K Janardhan, Hyderabad vs Department Of Income Tax

This is an appeal filed by the Revenue against the order of

the CIT (A) II Hyderabad dated 11.06.2014 passed for A.Y 2007-

08.

2. Briefly stated, assessee is an individual. Originally he filed

his return of income for A.Y 2007-08 on 25.07.2007 admitting

salary income of Rs.95,915 and agricultural income of

Rs.14,000. A search and seizure operation u/s 132 were

conducted in the case of Sri Venigalla Ananda Prasad, M.D. of

M/s Bhavya Constructions Pvt Ltd and M/s Bhavya Cements Ltd

on 7.10.2009. During the search, certain documents pertaining

Page 1 of 19 ITA No.1385 of 2014 K Janardhan Hyderabad

to sale of agricultural land by the assessee to M/s Varun

Constructions, a pertnership firm with which M/s Bhavya

Construction had entered into a business transactions were

found. Consequent to the documents which have been seized

during the search, the assessee was issued notice u/s 153C for

A.Ys 2006-07 to 2011-12. In response to the notice, assessee

filed return of income admitting taxable income of Rs.95,920 for

A.Y 2007-08 and agricultural income of Rs.14,000 and claimed

surplus on sale of agricultural land of Rs.97,50,000 as exempt

u/s 10. The said surplus has arisen on the sale of the

agricultural land to Varun Constructions during the previous

year 2006-07 relevant to A.Y 2007-08. The agricultural land is

situated in Sy. No.667, Dundigal Village, Quthbullapur Mandal,

Ranga Reddy District which was sold to M/s Varun

Constructions.

3. During the course of assessment proceedings, the assessee

was asked to furnish the details of agricultural land and the

same were furnished. Prior to and also during the course of the

assessment proceedings, AO gathered information about the land

from Town Planning Officer, Asstt. City Planner, GHMC and also

from the statements recorded by DDIT from Village Revenue

Page 2 of 19 ITA No.1385 of 2014 K Janardhan Hyderabad

Officer, Quthbullapur Mandal. Assessee also furnished

information pertaining to the land.

4. Assessment was completed u/s 143(3) r.w.s. 153C making

an addition of Rs.97,50,000 under the head capital gains to the

returned income of Rs.95,920 thus arriving at an assessed

income of Rs.98,45,920 and a tax demand of Rs.56,03,797

(inclusive of interest). The amount of Rs.95,50,000 is the

difference between the sale price Rs.1,00,00,000 and purchase

price of Rs.2,50,000.

5. AO disallowed the claim of exemption of surplus on sale of

agricultural land and brought the same to tax under the head

short term capital gains. In doing so, AO vide para 20 summed

up the basis for disallowance of the calim of exemption as under:

• The land was not assessed to the land revenue

• There is no clarification whether the land is beyond the 8

km from the limit of GHMC

• The land was not put to agricultural purpose, before or

after sale, either by the assessee or by the purchaser.

• The assessee had no intention to put the land for

agricultural purposes, as seen from the photographs.

• Purchaser used the land for construction of apartments.

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• The land was sold at a whooping price of Rs.1.00 crore per

acre which is very high from agricultural land.

6. AO relied on the statements recorded by the DDIT from

VRO, Quthbullapur Mandal, MD of Bhavya Constructions and

others and on photographs taken during search operations on

buyer of land in coming to the conclusion that the landis not

agricultural land and the assessee has not carried out

agriculture, and tehrefore, the same should be taxed under the

head "Short Term Capital Gains". These evidences were

submitted by the assessee before the AO. In framing the

assessment order the AO also relied on judicial pronouncements

such as Raja Mustafa Ali Khan vs. CIT (1948) 16 ITR 330 (PC)

and Smt. Sharifa Bibi Mohmed Ibrahim vs.CIT (1993) 204 ITR

631 (S.C) and the principles discussed therein. AO, thus brought

to tax thesum of Rs.95,95,000/- as short term capital gain.

