IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "F" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI B.C. MEENA
ITA Nos. 2666 & 2667/Del/2013
A.Yrs. 2008-09 & 2007-08
M/s Marigold Merchandise (P) Ltd., Vs. DCIT, Cen. Circle,
Shop no. 4/36 DDA Market, Faridabad.
Dakshinpuri Extension,
New Delhi-110062.
( Appellant ) ( Respondent )
Appellant by : Dr. Rakesh Gupta Adv. &
Shri Ashwani Taneja Adv.
Respondent by : Shri Gunjan Prasad CIT (DR)
ORDER
PER R.P. TOLANI, J.M::
These are two assessee's appeals against separate orders of CIT(A)
relating to A.Y. 2007-08 and 2008-09. Common grounds raised are as under:
(i) Additions made u/s 153A are bad in law and on facts inasmuch a
none of them is based on any incriminating material found during
the course of search conducted on 17-9-2008 on Kamdhenu group
and thus additions are beyond the scope of section 153A.
(ii) The lower authorities erred in holding that the gains on sale of
agriculture land in question which are exempt by way of
Explanation 1 to Section2(1A) of the Income-tax Act, 1961 read
with clause (ii) or (iii) of sub-section (14) of section 2 as adventure
in the nature of trade and thereby taxing the same income as
business income.
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(iii) 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 exempt as agriculture
income:
Asstt. Yr. Amount.
2007-08 Rs. 31,40,73,445/-
2008-09 Rs. 5,83,13,400/-
2.2. Assessing officer during the course of assessment u/s 153A proposed
as to why instead of exempt agricultural income as claimed, it be held as
adventure in the nature of trade and commerce and the gains thereon be
treated as business income. Assessee filed various replies in this behalf
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claiming that the land under consideration was agricultural land and not a
capital asset within the meaning of sec. 2(14) of the Income-tax act.
"3.3 The assessee has replied vide its letter dated 06.12.2010
that the land under ) consideration is agricultural land which is
not a capital asset within the meaning of the definition of
section 2(14) of the Income-tax Act, 1961.
2(lA): Agriculture Income:
"Agricultural income" means-
[(a) any rent or revenue derived from land which is situated in
India and is used for agricultural purposes;]
(b) any income derived from such land by
(i) Agriculture,
(i )-----------------
Further Explanation 1 to sec. 2(lA) which was inserted by the
Finance Act' 1989 w.e.f: 01.04.1970 provides as under:
For the removal of doubts, it is hereby declared that revenue
derived from land shall not include and shall be deemed never
to have included any income arising from the transfer of any
land referred to in item (a) or item (b) of sub-douse (iii) of
clause (14) of this section].
From the above, it is clear that Agricultural Income is exempt
from land u/s 10(1) of the Income-tax Act' 1961 and any kind
of income relating to Agriculture was exempt from tax till the
year 1989 when the Government of Income has inserted the
explanation 1 to Section 2(1A) of the Act w.r.e.f 01.04.1970 to
tax certain types of receipts relating to agriculture. As per the
Explanation, the income arising from the transfer of land
referred to in item (a) or (b) of sub clause (iii) of clause (14) of
Section 2 would not be included as Agricultural Income.
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Therefore, the land which are not covered in item (a) or (b) of
sub clause (iii) of clause (14) of Section 2 are still outside the
scope of Explanation 1 to Section 2(1A) of the Income-tax Act
and not subject to tax even today.
Section 2(1)(iii) has been reproduced herein below, which
provides as under:
14) "Capital asset: means property of any kind held by an
assessee, 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 area within eight kilometers from the local
limits of any municipality or cantonment board would be
treated as Capital Assets only and would be subject to tax only.
Agriculture Land which is outside the jurisdiction of
Municipality or Cantonment Board having a population of less
than Ten Thousand or land situated outside eight kilometer
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from local limits of Municipality would be outside the scope of
Capital Assets and would not be subject to tax at all.
In this regard, Assessee Company placed its reliance on the
following rulings:
[1976] 103 ITR 785 (SC) Tea Estate India (P.) Ltd. v, CIT.
[1993} 204 ITR 631 (SC) Smt. Sarifabibi Mohmed Ibrahim v.
CIT.
[1987} 167 ITR 136 (KERALA) CITv. Smt. T.K. Sarala Devi.
[1997} 225 ITR 510 (KER.) HIGH COURT OF KERALA ClT
v. R. Krishnarjunan.
[2010} 124 ITO 1 (AHD.) Ramjibhai P. Chaudhry v. DC/T.
[2002} 257 ITR 756 (Del), CIT v. Deep Chand.
[1992} 194 ITR 125 (KER) C/T v. Murali Lodge."
2.3. The submissions of the assessee were rejected by the assessing officer
broadly on the following reasoning:
(i) The mere fact that this land was mentioned as agricultural land in
revenue record does not by itself make the gains to be exempt as
agriculture income. The assessee has failed to show that the land
was actually used for agricultural purposes. It may be true that the
land purchased by the assessee was agricultural, but assessee has
admitted that it was for the purpose of purchase and sale of land
and the land was purchased not for carrying out any agricultural
activity but for business purposes.
(ii) The case law cited by the assessee that agricultural land was not a
capital asset in terms of sec. 2(14) and the profits arising from the
sale thereof was exempt income, has not been disputed. However,
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in assessee's case it is taxable as the assessee is into business of
purchase and sale of agricultural land which formed the regular
business activity of the assessee company. Therefore, the income
was to be held as adventure in the nature of trade and profit and
gains there from was liable for taxation as business income
whether from sale of agricultural land or non-agricultural land.
(iii) Land under consideration situated at Village Behrampur,
Distt.- Gurgaon, Haryana was purchased in the year 2005-
06, a part of which was sold in the year 2006-07 and in
2007-08 relating to assessment year under consideration.
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
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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 Pankaj Bansal had purchased
these lands and the promoters were waiting to strike deal claiming
the land to be agricultural land except one company M/s Misty
Meadows Pvt. Ltd. which had business other than buying and
selling of agricultural land.
(ii) Various companies have been floated by Basant Bansal family to
avoid statutory restrictions about the holding of acquiring of land.
It is claimed by assessing officer that Basant Bansal family started
their career in the field as land buying agent for M/s EMAAR
MGF group. Besides, they also floated various own companies and
purchased various lands as are evidenced from the sale-deeds
mentioned in the order.
