Surendra Keshvlal Shah,, Pune vs Assessee

Shri Surendra Keshavlal Shah, S.No.34/34A, Plot No.13, Dealing Center, Velankar Nagar, Near Mitra Mandal Chowk, Pune - 411 009 PAN No.ARJPS8424L .......... अपीलाथ / Appellant

Vs.

Dy.CIT Central Circle-1(1), Pune .......... यथ / Respondent

अपीलाथ क ओर से / Appellant by : Shri Sunil Pathak & Shri Nikhil Pathak

यथ क ओर से / Department by : Shri P.S. Naik. Singh

सन ु वाई क तार ख / घोषणा क तार ख /

Date of Hearing : 09.06.2015 Date of Pronouncement:24.07.2015

आदे श / ORDER

PER R.K. PANDA, AM :

This appeal filed by the assessee is directed against the order

dated 17-01-2011 of the CIT(A)-I, Pune relating to Assessment Year

2005-06.

2

2. Grounds of appeal No.1 to 5 by the assessee which relates to a

single issue read as under :

"1. Without considering facts and circumstances of the case, the learned Deputy Commissioner of Income Tax, Central Circle-1(1), Pune (DCIT) has erred in assessing income returned by the assessee of Rs.

17,24,730/- at a higher amount of Rs.84,93,333/- and the learned Commissioner of Income Tax (Appeals) - I has erred in confirming the same.

2. Without considering the law and facts of the case, the learned Deputy Commissioner of Income Tax, Central Circle-1(1), Pune (DCIT) has erred in making aggregate additions of Rs. 67,68,603 to the total income returned by the assessee and the learned Commissioner of Income Tax (Appeals) -I has erred in confirming the same.

3. The learned Deputy Commissioner of Income Tax, Central Circle- 1(1), Pune (DCIT) has erred in treating agriculture income earned from sale of Agricultural lands of Rs.65,67,973/- as taxable income, without considering provisions of the law and facts of the case and the learned Commissioner of Income Tax (Appeals) - I has erred in confirming the same.

4. Without considering provision of section 2, section 10 and other sections of the Act and the powers of the Central Government, the learned Deputy Commissioner of Income Tax, Central Circle-1(1) Pune (DCIT) has erred in treating sale of agricultural land which is outside the purview of tax, as the said land is situated outside the Municipal limit, as taxable income and the learned Commissioner of Income Tax (Appeals) -I has erred in confirming the same.

5. Without considering the facts and the circumstances of the case, the teamed Deputy Commissioner of Income Tax, Circle-1(1), Pune (DCIT) has erred in holding that assessee is engaged in business activity of purchasing and selling land and assessing the income from sale of agricultural land as taxable income and the learned Commissioner of the income Tax (Appeals) - I has erred in confirming the same."

3. Facts of the case, in brief, are that the assessee is an individual

and filed his return of income on 21-10-2005 declaring total income

of Rs.17,24,730/- and agricultural income of Rs.5,25,630/-. During

the course of assessment proceedings, the Assessing Officer noted

that the assessee has sold agricultural land for a consideration of

Rs.78,90,000/- and claimed the same to be exempt from tax. On

being questioned by the Assessing Officer, it was stated that the land

being agricultural one is outside the purview of tax. The Assessing

Officer observed that there was a search u/s.132 of the I.T. Act in the 3

case of Suyog group and along with the group there was a survey

action u/s.133A of the I.T. Act, 1961 at the business premises of the

assessee. During the said survey it was noticed that the assessee

was regularly selling agricultural lands. The assessee is a partner in

couple of construction firms engaged in the construction activities.

Looking at the frequency of transactions relating to sale of

agricultural land the Assessing Officer asked the assessee to clarify

as to why the profits on account of agricultural land should not be

brought to tax.

4. In response to the same the assessee filed a note on Agriculture

which has been reproduced by the Assessing Officer in page 2 of the

assessment order and which reads as under :

"A Note on Agriculture :

1. The assessee is engaged in agricultural activities and for past several years doing agriculture and presently continues to carry on agriculture. Whatever agriculture produce generated has been used for self consumption and has also been sold. The same has been assessed in the past, as well.

2. The assessee is not in the business of purchase and sale of lands.

The assessee was engaged in construction activity, during the relevant previous year. However, this engagement was as supervision over a construction project. No activity of purchase and sale of land was carried out. No activity of development of land was carried out.

3. Therefore, any conclusion that the assessee is trading in land is not based on facts and circumstances of the case.

4. The agriculture lands are required by the assessee right from the period of a decade ago. After acquisition of agricultural lands, agriculture activity has been continuously carried on by the assessee for several years past. The assessee is also member of "Sant Tukaram Sahakari Sakhar Karkhana Mayradit". The assessee has been supplying sugarcane to this co-operative sugar factory.

