Smt. Heenaben Bhadreshkumar Mehta, Bhuj V. The Dy. Commr. of Income Tax, Cen. Cir.-2, RAJKOT-GUJARAT

ITA 99/RJT/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6832 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C S ANJARIA
• Assessee Lawyers: DM RINDANI
• Keywords: Gift; Business income; Corroborative evidences
• Section: 143(3); 2(14); 142(1); 63

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA NOS. 259 /RJT/2014 AND ITA NO.99/RJT/2016 / ASSESSMENT YEARS: 2009-10 SMT. HEENABEN B. MEHTA KATIRA SUPER CITY R.T.O., RELOCATION SITE BHUJ KUTCH. VS ITO, WARD 1, BHUJ. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI D.M. RINDANI, AR REVENUE BY : SHRI C.S. ANJARIA, DR / DATE OF HEARING : 08/11/2017 /DATE OF PRONOUNCEMENT : 06/12/2017 PER RAJPAL YADAV, JUDICIAL MEMBER: THESE ARE TWO APPEALS BY THE ASSESSEE; ONE IS AGAIN ST QUANTUM ADDITION MADE UNDER SECTION 143(3) AND OTHER FOR IM POSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 . BOTH THESE TWO APPEALS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. FIRST WE TAKE UP QUANTUM APPEAL I.E. ITA NO.259/AHD/2014. 2. SOLE COMMON ISSUE INVOLVED IN THIS QUANTUM APPEA L OF THE ASSESSEE RELATES TO DETERMINATION OF NATURE OF INCO ME DERIVED BY THE ASSESSEE ON SALE OF LAND, I.E. WHETHER THE PROFIT O N SALE OF LAND IS TO BE ASSESSED AS BUSINESS INCOME OR UNDER THE HEAD CAPIT AL GAIN. ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 2 - 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA S FILED HER RETURN OF INCOME ON 2.10.2009 DECLARING TOTAL INCOME AT RS.1, 53,440/-. HER CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICES U/ S. 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTI NY OF ACCOUNTS IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAS SHOWN A PROFIT OF RS.68,18,800/- FROM SALE OF LAND AT SURVEY NO.539/1 AT VILLAGE : PADHAR, TALUKA-DISTRICT, BHUJ ADMEASURING 4.01 HECTORS. THE SAME WAS CLAIMED BY THE ASSESSEE AS EXEMPT AS AGRICULTURE LAND AND F ALLS OUTSIDE PURVIEW OF SECTION 2(14) OF THE ACT. ACCORDING TO THE ASSE SSEE, THE SAID LAND WAS PURCHASED BY THE ASSESSEES FATHER FOR RS.54,000/- AND GIFTED TO HER. THE LD.AO DID NOT ACCEPT CONTENTIONS OF THE ASSESSEE AN D TREATED HER AS A TRADER IN THE LAND. HE ASSESSED THE ALLEGED PROFIT AND SALE OF LAND AS BUSINESS INCOME. ON APPEAL, THE LD.CIT(A) HAS CONF IRMED ACTION OF THE AO BY TREATING THE ASSESSEE AS TRADER IN LAND AND A SSESSED THE PROFIT AS BUSINESS INCOME. IN THIS WAY, ASSESSEE IS CHALLENG ING ORDER OF THE LD.CIT(A). THUS, THE ISSUE BEFORE US IS, WHETHER T OTAL AMOUNT OF RS.68,18,800/- EARNED BY THE ASSESSEE AS PROFIT FRO M SALE OF LAND IS TO BE ASSESSED AS BUSINESS INCOME OR IT IS TO BE ASSESSED AS A CAPITAL GAIN, WHICH IS EXEMPT FROM TAX UNDER SECTION 2(14) R.W.S. 45 OF THE ACT. 4. WITH THE ASSISTANCE OF LD. REPRESENTATIVE, WE HA VE GONE THROUGH THE RECORD. THE ISSUE, WHETHER GAIN FROM SALE OF AG RICULTURAL LAND IS TO BE ASSESSED AS A BUSINESS INCOME OR SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN, IS A HIGHLY DEBATABLE ISSUE. IT ALWAY S PUZZLED THE ADJUDICATOR EVEN AFTER AVAILABILITY OF LARGE NUMBER S OF AUTHORITATIVE PRONOUNCEMENTS BY THE HONBLE SUPREME COURT/HONBLE HIGH COURT. ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 3 - THE REASON FOR THE PUZZLE IS, ONE HAS TO GATHER THE INTENTION OF AN ASSESSEE WHILE HE ENTERED INTO THE TRANSACTION. THE EXPRESSION INTENTION AS DEFINED IN MERIAM WEBSTER DICTIONARY MEANS, WHAT ONE INTENDS TO ACCOMPLISH OR ATTAIN, IT IMPLIES LITTLE MORE THAN WHAT ONE HAS IN MIND TO DO OR BRING OUT. IT SUGGESTS CLEAR FORMU LATION OR DELIBERATION. THUS, IT IS ALWAYS DIFFICULT TO ENTER INTO THE RECE SS OF THE MIND OF AN ASSESSEE TO FIND OUT THE OPERATIVE FORCES EXHIBITIN G THE INTENTION FOR ENTERING INTO THE TRANSACTION. THIS WOULD GIVE RISE A DEBATE. NEVERTHELESS, WE HAVE TO LOOK INTO THE CURIOUS FEAT URES OF THIS CASE WHICH WILL GOAD US ON JUST CONCLUSION. 5. BEFORE WE EMBARK UPON AN INQUIRY ON THE FACTS OF PRESENT CASE SO AS TO FIND OUT, WHETHER ASSESSEE IS TO BE TERMED AS INVOLVING IN THE TRADING OF LAND OR TO BE TREATED AS A SIMPLICITOR AGRICULTURIST. W E WOULD LIKE TO REFER THE THREE BASIC QUESTIONS FORMULATED BY LD. FIRST APPELLATE AUTHORITY FOR ADJUDICATING THE CONTROVERSY. THESE Q UESTIONS ARE AS UNDER:- I. IS THE SOLD LAND AGRICULTURAL LAND ? II. WHETHER THE TRANSACTION CARRIED OUT BY THE APPE LLANT WAS ADVENTURE IN THE NATURE OF TRADE AND THE PROFITS THUS REQUIRED TO BE TAXED AS BUSINESS INCOME ? III. IS THE TRANSACTION A SHAM TRANSACTION AND CAN IT BE LABELED AS A COLOURABLE DEVICE ? 6. LD. FIRST APPELLATE AUTHORITY HAS MADE A LUCID E NUNCIATION OF LAW AND FACTS UNDER EACH QUESTION. SHE DID NOT ACCEPT T HAT THE LAND SOLD BY THE ASSESSEE WAS AGRICULTURAL LAND. SHE ACCEPTED TH AT THE TRANSACTION WAS NOT SHAM OR COLOURABLE TRANSACTION. ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 4 - 7. THE ASSESSEE IS NOT DISPUTING CONCLUSIONS OF CIT (A) QUA LAST QUESTION. THUS, THE CONTROVERSY BETWEEN ASSESSEE AN D REVENUE BOILS DOWN TO QUESTION NO.1 AND 2 FORMULATED BY THE LD.CI T(A). THE LD. FIRST APPELLATE AUTHORITY HAS TREATED THE ASSESSEE AS IND ULGED IN ADVENTURE IN THE NATURE OF TRADE AND THUS THE PROFIT RESULTED TO HER HAS BEEN ASSESSED AS A BUSINESS INCOME. 8. WHILE APPRECIATING THE CONTROVERSY, LD. FIRST AP PELLATE AUTHORITY TOOK INTO CONSIDERATION. THE BROAD PRINCIPLES LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SID DHARTH J. DESAI [1983] 139 ITR PAGE 628/10. ALONGWITH THE TEST PROPOUNDED BY HONBLE JURISDICTIONAL HIGH COURT, LD. FIRST APPELLATE AUTH ORITY HAS CONSIDERED THE REPLY GIVEN BY THE ASSESSEE AS TO HOW HIS TRANSACTI ONS DO NOT FALL WITHIN THE AMBIT OF AN ADVENTURE IN THE NATURE OF TRADE. W E DEEMED IT APPROPRIATE TO TAKE NOTE OF THOSE TESTS AS WELL AS THE REPLY GIVEN BY THE ASSESSEE, WHICH HAS BEEN REPRODUCED BY THE LD.CIT(A ) IN THE IMPUGNED ORDER ON PAGE 13. THEY READ AS UNDER:- A. WHETHER THE LAND WAS ACTUALLY OR ORDINARILY USE D FOR AGRICULTURAL PURPOSES AT OR ABOUT THE RELEVANT TIME : IN THE APPELLANT'S CASE, THE LAND WAS ACTUALLY USED FOR AGRICULTURAL PURPOSE AT THE TIME OF PURCHASE. HOWEVER, IT HAS BE EN SOLD TO SPGIL WHERE THE INTENTION WAS TO USE THE LAND FOR O THER THAN AGRICULTURAL PURPOSE. B. WHETHER SUCH USER OF THE