ACIT, BIKANER v. M/s. Shiv Deep Industries, BIKANER

ITA 485/JODH/2008 | 2005-2006
Pronouncement Date: 16-12-2011 | Result: Dismissed

Appeal Details

RSA Number 48523314 RSA 2008
Assessee PAN AAJCS1030P
Bench Jodhpur
Appeal Number ITA 485/JODH/2008
Duration Of Justice 3 year(s) 5 month(s) 5 day(s)
Appellant ACIT, BIKANER
Respondent M/s. Shiv Deep Industries, BIKANER
Appeal Type Income Tax Appeal
Pronouncement Date 16-12-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 16-12-2011
Date Of Final Hearing 07-12-2011
Next Hearing Date 07-12-2011
Assessment Year 2005-2006
Appeal Filed On 11-07-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH JODHPUR (BEFORE SHRI R.K. GUPTA AND SHRI .N.L. KALR A ) ITA NO. 485/JU/2008 ASSESSMENT YEARS: 2005-06 PAN: AAJCS 1030 P THE ACIT VS. M/S. SHIV DEEP INDUSTRIES LTD. CIRCLE- 1 F-196 197 BEECHWAL INDUSTRIAL AREA BIKANER BIKANER (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI G.R. KOKANI ASSESSEE BY : SHRI U.C. JAIN AND SHRI RAJEND RA JAIN DATE OF HEARING: 07-12-2011 DATE OF PRONOUNCEMENT: 16-12-2011 ORDER PER N.L. KALRA AM:- THE REVENUE HAS FILED APPEAL AGAINST THE ORDER OF THE LD.CIT(A) BIKANER DATED 13-05-2008 FOR THE ASSESSMENT YEAR 2005-06. 2.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 3 92 805/- MADE ON ACCOUNT OF DISA LLOWANCE OF DEPRECIATION AS FOUND NOT GENUINE BY THE AO AS THE FIXED ASSETS WERE NOT PUT TO USE FOR BUSINESS PURPOSES. 2.2 THE FACTS OF THE CASE ARE THAT THE DEPRECIATION AMOUNTING TO RS. 392805/- RELATING TO THE PURCHASE OF SAID EQUIPMENTS AND SOFTWARE WOR TH RS. 1308358/- WERE DISALLOWED. THE REASON ATTRIBUTED BY THE AO FOR DISALLOWING THE DEPRECIATION WAS THE FACT THAT THE SAID EQUIPMENTS AND SOFTWARE WERE PURCHASED AT THE FAG END OF THE FINANCIAL YEAR. IT WAS HIS OPINION THAT THE AFORESAID EQUIPMENTS WERE NEIT HER INSTALLED NOR PUT TO USE. THE PLEA TAKEN BY AO WAS THAT THE PAYMENT FOR THESE EQUIPMEN TS REMAINED BY AND LARGE UNPAID 2 AND THE ASSESSEE ITSELF IN ITS FINANCIAL STATEMENTS REFLECTED THE EQUIPMENTS AS CAPITAL WORK IN PROGRESS. 2.3 BEFORE THE LD.CIT(A) FOLLOWING SUBMISSIONS WE RE MADE IT WAS SUBMITTED THAT THE ADDITION MADE BY THE AO BY DISALLOWING THE DEPRECIATION WAS BASED ON ASSUMPTIO N PRESUMPTION AND SURMISES WITHOUT CONDUCTING ANY INDEPENDENT INQUIR Y. IT WAS FURTHER URGED THAT THE AO DID NOT ADDUCE ANY EVIDENCE IN SU PPORT OF HIS CONTENTION OF NON USABILITY OF THE EQUIPMENTS. IT W AS THE CONTENTION OF THE COUNSEL OF THE ASSESSEE THAT IN FACT THE PAYMENTS O F SUCH EQUIPMENTS WERE MADE AT THE END OF THE FINANCIAL YEAR BUT THE DELIV ERY OF THE SAME WAS RECEIVED QUITE EARLIER THAN THE FAG END OF THE FINA NCIAL YEAR ALTHOUGH THE INVOICES BEAR THE DATE FALLING IN THE LAST WEEK OF MARCH. IT WAS SUBMITTED THAT THE COMPUTER HARDWARE AND SOFTWARE ON WHICH T HE DEPRECIATION WAS CLAIMED WERE PUT TO THE COMMERCIAL USE BY THE ASSE SSEE IN THE FINANCIAL YEAR AND ALL THE TESTS OF USABILITY AND THE CLAIM O F DEPRECIATION STAND FULLY SATISFIED. AS FOR AS THE UTILITY OF THE EQUIPMENTS AND THE REF LECTION OF THE PURCHASES MADE UNDER THE HEAD CAPITAL WORK IN PROGR ESS IS CONCERNED IT WAS STATED THAT THE SAME WERE PURCHASED FOR THE PUR POSE OF SETTING UP ERP SYSTEM IN THE ORGANIZATION. THE ERP SYSTEM HAS GOT VARIOUS MODULES. THE