TaxTMI 
TaxTMI 
2026 (6) TMI 913
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....missioner of Income Tax (Appeals) erred in law and on facts by confirming the recharacterization of the Long-Term Capital Gains of the surplus from sale of 25 plots as income from business or trade without giving credence to the nature and intent of the Appellant including the long-term holding and accounting treatment and by not accepting the valid Balance Sheets as sufficient proof and holding them as a self-serving document. As such, the addition has been made by ignoring the facts, evidence and cogent reasons and with a preconceived notion resting solely on the reasons that the Appellant invested money in the upkeep and maintenance of the plots and made a subsequent profit on the sale. This addition to income made on this account for income from business or trade may kindly be deleted and cancelled. 2. The Learned Commissioner of Income Tax (Appeals) erred in law and on facts by upholding the disallowance of the exemption under section 2(14)(iii) of the Income Tax Act on sale of agricultural lands at Survey Nos.- 145 and 146, Iggalur village and upholding the addition under income from business or trade in a sweeping and generalised manner and without independently ver....
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.... and it was found that Assessee has shown a capital gain on sale of 25 plots of land situated at 30/4B, Iggalur, Bengaluru. The ld. AO asked why the sale of 25 plots should not be considered as adventure in the nature of trade u/s. 2(13) of the Income Tax Act and that the capital gain offered by the Assessee should not be brought to tax as business income. 4. The Assessee submitted that the transactions are not in the nature of business or adventure in the nature of trade as the Assessee is not a developer and not dealing in real estate activities. The Assessee intended to keep these investments as long term investment only. The Assessee has neither applied for any conversion of the said land. The Assessee purchased these plots in bulk for the lower price and to kept them for long term. It was further stated that Assessee has held this property for more than 3 years and therefore Assessee has treated them as a capital asset and offered the same as long term capital gain. 5. The Ld. Assessing Officer rejected the explanation of the Assessee for the reason that the dominant intention of the Assessee is to make the plots more attractive by incurring development expenses and sell....
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....In the substance, Assessee submitted that Assessee is holding all these immovable properties as capital assets and never treated the same as business assets. Assessee further stated that even the agricultural land as well as the compensation received on acquisition of agricultural land was also considered as taxable income by the Ld. Assessing Officer which is not in accordance with the law. The Assessee relied upon several judicial precedents. 7. The Ld. CIT(A) was also shown the annual accounts of the Assessee wherein the purchase of plots were shown as investment. The Ld. CIT(A) disregarded the same relying upon the decision of the Hon'ble Supreme Court in case of G. Venkataswami Naidu and Company v/s. CIT (1959) 35 ITR 594. He thereafter relied upon the decision of the Coordinate Bench in Dilip Battu Karanjule v/s. ITO 74 taxmann.com 12, noted that the Assessee has incurred development expenses of Rs. 11,24,870/- confirmed the action of the Ld. Assessing Officer that the income from sale of plot as well as agricultural land was correctly treated by the Ld. Assessing Officer as business income being adventure in the nature of trade. Thus, the Appeal of the Assessee was dismis....
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.... of the agricultural land also does not fall under the provisions of section 2(14). 11. The Ld. Departmental Representative vehemently supported the order of the Ld. Lower Authorities. It was submitted that the level of quantum of agricultural land sold by the Assessee being 25 plots itself suggests that Assessee is earning profit being adventure in the nature of trade. When the agricultural land is also part of that trading activity, the Ld. Assessing Officer has correctly treated the same as business income. He referred to the fact that Assessee has also developed those plots of lands before selling and therefore those assets cannot be stated to be capital asset but are stock in trade. 12. We have carefully considered the rival contentions and perused the orders of the Ld. lower authorities. The facts clearly show that the Assessee is engaged in the business of running a bar and restaurant. During the year, Assessee has sold 25 plots for a sale consideration of Rs. 1,21,53,100/- and offered long term capital gain of Rs. 92,07,913/-. The Assessee has claimed exemption u/s. 10(37) of the Act being transfer of agricultural land located at sy. no. 145 and 146, Iggalur and furth....
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....efines that "adventure in the nature of trade" is embedded in the statutory definition of business, and if a transaction falls into that category, the consequence of such characterization would be that the profits and gains from such transaction would fall into the realm of "Profits and Gains of Business or Profession" rather than "Capital Gains." It will have a material consequence as the Assessee would not be eligible for cost indexation benefit, concessional rate of tax on long term capital gain vis-a-vis applicability of provisions of section 50C. 15. The locus classicus in this subject is the decision of the Hon'ble Supreme Court in case of G. Venkataswami Naidu and Company v/s. CIT (1959) 35 ITR 594 whichlaid down that the question whether the transaction is an adventure in the nature of trade must be decided on consideration of all the relevant facts and circumstances and no single factor is conclusive. Such indicative criteria are as under: - i) Whether the purchaser was a trader and whether the purchase of the commodity and its resale was allied to his usual trade or business or incidental to it; (ii) The nature and quantity of the commodities purchase....
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....turnover. The Assessee has entered into only one transaction of purchase of all these 25 plots and sold 25 plots to 25 different persons in one financial year and does not show rapid turnover of buying and selling. Though the number of plots sold by the Assessee is 25 but by itself is not decisive. As held by the Hon'ble Supreme Court in case of Saroj Kumar Mazumdar, the quantum number of items is one circumstance among many, but it is a cumulative effect that needs to be examined. Indeed, the Assessee has acquired 25 plots in a single transaction from a single seller which are contiguous plots of land. Regarding the expenditure incurred by the Assessee in 2006 are only stated to be levelling which is rudimentary act and falls short of any kind of intensive development such as laying of roads, providing water and electricity connections, advertisement, subdividing into smaller marketable units etc., Mere levelling is equivalent to preparing the land for use and facilitating its eventual sale. No doubt, the operations rendered would be decided on the skill and character of the work undertaken. In the present case revenue did not dispute that the expenditure incurred by the Assessee ....
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....that in the absence of any rebutting evidence, the Income-tax authorities were justified in taxing the amount in question as income from business. Revenue found that, since the lands were adjacent to the Janar- dana Mills, the appellant must have purchased them solely with a view to selling them to the said mills with a profit. That is why, though the transaction was in the nature of a solitary transaction, it was held that it had all the elements of a business transaction and was thus an adventure in the nature of trade. All the plots which were thus purchased by the appellant piecemeal are contiguous and they adjoin the mills. Such are not the facts in case of appeal before us. 20. Our findings are further fortified by the fact that the Ld. Assessing Officer and the Ld. CIT(A) ought to have examined the sources of funds, the contiguous nature of the plots and the nature and expenditure of the levelling. The Ld. Assessing Officer could have further examined any further contemporaneous evidence such as advertisement etc., none of that has been carried out. 21. In the result, the orders of the Ld. revenue authorities have reached conclusion of the transaction in the nature of ....