Omkarmal Rambilas Ginning&Pressing Factory, Hyderabad v. ITO, Adilabad

CO 32/HYD/2010 | 2006-2007
Pronouncement Date: 23-09-2010 | Result: Dismissed

Appeal Details

RSA Number 3222523 RSA 2010
Assessee PAN AAAFO2877P
Bench Hyderabad
Appeal Number CO 32/HYD/2010
Duration Of Justice 2 month(s) 25 day(s)
Appellant Omkarmal Rambilas Ginning&Pressing Factory, Hyderabad
Respondent ITO, Adilabad
Appeal Type Cross Objection
Pronouncement Date 23-09-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 23-09-2010
Date Of Final Hearing 26-08-2010
Next Hearing Date 26-08-2010
Assessment Year 2006-2007
Appeal Filed On 28-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.776/HYD/2010 : ASSESSM ENT YEAR 2004-05 ITA NO.777/HYD/2010 : ASSESSM ENT YEAR 2005-06 ITA NO.778/HYD/2010 : ASSESSM ENT YEAR 2006-07 INCOME TAX OFFICER WARD-1 ADILABAD V/S M/S. OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD. ( PAN- AAAFO 2877 P ) (APPELLANT) (RESPONDENT) AND CROSS OBJECTION NO.32/HYD/2010 (IN ITA NO.778/HYD/2010) : ASSE SSMENT YEAR 2006-07 CROSS OBJECTION NO.46/HYD/2010 (IN ITA NO.776/HYD/2010) : ASSE SSMENT YEAR 2004-05 CROSS OBJECTION NO.47/HYD/2010 (IN ITA NO.777/HYD/2010) : ASSE SSMENT YEAR 2005-06 M/S. OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD. ( PAN- AAAFO 2877 P ) V/S INCOME TAX OFFICER WARD-1 ADILABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.RAMA RAO REVENUE BY : SHRI SUNIL BABU K.E. O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER: THERE ARE SIX MATTERS IN ALL IN THIS BUNCH. THREE OF THEM ARE APPEALS BY THE REVENUE FOR THE ASSESSMENT YEARS 2004-05 TO 2006-07 WHICH ARE DIRECTED AGAINST THE COMMON ORDER OF THE CIT (A) VI HYDERABAD ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 2 DATED 10.3.2001. IN THE APPEALS OF THE REVENUE ASSESSE E HAS ALSO FILED CROSS-OBJECTIONS. SINCE COMMON ISSUES ARE INVOLVED ALL T HESE MATTERS ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. REVENUE'S APPEALS: ITA NO.776/HYD/2010 : ASSESSM ENT YEAR 2004-05 ITA NO.777/HYD/2010 : ASSESSM ENT YEAR 2005-06 ITA NO.778/HYD/2010 : ASSESSM ENT YEAR 2006-07 2. LET US FIRST TAKE UP FOR CONSIDERATION THE APPEALS OF THE REVENUE. GROUNDS OF APPEAL OF THE REVENUE WHICH AR E COMMON IN THESE THREE APPEALS READ AS FOLLOWS- '1. THE ORDER OF CIT(A) IS ERRONEOUS BOTH IN FACTS AND LAW. 2. THE CIT(A) HAS ERRONEOUSLY RELIED ON S.3 OF A.P. SC HEDULED AREAS LAND TRANSFER 1959 AS IT STOOD BEFORE ITS AMENDMENT W.E.F. 04/03/1970. 3. THE CIT(A) HAS ERRED IN HOLDING THAT THE SALE OF PL OTS IS VALID EVEN THOUGH THE TRANSFEREES ARE NOT MEMBERS OF SCHEDULED TRIBE. 4. THE CIT(A) ERRED IN HOLDING THAT THE PROFITS ON SAL E OF PLOTS IS TO BE ASSESSED AS CAPITAL GAINS INSTEAD OF BUSINESS INCOM E EVEN THOUGH THE TRANSFER OF SUCH LAND IS ABSOLUTELY NULL AND VO ID. ' THUS THE MAIN DISPUTE IN THIS APPEAL RELATES TO THE ASSE SSABILITY OF PROFIT REALIZED ON SALE OF PLOTS BY THE ASSESSEE TO TAX AND THE HEAD UNDER WHICH THE PROFIT ON SALE OF PLOTS REALIZED BY THE ASSESSEE IS ASSE SSABLE. