TaxTMI 
TaxTMI 
2014 (1) TMI 20
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....) The land in question are outside the Municipal limits as prescribed by section 2(14)(ii) or (iii). (iv) That on the facts and circumstances of the case the CIT(A) erred in upholding the invoking of provisions of section 145(3) and framing of the assessment u/s 144. 1.1. Issues, facts and conclusions being same for both the years, they are disposed of by common order for the sake of convenience. 2. Brief facts are : Search and seizure operations were conducted on 17- 9-2008 in assessee's premises which is referred to belonging to one Basant Bansal, which in turn has been named as sub-group of Kamdhenu Group. During the course of search no surrender of undisclosed income was made in the group. Notice u/s 153A was issued on 9-3-2010. In response thereto the assessee filed same returns as were filed earlier i.e. declaring loss of Rs. 2,73,866/- for A.Y. 2007-08 and loss of Rs. 6,14,908/- for A.Y. 2008-09. 2.1. During both the years the assessee had sold lands claimed to be agricultural lands, which are held as stock in trade. Huge gains on sale of such lands were declared which are claimed to be agriculture lands. Thus, the following gains were claimed by the assessee as ....
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....ee, whether or not connected with his business or profession, but does not include - .......................... [(iii) agricultural land in India, not being land situated - (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 tea 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 kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extend of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;] In view of the above, it is clear that land, which is situated within the jurisdiction of Municipality or Cantonment Board, which has a population of not less than Ten Thousand or land situated in any a....
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....onsideration. Another land situated at Village Maidawas, Distt.- Gurgaon, Haryana sold during the year was purchased in the preceding year. Therefore, it is apparent from the period of holding also that the intention of the assessee was not to perform any agricultural activity on the land. Also, it is nowhere mentioned in the MOA of the company that either main object or ancillary object of the company was agriculture. Moreover, it is not important what is preached but more important is what is professed. In the case of the assessee, it has been seen that the company since its inception in the year 2003-04 has been solely working with the intention to acquire land in and around Gurgaon, Haryana and then either sell it at profit or develop a land project on it. 2.4. The assessing officer then referred to the facts of other 11 companies of the group whose major shareholders and directors are referred to be Shri Basant Bansal and Shri Roop Bansal. According to assessing officer, a holistic view of the facts and circumstances was to be taken which in sum and substance are as follows: (i) The various group companies and the above two persons along with Smt. Abha Bansal and Shri Pa....
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....and as a part of its business and with the intention to sell the same at profit. Hon'ble Supreme court in its judgment in the case of CIT vs M/s Sutjej Cotton Mills Supply Agency Lt. 100 ITR 706 has held that "if the dominant intention was to carry on an adventure in the nature of business, the profit can be taxed". Since it is proved that the intention of the assessee was to earn profit from transaction of purchase and sale of agricultural land, profit earned can be taxed from sale of such agricultural land as business income. (viii) The assessee has treated the agricultural land as Fixed asset in its Books of account, the receipts on sale of it as capital receipt and the resultant profit has been claimed exempt. However, in view of the fact mentioned in paras above, receipt on sale of agricultural land is to be considered as revenue receipt. Assessing officer held that books are incorrectly written and liable to be rejected. It is a well settled principle that the Books of account should be written to give true and fair picture of the affairs of the business of the assessee. Section 145(3) of the LT. Act categorically states that when the AO is not satisfied about the correctn....
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....Apropos the first issue i.e. scope of Sec. 153A and effect on block assessment of any incriminating material not being found during the course of search, 2 issues were raised before CIT(A): (i) The assessments in the case of assessee had become final and were not abated, therefore, no addition can be made qua the settled issues. (ii) In any case no addition can be made u/s 153A as no incriminating material was found or relied in this behalf as a result of impugned search. 2.8. CIT(A) apart from various case laws mentioned in the order relied on ITAT Delhi Bench judgment in the case of Shivnath Rai Harnarain (India) Vs. DCIT (2008) 117 TTJ 480, inter alia holding as under: "From reading s.153A and second proviso to s.153A, it is further clear that on the date of initiation of search or requisition under s.132 or s.132A the pending assessment or reassessments relating to any assessment year falling within a period of six assessment years shall stand abated but assessment or reassessments can be done under s.153A of the Act in cases of completed assessments or in cases where assessments have not been framed due to non filing of returns etc. for the abovementioned assessmen....