(iii) All the companies of the group were engaged in acquiring land for
the purpose of developing real estate projects or selling the land
itself on profit.
(iv) The conduct of the group companies is shown to be prominent
activity of sale and purchase of agricultural land. It was not meant
for agricultural activity but to sell or build to earn profits.
(v) M/s M3M India Ltd., flagship company of the group was to
develop mega residential complex in the name of M3M Golf
Estates and the MOU was signed on 4-4-2007.
(vi) Thus, facts and submission of the assessee company as discussed
above very well establish that sole aim of transaction in
agricultural land by the assessee company and other companies of
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the group is in the nature of business and not for agriculture. The
intent and purpose for purchasing the land by the said company
and than selling it or part thereof within a short period of time is
certainly not agriculture. The fact that the said company and other
companies as discussed earlier have huge land banks speak volume
of the intent/purpose/usage of the said land being a trading asset. It
is amply clear that it is not for agriculture but to further develop
the same for commercial venture either by developing themselves
or by selling the same to some other company who would carry out
it's commercial exploitation in future. So the profit from sale of
such a land can by no means qualify for exemption.
(vii) Moreover, land in and around at Gurgaon is so costly that to
purchase land for agriculture would be very imprudent. Therefore,
the only logical conclusion that can be derived from the facts and
conduct of the assessee company is that the assessee company has
purchased the agricultural land 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
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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 correctness or completeness
of the accounts of the assessee or where the method of accounting
provided in sub-section (1) of section 145 or accounting standards
as notified under sub section (2) of section 145 have not been
regularly followed by the assessee, the AO may make an
assessment in the manner provided in section 144 of the Act.
Assessing officer thus held that the assessee has failed to present a
true & fair picture of accounts by treating the revenue receipts as
capital receipts. As such the assessee has failed to work out the
profits in a correct manner. According to assessing officer he was
left with no alternative but to invoke the provisions of section
145(3) of the LT. Act & reject the books of accounts and make the
assessment of income of the assessee in the manner provided in
section 144 of the Act.
2.5. For rejecting books of account, assessing officer further relied on the
ratio of decisions of Hon'ble Supreme Court in the cases of M/s CIT Vs. M/s
Sutlej Cotton Mills Ltd. 116 ITR 1 (SC); and Kedarnath Jute Manufacturing
Co. Ltd. Vs. CIT 82 ITR 363 (SC) for the proposition that the assessee's
entitlement to a particular deduction will depend on the relevant provisions
of law and not on the view which the assessee may take about its right and
the existence or absence of entries in the books of account cannot be
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decisive in the matter. Based on these observations, the assessing officer
made the impugned additions.
2.6. Aggrieved, assessee preferred first appeal before the CIT(A)
challenging the additions being outside the scope of section 153A of the
Act, on following issues:
(i) no incriminating material except the registered sale deeds, which
were already disclosed and discussed in the regular assessment,
were found during the course of search;
(ii) the assessing officer erred in resorting to provisions of sec. 145(3)
and making assessment u/s 144 of the Act.
(iii) Profit on sale of agricultural lands in question was not taxable in
view of Explanation 1 to Section 2(1A) read with section 2(14)(ii)
or (iii) of the I.T. Act.
(iv) Assessing officer erred in holding that the agricultural land situated
outside the specified municipal limits were not capital assets.
(v) Assessing officer erred in treating the sale of agricultural land
being exempt and taxing it to be `business income' as adventure in
the nature of the trade
2.7. 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.
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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 assessment years even if
such assessment made under .153A is not based
on material found during course of search
The word "abate" or "abatement has not been defined in the
Act or in the circular. According to Chambers Dictionary
the word "abate means demolition on or to put an end to.
In view of our above analysis of the provisions of sections,
the contentions of the learned counsel for the assessee have
no force because there is no requirement for an assessment
made under s.153A of the Act being based on any material
seized in the course of Search. Further, under the second
proviso to s.153A pending assessment or reassessment
proceedings in relation to any assessment year falling within
the period of six assessment years referred to in s.153A(b) of
the Act shall come to an end (abate), which means that the
Assessing Officer gets jurisdiction for six assessment years
referred to in s.153A(b) of the Act for making an assessment
or reassessment. Further, it is not the contention of the
assessee before us that any income, which was already
subjected to assessment under s.143(3) or under s.143(3)/
147 of the Act completed prior to search in respect of six
assessment years referred to in s.153A(b) of the Act and in
the second proviso to s.153A, has also been included in the
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assessment framed under s.153A of the Act, Hence, in these
circumstances, the contention of the assessee in support of
ground Nos. 1 and 2 of its appeal are liable to be rejected
and the same are rejected accordingly. Consequent upon our
findings given hereinabove, we. hold that in the existing
facts and circumstances of the case the Assessing Officer
was Perfectly justified in framing assessment under s.153A
of the Act for the assessment years under
consideration and accordingly the ground Nos. 1 and 2 of
the appeal of the assessee are rejected.
iii) The similar issue was recently decided by the Hon'ble De .
High Court in the case of Anil Kumar Bhatia vs. CIT in IT
No. 1626, 1632, 1998, 20 6, 2019. 2020/2010 dated
7.8.2012.
In this case the Hon'ble High Court has held that once
search is initiated and documents are found, assessment u/s
153A for six A.Ys. prior to search a mandatorily to be made.
The operative part is contained in paras no. 18 to 22 of the
order of Hon'ble Delhi High Court, which reads as under:
................. ."
2.9. After narrating the relevant paras of Hon'ble 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
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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 assessee in Paragraph 5 of its order, the
Tribunal itself has referred to the contention that no
document much less incriminating material was found
during the search of the assessee's premises-except one
unsigned undertaking for loan. Again in Paragraph 10 of
its order, while dealing with the assesse 's contention
against the addition of Rs. 1.50.000/- being unexplained
loan given to Mohini Sharma, the Tribunal has stated that it
has analyzed "the subject document carefully, recovered
from search" suggesting that the document was recovered
during he search from the assessee. The Tribunal has even
proceeded to delete the addition of Rs. 1,50, 000/- as well
as the notional interest on merits. holding that the
document was unsigned, that Mohini Sharma was not
examined by the income tax authorities and there was no
corroboration of the unsigned document. If it is not in
dispute that the document was found in the course of the
search of the assessee, then Section 15A is triggered, Once
the Section is triggered} it appears mandatory for the
Assessing Officer to issue notices under Section 153A
calling upon the assessee to file returns for the six
assessment years prior to the year in which the search took
place. There are contradictions in the order of the Tribunal.