5. The assessee has also taken production of rice, vegetables like tomato, kakadi, onion, leafy vegetables, chilly, cauliflower, etc. depending upon season. Sugar cane is also grown.

6. The assessee had to purchase residential home and an Office and diversify into some business activity. Substantial financial outlay was required for the purpose of purchase of a residential house and an office place, and capital for business with a view to generate resources, the assessee has sold some of his holding of agricultural lands. 4

7. Your honour, will therefore, appreciate that the assessee has acquired the lands for agriculture. He has carried out agricultural activities. He continues to carry on agricultural activities. For certain needs of resources, the assessee has sold some of the agricultural lands. On sale of agricultural lands no income-tax is attracted. Accordingly, the assessee has compiled his return of income. It is, therefore, correct returning of income taxable and exempt. The same does not require any change."

5. However, the Assessing Officer was not satisfied with the above

explanation given by the assessee. He noted that the assessee has not

furnished the details of agricultural land sold by him till date and has

furnished only details of land held by him during the year and the

subsequent sale out of these lands. From the details furnished by

the assessee the Assessing Officer further noted that the agricultural

land has been sub-divided by the assessee and the same has been

sold. From the details of land sold subsequent to A.Y. 2004-05 he

noted that the frequency of the sale is considerable. As regards the

claim of the assessee that he is engaged in agricultural activities he

observed that it may be true that the assessee has done some activity

but not on the entire land held by him. He referred to the reply of the

assessee to Question No. 14 put to him during the course of survey

by the Investigation Wing which reads as under :

"As far as I remember, the things I had started purchasing agricultural lands from 1986 till date at the Chandkhed and Pachane. The approximate area of the land purchased by me from various land owners is 40 acres. Out of these lands, I have sold some of the land to various buyers from the year 1995 till date. I have sold approximately 30-32 acres of land. Approximate cost of land purchased is around Rs.80 Lacs whereas the total considerations of lands sold is around Rs.310 lakhs. I have purchased lands from nearly 30-35 land owners and sold the lands to nearly 6-8 buyers. Some of the lands purchased by me are the co- owners. I will submit the details of land purchased and sold within 8 days"

6. However, the AO noted that assessee did not furnish the

information to the Investigation Wing for which he asked the assessee

to furnish all the land sale details effected till date. From the details

submitted by him, he noted that assessee was selling the land since 5

1995. Therefore, according to him, the motive to sell the land was

always there and the assessee was just waiting for a profitable

proposal. Till that time, the assessee may be doing some agricultural

activities to earn some additional income. He further noted that the

assessee's brother is a reputed builder engaged in the construction

activity. For one of his firms, the assessee has done supervision

activity for which Rs.10 lakhs has been received during the year. He

further noted that the assessee in his statement recorded on

18-12-2007 has stated that in some of the lands his brothers are

co-purchasers but the assessee has not given these details. He

therefore called for the details of sales effected till date and details of

properties purchased with his brothers. From the details furnished

by the assessee, he noted that majority of the lands has been sold as

of now. Therefore, the motive of selling the agricultural land is

absolutely clear. The assessee, according to the AO, has sold the

agricultural land for simple reason that he got the required rate on

account of boom in real estate prices. According to him, if the

intension of the assessee was to retain the agricultural land for

agricultural activity, he would not have sold the land under any

circumstances. Therefore, the activity of the assessee according to

the AO is nothing but an adventure in nature of trade. He therefore

was of the opinion that the profit on account of such act needs to be

taxed under the head. He observed that during the year the assessee

has sold the following lands :

Sr. Details of property Purchases Sale No. cost consideration

1. Part of Gat No. 140, Chandkhed 5,75,686 1,00,000 3,83,791 6,00,000

2. Gat No. 556, Pusane 75,000 3,00,000 3. Gat No. 347, 353 and 361, 1,58,300 23,90,000 Pusane 6

4. Gat No. 351, 352, 350 and 354 1,29,250 36,00,000 13,22,027 78,90,000

After deducting the cost of the land from the sale price, the AO

treated the surplus of Rs.65,67,973/- as the business income of the

assessee.

7. Before CIT(A) the assessee strongly challenged the action of the

AO in treating the income from sale of agricultural land as business

income. It was submitted that the agricultural land sold are situated

outside the municipal limits. It was emphasized that the assessee

has been engaged in agricultural activity for the past 10 years and

the part of the said lands were sold for purchasing the residential

house and an office place to diversify his business activities. It was

argued that the assessee was only engaged as supervisor in the

construction projects and he had not indulged in sale and purchase

of land as claimed by the AO. The assessee had not carried out any

development work of real estate in his individual capacity. However,

the assessee in subsequent year had become a partner in firms which

are engaged in the construction and development activity. The

assessee also furnished copies of certain documents for electric

connection, sale of surgarcane, purchase of seeds etc. in support of

his claim for carrying out agricultural activity in lands purchased by

him. The assessee further submitted that the record of sale and

purchase of land prior to 2000 has not been retained by him as it is

not necessary to maintain the records for a period of more than 6

years. It was argued that merely because his brother is engaged in

the business of construction inference cannot be drawn that the

assessee is also engaged himself in the activity of trading of land.