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....Delhi High Court judgment in the case of Anil Bhatia (supra), the CIT(A) held this issue against the assessee by following observations: 22. In the light of our discussion, we find it difficult to uphold the view of the Tribunal expressed in Para 9.6 of its order that since the returns of income led by the assessee for all the six years under consideration before the search took lace were processed under Section 143(l)(a) of the Act the provisions of Section 153A cannot be invoked. The Assessing Officer has the power under Section 153A to make assessment for all the six years and compute the total income of the assessee, including the undisclosed income, notwithstanding that the assessee filed returns before the date of search which stood processed under Section 143(1)(a). The other reason given by the Tribunal in the same paragraph of its order that no material was found during the search is factually unsustainable since the entire case and arguments before the departmental authorities as well as the Tribunal had proceeded on the basis that the document embodying the transaction with Mohini Sharma was recovered from the assessee. While summarizing the contentions of the assesse....
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....ground of appeal is accordingly dismissed." The CIT(A) rejected assessee's both pleas in this behalf. 2.10. Apropos second issue about rejection of books u/s 145(3) of the Act, the CIT(A) rejected the ground of the assessee by following observations: 6.8 As regards rejection of books of accounts u/s 145(3) the AO has observed that the assessee treated the agriculture land as fixed asset in its books of accounts and the receipt on sale of it was shown as capital receipt and the resultant profit has been claimed as exempt. However, as per detailed discussion in the assessment order, the AO came to the conclusion that the books of accounts should be written in manner that they reflect true and correct affairs of the business and that when the AO was not satisfied about the correctness or the completeness of the account of the assessee or where the matter of accounting provided in sub-sec. 1 of sec. 145 or accounting standard as notified under sub. Sec. 2 of sec. 145 have not bee regularly followed by the assessee, the AO may make an assessment in the manner provided in sec. 144 of IT Act. As per AO, the books of accounts of the assessee did not present true and fair picture of a....
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....of profit and not to utilize the same for long term investment purposes. This fact is stated to be evidenced from the fact that the land was purchased only during the A.Y. 2006-07 and it was sold in A.Y. 2007-08 & 2008-09 and accordingly substantial profit was booked and earned. The A has also noted that even in the MOU of the appellant company, there is no any major object or any other minor object for purchasing of agricultural land for agricultural operations. The AO keeping in view overall business transactions and nature of activities of the other sister companies of the appellant group has observed that the sole object of the appellant company is to acquire land in and around Gurgaon in Haryana and sell the same on profit. As per AO, such corroborative facts as also facts gathered from business transactions in respect of purchase of such agricultural land by the sister companies also proved that such transactions by appellant company were definitely of business nature. Relying on such facts including corroborative evidence the AO has held that the conduct of the appellant company as a group indicated that such purchase and sale of agricultural land was-adventure in the nature....
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....land in question was agriculture land and on the date of acquisition the character of land continued to be agriculture land and between these two period i.e. purchase of land and acquisition of this land by 1he competent authority there is no. change in the nature and character of the land then surplus from such sale of land cannot be taxed as capital gain. he appellant in his detailed written submission has essentially contended that the nature of land at the time of purchase as well as at the- time sale was only agricultural and "that such agricultural land being no capital asset therefore such surplus arising on the sale of such land cannot be taxed. The various case laws referred an relied upon by the appellant also stated to be support such proposition of law. I It may be noted that the whole defense of the appellant is mainly revolving over the facts that the said land is agricultural land not situated in municipal area and such land being not a capital asset therefore not liable to Income Tax particularly capital gain. However as discussed earlier all these facts are not disputed by the AO and in fact the AO has not taxed such surplus simply on the basis of these grounds ....
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....TO Vs. Rani Ratnesh Kumari (1980) 123 ITR 343 has held that apart from dominant and even sole intention in respect of specific transaction which may qualify for an adventure in the nature of trade, subsequent conduct of the assessee must also be considered Further the Hon, Supreme Court in the case of G. Venkat swami Naidu & Co. Vs. CIT 35 ITR 594 has held that in cases where purchases have en made solely and exclusively with intention to "resell at a profit and purchaser has no intention of holding property for himself or otherwise enjoying or using it, presence of such an intention is a relevant factor and unless it is obstructed by presence of other factors it could raise a strong presumption that the transaction is an adventure in the nature of trade. The Hon. Gujarat High Court in the case of CIT vs. Premji Gopalbhai (1978) 113 1TR 785 has held that the sole intention to resell at a profit is a strong factor to determine the transaction as adventure in nature of trade. It is held that even if the land which is not a commercial commodity is purchased and it can be shown that the purchase of the land was made solely and exclusively with an intention to resell it at a profi....