We are unable to appreciate how the Tribunal can say in
Para 9.6 that no material was found during the search and
at the same time in Paragraph 10 deal with the merits of the
additions based on the document recovered during the
search which allegedly contain the loan transaction with
Mohini Sharma. Therefore, both the reasons given by the
Tribunal for holding that the assessments made under
Section 153A were bad in law do not commend themselves
to us. The result is that the first substantial question of law
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is answered in the negative, in favour of the Revenue
and against the assessee.
IV. Similar finding was given by ITAT, Mumbai in case of
ACIT vs. Pratibha Industries Ltd. in ITA NO. 2197 to
2199 /Mumbai/ 2008& others vide order dated
18.12.2012 wherein it was held that assessment u/s 153A
are mandatory to be made even if no incriminating
documents are seized.
Keeping in view the plain and unambiguous language of
provisions of section 153A and case laws mentioned
above, the action of the AO in initiating proceedings, u/s
153A and completing the assessment u/s 153A r.w.s.
143(3) is confirmed.
This 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
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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
account in as much as revenue receipts were claimed
as capital receipt and accordingly true income was not
reflected. Therefore provisions f 145(3) of IT Act were
applied and the income from sale of such land was
taxed as business income.
6.8.2 As regards such objection and ground of
appellant the appellant has not made any specific
submission. Moreover as discussed in detail the
transactions of purchase and sale of agricultural land
are found to be of adventure in the nature of trade and
therefore the same are to be taxable under the business
head whereas the appellant in his books of accounts
claimed such surplus as exempt income. Therefore the
books of account of the appellant cannot said to be
correct and true and provisions of sec. 145(3) are
definitely applicable.
This ground of appeal is also accordingly stand
dismissed"
2.11. Apropos third issue relating to taxability of amount on sale of
agricultural land the CIT(A) held as under:
6.6 I have carefully considered the submissions of
the appellant as also the finding of the AO. It may be
noted that the appellant has purchased such
agriculture land at village Baherampur Distt.
Gurgaon, measuring 206 canal 1 marlas for total
consideration of Rs. 13251000/-. Part of such land
has been sold in A.Y, 2007-08 for total sale value of
Rs. 32 Cr. The cost of land attributable to such land
sold in AY. 2007-08 was arrived at Rs. 5926555/- and
accordingly profit on sale of land was arrived at Rs.
314073445/- In A.Y. 2008-09 the land was sold for
Rs.62700000/-
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and cost for land attributable to such sale was at Rs.
3771695/- therefore profit on such sale was
determined at Rs. 58928305/-. There is no dispute
that the land was an agricultural land and was not a
capital asset. The AO has also not disputed the fact
of sale of agricultural produce from such land. The
land is definitely not within the municipal jurisdiction
and this fact is also not disputed by the AO. The AO's
case is that such agricultural land was definitely not
purchased for agricultural purposes and that the
dominant intention and object of the assessee was
never to purchase such agricultural land for
agricultural purposes or to keep the s e for investment
purposes. The AO has accordingly held that the
assessee is in the business of sale and purchase of
land and that purchase of such agricultural land was
with-the dominant object of earning 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-
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adventure in the nature of trade and therefore surplus
amount Rs. 314073445/- arising on such sales in
respect of A.Y. 2007-08 was taxed as income from
business and profession. Similarly in respect of A.Y.
2008-09, such surplus amounting to Rs. 58928305/-
was taxed.
On the other hand the appellant's case is that the
agriculture land has been sold at village Baherampur
which is not situated in jurisdiction in Gurgaon
Municipality and that prior to sale the appellant was
cultivating the land and was producing crops namely
mustard and bazra etc. Copy of girdawari issued by
patwari of the village was also enclosed in the written
submission. The crop produced on the said
agriculture land was sold to M/s Munshi Ram
Banarsidas and Rameshwardas & Sons, commission
agents. The appellant's case is that agricultural
income is defined u/s 2(lA) of IT Act and that such
income on account of sale of agricultural land will
not be covered within the meaning of capital asset in
view of the fact that only the gain
arising from the agriculture land specified in sub
clause (iii) of sec. 2(14) comes within the meaning of
capital asset. In simple words the agricultural land
not situated in municipal area will not be treated as
capital asset and surplus arises therefrom will
therefore not be liable for capital gain. Therefore
such surplus was not taxable as capital gain u/s 45 of
IT Act. It is stated that as the agricultural land was
not capital asset therefore the other issues whether
the appellant was holding the land for agricultural
purposes and the period of holding of land was for
very less period are of no relevance. It is contended
that in respect of agriculture income nature or class
of income is relevant and not the recipient of the
income and exemption of agriculture income is
available irrespective e of character of recipient. The
appellant has also referred to sec. 4 of IT Act and it is
stated that sec. 4 of is charging section which
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provides for taxation of total income of the previous
year, subject to provisions of sec. 5 to include all
income from whatever sources derived and total
income u/s 5 is subject exempt item under sec. 10
which provides that is stated to be exempt u/s 10 of IT
Act. The appellant has also placed reliance in the
case of Hindustan Industrial Resources Ltd. Vs. ACIT
(2011) 335 ITR 77 in which the Hon. Delhi High
court has held that when on the date of purchase the
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 and
the AO's case is that such transactions are of business
nature being adventure in the nature of trade and
therefore such surplus was taxed under the business
head. Therefore essentially it is to be examined
whether in the given circumstances the action of the
AO to treat such transaction as adventure in he nature
of trade / business was justified or not. It may be noted
19
that as per definition of business u/s 2(13) of IT Act
business includes any-trade, commerce or
manufacturing or any adventure or concern in the
nature of trade, commerce or manufacture. The issue
as to what should constitute as adventure in the nature
of trade, has been considered and examined by
various higher courts.