The assessee further produced 7/12 extracts, copy of intimation 7

issued u/s.143(1)(a) and a certificate from Talathi that agricultural

land is situated outside the municipal area to support his claim.

8. However, the CIT(A) also was not satisfied with the explanation

given by the assessee and upheld the action of the AO. While doing

so, he noted that the assessee during the course of survey and even

thereafter had admitted that approximately 40 acres of land were

acquired by him from various land owners from approximately 1986

onwards and from 1995 onwards approximately 30 to 32 acres of

land were sold to different persons in different years out of the same.

It was also admitted in his statement that he received approximately

Rs.3.10 crore on sale of the above referred lands against the cost of

Rs.80lakhs. It was also admitted in the said statement that the land

purchased from 30 to 35 owners were sold to 6 to 8 buyers. AO has

also pointed out in the assessment order that during the course of

survey it was revealed that assessee was also engaged in the sub-

plotting of the land. However, the same was denied by the assessee

during the course of appeal. Finally the Ld.CIT(A) while upholding

the action of the AO has observed as under :

"4.4. After considering the above referred issue in the facts and circumstances of the case I am of the considered opinion that the ground of appeal under consideration cannot be allowed. It is clear from the facts available on record that the appellant belongs to a group which is actively engaged in different business activities including real estate and land. The appellant has not inherited the agriculture land which has been sold. He has purchased them from 1985 onwards from several persons over a period of time. In the process, huge amount was invested. This group was covered under search/ survey after carrying out necessary pre-search investigation. During survey, it was found that the appellant is engaged in regular sale and purchase of land. The appellant admitted and agreed to submit all the details in respect of sale and purchase during the course of the survey after taking some time for collecting details. However, after understanding the implication of these details, he has started dragging his feet. Details were not submitted fully. Irrelevant stands were taken for not submitting those details and also for deciding the issue on certain other considerations. It has to be understood in this context that the appellant in the facts of the case has claimed in his return that the sale consideration received is not taxable under the Income tax Act and therefore, as per the established principle of Taxation Law, the appellant had the legal responsibility cast u/s 143(2) to submit 8

evidences before the Assessing Officer in support of the claim made in the return to the satisfaction of the Assessing Officer and also to submit details and evidences required u/s 142(1) by the Assessing Officer to enable him to arrive at the proper decision. Having failed on both these accounts, he cannot claim relief at any stage. It is also a trite law that taxing provisions as well as the provisions relating to exemption, deduction or relief is to be construed strictly. Many Courts including the Hon'ble Supreme Court in the case of CIT Vs. Hansur Plywood Works Pvt. Ltd. (1998) 229 ITR 112 (SC) has held that if an exemption is conferred by the Statute, subject to certain conditions, these conditions must be strictly fulfilled. Therefore, if the assessee wanted the sale receipt to be considered outside the taxation provisions, he not only was required to submit the necessary details in support of the claim but was also required to submit details called for by the Assessing Officer for deriving his satisfaction. The objection raised in respect of the time limit upto which a document is required to be maintained, cannot be entertained as the said restrictions have been imposed in different context and these restrictions are definitely not available for an assessee to obliviate from his legal responsibility, more so when it relates to his claim.

Furthermore, the nature of the information related to purchase and sale of land and those details are not difficult to be gathered and obtained even if not retained in regular course, as the appellant must be knowing the persons who sold their lands or his agents or the persons or the agents who purchased the lands. These details could also have been obtained by him from revenue records as he was party to those transactions. Furthermore, considering the importance of these documents, these are generally preserved and retained safely by the involved persons. Therefore, on these considerations, it cannot be accepted that the appellant had any difficulty in obtaining and submitting such details. In such a view of the matter, none compliance on these issues has to be considered adversely assuming that the appellant deliberately prevented its submission as he was knowing that its production before the competent authority would nail him with the taxation of the receipts claimed exempt. It is also an established principle of law that the burden of proving that a particular income is wholly or partly exempt under a particular provision lies on the assessee, as he alone in law is considered to be familiar with the facts of the case [Shri Rangnath Enterprises Vs. CIT (1998) 232 ITR 568 (Kar)].

