TaxTMI 
TaxTMI 
2025 (3) TMI 2141
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.... he was registered on the Portal by the Jurisdictional Income Tax Officer on 23rd January 2024 i.e. well before the impugned Appeal Order was passed, thereby violating the principals of natural justice and vitiating norms of Quasi Judicial Proceedings by passing an Appeal Order against the deceased Person. 2. The learned CIT (Appeals) NFAC has erred, on the facts and in the circumstances of the case as well as law on the subject, in confirming the contention of the Assessing Officer ignoring the Principals of Consistency as laid down in various Judicial Authorities, since the Department/Assessing Officer has been accepting the Returns of Income filed by the Assessee declaring Long Term Capital Gains on sale of plots in the said land since Assessment Year 2003-2004. 3. The learned CIT (Appeals) NFAC has erred, on the facts and in the circumstances of the case as well as law on the subject, in confirming the contention of the Assessing Officer holding that converting the ancestral Agricultural Land, in the year 2002, for Non- Agricultural use and by laying out plots amounts to Business Activity. 4. The learned CIT (Appeals) NFAC has erred, on the facts and ....
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.... assessment. The Assessing Officer passed an Assessment Order treating Capital Gain shown by the Assessee as Income from Business from sale of plot. Hence based on the Assessment the then incumbent Assessing Officer issued notice under section 148 of the Act and sought to assess the Income of the appellant for the Assessment Year 2011-12. The Assessee submitted letter on 17/04/2018 that the original return filed on 08/07/2011 be treated as filed in response to notice u/s 148. Further the notice u/s 143(2) & u/s 142(1) was issued on 09/10/2018. In response to the notices issued the assessee furnished the reply and duly complied with the requirements of the Assessing Officer and produced documents and other details as asked for, during the course of scrutiny assessment. 4. That it was explained to the Assessing Officer that the Appellant is a Land Owner and the said land came to be devolved on the Appellant in the following manner: a. That the Agricultural land comprising of Survey No. 38 admeasuring 7.53 Hectare and survey No. 50 admeasuring 2.34 Hectares situated at mouje Jewad, Pargane: Badnera, Tahsil and District Amravati, was originally owned and possessed by ....
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....t to the land which they have been cultivating for more than 45 years. Hence they desired that the such land parcel should be in the hand of good person. However that the Purchaser was not forth coming due to size of the land as well as the enhancement of the Ready Reckoner value due to its inclusion in the Amaravati Urban Agglomeration. i. That in the light of difficulties as enumerated in preceding paragraphs both the co-owners in the year 2001 realising that the sale of single parcel of land would not be possible. Hence the Assessee and his Nephew Shri Ajit Ganu decided to cut the land into small plots and to avoid violation of anti-fragmentation laws decided to apply for the conversion of the said Agricultural land for Non Agricultural use. The District Collector after completing the procedure prescribed in the Land Revenue Code and MRTP Act granted the conversion of land admeasuring 4.2972 Hectares, i.e. about 4,62,550 sq. ft., out of said Agricultural Land for use of Non- Agricultural purposes vide order no. NAP-34/Jewad-132/ (2001-2002) dated 31/08/2002. The copy of the said NA order is attached on Page No. 27-32 of this compilation. j. That on obtaining th....
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....ere able sale one or two plots in each year due to the condition set by them that the plots will not be sold on installments and the sale price will have to paid by the purchase lump sum at the time of execution and registration of Sale deed. This has resulted in slower disposal rate of the plots as the most of the purchasers were seeking installments and availing of loans from financial institutions. 5. That the Assessee / Appellant after the conversion of the Agricultural land into Non-Agricultural land in the year 2001 has been filing the Return of Income whenever the plots in the layout are sold and declaring the resultant income under the head "Income from Long Term Capital Gain" and accordingly claim indexed cost of acquisition as well as cost of improvements in clear and marketable title. The Return of Income has been so filed since Assessment Year 2003-2004 every year and the Department has been consistently been accepting these Returns of Income. 6. That the Assessee / Appellant along with his Nephew (both having 50% distinctive and definite share in the said plot sold to M/s. Yashashree Engineers and Contractors Amaravati, for a total consideration of Rs....
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....ome From Long Term Capital Gains as claimed by the Assessee / Appellant. b. The Plots in the said layout remaining unsold in the hands of the Assessee / Appellant since 2002 being treated as sock in trade. c. Cost of improvement of land held as business expenses 12. That the facts enumerated in paragraphs 4 to 14 above are filed with the Appeal Memo before the CIT (Appeal). 13. That on 2nd Janaury 2023 the original Appellant Shri Shripad Ganu left for his heavenly abode leaving him behind his only legal heir by Testamentary Will Shri Ajit Ganu. The Appellant Shri Shripad Ganu bequeathed his all Movable and Immovable Property to Shri Ajit Ganu vide registered Will Dated 19th May 2016 Registered at Serial No. ARN1-2331-2016 Dated 19/05/2016 at the Office of the Joint Sub-registrar City-1, Amaravati. 14. That the after the unfortunate death of the Appellant the date of hearing was fixed on October 2023 and due to non-acceptance of Shri Ajit Ganu as Legal Heir of Late Shripad Ganu at that time, Shri Ajit Ganu could not respond to this notice as he was not aware of the e-mail id on which it was received. 15. That the CIT (Appeal) NFA....