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE A P ARTNERSHIP FIRM CARRYING ON ACTIVITY OF PURCHASE AND SALE OF KAPAS OWNED 9 ACRES AND 24 GUNTAS OF AGRICULTURAL LAND IN ECHODA VILLAGE O F ADILABAD DISTRICT HAVING BEEN PURCHASED ORIGINALLY BY THE FATHER OF THE PARTNER OF THE APPELLANT FIRM SHRI NANDLAL ON 5.8.1969 FROM ONE K ATHAM ASHAREDDY. ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 3 THE SAID LAND WAS INITIALLY USED FOR AGRICULTURAL PURPO SES. THOUGH A PART OF THE SAID LAND WAS UTILIZED BY THE FATHER OF THE PARTN ER UPTO THE YEAR 1979 FOR THE PURPOSE OF RUNNING KANDASARI SUGAR FACTORY T HE SAID FACTORY WAS DEMOLISHED IN THE YEAR 1980 AND THE MOVABLES WERE SOLD AND THEREAFTER THE LAND WAS AGAIN PUT TO AGRICULTURAL OPERATIONS BY T HE PARTNERS OF THE FIRM AND THE FATHER HIMSELF. FROM THEN ONWARDS THE SAID LAND WAS USED FOR AGRICULTURAL PURPOSES ONLY. THE BUSINESS OF THE ASSESSEE -FIRM IS AT ADILABAD. THE SAID LAND WAS CONVERTED INTO THE PROPER TY OF THE ASSESSEE- 0FIRM BY THE PARTNERS. HOWEVER AGRICULTURAL OPERATIO NS WERE CONDUCTED BY THE PARTNERSHIP FIRM WHICH WAS ADMITTING INCOME THE REFROM YEAR AFTER YEAR UNDER THE HEAD 'AGRICULTURE'. THE PARTNERSHIP FIRM PROPOSED TO SELL THE LAND AND THOUGH THERE WERE SOME RESTRICTIONS ON THE TRANSFER OF THE LAND BECAUSE OF LITIGATION IN RESPECT OF THE LAND THE SAME WAS LATER RESOLVED IN FAVOUR OF THE ASSESSEE. SINCE THE ASSESSEE WAS UNABLE TO SELL THE SAID LAND IN ITS ENTIRETY SINCE NO ONE CAME FORWARD TO PURCHASE SUCH A LARGE EXTENT OF 9 ACRES AND 24 GUNTAS AT ECHODA ASSESSEE- FIRM IN ORDER TO FACILITATE THE SALE OF SUCH LAND DIVIDED THE LAND INTO 219 PLOTS AND SOLD THE SAID PLOTS DURING FINANCIAL YEARS RELEVANT TO ASSESSME NT YEARS 204-05 TO 2006-07. 4. ASSESSEE FILED THE RETURNS OF INCOME CLAIMING BEFORE T HE ASSESSING OFFICER THAT THE AGRICULTURAL LAND IS A CAPITAL A SSET WITHIN THE MEANING OF S.2(14) OF THE ACT AND THEREFORE SUBMITTED THAT THE CAPITAL GAIN IS EXEMPT FROM TAX. IT WAS CLAIMED IN THE ALTER NATIVE THAT THE SALE CONSIDERATION WAS INVESTED IN THE SPECIFIED SECURITIES WITHI N THE TIME STIPULATED BY STATUTE AND AS SUCH IT IS ENTITLED FOR EXE MPTION UNDER S.54EC OF THE ACT. ASSESSING OFFICER CONSIDERED THE EXPLANATION O F THE ASSESSEE AND ALSO REFERRED THE MATTER FOR DIRECTIONS TO THE ADD ITIONAL COMMISSIONER OF INCOME-TAX NIZAMABAD UNDER S.144A OF THE ACT. IT WAS PLEADED BY THE ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 4 ASSESSEE BEFORE THE ADDL. COMMISSIONER OF INCOME-TAX THAT THE LAND WAS NEVER CONVERTED INTO STOCK-IN-TRADE BUT IT CONTINUED TO BE AGRICULTURAL LAND AND EVEN IF THE INCOME WERE TO BE DETERMINED A S INCOME FROM BUSINESS ON THE DATE OF CONVERSION OF THE AGRICULTURAL LANDS INTO PLOTS THE CAPITAL GAIN HAS TO BE WORKED OUT AND THE BUSINESS INCOME HAS TO BE SEPARATELY DETERMINED. THE ADDL. COMMISSIONER OF INCOM E-TAX IN HIS ORDER MENTIONED THAT THE PROPERTY CANNOT BE LEGALLY TRANSFERRED IN VIEW OF THE PROVISIONS OF