The agricultural activity has been claimed to have been carried out by the appellant but the facts of the case clearly show that the same was only incidental. The appellant has also claimed that the lands were sold as he needed money for his personal use as well as the use of his family. It was also claimed that the sale proceeds were used for buying the house, office and diversification of business. On consideration of facts available on record, these are irrelevant issues. If, however, the appellant wanted to convey the compelling circumstances for carrying out these sales, these are not correct. Appellant is definitely a man of means. He is a person who has invested hugely in the purchase of the land and therefore, the acts do not suggest that the so called agriculture lands were sold to meet the day to day requirement of funds. They definitely have been sold to earn money in the business of land trade carried out in an organized manner. How this profit was utilized was immaterial. The whole process of purchase and sale of land carried out by the appellant clearly shows that this activity was carried out in an organized matter.

It is not easy to organize purchase from numerous sellers and then sale it to different persons. From whatever details submitted also, it is clear that the sale and purchase were frequent and in certain cases within the same year. The claim of the appellant that he was only an agriculturist and was not associated with real estate is incorrect. It is very clear that the entire 9

group was engaged in real estate and other businesses. Assessee himself admits that he has acted as supervisor with huge earning from this source before becoming partner in many firms engaged in the business of real estate. All these facts very clearly show that the appellant was involved in this activity from very early period and has carried out the business of trade in land and the assessment made by the Assessing Officer is correct in facts and law. In the case of Raja I. Rameshwar Rao Vs. CIT (SC) 42 ITR 179, it has been held that when a person acquires land with a view to sale it later, after developing it profit the activity is a business venture. In the case of Smt. Parvatidevi and Others Vs. CIT (AP) 164 ITR 675, it has been held that joint purchase of land by four persons and joint sale thereof of lands fit for housing is an adventure of the nature of trade. In the case of Hemchand Hirachand Shah Vs. CIT, Gujarat, 206 ITR 55, it was held that agriculturist purchasing land in a series of transactions and selling them within a reasonable short period would be of the nature of business. In the case of appellant also, it was shown that in many cases lands were jointly purchased. All these judgments also support differently the inference drawn by the Assessing Officer in the available facts of the case. Therefore, Ground No. 1 is treated as dismissed."

9. Aggrieved with such order of the CIT(A) the assessee is in

appeal before us.

10. The Ld. Counsel for the assessee strongly challenged the order

of the CIT(A). Referring to page 242 of the paper book he drew the

attention of the Bench to the details of rural agricultural land

purchased and sold by the assessee. He submitted that the main

activity of the assessee is agriculture and transportation business.

To meet his business requirement the assessee sold some of the

agricultural land. Referring to the copy of the partnership deed dated

14-02-2005, a copy of which is placed at pages 33 to 55 of the paper

book, he submitted that he has become a partner in the firm Suyog

Developers w.e.f., 14-02-2005 and the business of the partnership

firm is to carry on the business of development and construction

business, development of land, real estate development, construction

of buildings for residential and commercial purposes etc.

11. As regards the allegation of the AO that the assessee is trading

in land he submitted that it is the partnership firm which is engaged

in the trading of land and not the assessee in his individual capacity. 10

Referring to the copy of the assessment order for A.Y. 2008-09, a

copy of which is placed at pages 227 and 228 of the paper book, he

submitted that the AO in the order passed u/s.143(3) on 27-02-2010

had accepted the sale of agricultural land amounting to

Rs.96,61,250/- as exempt and the gain has not been taxed by him.

Referring to pages 230 to 237 of the paper book, he drew the

attention of the Bench to the copy of the return of income and

computation statement with annexures filed giving the above details.

Referring to the copies of the assessment orders for A.Yrs. 2001-02

and 2003-04 passed u/s.143(3) and copies of which are placed at

paper book pages 215 to 226, he submitted that no addition has been

made on account of surplus from sale of agricultural land. Referring

to pages 156 to 188 of the paper book he drew the attention of the

Bench to the 7/12 extracts giving the area of land and the details of

agricultural produce. Referring to page 27 of the paper book drew

the attention of the Bench to the amount received from the sugar

society by cheque. Referring to pages 238 to 241 of the paper book

he drew the attention of the Bench to the sale of agricultural produce

and the expenses incurred for the year 2004-05 and 2005-06.

Referring to page 246 of the paper book he drew the attention of the

Bench to the certificate obtained from the Talathi stating that the

land situated in the village is beyond 8 kms from any municipal

corporation and the population of the village is less than 10,000.