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....see along with his nephew Shri Ajit Ganu has been selling the plots over period of more than 15 years, instead of short period of 2-3 years, after converting the land into Layout of Plots, shows that the activity of selling of plots is nothing but Business Activity. v. That after selling the property to M/s Yash: Shri Engineers and Contractors, the nephew of the Assessee has made MOU with the same concern and derived profit of Rs. 16.50 Lacs, this goes on to show that the Assessee not only treated the property as his stock-in-trade but has kept his interest alive in the property. Now let us take up these contentions of the Assessing officer as summed up in (i) to (v) in above paragraph. C. Contention of the Assessing Officer The overall assumption and contention of the Assessing officer which reflects through the contents of Assessment Order is that, "the act of the Assessee along with his nephew Shri Ajit Ganu to convert Agricultural land in to Non- Agricultural use immediately after the death of his brother Late Shri Shambhurao Ganu shows the intention of the Assessee and his nephew to commence business activity". Contention of the Ass....
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....Y. Development expenses Total Area in Sq.Ft. Area sold in Sq.Ft. Develop-ment expenses as per Sq.Ft. Develop-ment expenses of sold area (Col.A x 5) Balance Amount 1 2 3 4 5 6 7 2002-03 1746007 462550 1830 3.77 6907 1739100 2003-04 1840391 460720 9726 3.99 38850 1801541 2004-05 1902097 450994 - 4.21 - 1902097 2005-06 2002653 450994 4844 4.44 21.510 1981143 2006-07 2080619 446150 22638 4.66 105512 1975047 2007-08 3018551 423512 7417 7.13 52864 2965687 2008-09 3057987 416095 8482 7.34 62336 2995651 2009-10 3086128 407613 20587 5.57 155868 2930260 2010-11 3015739 387026 25587 7.79 199376 2816363 2011-12 2894097 361439 16440 8.00 131520 2762577 2012-13 2839495 344999 17847 8.23 146880 2672615 2013-14 2765554 327152 - 8.45 - 2765554 2014-15 2836045 327152 19692 8.67 170730 2665315 2015-16 2731415 307460 - 8.88 - 2731415 2016-17 2731415 307460 10980 ....
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.... co-owner was desirous of disposing of the Land to a good person since the land was acquired by the Assessee's father and naturally they have had emotional attachment to the land which they have been cultivating for more than 50 years. Hence they desired that such land parcel should be in good and noble hands. However that the Purchaser was not forth coming due to size of the land as well as the enhancement of the Ready Reckoner value due to its inclusion in the Amaravati Urban Agglomeration. 6. The circumstances described in above paragraphs constrained the Assessee to apply for conversion of agricultural land in to cutting the same in smaller plots and then disposing off to various persons so that the land will ultimately fall in good hands. For this the extant regulation in MRTP Act stipulates that the user agricultural land be converted to non-agricultural purpose by making an application to Appropriate Authority i.e. District Collector and also submission of Layout Plan of Plots to Appropriate Planning Authority i.e. Amaravati Municipal Corporation. The Assessee made these applications to the prescribed authorities as stipulated. The applications made by the Asses....
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....paying lump sum price in one go at the time of execution of deed of sale. This clearly shows the non-commercial approach of the Assessee. 11. That if we perused the list of the persons in whose favor the various plots were sold. It will crystal clear that the plot were sold to persons who were ready to make lump sum payment and execute transfer deed in their favour. (List of Sale Deed is attached on Page No. 70 of this compilation) 12. Thus the cost incurred by the co-owners is cost of improvement in clear and marketable title of the land which is attributable to various plots in the layout. It is not per se any developmental activity carried out with the motive to enhance value. The non compliance of the conditions of the sanction order would have resulted into creation of unauthorized layout of plots and this would have attracted civil/criminal/penal proceedings for the violations of the provisions of MRTP Act 1963 as well as The Maharashtra Revenue Code. E. Contention of the Assessing Officer The cutting of plots in a layout on the conversion of Agricultural Land into Non-Agricultural use by the Assessee has resulted in Stock-in-Trade just as ....
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....ng to more than 3 lacs sq.ft remaining unsold at the end of previous year relevant to Assessment Year under Appeal and duration of period over almost 15 years and more during the sell of plot is being undertaken shows that the "shows that the plots are "stock-in-trade" just as in the case of normal business of land development and plot sale" is without any logic and reasoning. 6. The attendant circumstances under which the Assessee and his nephew were constrained to cut land into smaller plots, as enumerated in forgoing paragraphs clearly show that there was never any intention on the part of the Assessee to indulge in "adventure in the nature of trade". Likewise the Assessee has never indulged in purchase and sale of plots. He was solely concerned in selling the plots on his ancestral land, hence the contention of the Assessing Officer that the conversion of land into smaller plots is "Stock-in-trade does not hold good on any legal principal. F. Contention of the Assessing Officer Since the Assessee along with his nephew Shri Ajit Ganu has been selling the plots over period of more than 15 years, instead of short period of 2-3 years, after converting the....