A.P. SCHEDULED AREAS LAND TRANSFER RE GULATION 1959 SINCE THE SURVEY NO.10 IN WHICH THE LAND IN QUESTION IS LOCATED FALLS IN THE AGENCY TRACT AND THEREFORE THERE IS A PROHIBITIO N ON TRANSFER OF THE LAND. HE ALSO HELD THAT WHEN THE TRANSFER OF LAND IS N OT LEGALLY PERMISSIBLE RECEIPT ON SALE OF SUCH LAND IS TO BE TAXED A S A CASUAL AND NON-RECURRING RECEIPT. HE ALSO HELD THE VIEW THAT PROV ISIONS OF S.45(2) FOR CONVERSION OF THE CAPITAL ASSET INTO STOCK-IN-TRADE DO NOT APPLY. THE ADDL. COMMISSIONER OF INCOME-TAX ACCORDINGLY CAME TO THE CONCLUSIO N THAT THE INCOME IS ASSESSABLE ONLY AS INCOME FROM BUSINESS. IN ACCORD ANCE WITH THE DIRECTIONS OF THE ADDL. COMMISSIONER OF INCOME-TAX THE ASSESSING OFFICER COMPLETED THE ASSESSMENT FOR THE YEARS UNDER CONSIDE RATION TREATING THE INCOME EARNED ON SALE OF LAND AS BUSINESS I NCOME VIDE ORDERS OF ASSESSMENT DATED 31.12.2008 FOR ASSESSMENT YEAR 20 05-06 AND 2006-97 AND DATED 30.3.2009 FOR ASSESSMENT YEAR 2004-05 PASSED UNDER S.143(3) READ WITH S.147 OF THE ACT. 5. ON APPEAL BEFORE THE CIT(A) THE LEARNED COUNSE L FOR THE ASSESSEE FILED ELABORATE WRITTEN SUBMISSIONS WHICH THE CIT (A) HAS EXTRACTED IN EX-TENSO IN PARA 4.0 OF HIS IMPUGNED ORDER ON PAGES 6 TO 13 THEREOF. AFTER DUE CONSIDERATION OF THE SAME HE NOT ED THAT THE QUESTIONS THAT ARISE FOR CONSIDERATION BEFORE HIM AS FOLLOWS- ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 5 (A) WHETHER TRANSFER OF THE LAND IS LEGALLY PERMISSIBLE OR NOT; (C) WHETHER THE LAND IS AGRICULTURAL LAND OR NOT; (C) WHETHER THE SAID LAND IS A CAPITAL ASSET WITHIN THE M EANING OF S.2(14) O THE ACT OR NOT AND WHETHER THE INCOME DERIV ED BY THE ASSESSEE REPRESENTS CAPITAL GAIN OR INCOME FROM BUSINE SS. ADDRESSING TO THE QUESTION AT (A) ABOVE IN THE LIGHT OF THE A.P. SCHEDULED AREAS LAND TRANSFER REGULATIONS 1959 DATED 4.3.1959 THE CIT(A) HELD THAT THOUGH UNDISPUTEDLY THE SAID REGULATIONS ARE APP LICABLE TO THE ADILABAD DISTRICT THEY PLACE RESTRICTIONS ONLY ON THE T RANSFER OF IMMOVABLE PROPERTY BY A MEMBER OF THE SCHEDULED TRIBE. TAKING NOTE OF THE FACT THAT NONE OF THE PARTNERS OF THE ASSESSEE-FIRM BELONGS T O A SCHEDULED TRIBE AND ALSO THE FACT THAT THE PROPERTY WAS REGISTER ED WHEN PURCHASED BY THE FATHER OF THE PARTNER OF THE ASSESSEE-FIRM THE CIT(A) CONCLUDED THAT THE RESTRICTIONS PLACED BY THE SAID REGULATIONS ARE NOT APPLICABLE. DEALING WITH THE NEXT QUESTION AT (B) ABOVE THE CIT (A) OBSERVED THAT THE MAIN OF THE ASSESSEE WAS TO DISPOSE OFF THE PROPERTY AND TO DERIVE SALE CONSIDERATION WITHOUT DELAY. HE NOTED THAT THE TOTAL RECEIPTS FROM THE LAND HAVE BEEN RECEIVED BY THE ASSESSEE IN THE FOLLOWING MANNER- 1) ASSESSMENT YEAR 2004-05 (138 PLOTS) RS.62 85 000 2) ASSESSMENT YEAR 2005-06 (8 PLOTS) RS. 4 00 000 3) ASSESSMENT YEAR 2006-07 (1 PLOT) RS. 50 000 THEREAFTER THE CIT(A) CONCLUDED IN WITH REGARD TO TH IS QUESTION IN PARA 5.4 OF THE IMPUGNED ORDER AS FOLLOWS- '5.4. THE ABOVE EXPLANATION INDICATES THAT ALL THE PLOTS HAVE BEEN SOLD ALMOST IN ONE YEAR