Referring to page 17 of Paper Book No.2 the Ld. Counsel for the

assessee drew the attention of the Bench to the details of rural

agricultural land purchased and sold after year 2000 till 2006 except

for land sold in A.Y. 2005-06 and 2006-07, the details of which are as

under :

Details of Rural Agriculture Land Purchased and Sold after year 2000 till 2006 except for lands sold in A.Y. 2005-06 & 2006-07 11

Sr. Village Gat no Date of sale Name of buyer Sale Date of Cost of No. consideration acquisition acquisition 1 Chandkhed 145 22/09/2000 Sopan Jagannath 225,000 21.01.1994 n 22,000 Bhagwat 2 Pusane 102 19/08/2002 Dhyaneshwar 6,10,000 21.08.1998 Balwadkar 3 Chandkhed 140 19/08/2006 Bhagwat 1,65,000 20.04.1998 139,124 4 Chandkhed 135 and 18/10/2006 Dr.Arjun Rao 15,600,000 16.06.2005 450,000 137 11.09.2000 1,380,000

5 Chandkhed 140 23/08/2006 Mistri Santosh 2,00,000 20.04.1998 95,948

12. Referring to the order of the Tribunal in the case of the brother

of the assessee for A.Y. 2007-08 vide ITA Nos. 551 and 554/PN/2012

order dated 30-07-2013 he submitted that the Tribunal has

dismissed the appeal filed by the Revenue. He submitted that the

Revenue had challenged the order of the CIT(A) wherein the CIT(A)

has held that the profit on sale of such land is exempt from tax being

agricultural land. He submitted that the assessee did not carry out

any development work and the CIT(A) has wrongly observed that the

assessee is engaged in development activities and has sub-divided the

land into pieces. For the above the Ld. Counsel for the assessee filed

an affidavit of the assessee stating that he has neither sub-divided

the land into pieces nor done any plotting on the said agricultural

land.

13. Relying on the following decisions he submitted that the

income arising on sale of agricultural land is not to be treated as

business income :

1. Bhogilal H. Patel Vs. CIT reported in 74 ITR 692 (Bom.)

2. CIT Vs. Delhi Apartments Pvt. Ltd., reported in 352 ITR 322 (Del.)

3. S.K. Kaintal reported in 231 CTR 531 (P&H)

4. CIT Vs. Suresh Chand Goyal reported in 298 ITR 277 (MP)

5. CIT Vs. Kasturi Estates Pvt. Ltd., reported in 62 ITR 578 (Mad.)

6. Sri Gajalaxmi Ginning Factory Ltd. Vs. CIT reported in 22 ITR 502 (Mad.)

7. CIT Vs. Principal Officer, Laxmi Surgical Pvt. Ltd., reported in 202 ITR 601 (Bom.)

8. Saroj Kumar Muzumdar reported in 37 ITR 242 (SC) 12

14. He submitted that the assessee has not utilised any borrowed

funds and the lands were cultivated by him since last 7 to 8 years

and the assessee was not in construction business. Even in the later

year, exemption claimed by the assessee on account of sale of

agricultural land has been accepted by the AO in the order passed

u/s.143(3) and in the case of the brother of the assessee the Tribunal

has allowed exemption by dismissing the appeal filed by the Revenue.

Under these circumstances the claim of the assessee that the profit

on sale of agricultural land is exempt from tax has to be upheld.

15. The Ld. Departmental Representative on the other hand heavily

relied on the order of the CIT(A). He submitted that the assessee is

regularly engaged in the business of purchase and sale of land. The

agricultural income declared by the assessee is incidental to the land

holding. Referring to the decision of the Tribunal in the case of Shri

Dilip Panraj Sonigara he submitted that the Tribunal in the said

decision has held that the profit on sale of agricultural land is

business income. He accordingly submitted that the order of the

CIT(A) be upheld and the grounds raised by the assessee should be

dismissed.

16. The Ld. Counsel for the assessee in his rejoinder referred to the

copy of the assessment order for A.Y. 2001-02, a copy of which is

placed at pages 215 to 217 of the paper book, and submitted that the

assessee has incurred loss. He submitted that the assessee therefore

had to sell a part of his agricultural property for business purpose.

Referring to the copy of the assessment order for A.Y. 2003-04 he

submitted that because of the brought forward loss the business

income has been determined by the AO at NIL. Referring to page 242

of the paper book he submitted that the holding period of the land is

more than 8 years. So far as the decision relied on by the Ld. 13

Departmental Representative is concerned he submitted that the

facts in that case are distinguishable and are not applicable to the

facts of the present case. He submitted that each case has to be

decided on its own sets of facts. He accordingly submitted that the

order of the CIT(A) be set aside and the income from sale of

agricultural land be treated as exempt.