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....nt was not to hold such land for a substantial period. The above fact indicates that the dominant objective and intention was to purchase such land and to utilize and earn business profit at the earliest possible occasion. Therefore even if the said land was agricultural land the, intention of the appellant; was not to keep it for agricultural purposes or as an investment but to derive profit-at the earliest possible time. iii) The appellant consist of a group in which there are other corporate entities also and as discussed by the AO the other sister concerns/ companies as also its directors are broadly found to be involved in the business of real estate property. The broad details of such company I individual as discussed by the AO in the assessment order are as under: a) Marigold Merchandise Pvt. Ltd . b) Misty Midows Pvt. Ltd. c) Manglam Multiplex Pvt. Ltd. d) Dignity Buildcom Pvt. Ltd. e) M/s Marhsal Buildcon f) MIs M3M India Ltd. g) Bonus Builders Pvt. Ltd. h) Benchmark Infotech Pvt. Ltd. iv] It may also be stated that the main persons of this group including Sh. Basant Bansal, Sh. Roop Bansal and' other family members also started their career i....
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..... CIT(A) on the ground that to profit / gain arising from purchase and sale of specified agricultural land held by assessee as fixed assets, cannot be held as exempt income and is liable to be treated as business income. 3.1. Ld. Counsel reiterated the facts and contends that it has been assumed that because assessee belongs to a group of companies engaged in real estate business, the gains in question, derived from sales of agricultural land by asssesee amounts to adventure in the nature of trade. Consequently such gains which are otherwise exempt as agricultural income are assessable as business income in assessee's hands. 3.2. Adverting further to facts, ld counsel contends that appellant purchased impugned agricultural land at village Behrampur District Gurgaon Haryana, admeasuring 206 kanal 16 Marlas for Rs. 1,32,51,000/-, which is duly reported with return of income for A.Y. 2006-07. The impugned land has been shown as fixed asset in the books of a/cs which are assessed u/s 143(3). The agricultural land is situated beyond 8 km. from the limit of nearest municipal committee. Out of this agricultural land, the appellant sold 92 kanal 8.50 marla for Rs. 32 Crores in AY 200....
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....eady assessed u/s 143(3) and when no incriminating material in this regard is found as a result of search. 3.6. It is pleaded that, by now it is a settled proposition of law based on Hon'ble Delhi and Rajasthan high court judgments and a catena of ITAT judgments that no additions could be made in the assessment u/s 153A if there is no incriminating material found as a result of search. Following case laws are relied upon:- (i) All Cargo Global Logistics Ltd. v. DCIT (2012) 18 ITR (Trib) 106 (Mumbai)(SB) - for the proposition that in assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately. In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. (ii) Gurinder Singh Bawa v. DCIT (2012) 28 T....
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.... - In the present case it is apparent that on the date of search be on 12/09/2007, the assessments for assessment year 2004-05 & 2005-06 were already completed. There was no incriminating material found during search for these years as is apparent from arguments of Ld. AR and from records and Ld. Departmental Representative did not bring to our notice regarding any incriminating material having been found during search. Therefore following the Judicial Precedents, we are of the opinion that though assessments for the above year were bound to be reopened but additions could be made only if some incriminating document was found during search. (vi) Tarannum Zafar Khan Vs. ACIT, ITA Nos. 5888 to 5890/Mum/2009 18.3 One more reason is there that most of the additions have been made in the routine manner as the issue has not been discussed in right perspective in taking into consideration the submission and other evidences filed. It is also a matter of fact that no incriminating material was found during the course of search as only during the assessment proceeding, these expenses were found made through credit cards. In view of the above facts and circumstances of the case, we dele....