In the case of R. Dalmia vs. CIT (1982) 137 ITR 665,
the Hon. Delhi High Court has held that to determine
the nature of transaction, the dominant intention of the
assessee has to be seen and if the intention was to
embark on adventure in the nature of trade as
distinguished from a capital investment it could not
make a difference if the transactions is a single and
isolated one.
The Hon. MP High Court in the case of Bhagirath
Prasad Bilgaiya vs. CIT (1983) 139 ITR 916, has held
that reference to an adventure in the nature of trade
appearing in the definition of business postulates the
existence of the certain elements in the nature of
adventure which in law would invest it with the
character of trade or business. In other words the
Hon. Court has. held that to constitute a transaction
as adventure it is not necessary that all parameters of
definition of business should be met out and if certain
elements of business are manifested in such
transaction it can be held to be in the nature of trade
or business.
The Hon. Supreme Court in the case of M/s Dalmiya
cement Ltd. Vs CIT (1976) l05 ITR 633 has held that
to qualify a transaction being adventure in the. nature
of trade, the transaction need not relate to assessee's
business or to his legal business.
The Hon. Supreme Court in the case of Rajputana
Textile Agencies Ltd. VS. CIT (19611 421TR 743 has
held that in considering the question where the
20
transaction is or is not an adventure in the nature of
trade one has to be take to consideration the intention
of the assessee. keeping in view the legal requirements
which are associated with concept of trade or business.
The Hon. Allahabad High court in the case of ITO 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 profit
it would be a strong factor to indicate that the
transaction would be an adventure in nature of trade.
The Hon. MP High court in the case of CIT Vs. Jawahar
Development Association (1981) 121 ITR 431 has held
that the fact that the land is agricultural land is not
relevant and the mere fact that the land is an
agricultural land cannot make the profit arising from
sales exempt from Income Tax.
21
The appellant's case is to be examined keeping in view
the above mentioned broad parameters which justify
taxing of such transactions as adventure in the nature
of trade. It may be noted that as per Memorandum of
Article of Association of the appellant company one of
the object incidental to the attainment of the main
objects is stated as under:
-To acquire by purchase lease, exchange or otherwise any
property and any movable or immovable property and any
rights or privileges which the company may deem necessary
convenient for the main business of the company."1
g)
Such incidental object prima facie indicate that one of
the main objection, the appellant company is also to
acquire by purchase, lease, exchange or otherwise any
movable or immovable property
i) It may also be noted that in the said MOU it is nowhere stated or
provided that the company will be purchasing agricultural land for
carrying out agricultural operation or for keeping such land
for long term investment basis. From these facts it is
clearly emerged that one of the main object of the
appellant company as per MOU is definitely to deal with
in immovable property by way of purchase, sale, lease
etc. as a business activity and agricultural activity is
definitely not a major or incidental object of the
appellant company. The appellant in its earlier reply
also regularly shown its business as sale, purchase
and dealing in real estate.
ii) It may be noted that such agricultural land measuring
206 canal 16 marla was purchased for Rs. 13251000
lacs during A.Y. 2006-07 and in the very next A.Y. i.e.
2007 -08 part of such land (91 kanal 28.5 marla] was
sold for Rs.32 cr. Another land measuring 25 kanal 9
marla from the same land purchased in A. Y. 2008-09
was sold in 2008-09 on 6.7.2007 for Rs. 6.26 Cr. The
22
dominant intention of the appellant is clearly manifested
by such sale transaction in as much as the appellant has
sold such land in a very less period and that, the
intention of the appellant 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 in
the business of real estate as land buying agent for M/s
23
EMMAR MGF Group and subsequently by floating
many Pvt. Ltd. companies they have expanded their
business of real estate to large scale. The companies
associated with the appellant company and its directors
are definitely found to be engaged in the business of real
estate. There is no evidence on record that any
agriculture land has been purchased for carrying of
agricultural operation for keeping the same for long
term basis as an investment. Therefore even from such
corroborative / circumstantial evidence it is proved the
dominant and main intention of the appellant company
w s to purchase such agriculture land to embark on the
business transactions of adventure in the nature of trade
and to earn the profit at the earliest possible.
v} It may also be stated that the whole of such areas
adjoining Gurgaon including Sohna, Dharuheda,
Rewari etc. is covered under National Capital Region.
In these areas and particularly in the area where the
appellant has purchased land though as per revenue
record such land may be of agricultural land but for all
practical purposes such land is of commercial nature.
The appellant definitely purchased such land for the
main ~motive of earning of profit in as much as being
in the business of property business m and around
such area, the appellant was having good business
prudence to expect substantial gain in the shortest
period.
vi) As regards the claim of the appellant that the land
was agricultural and agriculture produce was sold
which indicated that agricultural operations were
carried out it may be noted that when the land is
question is purchased with a motive of using or
utilizing as an business asset. to earn profit then such
incidental receipts on account of agriculture produce
cannot change the nature of such transaction which
are prima facie of adventure in the nature of trade".
Aggrieved, assessee is before us in both the years.
24
3. Ld counsel for the assessee Shri Rakesh Gupta, contends that the only
issue effective issue in these appeals pertains to:
(i) Whether in the absence of any incriminating material found as a
result of search assessing officer is enabled to make such addition;
(ii) Whether the books of accounts can be rejected u/s 145(3) in the
facts and circumstances of the case;
(iii) additions made by Ld. A.O. & confirmed by Ld. 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 2007-08 and balance in AY
2008-09. The said land was purchased and sold as agricultural land by
conveyance which is not disputed by Ld. A.O. & by Ld. CIT(A).
25
3.3. Assessee was searched on 17.09.2008, which lead to impugned
assessments which are framed u/s 153A i.e. by way of block assessment for
assessing undisclosed income on the basis of any incriminating material
found as a result of search. Original assessment for A.Y. 2006-07 was were
framed u/s 143(3) in which assessee's claim of income, purchase of this
agricultural land is duly disclosed therein. The assessment has been
accordingly framed and purchase of agricultural land has been accepted.
Except very same original documents no incriminating material was
available before AO during the course of 153A assessments. Reference is
made to para 3 of the 153A assessment Order which clearly shows that the
impugned addition has been made "after examination of return of income,
accompanying documents and the details / documents / evidences filed
during the course of assessment proceedings..........." which clearly implies
that the addition has not been made on the basis of any incriminating
evidence found as a result of search, but on the basis of return filed by the
assessee and available record. Reading of the entire assessment order reveals
that no reference is made to any incriminating material found as a result of
search, while making the impugned additions under 153A assessments. This
is so because, as a matter of fact, no material, much less the incriminating
material qua the impugned additions was discovered as a result of the search.