17. We have considered the rival arguments made by both the

sides, perused the orders of the Assessing Officer and the CIT(A) and

the Paper Book filed on behalf of the assessee. We have also

considered the various decisions cited before us. From the various

details furnished by the assessee in the paper book at page 242 we

find the assessee during the impugned assessment year has sold the

agricultural land at Rs.78,90,000/- and the purchase cost of the

same is Rs.13,22,027/- as mentioned by the Assessing Officer. We

find the assessee claimed the same as exempt from income tax

treating the same as agricultural land which is situated at a distance

of more than 8 kms from the limit of any municipality. According to

the Assessing Officer the assessee is regularly engaged in the

business of purchase and sale of land. The agricultural income so

declared by the assessee is only incidental to holding of such

agricultural land. He therefore treated surplus from sale of

agricultural land as business income which has been upheld by the

CIT(A). It is the case of the assessee that the land has been held by

him for agricultural purpose for more than 8 years, he is not directly

engaged in any land trading and it is only the partnership firm which

is trading in land. It is also the case of the assessee that no borrowed

fund has been utilised and in the subsequent year the Assessing

Officer in the assessment order passed u/s.143(3) has accepted such

surplus as exempt being sale of agricultural land. It is also the case 14

of the assessee that the Tribunal in the case of the brother of the

assessee has upheld the order of the CIT(A) treating such surplus as

exempt being sale of agricultural lands.

18. From the various details furnished by the assessee, we find

there is no dispute to the fact that the land sold in question are

agricultural lands. We do not find logic behind the argument of the

Revenue that the assessee is definitely a man of means and there was

no compelling circumstance to sale the land and therefore, such

income has to be taxed as business income. In our opinion, if any

income is otherwise exempt from tax as per the statute, the same

cannot be brought to tax merely because assessee is a man of means

or that the money so obtained has been utilised for some business in

an organised manner etc. It is for the assessee to decide his affairs in

the way he likes and the Revenue has no business to direct or advise

the assessee to manage his affairs. We find an identical issue had

come up before the Tribunal in the case of the brother of the assessee

wherein the Assessing Officer treated the surplus from sale of

agricultural land as business income which was held by the CIT(A) as

exempt being surplus from sale of agricultural land. On further

appeal filed by the Revenue, the Tribunal dismissed the appeal filed

by the Revenue by observing as under :

"12. We have carefully considered the rival submissions. The pertinent facts in this case are that in the year 2000-01 assessee purchased certain agricultural land which has been sold during the year under consideration. In the interregnum, assessee declared agricultural income from the said land during the assessment years 2002-03, 2003-04 and 2004-05. Ostensibly, there is no dispute to the fact that the land in question was an agricultural land. It is also clear from the orders of the authorities below that at no stage, assessee undertook any development activity on such land, akin to a developer, for instance, there is no construction of compound wall, laying of internal roads, sub-plotting, etc.. The land has been sold by the assessee without taking any steps to further develop it so as to add value to it, in order to maximize the profits on sale. The CIT(A) has also brought out that in the State of Maharashtra only an agriculturist can own agricultural land, which indicates that the claim of the assessee that he was an agriculturist was bonafide. The CIT(A) has also come to a finding that there was no material to show that 15

land use was sought to be changed from agricultural to non-agricultural land. It is also relevant to note that assessee held the land for almost 7 years before selling it. All the aforesaid features are not in dispute."

13. No doubt, assessee is otherwise engaged in the business of promoters/developers of real estate. Naturally, in the first impression, it might seem that the present transaction of the sale of agricultural was undertaken by the assessee in the course of real estate business. So, however, having regard to the aforesaid features, such first impression cannot be supported by facts. Ostensibly, if the assessee was treating the said agricultural land as a part of his activity of promoter/developer of real estate, certain steps or activities would have been undertaken by him which would reflect such an intention. Factually speaking, there is no such activity undertaken by the assessee and we find that the CIT(A) has correctly asserted the same. In-fact, there is no such allegation even in the assessment order. Therefore, on this fact, we find no error on the part of the CIT(A) to conclude that in the absence of any development undertaken or rather in the absence of any legally permissible development of the impugned land, the transaction of sale of land cannot be considered as a business transaction. At this point, it would also be appropriate to notice that the lands have been held by the assessee for a fairly long period of time, namely 7 years (approx) and in the intervening period assessee had also declared agricultural incomes. We are conscious of the fact that intention of the assessee is an important ingredient to examine as to whether the transaction is in the nature of business or not. In the present case, there has been no action on the part of the assessee to develop the land for a good 7 years and in our view, the higher sale value realized by the assessee is on account of appreciation in land values due to efflux of time. Therefore, case of the Assessing Officer that the lands were purchased to earn quick profit cannot be justified having regard to the period of holding and also the manner in which assessee has held the agricultural lands prior to its sale.

