TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 149
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.... of income for Assessment Year 2012-13 and Assessment Year 2013-14 were filed on 23.1.2013 and 29.4.2014 declaring income of Rs. 3,22,49,498/- and Rs. 2,47,87,020/- respectively. Cases for both the years were picked up for scrutiny through CASS, followed by the issuances of statutory notices u/s 143(2) of the Act and u/s 142(1) of the Act which were duly served upon the assessee. Detailed questionnaire was issued and were duly replied by the assessee. The Ld. A.O while framing the assessment observed that the assessee has earned significant amount of income shown under the head Capital Gain from sale of land. Ld.A.O also noticed that the assessee owned the land in the same vicinity and some portion of the land were purchased during the financial year 2005-06 and 2006-07 and the remaining were purchased during the financial year 2011-12. The capital gain was accordingly declared as Short Term Capital Gain and Long Term Capital Gain as per the period of ownership. On making further investigation Ld. A.O revealed that the alleged land which has been sold during the Assessment Year 2012-13 and Assessment Year 2013-14 were sold with the assistance of Developer company namely M/s. Aarone....
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....icultural land of 6. 53 Htrs. at village Jhalaria in the year 2006. This land was held by the assessee as an investment. The assessee entered into an understanding with M/s Aarone Developers Pvt. Ltd., Delhi, for development and sale of this land. The Company Aarone had entered into similar understanding with various land owners holding the surrounding lands. A common map was sanctioned for developing all these lands. It was agreed between the parties to share a particular percentage of the sale consideration of the land. Accordingly the assessee's share for each sale came to approximately 4.5. Special weightage was given to the assessee for the prime location of her lands. The Company Aarone developed the whole land of approximately 96 Htrs and effected various sale deeds of the developed plots to various purchasers. These sale deeds were executed with the signature of all the land owners along with two of the representatives of Aarone. The assessee received an amount of Rs. 3,32,22,388/- during the year and accordingly showed the long term capital gains on the sale of these lands. While framing the assessment the Ld AO observed on page 5 para 3.2 that it is a business activit....
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....ny business but held the same as a capital asset. We would like to draw your honours kind attention to the following judgments wherein it has been held that if the plots are sold for getting better price then it would be a capital gain and not the business income. CIT v/s Suresh Goyal 298 ITR P. 277 (MP) CIT v/s Gajanana Enterprises 314 ITR P. 247 (Kar) CIT v/s Sohan Khan 304 ITR 194 8. On the other hand the Ld. Departmental Representative vehemently argued and supported the orders of lower authorities. 9. We have heard rival contentions and perused the records placed before us. The sole issue raised in these two appeals is that whether the profits earned by the assessee from sale of land is to be assessed as business income or Capital Gain. 10. We find that the assessee is mainly engaged in liquor business. Investments were also made in the agricultural land and other properties. The impugned land under consideration of these two appeals are the chunk of land situated at village Jhalaria. Assessee purchased piece of agricultural land at Village Jhalaria near Indore during the financial year 2005-06 and 2006-07 and purchases of another portion of land in the very same area....
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....nd for coming to this conclusion Ld.A.O observed as follows while framing the assessment for A.Y. 2012-13. "3.1 Before commenting upon the Capital Gain offered by the assessee on the said land it would be pertinent to discuss the modus operandi of the business carried out by the assessee. The assessee has purchased agriculture land with a view to fetch better price. The said land has been sold through M/s Aarone Developers Pvt. Limited. The said company has received land from assessee i.e owner of the land who carried out trading of land after developing the said land and company has been selling the land into pieces and has charged the 'Development Charges' from the assessee. The developer company namely M/s Aarone Developers Pvt. Ltd. has been appointed as holder of 'Power of Attorney' by the assessee and acted on behalf of the assessee arranging the sale and sold the pieces of land to various customers for which registered documents were executed in name of the assessee. In each 'Sale Deed' executed the assessee along with other persons have appeared and director of the Company Shri Sanjay Phawa along with Shri Mukesh Kumar are exercising 'Power'....
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....d by her has been sold by way of registered documents signed by her sold through builder then only the question of Capital Gain arises in her hands leading to the actual transfer of Capital assets within the meaning of sec.2(47) r.w.s 53A of the Transfer of Property Act. But in the assessee's case this is not the situation leading to fact that no capital asset has been transferred by her and' is out of the purview of charging of Capital Gain in her hand. Since the activity carried out by her is trading of land amounting to business. 3.4 Vide note sheet entry dated 21/12/2014 the assessee was categorically asked to explain as why shall not Capital Gain be treated as Business Income being sale of plot after development through M/s Arone Developer Pvt. Ltd . In compliance to the said query vide letter dated 13/01115 the assessee replied as under.- "In this regard this is to submit to the assessee is making her investments in properties. She is not a regular trader or buying and selling frequently as required for a trading activity. She was holding the current land for a long time' and was not doing any trading activities. She gets the property registered in her name an....
