HOUSING PVT. LTD. FURTHER AS CONT ENDED BY LD A.R, THE ASSESSING OFFICER DID NOT BRING ANY OTHER MATERIAL TO SUPPORT HIS VIEW. HENCE, WE ARE NOT ABLE TO APPROVE THE METHOD ADOPTE D BY THE AO FOR WORKING OUT THE DISALLOWANCE. 25. AT THE SAME TIME, THE LD. DR HAS POINTED OUT TH AT M/S JUBILEE PLOT AND HOUSING PVT. LTD. HAS FURNISHED VOUCHERS BEFORE THE AO, WHEREAS IN THE INSTANT CASE, THE ASSESSEE HAS FAILED TO PRODUC E VOUCHERS BEFORE THE AO. 26. UNDER THESE SET OF FACTS, WE ARE OF THE VIE W THAT THE LD CIT(A) WAS NOT CORRECT IN DELETING THE ENTIRE AMOUNT OF DISALL OWANCE BY SIMPLY ITA. NO.70/MDS/2012 ITA. NO.593/MDS/2012 21 FOLLOWING THE DECISION IN THE CASE OF M/S JUBILEE P LOT AND HOUSING PVT. LTD. SINCE THERE IS FAILURE ON THE PART OF THE ASSESSEE ALSO, WE ARE OF THE VIEW SOME DISALLOWANCE IS CALLED FOR IN ORDER TO COVER U P THE DEFICIENCIES, IF ANY AND ALSO TO PUT THIS ISSUE AT REST. ACCORDINGLY, WE ARE OF THE VIEW THIS ISSUE WOULD MEET THE ENDS OF JUSTICE, IF THE DISALL OWANCE IS RESTRICTED TO A LUMP SUM OF RS.50.00 LAKHS IN ORDER TO COVER UP THE DEFICIENCIES, IF ANY. WE ORDER ACCORDINGLY. 27. IN THE RESULT, THE APPEAL FILED BY THE ASS ESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN CO URT ON MAR, 2015 . 01& . # 2 34 11 TH MARCH, 2015 1 - 5 6 SD/- SD/- ( ! ) ( . . ) ( VIKASAWASTHY) (B.R. BASKARAN) ' /JUDICIAL MEMBER /ACCOUNTANT MEMBER /CHENNAI, 3 /DATED, 11 TH MARCH, 2015. SRL: G - ('/H I &/ /COPY TO: 1. !' /APPELLANT 2. ()!' /RESPONDENT 3. . J/ ( ) /CIT(A)-V, CHENNAI-34 4. . J/ /CIT, CHENNAI-III, CHENNAI-34 5. K5 ('/' /DR 6. 5L% M /GF.