LAND WAS FOR A LONG PER IOD OR WHETHER IT WAS OF A TEMPORARY CHARACTER OR BY WAY O F STOP-GAP ARRANGEMENT: ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 5 - IN THE APPELLANT'S CASE, THE LAND WAS HELD ONLY FOR 7 MONTHS. IT CAN THUS HE SAID WITH CERTAINTY THAT THIS APPEARS TO BE A STOP GAP ARRANGEMENT AND THERE DOES NOT APPEAR TO BE ANY INT ENTION OF HOLDING THIS, AS AGRICULTURAL LAND. C. WHETHER THE INCOME DERIVED FROM THE AGRICULTURAL OPERATIONS CARRIED ON IN THE LAND BORE ANY RATIONAL PROPORTION TO THE INVESTMENT MADE IN PURCHASING THE LAND'. THE APPELLANT HAS NOT SHOWN ANY AGRICULTURAL INCOME IN HER RETURN OF INCOME. THE APPELLANT HAS ONLY SUBMITTED ONE SAL E BILL OF GUAR TO THE TUNE OF RS.61,674/-. HOWEVER, THERE IS NO EV IDENCE THAT ANY AGRICULTURAL OPERATIONS WERE CARRIED OUT BY THE APP ELLANT ON THIS LAND AND THIS GUAR IS THE PRODUCE FROM THIS LAND ON LY. D. WHETHER THE PERMISSION UNDER SECTION 65 OF THE B OMBAY LAND REVENUE CODE. WAS OBTAINED FOR THE NON-AGRICUL TURAL USE OF THE LANDS: IF SO, WHEN AND BY WHOM: WHETHER SUCH PE RMISSION WAS IN RESPECT OF THE WHOLE OR A PORTION OF THE LAND: I F THE PERMISSION WAS IN RESPECT OF A PORTION OF THE LAND AND IF IT W AS OBTAINED IN PAST, WHAT WAS THE NATURE OF THE USER OF THE SAID P ORTION OF THE LAND ON THE MATERIAL DALE: IN THE APPELLANT'S EASE, THE LAND WAS SOLD TO SPGIL . MUMBAI WHICH HAD CLEAR INTENTION OF USING THE LAND FOR NON-AGRIC ULTURAL PURPOSES, FOR WHICH NECESSARY PERMISSION U/S.89A OF BOMBAY TE NANCY ACT WAS GIVEN BY THE DISTRICT COLLECTOR. KUTCH. E. WHETHER THE LAND, ON THE RELEVANT DATE, HAD C EASED TO BE PUT TO THE AGRICULTURAL USE: IF SO, WHETHER, IT WAS PUT TO AN ALTERNATIVE USE: WHETHER, SUCH A ALTERNATIVE USER WAS OF A PERMANENT OR TEMPORARY NATURE. IN THE APPELLANT'S CASE, IT IS NOT CLEAR WHETHER TH E LAND WAS BEING USED FOR AGRICULTURAL PURPOSE OR WAS LYING VACANT A ND UNUSED. NO EVIDENCE TO THAT EFFECT IS AVAILABLE OR SUBMITTED. G. WHETHER THE LAND, THOUGH ENTERED IN REVENUE RE CORD, HAD NEVER BEEN ACTUALLY USED FOR AGRICULTURE: WHETHER THE OWN ER MEANT OR INTENDED TO USE IT FOR AGRICULTURAL PURPOSES: ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 6 - IN THE APPELLANT'S CASE, IT IS NOT CLEAR WHETHER TH E LAND WAS BEING USED FOR AGRICULTURAL PURPOSE OR WAS LYING VACANT A ND UNUSED. NO EVIDENCE TO THAT EFFECT IS AVAILABLE OR SUBMITTED. H WHETHER THE LAND WAS SITUATE IN A DEVELOPED A REA\ WHETHER ITS PHYSICAL CHARACTERISTICS, SURROUNDING SITUATION AND USE OF THE LANDS IN THE ADJOINING AREA WERE SUCH AS WOULD INDICATE T HAT THE LAND WAS AGRICULTURAL; IN THE APPELLANT'S CASE, THE LAND WAS AT THE TIME O F SALE WAS IN A AREA WHICH IT HAD VERY HEAVY POTENTIAL OF GETTING D EVELOPED THAT IS WHY THE COMPANY FROM MUMBAI HAD PURCHASED THIS AT S UCH HUGE PRICE. I. WHETHER THE LAND ITSELF WAS DEVELOPED BY PLOTTIN G AND PROVIDING ROADS AND OTHER FACILITIES; NO PLOTTING OR DEVELOPING WAS DONE ON THIS LAND AT THE TIME OF SALE. J. WHETHER THERE WERE ANY PREVIOUS SALES OF PORTION S OF THE LAND FOR NON-AGRICULTURAL USE: IN THE APPELLANT'S CASE, THIS IS NOT APPLICABLE. K. WHETHER PERMISSION UNDER SECTION 63 OF THE