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....d on. The activity is not done on repetitive basis, therefore, the investment in the plot could not be held to be an adventure in the nature of trade and in this regard reliance was placed on the decision of Hon'ble Delhi High court in the case of CIT Vs .Raunaq Singh Swaran Singh[85 ITR 22], 3.5 The argument put forth by the assessee was considered carefully but didn't find plausible on following grounds.:- 3.6 As regards the claim of the assessee that she is not a regular trader or buying and selling land frequently is concerned the same is not true in light of the reply furnished by the assessee. Since 01/04/10 the assessee 'has purchased four plots of land with an intent to earn profit by selling it. Even during the F.Y.2011-12 relevant to the A.Y.2012-13 she has purchased plots of land of worth Rs. 781ac.For the sake of clarity the plots of land purchased by the assessee is reproduced as under:- Details of immovable assets purchased after 01.04.09 Date of purchase Amount Source County Walk P-3 13-08-2010 70,87,866/- Sale proceed of County Walk Residential Plot at Sch.No.78 29-01-2010 16,37,3101- -do- Resideritial Plot at JhaJaria 13-10-2....
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....n that part of land to compute cost of acquisition with a view to claim Capital Gain and accordingly had offered Capital Gain. The method adopted by the assessee is just an estimation contrary to the reality hence Capital Gain offered by her is not an authentic' one. Further the method adopted by the assessee to fetch better profit is nothing but a business carried out through M/s. Aarone Pvt.Ltd . 4. On being specifically queried as per order sheet dated 30/12/2014 with regard to any agreement being signed by assessee with the developer M/s Aarone Developers Pvt. Ltd, vide letter received in this office on 23/01/15 the assessee submitted as under:- Respected Sir, In reference to the captioned subject, we wish to put forth following information/documents: The asseessee was having investment in agriculture land situated as Village Jhalaria Indore admeasuring 6.53 hectare land. She was intending to fetch better price of this investmcnt. If the land were to be sold nut on as it is condition, it could not have fetched better price secondly she was not interested to disposc off the land in whole therefore she bad a verbal understanding with M/s Aarone Developers to sale ....
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....ive side hence with the mutual understanding the Aarone has given to assessee additional 1.4 contribution extra for the year under assessment. We have already submitted the confirmation from M/s Aarone for the total amount received from them". In view of above submission, it is evident that there do not exist any agreement/MOU between M/s Aerone Pvt.Ltd and the assessee, which deepens the belief that M/s Aerone Pvt. Ltd is conducting business on behalf of the assessee and other 17 persons independently. In this regard, reliance is placed upon the landmark decision of the Apex Court in the case of Raja J. Rameshwar Rao Vs CIT(SC) 42ITR 179 wherein it was held that :- "Even a single venture may be regarded as in the nature of trade or business. When a person acquires land with a view to selling it later after developing it, he is carrying on an activity resulting in profit, and the activity can only be described as a business venture. Where the person goes further and divides the land into plots, develops the area to make it more attractive and sells the land not as a single unit and as he bought it, but in parcels, he is dealing with land as his stock-in-trade; he is carrying on....
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....goes further and divides the land into plots, develops the area to make it more attractive and sells the land not as a single unit and as he bought it, but in parcels, he is dealing with land as his stock-in-trade; he is carrying on business and making a profit." 4.2 The same fora was delved by the Hon'bls Karnatka High Court in the case of CITVs. Rarnaiah & Ors.146ITR 39 and P. Kannan VsCIT(Kar} 154 ITR 441 wherein' the Hon'ble High Court held that 'Sale of land after plotting is a Business Venture'. The decision of the above judicial pronouncements are squarely applicable in this case. 4.3 It is also beyond doubt that the activity carried out by the assessee is nothing but purchase- and sale, of land amounting to trading with a view to earn more profit. In light of the discussion held hereinabove, it establishes that the activity of the assessee is nothing but an adventure having nature-of Trade. Hence, Capital Gain offered on account of sale of land is treated as Business Income. MJs Aarone Pvt. Ltd has-borne all ~he expenses arising on account of Development and sale of land and the assessee has received her share from net sale receipts of M/s Aarone P....
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....ver test have been laid down to determine a transaction to be in the nature of trade or not, no one test is in itself conclusive. It is a cumulative effect of all the factors, which can help to arrive at a conclusion as to whether the transaction was an instance of investment or an adventure in the nature of trade. 16. We further find that Hon'ble Supreme Court held in the case of Raja J. Rameshwar Rao Vs. CIT (1961) 42 ITR 179 held that "the activity of the assessee in providing the land into plots and not selling it as a single unit as he acquired goes to establish that he was carrying on the business in a real property and it is business venture. To sum up ordinarily where a person acquired a land with a view to selling it later on after development and dividing could only be described as a business adventure. Generally speaking the original intention of the party in purchasing the property, the length of its ownership and holding, conduct and the subsequent dealing of the assessee in respect of the property, the manner of disposal and the frequency and multiplicity of transactions offers a valuable guide in determining whether the assessee was carrying on a trading activit....