TaxTMI 
TaxTMI 
2020 (5) TMI 299
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....lier years. 4. That the circumstances and facts of the case evidently proves that the concerned land was "Capital Assets", thus the "Capital Gain"earned on its sales deserves to be accepted. 5. The learned CIT (Appeal) was not justified in confirming an addition of Rs. 2,00,000 /- related to "brokerage paid"u/s 40a(ia) of Income Tax Act, 1961." 3. Brief facts of the case are that the assesse is engaged in purchase and sale of immovable properties. During the year under consideration, the assessee sold agricultural plot at village Bhatti, Hauz Khas, New Delhi for a consideration of Rs. 10,00,00,000/-. After claiming business expenditure against the sale, the net profit of Rs. 9,63,74,327/- was claimed as exempt under section 10 of the Income Tax Act read with section 2(14 ) on the grounds that the land was located outside the municipal limits. Consequently the return of income was filed on 28.11.2011 for A.Y. 2011-12 declaring "NIL"income. The AO after due enquiries conducted during the assessment regarding the land sold was situated at village Bhatti, Tehsil Hauz Khas, Mehrauli, New Delhi and found that the agricultural land in question was within the municipal....
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....s as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding ad succeeding assessments. This factor, though not conclusive, can afford good and cogent evident to judge the nature of transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. e) The fifth test, normally applied in cases of partnership firms and companies, is whether the deed of partnership or the memorandum of association, the case may be, authorizes such an activity. f) The last test, continuity and regularity of transactions of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of transaction bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business. 4. According to the A.O almost all the conditions exist in the assessee company's case which leads to the conclusion that the land was held as stock in trade and the resultant income was business income. That the assessee intended to sell the land ....
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....s erred in assessing the surplus on sale of agricultural land as "business income"where there is an admitted fact the concerned land is an agricultural land which has been accepted in the earlier years. 2. The receipt on its sale neither is to be worked out as "Capital Gain"nor a "business income"as the appellant company is quite eligible to avail its exemption." 10. On going through the original grounds of appeal, we find there is no material difference between the Ground No. 1 of the original grounds and the additional grounds. Both pertains to treatment of capital gains as business income by the ld. CIT( A). 11. The second ground to be adjudicated deals with exemption available to the sale of land if so treated as capital gains. 12. During the arguments before us, the assessee argued based on the submissions and arguments taken up before the revenue authorities. He further filed his written submissions dated 15.10.2018, 24.12.2018 and also on 18.02. 2020. 13. The submissions dated 24.12.2018 consists of balance sheets for the subsequent years post the assessment and the sale deeds and purchase deeds of land in question. 14. The contentions of the assessee....
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....thus the assessee company is quite eligible to claim the surplus/ profit exempted. That irrespective of the fact that there is an omission on the part of assessee company by showing the concerned land under the head "Current Assets"but not shown as "Stock-in-trade", it has been shown as "closing stock of agricultural land". (Balance Sheet from 2001 to 2010 filed in Paper Book from pages 8 to 17). Thus, there are two factors which can give the conclusion of issue:- 1. Holding Where an assessee holds the assets for sufficient period it give the sense of "long term investment"and on its sale the profit/surplus is to be treated as "capital gain"as held by 393 ITR 132 (8 -17) Gujarat High Court 397 ITR 687 (18 -24) Gujarat High Court 334 ITR 192 (25 -26) Punjab & Haryana High Court 2. At Cost That where the assessee is regularly showing the value of capital assets "at cost"it is to be treated as "long term investment"because "stock-in- trade"not only fluctuates every year due to frequent purchase and sales rather always to be shown at "cost or market price whichever is less"or at any stand....
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.... by treating it as "business income". The other case cited by the learned CIT ( Appeal) 328 ITR 556 (74 -91) Bombay High Court The assessee purchased an agricultural land which was later acquired by Govt. The surplus which he got along with additional compensation was treated as "business income"giving the contents that there was no intention to cultivate it and further the assessee's past history shows that he was engaged in such activities regularly, thus, it is evident it is his business to purchase the land and took the benefit on its acquistion cost as well as additional compensation given by the Govt. Agricultural land - Exemption In view of the facts stated above there should be no dispute that the concerned land was a capital assets or to say "long term investment"and further the surplus/profit derived by the appellant company on its sale deserves to be exempted by taking this capital assets u/s 2 (14 ) of Income Tax Act, 1961 in view of the reasons/supporting documents given hereunder:- 1. The appellant company is regularly showing the "agricultural income"and the revenue has also accepted it as the ITR pla....