EXCEPT NINE PLOTS. THE REFORE THE APPELLANT HAD NO INTENTION OF RETAINING THE PLOTS F OR HIMSELF OR TO ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 6 CARRY ON THE BUSINESS WITH THE SAID PLOTS. THE ASSE SSING OFFICER AND THE ADDL. COMMISSIONER OF INCOME-TAX MENTIONED THAT THE A.P. SCHEDULED AREAS LAND TRANSFER REGULATION 1959 PROHI BITED THE TRANSACTION AND THEREFORE THE INCOME IS NOT ASSESS ABLE AS A CAPITAL GAIN AND AS THE SAID AMOUNT IS NOT ASSESSABLE AS A CAPITAL GAIN AND AS THE AMOUNT IS NOT ASSESSABLE AS A CAPITAL GAIN I T IS ASSESSABLE AS INCOM E FROM BUSINESS OR INCOME OF CASUAL NATURE. I HAVE ALREADY HELD THAT IN FACT THERE IS NO ILLEGALITY ABOUT THE TRANSFER OF THE PROPERTY WITHIN THE MEANING OF THE SAID REGULATIONS . THE ASSESSING OFFICER ALSO DID NOT ESTABLISH THAT THE APPELLANT W ITH AN INTENTION TO CARRY ON THE BUSINESS CONVERTED THE LAND INTO PLOTS . AS POINTED OUT EARLIER THE APPELLANT INTENDING TO SELL THE PROPER TY PLOTTED IT AND TRANSFERRED MOST OF THE PROPERTY IN ONE YEAR. ALL THE ACTS OF THE APPELLANT INDICATE THAT THE APPELLANT HAD NO INTENT ION TO CARRY ON THE BUSINESS ACTIVITY AND WANTED TO SELL THE PROPER TY. I AM ALSO IN AGREEMENT WITH THE APPELLANT THAT THE PROPERTY WAS DIVIDED INTO PLOTS TO FACILITATE THE SALE AND TO DERIVE BETTER P RICE. THEREFORE I HOLD THAT THE TRANSACTIONS ARE ASSESSABLE AS INCOME UNDER THE HEAD 'CAPITAL GAINS' AND NOT UNDER THE HEAD 'BUSINESS'. HE SOUGHT TO STRENGTHEN THE ABOVE FINDINGS WITH THE DECI SIONS OF THE MADRAS HIGH COURT IN CIT T V/S. KASTURI ESTATES PVT. LTD .(62 ITR 578 ) AND CIT V/S. MAHALINGAM CHETTIAR (107 ITR 237); AND OF T HE MADHYA PRADESH HIGH COURT IN THE CASES OF CIT V/S. DHANANJAY JADHAV ( 137 CTR 127) AND CIT V/S. SURESH CHAND GOYAL(298 ITR 277). THE CIT(A) ACCORDINGLY HELD THAT THE GAIN DERIVED BY THE ASSESSEE ON SALE OF PLOTS I S ASSESSABLE AS LONG TERM CAPITAL GAINS. 6. TAKING NOTE OF THE FACT THAT THE ASSESSEE DEPOSITED T HE AMOUNTS REALISED ON THE SALE OF PLOTS IN SPECIFIED SECURITI ES IN ACCORDANCE WITH THE PROVISIONS OF S.54EC THE CIT(A) HELD THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION UNDER S.54EC OF THE ACT AND T HEREFORE CAPITAL GAIN IS NOT TAXABLE. AS FOR THE QUESTION WHETHER THE LAND IS AGRICULTURAL LAND OR NOT THE CIT(A) NOTED THAT NOTWITHSTANDING THE FACT T HAT SINCE THE CAPITAL GAINS IS HELD TO BE EXEMPT UNDER S.54EC OF THE ACT TH E LAND WAS REGISTERED AS AGRICULTURAL LAND IN REVENUE RECORDS AND PAHANI PATRIAKAS AND THE PASS BOOK ISSUED BY THE REVUE AUTHORITIES ALSO COR ROBORATES WITH ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 7 THE SAME. HAVING HELD THAT THE SALE OF LAND IN PLOTS IS ONLY TO FACILITATE THE SALE OF THE PROPERTY AND NOT WITH AN INTENTION TO CAR RY ON THE BUSINESS THE CIT(A) HAS NOT DECIDED THE ISSUE WHETHER THERE WAS A NY CONVERSION OF LAND BEING CAPITAL ASSET INTO STOCK IN TRADE AS ON 1.4.20 03 ON THE GROUND THAT IT WAS ONLY OF ACADEMIC INTEREST. 