7. Before the Commissioner, the ld Counsel for assessee drew

attention of the CIT to para 11 on page 4 of the assessment order,

wherein the AO observed that "land is not being registered as

agricultural land in the revenue records" and concluded that the land

"was put to non-agricultural use by the assessee".

• The ld Counsel further submitted that AO seems to have arrived at

this conclusion on the basis of verification of revenue records in

Page 4 of 19 ITA No.1385 of 2014 K Janardhan Hyderabad

respect of various survey numbers in the area including Sy. No.667

which are annexed to assessment order.

• The ld Counsel for the assessee submitted that the annexure A

appears to be notings made by the officials of the Department

during verification of the Revenue records and as can be seen

therefrom, the noting against Sy.No.667 is "no docs with us" and

"no details".

• The ld Counsel for the assessee further submitted that the AO based

his opinion on a vague and ambiguous response received during

the inspections/verification of revenue records. Assessee further

submits that on verification of revenue records with respect to

theland in question "no doc with us" and "no details" are the

details found in the records. Assessee also submitted that the AO

based his opinion on this not so clear information in determing the

nature of the land. The phrase "no doc with us" and "no details"

does not in any way reflect the use of land and does not in any way

prove that the land is nonagricultural land and more importantly it

does not by any streth of imagination show that the landis not put

to agricultural use (or in the words of the AO the land is put to non

agricultural use).

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• The ld Counsel for the assessee further submitted that it can be

clearly seen from the intimation letter from Asstt. City Planner,

Quthbullapur Circle 15 GHMC, furnished by the assessee and also

from the statement obtained by the AO himself from Town Planning

Officer, GHMC, HO who stated that the said land in question is not

situated within GHMC limits.

• The ld Counsel for the Assessee prayed before the CIT a certificate

from the Director Planning, HMDA clarifying to the effect that

theland in Sy.No.667 of Dundigal Village Quthubullapur Mandal is

more than 8 kms outside the limits of municipality. In other words,

the land is not within 8 kms from the municipal limits. The said

clarification is also supported by the certificate from Dy.Collector

and Tahsildar, Quthubullapur Mandal. The 1 acre sold by the

assessee to Varun Constructions is located in Sy.No.667.

• The ld Counsel for the assessee submitted as follows:

• that apart from the intimation letter referred to by the AO in para 7

on page 3 of the assessment order, the assessee had brought on

record sufficient evidence to indicate that the land in question is

beyond 8 kms from the municipal limits and the AO himself had

information on record that the land is beyond 8 kms.

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ITA No.1385 of 2014 K Janardhan Hyderabad

• It can be seen that for exclusion of land from the definition of

capital asset, two conditions are prescribed, one it should not be

within the jurisdiction of whether known as a municipality,

municipal corporation, notified area committee, town area

committee, town committee or by any other name or a cantonment

board and which has a populationof not less than ten thousand or

two it should not be located in any area within such distance not

being more than 8 kms from the limits of any municipality as may

be notified.

• The section in connection with the facts and circumstances of the

assessee's case would apply as under:

a) The land in Sy.No.667 Dundigal Village, Quthbullapur Mandal

should not be situated within the jurisdiction of a municipality

(whether known as a municipality, municipal corporation,

notified area committee, town area committee, town committee

or by any other name or a cantonment board and which has a

population of not less than ten thousand) or

b) It should ot be situated within a distance of being more than 8

kms of any municipality or cantonment referred to in (a) above

as notified by the Central Govt.

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ITA No.1385 of 2014 K Janardhan Hyderabad

• That the land in sy. No.667 satisfies both the conditions laid down

by section 2(14)(iii) (the certificates from concerned authorities

confirm this fact) and as such it is outside the definition of the term

capital asset and as such the AO erred in law and on fact in

treating it as a capital asset so as to bring to tax the surplus

arising on sale of land as short term capital gain.

• That the AO is incorrect in stating that the land was ot put to

agricultural purposes by the assessee, before sale. One of the

grounds/basis in bringing to tax the surplus on sale of land by the

AO is that "the land was not put to agril. Purposes, before or after

sale, either by the assessee or by the purchaser".