3.4. One of the ground, before Ld. CIT (A) was to the effect that there
being no incriminating evidence found as a result of search qua these
additions, hence no such addition can be made u/s 153A i.e. block
assessment for assessing undisclosed income, that too by only changing the
nature or head of income which is already assessed.
3.5. Detailed arguments, plethora of evidence and catena of judgments
were cited before lower authorities. Rejecting them ld. CIT(A) held that
26
there is no such requirement under the law that addition should be based on
incriminating material as noted in Para 5.4.3 at page 12, 16 of the appeal
order. Ld. Counsel thus submits that at the outset itself, such additions can
not at all be made in assessment made u/s 153A on income which is already
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 Taxmann.com 328
(Mum trib) for the proposition that where in search
assessment under section 153A all assessments pertaining to six
27
immediately preceding assessment years were complete,
Assessing Officer cannot make any addition there under unless
there is any incriminating material discovered during the
search.
(iii) Jai Steel India v. ACIT 259 CTR 281(HC) (Rajasthan)
29. 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 s. 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.........if taken to its logical end would
mean that even in cases where the appeal arising out of the
completed assessment has been decided by the CIT(A),ITAT
and the high court , on a notice issued under section 153A of
the Act, the AO would have power to undo what has been
concluded upto the High Court .Any interpretation which leads
to such conclusion has to be repelled and/or avoided as held by
the Hon'ble Supreme Court in the case of K.P. Varghese
(iv) Kusum Gupta v. DCIT, ITA Nos. 4873/Del/2009, (2005-06)
2510 (A.Y. 2003-04), 3312(A.Y. 2004-05) 2833/Del/2011
(A.Y. 2006-07)
15. Since there is no change on this material fact that
during all these assessment years no incriminating material
was recovered or statement was recorded during the course
of search suggesting non-genuineness of the claimed gifts or
expenses etc. and no such addition/disallowance was made in
the original assessment which remained unabated, we
following the decision on the issue hereinabove in the appeal
preferred by the revenue for A. A 2002-03, hold that such
addition/disallowance cannot be made in the assessment
framed u/s 153A of the Act in this A. Y in appeals. In result the
issue is decided in favour of the assessee and against the
revenue. In view of this finding the remaining grounds
questioning the merits of additions/disallowances do not
28
need adjudication as they have become infructuous and
academic only . Consequently appeals preferred by the
assessee for the A.Ys. 2003-04, 2004-05, 2005-06 and 2006-07
are allowed and appeals preferred by the revenue in the A.Ys.
2002-03, 2005-06, 2006-07 are dismissed.
(v) MGF Automobiles Ltd. V. ACIT, ITA No's 4212 &
4213/Del/2011 - 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 delete the addition of Rs.9,057/-.
(vii) Vee Gee Industrial Enterprises vs. ACIT, ITA No. 1/Del/2011
& ITA No.2/Del/2011
15.In view of the above, we agree with the contentions of assessee
and allow ground no.1 of the appeal. In respect of second
29
ground of appeal regarding disallowance of telephone, car
expenses etc we observe that no incriminating material was
found in respect of such expenses which could enable the
Assessing Officer to disallow a part of it during proceedings
u/s 153A. This has been held in various pronouncements of
various courts and the latest being by Hon'ble Rajasthan High
Court in the case of Jai Steels India vs. CIT in 259 CTR (Raj)
281, where the Hon'ble Court has held that in case of
assessment u/s 153A, the completed assessment can be tinkered
only on the basis of incriminating material found during
search. Therefore, in the present case without any
incriminating material Assessing Officer was not justified in
making disallowance.
(viii) ITA Nos. 1153 to 1159/Hyd/2012 Mir Mazharuddin, 24.1.2013
addition cannot be made in assessment completed u/s 153A
without any reference to the seized material. He further held
that it is also not the case of the AO that the seized material if
any suggested inflation of agricultural income. He, therefore,
concluded that such type of addition cannot be made in the
assessment u/s 153A dehorse the material found at the time of
search
(ix) Asha Kataria, I.T.A. Nos. 3105, 3106 & 3107/Del/2011
20.5.2013
52. we find that in this case the assessment was made u/s. 153A
of the I.T. Act. Hence, reliance upon the decision of the Special
Bench in the case of All Cargo Global Logistics Ltd. (Supra) is
also germane and support the case of the assessee. As
expounded in this case assessment u/s. 153A can be made only
on the basis of incriminating material found during the course
of search.
3.7. Ld. Counsel pleads that AO has not referred to any incriminating
material found as a result of search while making impugned additions. Ld.
CIT (A) has also not rebutted the fact that there is no evidence much less the
incriminating evidence found as a result of search. Ignoring the assesses
30
pleadings the ground has been disposed of by Ld. CIT(A) summarily by
holding that there is no such requirement under the law that addition should
be based on incriminating material. It is vehemently argued that in view of
these 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. from municipal area.
(iv) PB 59-62 is the copy of girdawari showing the growing of
agricultural crop on this land.
31
(v) PB 63-64 is the copy of evidence of sale of agricultural
produce.
3.9. It is pleaded that agricultural land situate beyond specified limits of
municipal committee, which is not regarded as "capital asset", by legal
prescription u/s 2(14) its sale or transfer would not give rise to taxable
capital gain. The impugned land being not an asset in the eyes of law, its
transfer or sale will not be chargeable as taxable gains by express mandate of
the law. The Act further provides that such income, profit or gains would be
treated as agricultural income exempt u/s 2(1A)(a) r.w.s 2(14)(iii) r.w.s.
10(1). This was explained in great detail before Ld. CIT(A) by way of
submissions and by relying upon catena of judgments in the cases of:
- Manubhai A. Sheth Vs. Second ITO 128 ITR 87 (Bom);
- Nadirshah Rustamji Mulla Vs. ITO 154 ITR 629 (Bom.);
- Sulekha Sandip Parikh Vs. Sixth ITO 159 ITR 775 (Bom);
- Singhai Rakesh Kumar Vs. UOI 247 ITR 150 (SC);
- Raghottama Reddy Vs. ITO 169 ITR 174 (A);
- Harrisons Malayalam Ltd. Vs. ACIT 32 SOT 497 (Cochin).