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....hever is lower"or "at market price. It deserves to be treated as "capital gain". 2. Circumstances and Intention of the assessee always proves the status related to---- "Capital Gain" (i) How it is valued Since from the date of its purchase it has always been shown at cost. (ii) Period of holding of "land" That the property was with held with the appellant for 13 years and they sold it under the forced circumstances. (iii) How the treatment is given to "land" That during the possession of the property the appellant company has always shown "agricultural income"which has been accepted by the revenue. The above factors evidently gives the smell of "investment"and not a "stock in trade". (iv) It has been well settled law that where the above 3 contents prevails it gives the smell of "investment"and not as "stock in trade"and further by showing it as "closing stock"the appellant cannot be held l iable by treating it as "stock in trade". A. The foremost factor is how the land has been valued since its purchase. If it had been valued "at cost"since from its purchase subject to nominal addition like boundary-w....
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....ommissioner of Income Tax vs Gopal Purohit 336 ITR 287 "It is held that the entries in the books of accounts alone are not conclusive in determining the return of income. The circumstances, facts of the case and intention of the assessee is to be seen, thus, the Tribunal has rightly treated as short term capital gain and long term capital gain for the respective sections." That without prejudice to above any omission on the part of the assessee, the revenue should not take undue benefit of it. Board' s Circular No.14( xl-35 ) dated 11/04 /1955 clearly stipulates:- Officers of the department must not take advantage of ignorance of an assessee to his rights. It is one of their duty to assist a "tax payer"in every reasonable way particularly in the matter of claiming and securing relief." That without prejudice to above the appellant is quite eligible to avail its exemption as the concerned land is neither capital asset nor the current asset as it is an agricultural land thus, as defined u/ s 2(14 ) is not to be treated as capital assets. The agricultural income has been accepted in the earlier years as the ITR are placed on th....
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....ase and dispose of land and plots. The main objects to be pursued by the company on its incorporation are as under: "1. To purchase, acquire, take on lease in exchange or in any other lawful manner any area, land, buildings, structures and to develop the same and dispose of or maintain the same and build township, markets, or other buildings, or conveniences thereon and to equip the same or ay part thereof with all or any amenities or conveniences drainage, electric, telegraphic, telephonic, television installations and to deal with the same in any manner. 2. To acquire land and plots for colonization or otherwise sell plots, construct buildings and flats for sale on installments or otherwise and to act as real estate agents. 3. To lay out, develop, construct, build, erect, demolish re- erect, alter, repair, or do any other work in connection with any building or building schemes, roads, highways, sewers, bridges, canals, walls, dam, power plants, reservoirs, embankments, railways, airports irrigations, reclamations, improvements, sanitary, water and power supply works, or any other structural or architectural work and for such purpose to prepare estimate....
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....vered in connection with non-claiming of depreciation by the assessee in the return which has been claimed as a later date. The other case laws filed by the ld. AR have been duly perused and find that they are not applicable to the facts of the case. Most of the case laws relied upon by the ld. AR pertains to treatment of unsold stock-in-trade as investment by the stock brokers at the completion of the financial year. The conversion of stock-in- trade to investments is a continuous process resorted to by these stock brokers which the revenue disputed to be treated as investments. Similarly, we have also gone through the judgment wherein the revenue cannot take the benefit of the mistake committed by the assessee in offering the income to tax. We have also gone through the judgments stating that books of accounts is not the final authority to determine the nature of the transactions. In this background, we have gone through the nature of the transactions independently so as to determine whether the land in question is investment or stock-in-trade irrespective of the fact whether the books of accounts have been wrongly accounted or whether the capital gains have been wrongly offered ....
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....antonment 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 kilometers, from the local limits of any municipality or cantonment board referred to in item ( a) and which has a population of more than ten lakh. Explanation.-For the purposes of this sub-clause, "population"means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;]]" 24. The fundamental principles with regard to the Section 2(14)(iii) can be summed up in the case of assessee as under: a. "No land within the municipal limit of Delhi can be considered as agricultural land. b. The issue of population arises if the land is situated outside the limits of the municipality. In that case the twin conditions of distance and the population have to be made to claim it as a non- capital asse....