Agricultural land sale not treated as business income where records and circumstances showed no trading venture.

Agricultural land recorded in revenue records remained agricultural in character because no convincing material showed otherwise, and the assessee had not engaged in repeated or organised land dealings. Short holding period and a sharp rise in sale price were held insufficient, by themselves, to convert the sale into an adventure in the nature of trade. The absence of borrowed funds, prior or subsequent land trading, and other commercial indicators supported exemption rather than business taxation. As the underlying addition failed, the related penalty could not survive.

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Issues: Whether the profit arising from sale of the land was assessable as business income on the footing that the transaction was an adventure in the nature of trade, or as exempt capital gain arising from sale of agricultural land.

Analysis: The land stood recorded as agricultural land in the revenue record, no convincing material was brought to dislodge that character, and the assessee had not undertaken repeated or organised dealings in land. The short holding period and the high rise in sale price, by themselves, were held insufficient to convert the transaction into a trading activity. The surrounding circumstances, including the absence of borrowed funds, absence of prior or subsequent land trading, and the assessee's background, pointed away from a commercial venture. The finding that the land was not a sham transaction did not alter its character as agricultural land. Once the quantum addition on this basis failed, the penalty based on the same addition could not survive.

Conclusion: The sale proceeds were held to be exempt as arising from agricultural land, not assessable as business income; the penalty under section 271(1)(c) also failed.

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