3.10. Reference is made to PB 187 which is a chart showing agricultural
income returned for various years, which is ironically accepted and assessed
as such by the department.
3.11. Before Ld. CIT(A) it was inter alia demonstrated that profit on sale of
agricultural land is not taxable relying upon Delhi High Court decision in the
case of Hindustan Industries Resources Ltd. Vs. ACIT 335 ITR 77 for the
proposition that possible future intent of different use of the agricultural land
held is not material nor is the quantum of surplus on sale and status of the
recipient, these factors do not alter the nature of agricultural land. Besides it
32
has been held by various judicial precedents that even the real estate
companies can hold the portfolio of land as agricultural land. Case laws
relied on are:
- Gordhanbhai Kahandas Dalwadi Vs. CIT 127 ITR 664(Guj);
- Dr. Motibai D. Patel Vs. CIT 127 ITR 671 (Guj);
- Manibhai Motibhai Patel Vs. CIT 131 ITR 120(Guj);
- CWT Vs. Shashiben 205 CTR 298(Guj).
3.12. It is further contended that the impugned agricultural land right from
the year of purchase in A.Y. 2006-07 was held as fixed asset i.e. as an
investment in books of accounts and 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 the land was agricultural land.
33
3.15. Hon'ble Delhi High Court in the case of DLF Housing and
Construction P. Ltd. Vs. CIT 9 Taxmann 207 (Delhi) observed that burden
to prove that a particular transaction is not of agricultural land, squarely lies
on revenue and when no steps are taken by assessee to develop the land, it
retained its character as agricultural land.
3.16. Following other case laws cited before Ld. CIT (A) apropos his query
about drawing adverse inference on the phenomenal growth in the land
prices are also cited before us:.
(i) Commissioner of Wealth-tax v. H.V. Mungale [1983] 12
Taxman 201 (Bom.) "while determining the character or the nature of
the land, it must necessarily be taken into account that the land which is
recorded as agricultural land in the revenue papers cannot be used for
non-agricultural purposes by the owner, unless the land is allowed to be
converted to non-agricultural purposes by appropriate authorities."
(ii) In Sercon (P.) Ltd. v. CIT [1982] 136 ITR 881 (Guj.), the land
in question was not used for agricultural purposes, but it was shown in
the revenue records as an agricultural land and as no permission had been
taken for non-agricultural user under the Bombay Land Revenue Code
and there was no evidence of preparation, etc., it was held that the land
retained its character as an agricultural land and, hence, the surplus
realised on its sale was not capital gains liable to tax.
(iii) CIT vs. Debbile Alemao (Smt.) (2010) 46 DTR 341 (Bom.)
Land which was shown as agricultural land in the revenue records and
never sought to be used for non agricultural purposes by the assessee till
it was sold has to be treated as agricultural land, even though no
34
agricultural income was shown by the assessee from this land, and
therefore, no capital gain was taxable on the sale of the said land.
(iv) D.L.F. United Ltd. 158 ITR 342 HC DELHI
"15. It would be apparent that if the assessee-company had
sold this land without development or conversion into plots to
somebody else, it would not be liable to tax. The liability to tax
would arise if it had made a scheme for converting the
agricultural land into urban plots. So, we would answer the
second question on the basis that the receipt in this case is in
the nature of a capital gain resulting from the acquisition of
agricultural land and the fact that the land was lying 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
authorities in treating the activity of the assessee as an
35
adventure in the nature of trade. The land was sold in acreage
and not by making plots. In the circumstances, we are of the
opinion that the sale of land cannot be considered as an
adventure in the nature of trade and income derived from such
sale should be treated as agricultural income......Para 57 the
nature of land sold is of agricultural nature, and hence the
income derived on the sale of such land have to be treated as
agricultural income exempt under S.10 of the Act"
3.17. There is no legislative intention which deprives any business group
to hold any such products or commodity which are in its capital investment
to tax it as business income.
A. Business entity is allowed to have any commodity as its capital
investment account, even it is dealing in real estate. Similar
observation was also given by Hon'ble Delhi High Court in the
case of Hindustan Industrial Resources Ltd. (supra).
B. Secondly, maintenance of investment and trading share port folio
by assessee has been allowed and clarified in the case of share
trading entities by the CBDT vide Circular no. 4/2007, dated 15-6-
2007, which emphasizes that it is possible for a tax payer to have
two portfolios, i.e., an investment portfolio comprising of
securities which are to be treated as capital assets and a trading
portfolio comprising of stock-in-trade which are to be treated as
trading assets. Where an assesse has two portfolios, the assessee
may have income under both heads i.e., capital gains as well as
business income."
Reliance is further placed on the recent judgment of Delhi High Court
in the case of Delhi Apartments Pvt. Ltd. ( ITA 569/2012 judgment
36
delivered on: 07.03.2013) para 7 thereof; holds that an assessee could
hold lands both as business asset or as an investment. There is no bar
on an assessee who is in business of sale-purchase of land, also to
hold land as an investment which will be capital asset. In these
circumstances, the Tribunal held that the assessee could very well be a
trader in land as well as an investor in land simultaneously, depending
on what his intention was and how he treated the asset in question.
Hon'ble High Court upheld the Tribunal's finding that in the present
case, the land was purchased and was shown as an asset in the balance
sheet and that the land had also been used for agricultural 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.
37
3.19. Further reliance is placed on the ratio of decisions for this proposition
in the cases of:
- CIT Vs. Sir Kameshwar Singh 3 ITR 305 (PC);
- Hindustan Resources Ltd. Vs. ACIT 335 ITR 77 (Del.);
- Raja Mustafa Ali Khan Vs. CIT 16 ITR 330 (PC);
- CIT Vs. Diwan Bahadur S.L. Mathias 7 ITR 48 (PC);
- K. Simrathmull vs. CIT 64 ITR 166 (Mad.);
- CIT Vs. Manilal Somnath 106 ITR 917 (Guj.);
- Maganlal Morarbhai Vs. CIT 118 ITR 224 (Guj.); and
- CIT Vs. Madhabhai H. Paatel 208 ITR 638 (Guj.).