7. THE CIT(A) ACCORDINGLY CONCLUDED THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER S.54EC OF THE ACT IN RESPECT OF T HE CAPITAL GAINS ON ACCOUNT OF THE AMOUNTS DEPOSITED IN THE SPECIFIED SECURITIE S. 8. AGGRIEVED BY THE ABOVE FINDINGS OF THE CIT(A) REVENUE PREFERRED ITS APPEALS ITA NOS.776 TO 778/HYD/2010 BEFO RE THIS TRIBUNAL. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD AND WE ALSO GONE THROUGH THE AP S CHEDULED AREAS LAND TRANSFER REGULATIONS 1959. THESE PROVISIONS ARE A PPLICABLE WHEN THE PROPERTY IS TRANSFERRED BY THE MEMBER OF A SCHED ULED TRIBE. IN THE PRESENT CASE THE PARTY INVOLVED IS NOT A PERSON BELONGI NG TO A SCHEDULED TRIBE AS SUCH AND THEREFORE RESTRICTION PLACED ON TRANSF ER OF PROPERTY BY THESE PROVISIONS IS NOT APPLICABLE. THE IMPUGNED PROPER TY WAS PURCHASED BY THE FATHER OF PARTNERS OF ASSESSEE FIRM IN THE YEAR 1 969. THE ORIGINAL SELLER OF THE PROPERTY SRI KYATHAM ASHA REDDY FROM W HOM FATHER OF THE PARTNERS OF THE ASSESSEE FIRM HAS PURCHASED ALSO DOES NOT BE LONG TO A SCHEDULED TRIBE AND THE PARTNERS INHERITED THE SAID PR OPERTY THROUGH WILL EXECUTED BY THEIR FATHER. THIS LAND WAS SUBJECT MATTE R OF LITIGATION BEFORE THE SR. CIVIL JUDGE ADILABAD DUE TO PETITION FILED BY SHRI K. NARAYAN REDDY S/O SHRI ASHA REDDY WHEREIN IT WAS DECIDED THAT THE L AND WOULD BELONGING TO THE PARTNERS OF THE ASSESSEE FIRM THOUGH THE PARTNERS PAID A COMPRISE AMOUNT OF RS.9 LAKHS TO SHRI K. NARAYAN REDDY. NOW T HE QUESTION IS WITH ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 8 REGARD TO THE HEAD OF INCOME UNDER WHICH THE INCOME DE RIVED ON THE SALE OF PLOTS TO BE ASSESSED WHETHER IT SHOULD BE TREATED AS CA PITAL GAIN OR BUSINESS INCOME. ADMITTEDLY THE ASSESSEE IN THIS CASE IS I N THE BUSINESS OF PURCHASE AND SALE OF KAPPAS AND MAINLY GETTING INCO ME FROM PRESSING AND GINNING OF COTTON. IT IS HAVING GINNING AND PRESSIN G FACTORY AT ADILABAD. THE ASSESSEE WAS NEVER IN THE BUSINESS OF TRADIN G IN IMMOVABLE PROPERTIES. THE TERM BUSINESS IS DEFINED IN SEC. 2(1 3) OF THE IT ACT. THE TERM CAPITAL ASSET IS DEFINED IN SECTION 2(14) OF THE ACT. THE TEST TO DECIDE WHETHER IT WAS AN INVESTMENT OR AN ADVENTURE IN THE NATURE OF TRADE HAS A VERY THIN LINE OF DEMARCATION. EVEN A SINGLE INSTANCE OF TRANSACTION CAN BE REGARDED AS BUSINESS AND EVEN MULTIPLE TRANSACTIONS SOME TIMES CAN BE DEEMED AS INVESTMENTS. SO THE CRITERIA FOR DECIDING WHETHER IT IS AN INVESTMENT OR BUSINESS IS DEPENDENT ON THE INTENTION OF THE ASSESSEE VIZ. WHETHER THE ASSESSEES REAL INTENTION IS TO INVEST OR THE INTENTION WAS IN THE NATURE OF TRADE. IN THE PRESEN T CASE LAND WAS PURCHASED BY THE FATHER OF THE TWO PARTNERS OF THE FIR M IN THE YEAR 1969. THE SAID LAND WAS CULTIVATED FOR AGRICULTURAL PURPOSES T ILL KHANDASAR SUGAR FACTORY WAS ESTABLISHED BY HIM. THEREAFTER IT WAS UTI LIZED FOR ESTABLISHING KHANDASARI SUGAR FACTORY WHICH WAS RUN UPTO THE YEAR 1 979. LATER THE SAID FACTORY WAS REMOVED THE PLANT AND MACHINERY WAS SO LD AND THE LAND WAS AGAIN USED FOR AGRICULTURAL PURPOSES. AFTER THE DEA TH