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....e facts of the case are not similar to that of the Assessee's case. In this cited case, the purchased/ sold the plots within short span of two years while the assessee has started selling the land/ plot since FY 2002-03 and regularly selling year after year and for the last 10 years sold 69 plots out of 194 plots and still is having stock of 135 plots in hand at the end of previous year relevant to this assessment year. Thus the ratio of the case cited by the assessee is clearly not applicable to the case of the assessee." 5. It is respectfully submitted that the AO trying to paint the activity of selling of land by cutting into smaller lots with same brush without appreciating that test of characterizing any activity as "Adventure in the nature of trade" would depend on the facts of each and every case and laying down universal test would not be desirable and appropriate. The observations to this effect have also been made by the Hon'ble Supreme Court in various judgments. G. Contention of the Assessing Officer That after selling the property to M/s Yash: Shri Engineers and Contractors, the nephew of the Assessee has made MOU with the same concer....
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....e plots. All these circumstances stamp the character of trading activity. (Emphasis in Italics provided) (Page No. 46-47 of this compilation). Contention of the Assessee 2. The Assessee begs to submit facts and arguments in respect of the contention of Assessing Officer in the following paragraphs. 3. That the contention of the AO on which he arrived at the conclusion that the Assessee and his nephew were involved in business activity is based on the MOU entered into by Shri Ajit Ganu with M/s. Yash: Shri Engineers & Contractors Amaravati (Company). The said MOU between Shri Ajit Ganu and the said company was regarding investment of freehold funds of shri Ajit Ganu by way of unsecured loan to be utilised for the development of the project being undertaken by the said company. The project for which the funds were made available was specified in the said MOU and the funds were to remain invested till the completion of the specified project by the company. The surplus earned by the company from the specified project was to be given to the extent of 35% to Shri Ajit Ganu as compensation towards investment of the funds. The said company has purchased the plots....
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.... of surplus. 6. That the contents of the MOU basically show the nature of the transaction envisaged is mainly a transaction loan for the purpose of utilizing it into development of project undertaken by the said company. The salient features of the said MOU are discussed below: The funds extended by Shri Ajit Ganu were intended as unsecured loan as the said company requested that Shri Ajit Ganu extend some amount initially. ii. The said MOU stipulates that the parties will contribute equal funds for construction and development of the scheme. The said MOU shows the clear intent of the parties that Shri Ajit Ganu along with his HUF shall earn interest on the funds extended. Since the progress of any real estate project is never linear it was decided that a formula in the form of calculating 35% (17.5% each by him in individual capacity and as a karta of HUF) of the surplus earned by the said Company be calculated as the amount of total interest payable during the period of implementation of project. It was further decided that any excess or deficit in payment of such interest shall be adjusted at the end of period of implementation of said project....
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....plots sold by the Assessee and his nephew. The scheme could have been any other scheme undertaken by the said company. 9. Hence the contention of Assessing Officer that due to the alleged transaction undertaken by Shri Ajit Ganu and the said company shows intent of the Assessee and his nephew to undertake selling of plots as business activity has no legs to stand and is farfetched." 4. We have gone through the records meticulously and have lent a dispassionate hearing. The learned CIT(A) had confirmed the addition by holding as follows:- "Grounds No.2 &3: Upon perusal of the ground raised by the assessee and reasoning given by the AO in assessment order at para 3, 4 & 5, it is found that the assessee in support of the claim of capital gain had submitted various case laws, However, facts of these cases were not similar to the present case and ratio was not squarely applicable to the appellant's case. The assessee, along with his nephew Shri Ajit Shambhurao Ganu, after converting 4.2972 Hector of land into non-agricultural land plotted and developed 174 plots. The assessee sold those plots during different financial years viz. FY 2002-03, 2003-04, 20....
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....talling to Rs. 9,70,000/- Therefore the Ground No.s 2 & 3 are dismissed." 5. We are not in agreement with the assessment order passed by the Assessing Officer and as sustained by the learned CIT(A) to hold the activity as that of business, because there is no element of purchase or organised activity or any active involvement of the assessee. Mere selling the land over a number of years clearly underscores that the assessee was never a trader, because he is holding the land for a considerable period of time to enhance the value of capital appreciation. Thus, the addition sustained on account of business income is hereby reversed placing reliance on the judgment of the Hon'ble Madras High Court in CIT v/s Mohammed Mohideen, [1989] 178 ITR 393 (Mad.), wherein the Hon'ble Court has held as under:- "A sale of immovable property may possibly be a trading or commercial transaction, but need not necessarily be so... If a land-owner developed his land, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the....