•

• The ld Counsel for the Assessee drew attention of the

Commissioner through letters filed by the assessee before the

DDIT and also before the AO from which it can be seen that the

assessee categorically stated before the DDIT as well as before the

AO that the land has actually been put to agricultural use, crops

have been grown and agricultural income derived.

• That the statement of VRO and photographs relied upon by the AO,

do not in any way confirm that the assessee had not carried out

any agricultural activity in the said land.

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ITA No.1385 of 2014 K Janardhan Hyderabad

• AO bliendly believed the statement of Village Revenue Officer,

Bowrampet, Quthbullapur Mandal who stated that as per his

knowledge no land were being cultivated in that area and that

these lands could not be cultivated easily. The assessee submitted

that the AO brought the words of VRO without documentary

evidence apparently because it is in favour of the Revenue.

• Even otherwise, nowhere in Annexure B which is a statement of Sri

B. Narsa Reddy, Village Revenue Officer, Bowrampet,

Quthbullapur Mandal recorded by the DDIT (in)-II(2) it is

mentioned that these lands could not be easily cultivated for agril.

Purposes.

• That the surmises and presumptions underlying the assessment are

evident from the remark of the AO "the assessee had no intention

to put the land for agricultural purposes, as seen from the

photographs".

• That the photographs nowhere speak the intentions of an assessee.

They are mere pictures taken at a particular point of time and

depict things as they stand at that time.

• That the land was sold by the assessee in the year 2006-07 (12-03-

2007) relevant to A.Y 2007-08 and search and seizure operations

u/s 132 of the I.T. Act,1961 were conducted in the case of Sri

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Vengilla Ananda Prasad, MD of M/s Bhavya Constructions (P) Ltd

and M/s Bhavya Cements Ltd in the year 2009 (on 7.10.2009) i.e. 2

years from 7 months after the assessee sold theland to M/s. Varun

Constructions. The photographs (evidence relied upon by the AO

vide Annexure D) were taken during post search enquires on

26.12.2009 (almost 3 years after the sale).

• Further in the course of assessment proceedings, assessee was

asked evidence with respect of sale of produce etc. As stated

earlier, assessee carried out agril. Activity in 2005-06 & 2006-07

and the AO has called for the evidence as above in the year 2013

i.e. almost 7 years after the activity has taken place.

• The ld Counsel for the assessee submitted that the AO having

accepted the agricultural income in quantum cannot say that the

agricultural activity has not been carried out.

• AO relied on the fact that the land was sold at a whooping price of

Rs.1.00 crore per acre which is more than the normal price which

is sold as per acre vis-à-vis valuing the land as property yielding

agricultural produce on the basis of its yield.

• The ld Counsel for the assessee prayed to bring to the notice of the

Commissioner and prays to place reliance on the following

judicial prounouncements in support of the contention that the

Page 10 of 19 ITA No.1385 of 2014 K Janardhan Hyderabad

surplus arising out of sale of agricultural land i.e. Rs.97,50,000

cannot be subjected to tax and the land purchased and sold by the

assessee is not a capital asset within the meaning of section 2(14)

of the Income Tax Act and therefore, is exempt from tax:

i) Income Tax Officer vs. P. Prakasam (2014) 62 SOT 127

Chennai

ii) Gouthan Constructions Co. vs. Income Tax Officer (2013) 39

taxmann.com 181 (Hyd.Trib).

iii) CIT vs. Rajshibhai Meramanbhai Odedra (2014) 42

taxmann.com 497 (Guj.)

iv) Land Acquisition Collector cum ACA, Punjab Urban

Planning & Dev. Authority (PUDA) vs. Income Tax Officer,

TDS Circle Range III Jalandhar (2011) 12 taxmann.com

446 (P&H) .

v) CIT vs. Smt. Debbie Alemao (2011) 196 TAxmann.230

(Bom.)

vi) Hindustan Industrial Resources Ltd vs. ACIT (2009) 180

Taxmann 114 (Del.) 221 CTR 270 (335) ITR 77.