OF THE FATHER OF THE PARTNERS IN THE YEAR 1984 BOTH THE PARTNERS BEIN G COPARCENERS OF THE FAMILY FORMED A FIRM THERE WAS SOME LITIGATION WITH THE ORIGINAL OWNERS OF THE SAID LAND. THE COST OF LITIGATION AMOUNTED TO RS.5 LAKHS. EXCEPT THE SAID AMOUNT OF LITIGATION EXPENDITURE NEITHER THE F IRM NOR THE PARTNERS INCURRED ANY EXPENDITURE. THE SAID LAND WAS USED BY TH E SAID FIRM FOR AGRICULTURAL PURPOSES. THE FIRM ADMITTED AGRICULTURA L INCOME UPTO THE YEAR 2003. IT CAN BE SEEN THAT TILL THEN THE LAND CON TINUED TO BE THE CAPITAL ASSET AND WAS USED ONLY AS CAPITAL ASSET. AT NO PO INT OF TIME IT ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 9 WAS CONVERTED INTO STOCK IN TRADE. MOST OF THE PLOTS OF LAND WERE SOLD DURING THE FINANCIAL YEAR 2003-04 ITSELF. CONVERSION OF LAND INTO PLOTS WITHOUT ANY FURTHER DEVELOPMENT OF THE LAND IS ONLY WITH A VIEW TO REALIZE THE CAPITAL ASSET. AS SEEN FROM THE FACTS OF THE CASE ASSE SSEES IS NOT AT ALL INTERESTED IN CARRYING ON THE BUSINESS OF REAL ESTAT E. THE ASSESSEE WAS HOLDING THE IMPUGNED PROPERTY IN THE FIELD OF INVEST MENT AND IT HAS NO INTENTION TO TRADE IN PROPERTIES. THE ASSESSEE DID NOT CARRIED ON ANY DEVELOPMENT ACTIVITIES LIKE LAYING THE ROADS DRAINAG E AND SANITARY CONNECTIONS. THE ASSESSEE MADE DIVISION OF THE PROPERTIES ONLY WITH THE INTENTION TO GET GOOD BUYERS SINCE LARGE PROPERTIES ARE NOT EASY TO SELL IN THE OPEN MARKET. THE SOLE MOTIVE OF MAKING THE PLOTS IS TO FACILITATE EASY SALE AND TO REALIZE BEST BETTER PRICE. THE ACT OF MAK ING THE SMALL PLOTS WITHOUT MAKING ANY ROADS OR DRAINAGE FACILITIES CANNOT BE CONSTRUED AS BUSINESS ACTIVITY. SINCE ASSESSING OFFICER HAS NOT BROUGHT O N RECORD ANY DEVELOPMENT ON THIS PROPERTY THE MERE DEMARCATION OF THE PROPERTY AS RESIDENTIAL SITE CANNOT BE CONSTRUED AS BUSINESS ACTIVITY. THE IMPUGNED PROPERTY CANNOT BE A BUSINESS ASSET IN THE HANDS OF THE A SSESSEE. THE ASSESSEE HAD BEEN CARRYING ON THE AGRICULTURAL ACTIVITIES IN THE IMPUGNED PROPERTY AND OFFERED AGRICULTURAL INCOME FROM THE SAME TO TAX IN EARLIER ASSESSMENT YEARS. BEING SO THE ASSESSEE CORRECTLY OFFERED TH E INCOME UNDER CAPITAL GAIN. 10. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIE D ON THE FOLLOWING JUDGEMENTS WHICH SUPPORT THE ASSESSEE CLAIM: 1. CIT VS. KASTURI ESTATES (P) LTD. (62 ITR 578) 2. CIT VS. MAHALINGAM CHETTIAR ()107 ITR 237) 3. CIT VS. DHANANJAY JHADAV (137 ITR 127) 4. CIT VS. SURESH CHAND GOYAL (298 ITR 277) ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 10 5. CIT VS. SMT. RADHA BAI (272 ITR 264) 6. ITO VS. D.N. KRISHNAPPA (126 TTJ 140) (BLR. ) 11. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTA TIVE STRONGLY RELIED ON THE ORDER OF THE AHEMADABAD BENCH IN THE CA SE OF SMT. NAYANABEN R. DESAI VS. ITO (315 ITR 19) (AT) (AHEMADA BAD) WHEREIN IT WAS HELD THAT: THE ASSESSEE HAD USED THE PLOT OF LAND IN RELATION TO HER PARTNERSHIP BUSINESS. THE LAND WAS CONVERTED INTO STOCK IN TRA DE OF THE BUSINESS. AS THE BUSINESS OF CONSTRUCTION WAS DONE BY THE FIRM A ND THE SHARE OF INCOME RECEIVED BY HER FROM THE FIRM WAS DULY SHOWN AS BUSINESS INCOME THE SURPLUS GENERATED ON LAND WHICH WAS OWN ED BY HER IN HER INDIVIDUAL CAPACITY AS A CO-OWNER SHOULD BE TREATED AS BUSINESS INCOME ONLY. THE FIRM IN WHICH THE ASSESSEE WAS ALSO A PAR TNER USED THE LAND BELONGING TO THE ASSESSEE FOR THE PURPOSE OF BUSINE SS. THE ASSESSEE ALONG WITH THE OTHERS USED THE LAND FOR ITS BUSINES S OF CONSTRUCTION AND TRANSFERRED THE LAND AS A BUSINESS ASSET. THEREFOR E THE SURPLUS ARISING AFTER THE DATE OF CONVERSION WAS TO BE TREATED AS B USINESS INCOME. THERE WAS NO MATERIAL ON RECORD TO SHOW THAT THE OWNER OF THE LAND HAD ANY INTENTION BEFORE JANUARY 15 1998 TO CONVERT THE LA ND INTO BUSINESS PROPERTY. THEREFORE THE SURPLUS EARNED OVER THE F AIR MARKET VALUE AS ON THAT DATE OUGHT TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. AS THE FAIR MARKET VALUE OF THE LAND SOLD AS ON JANUARY 15 1998 WAS NOT AVAILABLE ON RECORD THE MATTER WAS TO BE RESTORED T O THE FILE OF ASSESSING OFFICER FOR RECOMPUTING THE INCOME AFTER ALLOWING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 12. THE FACTS OF THE ABOVE CASE RELIED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ARE ENTIRELY DIFFERENT F ROM THE FACTS OF THE PRESENT CASE. IN THE PRESENT CASE THE ASSESSEE HELD THE PRO PERTY FOR SUCH A LONG PERIOD AS AN INVESTMENT IN LAND AND THE ASSE SSEE CARRIED ON THE AGRICULTURAL OPERATION FOR SUCH A LONG PERIOD WHI CH SHOWS THAT THERE IS NO INTENTION TO THE ASSESSEE TO TRADE IN THE SAID LAND. DEVELOPMENT OF LAND INTO RESIDENTIAL PLOTS WITH A VIEW TO GET THE B EST PRICE WITHOUT DOING ANYTHING MORE IS NOTHING BUT REALIZATION OF A CAPITA L ASSET AND AS SUCH THE SURPLUS REALIZED THROUGH THE SALE OF PLOTS IS ONLY CA PITAL GAIN AND CANNOT BE TREATED AS BUSINESS PROFIT BECAUSE THE TRANSACTION IS SIMPLY ONE ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 11 OF REALIZATION OF ASSETS HELD AS INVESTMENT RATHER THAN ONE REALIZED IN THE COURSE OF TRADE CARRIED ON BY THE ASSESSEE OR AN ADVENTUR E IN THE NATURE OF TRADE. IN OUR OPINION THE CIT(A) IS JUSTIFIED IN HOLDING THAT SURPLUS ON SALE OF PLOTS SHOULD BE ASSESSED AS CAPITAL GAIN AND SINCE TH E PROCEEDS WERE INVESTED IN APPROVED BONDS U/S 54EC ASSESSEE IS ENTIT LED TO EXEMPTION UNDER THIS SECTION. WE ACCORDINGLY UPHOLD TH E ORDER OF THE ITA AND REJECT THE GROUNDS OF THE REVENUE IN THESE APPEALS. 13. IN THE RESULT APPEALS OF THE REVENUE ARE DISMI SSED. CROSS OBJECTIONS OF THE ASSESSEE: 14. THE ONLY GRIEVANCE OF THE ASSESSEE IN ITS CROSS OBJECTI ONS RELATES TO DISALLOWANCES MADE BY THE ASSESSING OFFICER OUT OF THE BUSINESS EXPENDITURE CLAIMED BY THE ASSESSEE WHICH HAVE BEE N PARTIALLY SUSTAINED BY THE CIT(A). FOR THE ASSESSMENT YEAR 2004-0 5 WHILE THE ASSESSING OFFICER MADE A DISALLOWANCE OF RS.39 000 THE CIT (A) SUSTAINED THE SAME TO THE EXTENT OF RS.20 000/. FOR THE ASSESSMENT YEAR 2005-06 WHILE THE ASSESSING OFFICER DISALLOWED PETTY EXPENSES OF RS. 21 003; LOSS ON