BOMBA Y TENANCY AND AGRICULTURAL LANDS ACT, WAS OBTAINED BECAUSE TH E SALE OR INTENDED SALE WAS IN FAVOUR OF A NON-AGRICULTURIST: IF SO. WHETHER THE SALE OR INTENDED SALE TO SUCH NON-AGRICULTURIST WAS FOR NON- AGRICULTURAL OR AGRICULTURAL USER: IN THE APPELLANT'S CASE, THE LAND WAS SOLD TO SPOIL FOR NON- AGRICULTURAL PURPOSE ONLY. 9. IT IS PERTINENT TO OBSERVE THAT ITAT LUCKNOW BEN CH IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD. V. ACIT (2009) 120 TTJ 216 HAS ALSO CONSIDERED ISSUE, WHETHER AN ASSESSEE DESERVES TO B E TREATED AS A TRADER OR INVESTOR. THOUGH THE ISSUE INVOLVED IN THAT CASE RELATES TO ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 7 - INVESTMENT/TRADING IN SHARES, BUT BROAD PRINCIPLE C ARVED OUT BY THE ITAT IS APPLICABLE ON ALL SORTS OF TRANSACTIONS, WH ERE ADJUDICATOR IS REQUIRED TO FIND OUT WHETHER TRANSACTION WAS ENTERE D INTO BY THE ASSESSEE WITH A PRE-DOMINANT INTENTION OF TRADING O R INVESTMENT. THE FOLLOWING TESTS ARE WORTH TO NOTE: 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FO LLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRA DE OR ARE MERELY FOR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED STOCK-IN-TRADE OR INVESTMENT. WHETHER S HOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVEST MENT OR NON-TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN AS SET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASE AND DISP OSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT , OR THERE ARE SUBSTANTIAL TRANSACTION IN THAT ITEM, IF WOULD INDI CATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AN D THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING ( HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSAC TIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION ITS VALUE? FOR MER WILL INDICATE INTENTION OF TRADES AND LATTER, AN INVESTMENT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE I S AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOU LD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 8 - REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEM ORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TR ADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE AR E SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSE. 7. IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHO W THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTI ON HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS . IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOC K-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. 8. THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHAR ES ( OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. 9. ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITE S FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSES SEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CA RRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WER E MADE? 10. IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15 TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. 11. NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN. 10. THE HONBLE GUJARAT HIGH COURT HAD ALSO AN OCCA SION TO CONSIDER THIS ISSUE IN THE CASE OF COMMISSIONER OF INCOME TA X VS. RIVA SHARKAR A KOTHARI REPORTED IN 283 ITR 338. HONBLE COURT HAS MADE REFERENCE TO THE TEST LAID BY IT IN ITS EARLIER DECISION RENDERE D IN THE CASE OF PARI ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 9 - MANGALDAS GIRDHARDAS VS. CIT REPORTED IN 1977 CTR 6 47. THESE TESTS READ AS UNDER: AFTER ANALYZING VARIOUS DECISIONS OF THE APEX COUR T, THIS COURT HAS FORMULATED CERTAIN TESTS TO DETERMINE AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION O F THE SUBJECT-MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTIO N, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACT ER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDELINE. (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY. (C) THE THIRD TEST, WHICH IS FREQUENTLY APPLIED, IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT-MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS THE ASSESSEE. HAS IT BEEN TREATED AS STO CK-IN-TRADE, OR HAS IT BEEN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE S HEET AS AN INVESTMENT. THIS INQUIRY, THOUGH RELEVANT, IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSELF H AS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEE DING ASSESSMENTS. THIS FACTOR, THOUGH NOT CONCLUSIVE, C AN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRAN SACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDERED I N THE ABSENCE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST, NORMALLY APPLIED IN CASE OF PARTNER SHIP FIRMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR TH E MEMORANDUM OF ASSOCIATION, AS THE CASE MAY BE, AUTHORIZES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST, RATHER THE MOST IMPORTA NT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CAS E WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH THE MAGNITU DE OF THE TRANSACTION, BEARING REASONABLE PROPOSITION TO THE STRENGTH OF HOLDING THEN AN INFERENCE CAN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 10 - 11. IN THE LIGHT OF THE ABOVE, LET US EXAMINE ORDER OF THE LD.CIT(A). A PERUSAL OF THE IMPUGNED ORDER WOULD INDICATE THAT T HE LD.CIT(A) HAS DEVOTED MUCH ENERGY TOWARDS HIGHLIGHTING POSITION O F LAW LAID DOWN IN VARIOUS JUDGMENT VIZ. G. VENKATASWAMI NAIDU & CO. V S. CIT, 35 ITR 594 (SC) AND P.M. MOHAMMED MEERAKHAN VS. CIT (73 IT R 735). CONCLUSIONS BRIEFLY DRAWN BY THE CIT(A) ARE ON PAGE NO.24 OF THE IMPUGNED ORDER. IT READS AS UNDER: 1. THOUGH THE APPELLANT HAD RECEIVED THE LAND BY W AY OF GIFT, IT IS QUITE OBVIOUS THAT HE DID NOT INTEND IT TO ENJOY IT AS AG RICULTURAL LAND. THIS IS EVIDENT FROM THE ABSENCE OF AGRICULTURAL INCOME SHO WN IN THE RETURN OF INCOME. 2. THE APPELLANT HAS BEEN SHOWN TO BE AN AGRICULTUR IST IN THE PURCHASE DEED. THIS MAY BE TRUE AS PER GOVERNMENT RECORDS. H OWEVER, IF THE PROFILE OF THE APPELLANT IS CAREFULLY SCRUTINIZED, BY NO IO TA OF IMAGINATION CAN HE BE DESCRIBED TO BE AN AGRICULTURIST. THE APPELLANT IS GETTING INCOME MAINLY FROM HOUSE PROPERTY AND OTHER SOURCES. GETTI NG HERSELF CLASSIFIED AS AN AGRICULTURIST IS VERY, SIMILAR TO THE FAMOUS CASE IN MAHARASHTRA OF SHRI AMITABH BACHCHAN DECLARING HIMSELF TO BE AN AG RICULTURIST. 