8. The ld CIT (A) held that the information on record is

carefully considered. The assessee purchased one acre

of land on 29.03.2005 and sold it on 12.03.2007 to

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M/s. Varun Constructions which is in real estate

business. Purchase price was Rs.2.5 lacs and sale price

was Rs.1 crore. The ld CIT (A) observed that according

to the AO agricultural operations were never carried on

and there is no proof submitted by the assessee that the

land is located beyond 8 kms from the municipal limits,

therefore, liable to short term capital gains, as the

period between the purchase and sale is less than 3

years.

9. According to the CIT, the issues for consideration

were as follows:

(a) Whether the land was agricultural land or not?

(b) Whether it is a capital asset u/s.2(14)(iii) or not?

(c) Whether the transaction is adventure in nature of trade or not?

10. Regarding the first issue the CIT (A) observed that

the assessee has produced copy of purchase deed and

sale deed and as per these deeds, the land was recorded

as agricultural land. As per the pahani - adangal the

land was recorded as dry land and the land is put to

agricultural operations by growing jowar. The CIT (A)

held that even in income-tax return filed on 25.07.2007,

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i.e., before the date of search on 07.10.2009 in case of

M/s. Bhavya Constructions, agricultural income of

Rs.14,000/-was shown in his individual return,

whereas there was income from ancestral lands taxable

in HUF Capacity. , since HUF does not have any other

taxable income, no return was filed. The land was

purchased in March, 2005, therefore, agricultural

income was offered in F.Y.2006-07 for A.Y.2007-08 In

his individual return as the land was purchased in

individual capacity and carrying out agricultural

operations was question of fact. It was pointed out by

the ld CIT (A) that enquiries conducted by the

Department were only subsequent to the date of search

i.e. 07.10.2009, whereas the land was sold on

12.03.2007 itself. It was further pointed out that in the

statement recorded, the VRO Bowrampet, Qutubullapur

Mandal hasd stated that normally these lands are

vacant lands, however, it is pertinent to mention that

survey Nos. Referred to in his statement do not include

the assessee's survey No.667.

11. With respect to the second issue is whether the land

is a capital asset as per section 2(14)(iii), In this regard

Page 13 of 19 ITA No.1385 of 2014 K Janardhan Hyderabad

the definition of capital asset as per the said section

was reproduced by the CIT (A).

12. The ld CIT (A) pointed out that the certificate given

by Director (Planning) HMDA, dated 23.05.2012 read as

under:

(This is to state that the land in Sy.Nos.667, 668 and 669 of Dundigal (V), Qutbullapur Manda as on 15-3-

2007 are located outside the Municipal limits and as per the available Base maps in HMDA are at an aerial distance from the following Municipal limits:

(a) Approx. 15.50 km from erstwhile Municipal Corporation of Hyderabad (MCH) limits

(b) Approx. 9.30 from erstwhile Kukatpally Municipality limits.

"

13. The CIT (A) observed that as per the certificate

given by the Director (Planning) HMDA, the land does

not fall within the prescribed municipal limits,

therefore, cannot be treated as capital asset

u/s.2(14)(iii).

14. With respect to the third issue being whether the

transaction is an adventure in the nature of

trade, the ld CIT (A) observed that the Assessing officer

relied on the decision of G.Venkataswamy & Co., Vs. CIT

35 ITR 494 (SC).

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ITA No.1385 of 2014 K Janardhan Hyderabad

15. The CIT (A) opined that the facts of the case of the

assessee are totally different. The CIT (A) observed that

the assessee is not a trader, he simply invested in land

and has received capital accretion out of it, realisation

of investment consisting of purchase and sale though

profitable are clearly outside the domain of adventure

in the nature of trade, the property was sold as it is

without any accretion or improvement or addition to

the asset to make it more marketable, there were no

repetition of such transactions by the assessee, and

more importantly there is nothing on record to suggest

that there was an intention on the part of the assessee

to engage in trading activity. The CIT (A) noted that the

assessee purchased the land and encashed on real

estate boom. The ld CIT (A) relied on the decision of

ITAT, B bench, Hyderabad in the case of Kapil Chit

Funds Pvt. Ltd. in ITA No, 1424/Hyd/2012 dated

05.09.2013 held as under:

10.24 Further we make it clear that when the land which does not jall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and" also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other

Page 15 of 19 ITA No.1385 of 2014 K Janardhan Hyderabad

concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income.