14. We may also refer to the decision of the Pune Bench of the Tribunal in the case of Gopal Kasat (supra) relied upon by the Assessing Officer to say that the income by selling of agricultural land was to be assessed as a business transaction. In the case of Gopal Kasat (supra), assessee purchased certain lands which were subject-matter of acquisition proceedings by the Government. The Tribunal, in this background, noted that the assessee was aware, at the time of purchase, that the land could not be held as an investment for a long period as the same was under acquisition proceedings. The aforesaid factor prevailed with the Tribunal to hold that surplus on sale of such land was to be treated as 'business income' and not as 'capital gains'. In the present case, the facts stand on an entirely different footing inasmuch as there is no material to show that at the time of purchase assessee had any intention of doing any business of dealing in agricultural lands. In-fact, in our view, the CIT(A) rightly relied upon the judgement of the Hon'ble Bombay High Court in the case of CIT vs. Bombay Oilseeds & Oil Exchange Ltd., 202 ITR 198 (Bom.) to hold that it was for the Revenue to prove that the land in question formed part of the 'business asset' and in the absence of any such evidence, the presumption is that the land was held by the assessee merely as an investor and income from such transaction was not to be treated as capital gain.

15. Having regard to the aforesaid discussion and the factual appreciation as brought by the CIT(A), we find no reasons to interfere with the impugned order, which we hereby affirm. Accordingly, we uphold the order of the CIT(A)."

16

19. Since in the instant case the assessee has sold the agricultural

land in the year 2005 which were held by him for more than 7 years

except in one case where the same was held for about 4 years, the

details of which are extracted at para 11 of the impugned order and

since there is also no dispute to the fact that the assessee was

deriving regular agricultural income from the same land and further

considering the fact that the Assessing Officer in the assessment

order for A.Y. 2008-09 passed u/s.143(3) on 27-12-2010 has

accepted the claim of the assessee that gain on sale of agricultural

land at Rs.96,61,250/- is not liable to tax and no addition has been

made in orders passed u/s.143(3) for A.Yrs. 2001-02 and 2003-04,

therefore, we are of the considered opinion that the CIT(A) was not

justified in bringing to tax the surplus on sale of agricultural land as

business income. In this view of the matter we set aside the order of

the CIT(A) and the grounds raised by the assessee on this issue are

allowed.

20. So far as the decision of the Tribunal in the case of Shri Dilip

Panraj Sonigara relied on by the Ld. Departmental Representative is

concerned, we find the facts in that case are different. In that case,

the Tribunal following the decision of the Coordinate Bench of the

Tribunal in the case of the brother of the assessee has held that the

surplus on such sale of land has to be treated as business income.

Since the assessee's land was adjacent to the land sold by his brother

and the surplus was held by the Tribunal as business income,

therefore, the Tribunal following the decision in the case of the

brother of the assessee has held that such surplus on sale of land is

business income. However, in the instant case the Tribunal in the

case of the brother of the assessee has treated the surplus as exempt

being sale of agricultural land beyond a distance of 8 kms from the 17

municipal limits. Further, the Assessing Officer in the assessment

order passed u/s.143(3) for A.Y. 2008-09 has not disturbed the claim

of the assessee that such income is exempt from tax being sale of

agricultural land. Therefore, the decision relied on by the Ld.

Departmental Representative is not applicable to the facts of the

present case. In this view of the matter the order of the CIT(A) is set

aside and the grounds raised by the assessee are allowed.

21. Ground of appeal No.6 by the assessee reads as under :

"6. The learned Deputy Commissioner of Income Tax, Central Circle 1(1), Pune (DCIT) has erred in treating agriculture income of Rs.2,00,630/- as undisclosed income under section 69A of the Income Tax Act, 1961 without considering provisions of the law and facts of the case and the learned Commissioner of Income Tax (Appeals) - I has erred in confirming the same."

22. Facts of the case, in brief, are that the Assessing Officer noted

from the details furnished by the assessee that the assessee had

shown gross receipt on account of sale of agricultural produce at

Rs.7,69,115/- and the expenditure on account of agricultural activity

at Rs.2,40,485/-. Thus, the assessee has shown net agricultural

income at Rs.5,25,630/-. The Assessing Officer confronted the

assessee to justify the claim of such huge agricultural income. He

further noted from the details filed by the assessee that assessee had

shown agricultural income of Rs.1,50,000/- in A.Y. 2001-02,

Rs.3,26,478/- for A.Y. 2002-03, Rs.47,011/- for A.Y. 2003-04 and

Rs.4,50,000/- for A.Y. 2004-05. Further, from the various details

furnished by the assessee he observed that assessee has claimed

certain expenses such as purchase of steel, Buldozer work, pre-cable

work, fabrication, survey charges, etc., totalling to Rs.77,122/- which

according to him cannot be termed as agricultural expenses.