3. THE APPELLANT HAS SOLD THE LAND AFTER A SHORT PE RIOD OF 7 MONTHS. THERE HAS BEEN A MASSIVE INCREASE OF ABOUT 800% IN THE PRICE OF THE LAND WITHIN A VERY SHORT SPAN OF LIME. THERE ARE TWO POS SIBILITIES. EITHER THE PURCHASE PRICE HAS BI-CR. DOCTORED OR THERE ARE SOM E EXCEPTIONAL CIRCUMSTANCES LEADING TO SUCH AN ABNORMAL INCREASE IN PRICE. THE FIRST POSSIBILITY CANNOT BE COMMENTED UPON AS NO EFFORTS HAVE BEEN DONE BY THE A.O. IN THIS REGARD. AS REGARDS THE SECOND PROBABIL ITY OF THERE BEING A BIG CHANGE IN THE ENVIRONMENT AND THE LOCATION OF THE L AND IS CONSIDERED, THERE IS A LARGE ELEMENT OF TRUTH IN IT. THIS IS EV IDENCED H\ THE VERY FACT THAT IN THE SAME AREA AND SAME VICINITY THE APPELLA NT HIMSELF HAS PURCHASED LANDS AT PHENOMENAL PRICES AS COMPARED TO LAST YEAR. THE AREA OF KUTEH HAS SEEN RAPID STRIDES IN DEVELOPMENT ESPE CIALLY AFTER THE FUNCTIONING OF THE KANDLA & MUNDRA PORT TRUSTS, SET TING UP OF ULTRA MEGA POWER PLANTS (UMPPS) AND OVERALL GROWTH IN INDU STRY. THE ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 11 - APPELLANT HAS VERY CLEARLY UNDERSTOOD THE BUSINESS POTENTIAL AND THE POSSIBLE GAINS AND HAS THEREFORE INVESTED IN OTHER LANDS IN THE SAME AREA. 4. THE LAND HAS BEEN SOLD TO A NON-AGRICULTURIST WI TH THE CLEAR INTENTION OF IT BEING USED FOR NON-AGRICULTURAL PURPOSES. 5.19 IT IS CLEAR FROM THE ABOVE DISCUSSIONS THAT TH E APPELLANT HAS UTILIZED HER KNOWLEDGE OF THE MARKET, THE ACTUAL GROWTH AND THE GROWTH POTENTIAL IN THAT AREA AND THE CORRECT ENTRY AND EXIT POINTS SO AS TO EARN MAXIMUM PROFITS. COUPLED WITH THE ABSENCE OF AGRICULTURAL I NCOME, THE INESCAPABLE CONCLUSION THAT IS ARRIVED AT IS THAT THIS TRANSACT ION IS NOTHING BUT AN ADVENTURE IN THE NATURE OF TRADE. THE ACTION OF THE A.O. IN TREATING THIS TRANSACTION AS ADVENTURE IN NATURE OF TRADE IS HERE BY CONFIRMED. THE GROUNDS OF APPEAL ARE DISMISSED. 5.20 THE THIRD POINT REQUIRED TO BE CONSIDERED IS WHETHER THIS IS A SHAM TRANSACTION OR NOT. THE AO HAS TAKEN RECOURSE TO F AMOUS MCDOWELL DECISION (154 ITR 148). THE APPLICABILITY OF MCDOWE LL DECISION IS BROUGHT ABOUT BY THE HONBLE SUPREME COURT IN THE R ECENT DECISION OF VODAFONE VS. UNION OF INDIA (2012) 34 ITR 1 (SC) HAS SAID AS UNDER: . . 5.21THIS ISSUE HAS ALSO BEEN DEALT WITH BY THE HON BLE GUJARAT HIGH COURT IN THE CASE OF BANYAN & BERRY (222 ITR 831 ) H AS HELD AS UNDER: . 5.22 IN THE APPELLANT'S CASE, THE VERACITY OF ALL T HE TRANSACTIONS IS NEVER DOUBLED. THERE ARE NO INDICATIONS ANYWHERE TO SHOW THAT THE TRANSACTION IS ARTIFICIAL OR CAN BE SAID TO BE A COLOURABLE DEV ICE. BECAUSE THERE WAS A SUBSTANTIAL UAIN IN A RELATIVELY SHORT PERIOD AND T HE GAIN WAS SHOWN TO BE EXEMPT FROM TAXATION DUE TO THE ASSET SOLD BEING OU TSIDE THE PURVIEW OF S.45, IT CANNOT BE SAID THAT THIS IS A SHAM TRANSAC TION. THERE ARE NO ATTRIBUTES TO LABEL IT AS A COLOURABLE DEVICE OR A SHAM TRANSACTION. THE CONTENTION OF THE A.O. IS THEREFORE NOT HELD TO BE CORRECT. 