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....ese pleadings and binding judicial precedents, the decision of CIT (A) deserves to be reversed. 3.8. Ld counsel further pleads that even on merit, the impugned addition is not sustainable. The said land was purchased as agricultural land and held as fixed asset in its books of accounts. This has been accepted by 143(3) assessment in A.Y. 2006-07 which has become final. The purchase of agriculture land has also been accepted by Ld. A.O at para 3.4(a) at page 4 of the block assessment order. Ld. CIT(A) has also held that it was agricultural land and was not capital asset in para 6.6, page 39, 40, 43 of the appeal order. Ld counsel then referred to following documents placed on paper book to emphasize these facts: (i) PB 29-44 is the copy of purchase deed showing the nature of land as agricultural land. This is part of assessment record u/s 143(3) for A.Y. 2006-07. (ii) PB 45-48 is the sale deed of impugned agricultural land wherein at PB 47 the nature of impugned sold land has been mentioned as agricultural land. (iii) PB 27-28 is the evidence in the form of certificates from Tehsildar certifying the land as agricultural land and further that it is located beyond 8 Km. fr....
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....d was never held as business asset. This is evident from the fact that it was shown as fixed asset and not as stock in trade in balance sheet. Further, no development work whatsoever was undertaken by the appellant nor any license for commercial exploitation was applied so as to suggest even any future intention for non agricultural use. The land was purchased and sold in kanals and marlas and not in yardage or feet. Neither any plotting was done, nor change of land use (CLU) was applied. Thus looking from any angle there is no iota of evidence or any incriminating material to indicate that there was even any endeavour much less any future intent to use land for non agricultural purposes. The facts and record clearly demonstrate that no real estate development activity was done by the assessee qua impugned agricultural land. 3.13. Before Ld. CIT (A) appellant duly met with and distinguished as well as the A.O's reliance on the decision of Madhya Pradesh High court in the case of CIT Vs. Jawahar Developers 127 ITR 431. 3.14. Reliance is placed on the ratio of decision of Hon'ble Bombay High Court in the case of Manibhai A. Seth Vs. ITO 128 ITR 387, holding in identical facts that....
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....ng fallow and not being used for agriculture makes no difference." That in the sale deeds of the lands in question specifically mentioned the fact that the said land is agricultural land this is also mentioned in the land description that its entry in the land revenue records of the state government is its self, a prima facie evidence that demonstrate that the said land is not meant for any other purpose what to say any non-agricultural purpose. Further, the sale deeds also mentioned "That the said land has not notified under section 4 or 6 of the Land Acquisition Act, 1984 either for the planned development or for any other purpose" that means the future intend use cannot be other than agricultural purposes viz to undertake any commercial activity that demonstrates, whatsoever, 'Adventure in the nature of trade'. (v) Shri K. Gnaneshwar Dt. 19.12.2012 ITA No.526A/Hyd/2005 : AY 2000-01,ITA No.508/Hyd/2007,ITA No.543/Hyd/2006, ITA No.226/Hyd/2007, ITA No.1407/Hyd/2010, & IT(SS)A No.44/Hyd/2009 "para 47 There is no material on record to show that the assessee carried on activities of buying and selling of land in a systematic manner so as to justify the action of the Revenue ....
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....al purposes which led the Tribunal to the inference that the land was held as an asset and, therefore, the assessee had appropriately offered it for taxation under the head 'capital gains." 3.18. Without prejudice to above, ld counsel contends that assesses books were rejected without any justification whatsoever. No inconsistencies or complexity have been pointed out about inability to determine the assessee's true income. Books of accounts are audited and in order to willy- nilly reject the books it was done by a presumptuous plea that land ought to have been treated as stock in trade. In umpteen no of assessments, heads of income, nature of expenses from capital to revenue or vice versa are changed. It doesn't imply that AO will reject duly maintained books of accounts in every such case. There was no justification for lower authorities to reject the books just to change the head or interpret the law in their own way. For the sake of arguments even if such agricultural land is treated as business asset yet the gain from it would nonetheless be exempt as agricultural income. 3.19. Further reliance is placed on the ratio of decisions for this proposition in the cases of: ....