Therefore, he held that the expenditure on account of agricultural

activity is Rs.1,66,363/- (i.e. Rs.2,43,485/- - Rs.77,122/-). Since the 18

assessee had shown gross agricultural receipt of Rs.7,69,115/- in the

profit and loss account and the net profit of Rs.5,25,630/- the

Assessing Officer calculated such net profit margin which works out

to 68% with respect to gross receipts. This according to the

Assessing Officer was very high. According to him the assessee has

received only an amount of Rs.3 lakhs by cheque and the balance

amount was in cash. Therefore, he considered the net agricultural

income of the assessee at Rs.3,25,000/- as reasonable as against

Rs.5,25,630/- claimed by the assessee. The balance amount of

Rs.2,06,030/- (i.e. Rs.5,25,630/- - Rs.3,25,000/-) was treated by the

Assessing Officer as undisclosed income of the assessee.

23. In appeal the Ld.CIT(A) upheld the action of the Assessing

Officer by observing as under :

"5.3. I have carefully considered the facts of the case and law. From the perusal of the assessment order, it is clear that the appellant admitted in his statement recorded on oath by the Assessing Officer during the course of assessment, that the relevant details which can support the claim of agriculture income in terms of receipt and expenses are not completely available. Thereafter however the appellant has tried to cover up the matter by making round about submissions. However, the Assessing Officer after considering the facts and circumstances of the case accepted the agriculture income of Rs.3,25,000/- and treated the balance income of Rs.2,00,630/- introduced in the books in the guise of agriculture income as concealed income. The appellant during the course of appeal also has submitted similar details and on the basis of the same it is not possible to find any fault in the finding of the Assessing Officer. Considering the same, Ground No. 6 is treated as dismissed. "

24. Aggrieved with such order of the CIT(A) the assessee is in

appeal before us.

25. The Ld. Counsel for the assessee submitted that there are no

defects in the accounts maintained by the assessee who is holding

around 40 acres of land. In A.Y. 2004-05, the assessee has declared

Rs.4,50,000/- as agricultural income which was accepted by the

Assessing Officer in the summary assessment. He submitted that the 19

disallowance made by the Assessing Officer is not justified and

therefore the agricultural income declared by assessee should be

accepted.

26. The Ld. Departmental Representative on the other hand heavily

relied on the order of the CIT(A).

27. We have considered the rival arguments made by both the

sides, perused the orders of the Assessing Officer and the CIT(A) and

the Paper Book filed on behalf of the assessee. We have also

considered the various decisions cited before us. From the various

details furnished by the assessee we find the assessee had shown

agricultural income in the preceding assessment years which are as

under :

Sr.No. Assessment Agricultural Year Income (Rupees) 1. 2001-02 1,50,000 2. 2002-03 3,26,478 3. 2003-04 47,011 4. 2004-05 4,50,000 5. 2005-06 5,25,630

28. From the above, it is seen that the agricultural income shown

by the assessee during the impugned assessment year appears to be

on the higher side. It is also an admitted fact that out of the total

gross receipt of Rs.7,69,115/- the assessee has received only an

amount of Rs.3 lakhs in cheque and the balance amount has been

received in cash. The expenses claimed by the assessee are also

unverifiable. Considering the totality of the facts of the case and the

past records net agricultural income of Rs.4,00,000/- for the

impugned year, in our opinion, will meet the ends of justice. We hold

and direct accordingly. The ground raised by the assessee is

accordingly partly allowed.

20

29. The assessee has also raised an additional ground which reads

as under :

"Without prejudice to the foregoing, the assessment order and the appellate order suffers from principle of natural justice and the assessee be allowed adequate opportunity of being heard in the matter.

30. The Ld. Counsel for the assessee did not press the same at the

time of hearing. Therefore, the additional ground raised by the

assessee is dismissed as 'not pressed'.

31. In the result, the appeal filed by the assessee is partly allowed.

Pronounced in the Open court on 24-07-2015.

Sd/- Sd/-

(VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

iq.ks Pune; दनांक Dated : 24th July, 2015.

lrh'k

आदे श क' (!त*ल प अ+े षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2.

यथ / The Respondent

3. आयकर आय"

ु त(अपील)-I, iq.ks / The CIT(A)-I, Pune

4. आयकर आय"

ु त-I, iq.ks / The CIT-I, Pune

5. %वभागीय (त(न)ध, आयकर अपील य अ)धकरण, "ए" iq.ks / DR, ITAT, "A" Pune;

6. गाड- फाईल / Guard file.

आदे शानस ु ार/ BY ORDER,

स या%पत (त //True Copy//

स या%पत (त //True Copy// व1र2ठ (नजी स)चव / Sr. Private Secretary आयकर अपील य अ)धकरण, iq.ks / ITAT, Pune