Accordingly, the ground raised by the Revenue is dismissed.

16. The ld CIT (A) concluded as follows:

"The fundamental factors in this case were, that the land was recorded as agricultural land in revenue records namely Adangal/pahani, growing crops like jowar. The land was recorded as agricultural land in purchase and sale' deeds also. Further, the competent Municipal limits and 9.3 kms. outside erstwhile Kukatpally municipality authority has certified that the land is located at 15 kms. Distance outside Greater Hyderabad, therefore, the land cannot be considered as capital asset u/s.2(14)(iii). Therefore, the gain on sale of land cannot be brought to tax". .:

17. Aggrieved, the Department is in appeal before us.

Department has raised the following grounds:

"1. The ld CIT (A) is erred in deleting the addition made by the AO by holding the sale of land to be agricultural land

2. The ld CIT (A) ought to have considered the fact that the land was never put to agricultural purpose and that the assessee had not produced any evidence in support of any agricultural activity done on the said land.

Page 16 of 19 ITA No.1385 of 2014 K Janardhan Hyderabad

3. The ld CIT (A) ought to have taken into consideration the recorded statement of Village Revenue Officer and the evidence of photographs of the land taken by the investigation wing as per which it clearly indicates that the land is a fallow land not suitable for cultivation".

18. We find that relevant evidence/documents were not

produced during the assessment proceedings with respect to

carrying out agricultural activities. Also income from sale of

agricultural produce (Jowar) was not substantiated by

supporting the claim and furnishing bills and vouchers.

19. The photographs which were taken during the post search

clearly depicts that the land was not used for cultivating

agriculture crops, as it contains boulders and wild grass appears

to be grown on the land. Hence as could be seen from the

photographs the land seems to be unploughed and unutilized,

whereas according to the assessee, the land has been actually

put to use for agricultural purpose.

20. In these circumstances, we are of the opinion that the issue

of land being agricultural land has not been proved beyond

doubt and hence the issue is set aside to the file of the AO who

shall verify all the necessary documents as well as the bills and

vouchers for the sale of agricultural produce before concluding

whether the land is agricultural land.

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ITA No.1385 of 2014 K Janardhan Hyderabad

21. Further for the exclusion of land from the definition of

capital asset, the definition of capital asset is to be as per section

2(14)(iii). Hence, the AO shall verify whether the land is a capital

asset as per section 2(14)(iii) which read as follows:

(14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (iii) agricultural land in India, not being land situate-

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand [according to the last preceding census of which the relevant figures have been published before the first day of the previous year] ; or

(b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of and scope for urbanisation of that area and other relevant considerations, specify in this behalf by notification in the official gazette.

The following item (b) shall be substituted for the existing item (b) of sub-clause (iii) of clause (14) of section2 by the Finance Act, 2013 w.e.f. 1.4.2014:

(c) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the

Page 18 of 19 ITA No.1385 of 2014 K Janardhan Hyderabad

local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

22. In the result, appeal of the Revenue is allowed for statistical

purposes.

Order pronounced in the Open Court on 27th March, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 27th March, 2015.

Vnodan/sps Copy to:

1. Asstt. Commissioner of Income Tax Circle 13(1) 2nd Floor Aayakar Bhavan, Basheerbagh Hyderabad

2. Shri K. Janardhan, No.102, Pratap Shiv Sadan Apartments, New Nallakunta, Hyderabad

3. The CIT(A) - II Hyderabad

4. CIT-1, Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File By Order

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