KAPAS OF RS.27 850; EXPENSES ON GINNING AND PREESSSING LABOUR OF RS.30 000; COMPOUND WALL AND GODOWN REPAIR EXPENSES OF RS.20 000; FACTORY EXPENSES OF RS.20 000; AND TELEPHONE EXPENSES ON ACCOUNT OF PERSONAL USER OF RS.10 795 THE CIT(A) DELETING ALL T HESE ADDITIONS MADE SEPARATELY DIRECTED THE ASSESSING OFFICER TO MAKE AN ADDI TION OF RS.40 000 ONLY TO COVER ALL UN-VOUCHED EXPENSES. SIMIL ARLY FOR THE ASSESSMENT YEAR 2006-07 WHILE THE ASSESSING OFFICER MADE A DISALLOWANCE OF RS.40 236 CIT(A) SUSTAINED THE SAME TO THE EXTENT OF RS.20 000. ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 12 15. WE HAVE HEARD BOTH THE PARTIES ON THE ABOVE ISSU E. ADMITTEDLY SIGNIFICANT PORTION OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AS DEDUCTION IS ONLY SUPPORTED BY SELF-MADE VOUCHERS. SIN CE THE EXPENDITURE IS SUPPORTED ONLY BY SELF MADE VOUCHERS OF THE ASSESSEE ITSELF AND THERE IS NO CORROBORATIVE EXTERNAL EVIDENCE IN SUP PORT OF THE EXPENDITURE THERE IS EVERY POSSIBILITY OF INFLATION I N THE EXPENDITURE AND THERE IS ALSO POSSIBILITY OF PERSONAL ELEMENT IN THE EXP ENDITURE. AS SUCH REASONABLE DISALLOWANCE OUT OF THE EXPENDITURE CLAIMED IS WARRANTED. THE CIT(A) IN OUR CONSIDERED OPINION IS VERY REASONABLE I N SUSTAINING A SMALL PORTION OF THE EXPENDITURE DISALLOWED BY THE ASSESSING O FFICER IN THESE YEARS. SINCE THE CIT(A) HAS TAKEN A VERY REASONABLE V IEW AND SUSTAINED ONLY SMALL PORTIONS OF EXPENDITURE DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THEY ARE SUPPORTED BY SELF MADE VOUCHE RS WE FIND NO JUSTIFICATION TO INTEREFERE WITH THE ORDER OF THE CIT (A) ON THIS ASPECT. ACCORDINGLY ON THIS ISSUE ORDER OF THE CIT(A) FOR ALL THE THREE YEARS IS UPHELD AND THE GROUNDS OF THE ASSESSEE IN THEE CROSS-OBJE CTIONS ARE REJECTED. 16. IN THE RESULT CROSS OBJECTIONS FILED BY THE ASSESSEE A RE DISMISSED. 15. IN THE RESULT APPEALS OF THE REVENUE VIZ. ITA NOS. 776 TO 778/HYD/2010 AS WELL AS THE CROSS-OBJECTIONS OF THE ASSESSEE VIZ. C.O. NOS.32 & 46-47/HYD/2010 ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 23. 9.2010 SD/- SD/ - (G.C. GUPTA) VICE PRESIDENT (CHANDRA POOJARI) ACCOUNTANT MEMBER DT/- SEPTEMBER 2010 ITA NO.776-778/HYD/10 AND CO NOS.32 & 46/HYD/2010 M/S.OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY ADILABAD 13 COPY FORWARDED TO: 1. M/S. OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY NEAR OLD BUS STAND ADILABAD 2. INCOME-TAX OFFICER WRD-1 ADILABAD 3. CIT(A) VI HYDERABAD 4. COMMISSIONER OF INCOME-TAX VI HYDERABAD. 5. THE D.R. ITAT HYDERABAD. B.V.S. 1. DATE OF DICTATION 2/7.9.2010 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SE NIOR P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE T HE DICTATING MEMBER AND OTHER MEMBER 9.9.2010 5. DATE ON WHICH THE FAIR ORDER GOES TO THE SR. P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK. 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 8. DATE ON WHICH THE FILE GOES TO THE ASSISTANT REG ISTRAR 9. DATE OF THE DESPATCH OF THE TRIBUNAL ORDER