3.20. Ld counsel for the assessee endeavored to dislodge various
observations and inferences drawn by lower authorities.
(i) AO has mentioned that appellant was in the business of real
estate as explained in the reply filed during assessment proceeding
and also in earlier years and only activity performed is purchase and
sale of land and also in the computation of income, nature of
business has been mentioned as real estate business. In reply it is
submitted that this observation of Ld. AO is incorrect as the
company was incorporated on 161.2004 and the subject transaction
of purchase in A.Y. 2006-07 which is accepted u/s 143(3) and sale
in A.Y. 2007-08 is only transaction of purchase and sale.
(ii) AO has mentioned that crop inspection book filed by the
assessee shows that the name of the owner is Mukandi and not the
appellant. In reply it is submitted that the said land was given on
batai to Mukandi and that is how his name appears (PB 10). Even
otherwise, if it is not the case of the AO that appellant was not the
38
owner of subject land, then there is no question of taxing the gain on
sale resulting from such land. In fact, CIT(A) has mentioned in his
order that only dispute is about the head of income and thus the
controversy raised by AO is not of any significance.
(iii) AO has mentioned that though the land was agricultural but it
was so in revenue record only and that there was no evidence to
show that the land was held for agricultural purpose. In reply, it is
submitted that this observation of AO is to the utter disregard of
evidence before him and placed in the paper book, reference to
which has been made above (PB 59-62, 63-64, 187). Moreover, Ld.
CIT(A)'s finding at page 39, 40, 43 of the appeal order is relied
upon.
(iv) AO has held that short duration which the subject land was held
by the assessee and group companies dealing in real estate business
means that appellant was in the business of real estate. It is
submitted that 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
39
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;
- CIT. vs. PKN Co. Ltd. 60 ITR 65 (SC)
Merely because agriculture land was purchased in one year and sold
as such in other year, alone is not enough, to term it as activity of
business. Objective of best possible earnings from an investment is
always there and is not prohibited by any law. There is no
proposition of law that investment in agricultural land unless held
for a particular number of years would cease to be investment or the
asset as non agricultural land. If market price of investment i.e.
agricultural land has substantially appreciated, no prudence
demands that it should still be retained and not liquidated.
Land was purchased in Kanals and Marlas, sold in Kanals and
marlas, not purchased/sold in yardage, no CLU applied, no
developmental work undertaken, no approvals taken, no plotting
done- all these factors amply demonstrate that intention was not to
do business with this land.
40
Without prejudice to above, even if it is assumed that impugned
agricultural land was purchased and sold with the dominant intention
to do business, though contested yet it is submitted that even then,
the gain retains the character of agriculture income and do not
become business income.
(ii) Ld. CIT(A) has extensively quoted case laws to show that the
impugned nature of purchase and sale of land may constitute an
adventure in the nature of trade.
In the synopsis filed before ITAT, ld counsel has filed a chart and
detailed case laws wise submissions to demonstrate that facts of the
case laws cited by Ld. CIT(A) to hold various proposition against
assessee are entirely different than those of the appellant. In as much
as they deal with issues of sale of shares under different portfolios,
no. of transactions of land, sold land measured in square feet or
meters etc.. They are not being repeated for the sake of brevity.
(iii) Ld. CIT(A) has held that since the group to which the appellant
belongs was in real estate business, consequently appellant's
impugned transaction of purchase and sale of agricultural land, also
becomes trading asset and also from the fact that land in and around
Gurgaon was quite lucrative business proposition.
In reply, it is submitted that it is a misconceived finding. Assessee
company is an independent and incorporated entity, in the eyes of
law and it maintains/ carries out its independent affairs. Merely
because other group 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
41
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 be capital receipt. Ld. DR referred to the question of
law in this behalf. In these peculiar facts the decision was rendered rejecting
the assessee's claim for reduction of such income. Ld. CIT(A) has in detail
considered the plain and unambiguous language of provision of sec. 153A
and upheld the assessment. His order is relied on.
4.1. Apropos rejection of books of accounts,, it is contended that it has not
been disputed that assessee is group of host of companies together are
combinedly engaged in real estate operations at a large scale. The assessee
itself in reply dated 26-10-2010 on the queries raised by assessing officer
regarding business activities of the company submitted the following reply:
42
"The assessee is carrying on the business of developing various
land projects as well as deals in sale and purchase of land and
has occupied the following business premises used as
Registered office of the company and paid rent amounted to Rs.
12000/- during the year under consideration."
4.2. Thus assessee itself has admitted that it was carrying on business of
developing various land projects, sales deals and purchase of land. The
assessee has maintained books of accounts in a manner to camouflage its
real activities in the name of holding the land as fixed asset and avoid tax by
colourable and dubious claims. All these facts put together make out a
justifiable case of rejection of books u/s 145(3). Order of lower authorities is
relied on.
4.3. Apropos the merits of the case, ld. DR contends that a host of
companies were launched by Basant Bansal family under various names.
They started the career as buying agent for another real estate giant MGF
group. Subsequently the assessee group started acquiring land through
various companies of the group and transferred it to M/s Manglam Multiplex
Pvt. Ltd.; M/s Dignity Buildcom Pvt. Ltd.; M/s Marshall Buildcon Pvt. Ltd.;
M/s M3M India Ltd. Assessing officer has taken a holistic picture to
uncover the assessee's effort, endeavored to indulge in hide and seek behind
the mist of corporate entities and shielding its activities behind a corporate
veil. Assessing officer has demonstrated that the land purchased by the
assessee was not meant for carrying out agricultural activities but with the
main object to make profits by selling it to builders and developers. Reliance
is placed on following case laws for the 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.);
43
- 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 capital investment. Entries in the books of a/cs are not material and the real
nature of transaction is to be seen. Reliance is placed on Hon'ble Supreme
Court judgment in the case of Kedarnath Jute Manufacturing Co. Ltd.
(supra). Similar view has been held in various other case laws relied on by
the CIT(A) in his order. It is further pleaded that the MOA of the assessee
no where provides that it will be purchasing agricultural land for carrying
out agriculture operation or for keeping such land for long term basis. Thus,
the agriculture activity claimed to be carried on by the assessee is neither a
major nor an incidental object of the assessee company. The short period of
holding and the amount of huge earning itself indicates that the object of the
assessee was not to hold the land as agriculture land but to engage in the
business of selling it to earn huge profits. It is pleaded that, therefore, the
44
addition has been rightly confirmed by the lower authorities. Their orders
are relied on.