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....at this proposition was raised by CIT(A) consequently it is proposed to be dealt below. 3.21. Adverse observations of Ld. CIT(A) are met as under by the counsel:- (i) Ld. CIT(A) has mentioned that though the land was agricultural land but since it was purchased and sold at short interval, it shows that it was purchased with an intention to do business. Also, MOA also indicates shows the objective of real estate business of the appellant. In reply, it is submitted that MOA may contain various objectives but what has to be seen on facts as to what has actually been done by the company. Appellant company was undisputably entitled to purchase agricultural land as fixed asset and derive agricultural income there from which has been offered and taxed as agricultural income. Thus, actual activity has to be seen instead what is mentioned in the MOA. MOA's object clause is so comprehensively worded so as to include right from fishing trade to aeroplane manufacturing. Thus, object clause should not be the sole criteria to the utter disregard of the evidence and actual activity undertaken. Reliance is placed on: - ITO Vs. Neon Property P Ltd. ITA no. 1171/Del/2011 dated 13.5.2011;....
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.... companies have business transaction it cannot result into a colored assumption that assessee is also having business activities, therefore its fixed asset should be deemed to be trading assets. Further, only because land in and around Gurgaon can fetch better price, it can not be the reason to term the investment in agriculture as trading asset by such outlandish presumptions. It has been held by several judicial authorities that even real estate companies can hold agricultural land is fortified by following judicial decisions:- - DLF United Ltd. 161 ITR 714(Del), - ITO. Vs. Neon Property P Ltd. ITA no. 1171/Del/2011 dated 13.5.2011 - Delhi Apartments P Ltd. ITA 569/2012 dated 7.3.2013 (Del)(HC) 4. Ld. CIT(DR), on the other hand, apropos jurisdictional issue contends that the case laws relied on by the ld. Counsel for the assessee in the case of Jai Steel India (supra), the facts were different in the sense that in original assessment the assessee had not claimed sales-tax incentives to be capital in nature. After the search in 153A assessment assessee claimed that the assessing officer should now grant deduction thereon, reducing it from the income by treating it to b....
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....proposition that in such circumstances the addition can be made. - CIT Vs. Sutlej Cotton Mills supply Agency 100 ITR 706; - R. Dalmia vs. cIT (1992) 137 ITR 665 (Del.); - CIT Vs. Jawahar Development Association 127 ITR 431 (MP)' - Kedarnath Jute Manufacturing Co. Ltd. Vs. CIT 82 ITR 363 (SC). 4.4. Coming to the legal arguments, Sec. 2(1A)/ 2(14)(iii) r.w.s. 10(1), ld. CIT(DR) contends that the main argument of the assessee is to be effect that the land in question is outside the specified municipal limits and such land being not a capital asset is not liable to income-tax tax. Assessing officer has not taxed the gains on the basis that purchase and sale of land by the assessee is an adventure in the nature of trade and the surplus is liable to be taxed as business income. As per Sec. 2(13) of the I.T. Act, business includes any trade, commerce or manufacturing or any adventure or concern in the nature of trade. In the case of R. Dalmia 137 ITR 665 the Hon'ble Delhi High Court has held that for determining the nature of the transaction the dominant intention of the assessee is to be seen. 4.5. To determine that assessees venture was in the nature of trade or from a....
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...."25. The argument of the learned counsel that the AO is also free to disturb income, expenditure or deduction de hors the incriminating material, while making assessment under section 153A of the act is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition. The provisions of Sections 153A to 153C cannot be interpreted to be a further innings for the AO and/or assessee beyond provisions of Sections 139(return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act. 26. The plea raised on behalf of the assessee that as the first provision provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the aid provision in isolation and not I the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been....
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....chase deed. This has been accepted by department u/s 143(3) in A.Y. 2006-07. The assessee has claimed to have carried out agriculture operations and earned agriculture income which is offered in the return of income, which is accepted. Conveyance of sale of land also demonstrates that the land in question was agriculture land. It has not been disputed that the assessee on its own as an independent entity has not carried out any development activity or moved any application for commercial exploitation of the land to any local, state or Central agency. These glaring facts and circumstance do not raise any occasion for rejection of books. If at all, the assessing officer could have changed the head of income by exercising his assessment power. In the absence of any worthwhile defect in the books of accounts, rejection of books was unjustified. This ground of the assessee is also allowed. 5.4. Coming to the merits of the case, the main allegation of the lower authorities is to the effect that the assessee group taken as a whole was engaged in various activities of real estate development, therefore, an inference has been drawn that the assessee also should be deemed to be engaged in....