5.23 IN LIGHT OF THE ABOVE DISCUSSION, TH E FOLLOWING CONCLUSIONS EMERGE:- ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 12 - 1. THE LAND SOLD IS NOT AGRICULTURAL LAND AS DEFINE D IN S.2(14). THE GAIN ON SALE OF THIS LAND IS NOT BEYOND THE PURVIEW OF C APITAL GAINS. 2. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE FINDING, IN CASE IT IS HELD THAT THE LAND IS AGRICULTURAL LAND BY THE HIGH ER APPELLATE FORUMS AND THUS BEYOND THE PURVIEW OF CAPITAL GAINS, THIS SALE IS AN ADVENTURE IN THE NATURE OF TRADE AND THE PROFITS FROM THE SAME ARE H ELD TO BE BUSINESS PROFITS. 5.24 IN LIGHT OF THE ABOVE FINDINGS, THE ADDITION IS HEREBY CONFIRMED. THIS GROUND OF APPEAL IS THUS DISMISSED. 12. THUS, AN ANALYSIS OF COMPLETE RECORD WOULD INDI CATE THAT BASIC POINT WHICH WEIGH WITH THE LD.CIT(A) FOR TREATING T HE ASSESSEE PARTLY AS TRADER IS THE FACT THAT THE INCREASE IN SALE PRICE IS 800%. IN OTHER WORDS, VOLUME OF PROFIT RESULTED TO THE ASSESSEE PERSUADED THE LD.CIT(A) TO HABOUR A BELIEF THAT THE LAND PURCHASED IN THE YEAR OF 2007 AND SOLD AFTER A SHORT PERIOD OF 7 MONTHS IS TO BE TREATED AS A TR ADE ASSET. NO DOUBT THE PROFIT ON TRANSFER OF ALLEGED AGRICULTURE LAND WAS QUITE HIGH. BUT THIS IS ONE OF THE CORROBORATIVE EVIDENCES, AMONGST OTHER, PROPOUNDED IN VARIOUS CASE LAWS NOTICED BY US. MERELY IF AN ASSE SSEE IS GETTING A HIGHER VOLUME OF SALE CONSIDERATION, THEN IT COULD NOT BE CONSTRUED THAT TRANSACTION WOULD TAKE COLOUR OF A BUSINESS TRANSAC TION. THE ASSESSEE IS BASICALLY AN AGRICULTURIST; PURCHASES LAND AT A DIS TANCE OF MORE THAN 20 KMS. AWAY FROM MUNICIPALITY AND CLOSE TO HIS NATIVE VILLAGE. AFTER SALE OF THIS LAND, SHE HAS AGAIN PURCHASED AGRICULTURE L AND. SHE HAS NOT ENTERED INTO ANY SALE OF LAND IN EARLIER PERIOD OF TIME OR IN SUBSEQUENT PERIOD OF TIME. SHE HAS PURCHASED THE LAND BUT LD. AO DID NOT REFER SALE OF LAND. SHE HAS NOT BORROWED MONEY FOR PURCHASE O F LAND AND INCURRED INTEREST EXPENDITURE. SHE GOT THE LAND IN GIFT FRO M HER FATHER. THERE MIGHT BE REASONS FOR ALL OF A SUDDEN SPURT IN THE P RICE OF LAND IN THE AREA. ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 13 - THERE COULD BE CHANGE OF POLICY AT GOVERNMENT LEVEL ; INTRODUCTION OF SOME PROJECT, BUT THAT TYPE OF CHANGE IN THE POLICY WHETHER, WAS IN THE NOTICE OF THE ASSESSEE ? NO SUCH FACTORS HAVE BEEN BROUGHT ON RECORD BY THE AO. IT IS ALSO PERTINENT TO OBSERVE THAT WHETH ER THE ASSESSEE COULD ANTICIPATE SUCH SUBSTANTIAL INCREASE IN THE SALE PR ICE OF THE LAND BECAUSE OF ANY POLICY INTRODUCED BY THE GOVERNMENT, NO SUCH FACTORS HAVE BEEN BROUGHT ON RECORD. FACTS ARE TO BE VIEWED KEEPING IN VIEW PERSPECTIVE THE ASSESSEE, I.E. FROM WHERE SHE BELONGS; WHETHER SHE HAS VENTURED IN ANY TRADING ACTIVITIES OF SIMILAR NATURE; HER EDUCA TIONAL BACKGROUND ETC. EVEN THE ENTIRE TRANSACTION IS BEING LOOKED INTO WI TH THAT ANGLE, THEN IT WOULD REVEAL THAT SHE HAS NOT BEEN TRADING IN THE L AND, RATHER IT WAS A SIMPLICITOR INVESTMENT FOR AGRICULTURE OPERATION, BUT ON ACCOU NT OF GETTING GOOD PRICE LAND HAS BEEN SOLD. THE LD.CIT(A ) WAS OF THE VIEW THAT ONCE ASSESSEE CAME TO KNOW ABOUT RAPID DEVELOP MENT AFTER SETTING UP OF ULTRA MEGHA POWER PLANTS IN THE AREA OF KUTCH AND FUNCTIONING OF KANDLA AND MUNDRA PORTS SHE