5. We have heard rival contentions and gone through the relevant
material placed on record. Coming to the first issue, the legality of addition,
it is settled law that in block assessment consequent to search u/s 153A read
with sec. 143(3) no addition can be made unless some incriminating material
in this behalf is found as a result of search. It emerges from record that no
incriminating material in behalf of the purchase of these lands and sale of
these lands have been found as a result of search. In any case the whole issue
revolves around the change of nature of income i.e. from exempt to taxable
as business income. The purchases of agricultural land has been accepted by
department as part of fixed asset/ investment of the assessee by assessment
u/s 143(3). Both the lower authorities have rather relied only on the original
return of income, returns on record and explanations filed by the assessee
and not on any incriminating material found as a result of search. Besides,
ld. DR has not been able to point out any incriminating material found as a
result of search or the reliance of the lower authorities thereon. Ld. DR has
endeavored to distinguish the Hon'ble Rajasthan High Court judgment in the
case of Jai Steel India (supra) from assessee's case which the ld. Counsel for
the assessee has effectively countered by citing paras 25-26 of this
judgment, as under:
"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
45
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 used for completed assessment
proceedings, which would not abate as they are not pending on
the date of intimation of the search or making of requisition and
which would also necessarily support the interpretation that for
the completed assessments, the same can be tinkered only based
on the incriminating material found during the course of search
or requisition of documents."
5.1. The issue is not of the legal challenge to the block assessment itself,
the assessee's grounds and contentions agitate one legal issue i.e. whether in
the absence of any incriminating material found during the course of search
addition can be made by assessing officer as undisclosed income u/s 153A.
More so when all these transactions are disclosed by the assessee in the
original returns of income and accepted by the department a such. Thus
merely because a search is conducted and even though no incriminating
material is found as a result thereof the original assessment of the assessee
can not be reviewed or substituted by a change of opinion about any claim
of deduction, allowance or claim of exempt income.
5.2. In our considered view, Hon'ble Delhi High Court in the case of Anil
Bhatia (supra) though has held that consequent to search assessing officer
46
has to frame the block assessment for 6 years. Nevertheless the other issue
which has been held is to the effect that addition under block assessment
cannot be made u/s 153A as undisclosed income if no incriminating material
is found as a result of search. This has been followed by Hon'ble Rajasthan
High Court in the case of Jai Steel India (supra). By now various Benches of
the ITAT including Delhi have upheld this view and deleted such additions
which are not based on incriminating material found as a result of search
which are cited by the ld. Counsel and are mentioned above. In view thereof,
on this issue we hold that the assessing officer could not have made these
additions in the impugned assessee u/s 153A, there being no incriminating
material indicating any undisclosed income found as a result of search. This
ground of the assessee is accordingly allowed.
5.3. Coming to the rejection of books of a/cs, the assessee maintained
regular books of a/cs which are duly audited. No inconsistencies or defects
have been pointed out therein. The assessee has purchased the land as
agriculture land which is evidenced by the purchase 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
47
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 real estate business. In our considered view this assumption has
no legs to stand. First of all lower authorities have not demonstrated that the
assessee as a group was engaged in dubious and colourable devices. In a big
group launching of several corporate entities is permissible by law and each
company is an independent assessee in the eyes of law and separately
assessed. Their activities are to be analyzed on the basis of actual activities
and cannot be ignored merely because the associate concern is engaged in
some other activities. Thus, this inference by lower authorities amounts to a
pure guess work and conjecture which we are unable to subscribe.
Therefore, group companies' business activities, which are distinct and
separate entities, cannot be held as a factor to discard the assessee's actual
activity, which is evidenced by record. Further, it has been demonstrated by
the assessee that it was mainly solitary transaction of the assessee to hold the
agriculture land in question as fixed asset, carry out agriculture operation
thereon and sell it as agriculture land. We do not find any facts on record to
hold any other view. Thus, we are unable to subscribe the view that assessee
was engaged in adventure in the nature of trade.
5.5. Coming to the nature of agriculture land and its geography, it has not
been disputed that the land in question was situated outside the specified
48
municipal limits and as per the prescription of sec. 2(14) it does not amount
to an asset. In order to come under the cane of capital gains, the law has first
to qualify as an asset as per I.T. Act. The income arising from the sale of
agriculture land falls u/s 2(14)(iii) read with sec. 10(1) and is to be treated as
agriculture income. The interpretation put by the lower authorities is out
landish and based on surmises and conjectures, divorced from the actual
facts.
5.6. Apropos the lower authorities holding that the assessee was into
adventure in the nature of trade, therefore, the nature, geography and activity
of the land should be ignored, the statutory provisions should be given a go
bye and assessee is to be some how held as engaged in the adventure in the
nature of trade and taxed on exempt income. In our view, there is no
enabling provision in the income tax prescribing that even if the assessee's
income is exempt by a provision, then it can be forcibly brought into the tax
net by assuming the assessee's activity to be adventure in the nature of trade.
It is a settled position by Hon'ble Delhi High court in Delhi Apartments Pvt.
Ltd. and DLF United Ltd. (supra) that real estate companies can also hold
separate port folio of land as stock in trade and as investment port folio; the
sale of investment portfolio is always taxed as capital gains. Thus, assuming
worst against assessee, even if it is inferred that it has carried on business
activity so long as it holds specified agriculture land in terms of sec. 2(14)
i.e. not being an asset; its transfer will neither attract capital gain tax nor can
be treated as business income. In view of the foregoing and respectfully
following the case law cited by the assessee we have no hesitation but to
hold that the assessee's gains were profits from sale of specified agriculture
land which does not come within the definition of asset as prescribed u/s
49
2(14) and by virtue of sec. 2(1A)(a) read with sec. 2(14)(iii) r.w.s. 10(1) the
assessee's gains from sale of such agriculture land are exempt income. Thus,
assessee succeeds on all the counts.
6. In the result, assessee's appeals for both the assessment years in
question are allowed.
Order pronounced in open court on 27-12-2013.
Sd/- Sd/-
( B.C. MEENA ) ( R.P. TOLANI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 27-12-2013.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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