COULD HAVE ANTICIPATED HUGE PROFIT AND MIGHT HAVE PURCHASED LAND. TO OUR MIND, IT IS A JU ST PROBABILITY EXPRESSED BY THE LD.CIT(A) AFTER DEAL WAS FINALIZED . THE AO HAS NEITHER RECORDED STATEMENT OF ANY PERSON FROM ULTRA MEGHA P OWER PLANTS NOR RECORDED WHEN IT HAS STARTED ITS POWER PLANT; HOW I T HAS EXPRESSED ITS DESIRE TO ACQUIRE FURTHER LAND FOR ITS RESIDENTIAL COLONY. WHETHER A PERSON OF HAVING BACKGROUND LIKE THE ASSESSEE COULD HAVE CHANCE TO INTER-ACT WITH POWER PLANT OFFICIALS OR CONCERNED G OVERNMENT OFFICIALS AND ONLY THEREAFTER PURCHASE LAND. ALL THESE FACTO RS ARE TOTALLY MISSING ON RECORD. DEPARTMENT HAS STARTED INQUIRY ONLY WHE N HUGE CLAIM WAS MADE BY LOCAL PERSONS OF THE AREA FOR EXEMPTION OF CAPITAL GAIN. WE ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 14 - HAVE COME AROSE SIMILAR TYPE OF CASES FROM NEARBY V ILLAGE PARTICULAR. WE CAN MAKE REFERENCE TO THE CASE OF SHRI SHAILESH GANGAZRAM RAMANI IN ITA NO.260 AND 294/RJT/2014. TRIBUNAL HAS EARLIE R DECIDED THE CASE OF SHRI DHAVAL KANTILAL ACHARYA VS. ACIT, ITA NO.37 8/RJT/2013. THE ONLY REASON ADOPTED BY THE REVENUE FOR TREATING ALL THESE PERSONS AS TRADERS WAS THAT THEY HAVE EARNED PROFIT ON SALE OF THEIR LAND WHICH IS MORE THAN 800 TIMES THAN ORDINARY PROFIT IN THIS YE AR. IN OUR OPINION, IT IS ONE OF THE CORROBORATIVE FACTORS AMONGST OTHER. THIS TRANSACTION MIGHT BE BOON BECAUSE OF THEIR GEOGRAPHICAL LOCATION OF T HE LAND NEAR TO POWER PLANT. IT WAS NOT A CASE THAT THEY HAVE ANTICIPATE D MANY FOLD RISE OF AGRICULTURE LAND PRICE, AND THEREFORE, VENTURED INT O TRADE. APART FROM THE ABOVE, THE LD.CIT(A) HAS OBSERVED THAT LAND WAS NOT USED FOR AGRICULTURE PURPOSE. THIS OBSERVATION WAS MADE WIT HOUT ANY FOUNDATION AND BY MERELY REFERRING THE CASE OF SHRI AMITABH BACHHAN. IT IS PERTINENT TO MENTION THAT IN THE LAND REVENUE RECORD IT WAS MENTIONED AS AGRICULTURE LAND. THE RECORD IS PER S E ADMISSIBLE IN EVIDENCE. IT CAN BE REBUTTED BUT BY PRODUCING EVID ENCE AND NOT BY GENERAL REMARKS THAT SHRI AMITABH BACCHAN WAS ALSO STATED TO BE FARMER. THERE SHOULD BE SPOT INQUIRY. PRESUMPTION OF TRUTH IS IN FAVOUR OF THE RECORD MAINTAINED BY STATE REVENUE OFFICIAL IN THEI R OFFICIAL FUNCTION. THUS, LAND IS TO BE TREATED AS AGRICULTURE LAND. T HEREFORE, WE ALLOW THE APPEAL OF THE ASSESSEE. WE DIRECT THE AO TO TREAT THE PROFIT OF RS.68,18,800/- EARNED BY THE ASSESSEE ON SALE OF AG RICULTURE LAND AS EXEMPT UNDER SECTION 2(14) OF THE INCOME TAX ACT, 1 961. 13. IN THE RESULT, QUANTUM APPEAL OF THE ASSESSEE I S ALLOWED. ITA NOS. 259 /RJT/2014 ITA NO.99/AHD/2016 - 15 - 14. NOW COMING TO APPEAL OF THE ASSESSEE AGAINST IM POSITION OF PENALTY UNDER SECTION 271(1)(C), THE SAME DESERVES TO BE ALLOWED FOR THE REASON THAT QUANTUM ON WHICH PENALTY HAS BEEN IMPOS ED, STANDS DELETED BY US FOR THE REASONS RECORDED IN THE ASSES SEES APPEAL IN ITA NO.259/AHD/2014 HEREINABOVE. THEREFORE, WE CANCEL THE IMPUGNED PENALTY UNDER SECTION 271(1)(C) AND ALLOW APPEAL OF THE ASSESSEE. 15. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 6 TH DECEMBER, 2017 SD/- SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 06/12/2017 PRITI YADAV, SR.PS/VK