IMPLEMENTATION OF THIS SYSTEM TAKES PLACE IN MODULA R FORM. THE MODULES OF ERP TAKE THE FORM OF INVENTORY PRODUCTION SALE S ACCOUNTING QUALITY CONTROL SO ON AND SO FORTH. DURING THE YEAR THE ASS ESSEE WENT FOR THE IMPLEMENTATION OF SALES MODULE OF ERP. THE SALES MO DULES BECAME OPERATIONAL AND LIVE IN THE SECOND WEEK OF MARCH 2 005. SINCE THE ASSESSEE HAS GOT THE PLANNING FOR IMPLEMENTATION OF OTHER MODULES SUCH AS PRODUCTION AND ACCOUNTING THE SALES MODULE ALTHOUG H IMPLEMENTED THE ENTIRE COST OF THAT PROJECT WAS CATEGORIZED AS WORK IN PROGRESS. THIS CATEGORIZATION WAS MADE IN THE BOOKS OF ACCOUNTS SO AS TO GIVE REFLECTION 3 IN THE FINANCIAL STATEMENTS THAT ERP SYSTEM IMPLEME NTATION IS UNDER WAY. IN SUPPORT OF ITS CONTENTION THAT SUBSTANCE PREVAIL S OVER THE FORM THE ASSESSEE PUT FORTH THE FOLLOWING CASE LAWS: - (A) MODE OF BOOK ENTRIES GENERALLY NOT RELEVANT THE SUB STANCE WILL BE RELEVANT IT IS NOW WELL SETTLED THAT THE WAY IN WHICH ENTRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHE R THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSS . THE ASSESSEE MAY BY MAKING ENTRIES WHICH ARE NOT IN CONFORMITY WITH THE PROPER ACCOUNTANCY PRINCIPLES CONCEAL PROFIT OR SHOW LOSS AND THE ENTRIES MADE BY HIM CAN NOT THEREFORE BE REGARDED AS CONCLUSIVE ONE WAY OR THE OTHER. WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATU RE OF THE TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSESSEE SUTLEJ COTTON MILLS LTD. V. CIT (1979) 116 ITR 1 (SC). (B) THE MODE OR SYSTEM OF BOOK KEEPING CANNOT OVERRID E THE SUBSTANTIAL CHARACTER OF A TRANSACTION ASHOKA VIN IYOGA LTD. V. CIT (1972) 84 ITR 264 (SC). (C) IT WAS HELD IN NAGASURI RAGHAVESWARA RAO V. CIT (19 67) 66 ITR 496 (AP) THAT INTENTION OF PARTIES AS GATHE RED FROM DOCUMENTS AND SURROUNDING CIRCUMSTANCES IS DECISIVE THE NOMENCLATURE GIVEN TO THE DOCUMENT MAY NOT BE DECISIVE OR CONCLUSIVE. WHAT IS TO BE GATHERED IS T HE INTENTION OF THE PARTIES. THE PROBE MUST BE FULL AN D ATTEMPT MUST BE SINCERE OF ASCERTAIN THE TRUE INTENTION OF THE PARTIES THAT IS MATERIAL AND SHALL DETERMINE THE NATURE OF THE TRANSACTION. WHILE REFERRING TO THE PROVISION OF THE INCOME TAX ACT RELATING TO THE ALLOWABILITY OF DEPRECIATION IT WAS URGED THAT FIRST AND FOREMOST CRITERIA IS THE USABILITY OF THE ASSET . THE CONDITION PRECEDENT FOR THE CLAIM OF DEPRECIATION IS THE USE OF ASSETS FOR THE PURPOSE OF BUSINESS. THE EXTENT OF USE AND ITS UTIL ITY AND CONTRIBUTION FOR THE PURPOSE OF BUSINESS IS IMMATER IAL FOR THE PURPOSE OF THE SECTION. IT WAS CONTENDED THAT THE P AYMENT FOR ASSET IS NOT AN ISSUE IN GIVING THE CLAIM OF DEPRECIATION . EVEN IF THE PAYMENT FOR ASSET HAS REMAINED TOTALLY OUTSTANDING THEN ALSO 4 DEPRECIATION ON SUCH ASSET CAN BE PROVIDED. THE ASS ETS TAKEN ON THE INSTALMENT BASIS QUALIFY FOR THE DEPRECIATION. WHILE APPLYING THE RATIO OF THE AFORESAID DISCUSSIO N IT WAS SUBMITTED THAT IN THE INSTANT CASE OF THE ASSESSEE THE SUPPLIER OF ERP SYSTEM HAS GOT THE LONG TERM PROJECT THEREFORE THE SUPPLIES WERE MADE CONTINUOUSLY BUT THE INVOICES WERE RAISED UPON IMPLEMENTATION OF A PARTICULAR SEGMENT / MODULE. TH E INVOICES RAISED BY THE SUPPLIERS WERE REGARDED AS TESTIMONY TO THE FACT THAT THE MODULE BECAME OPERATIONAL. APART FROM THIS THE CORRESPONDENCE RECEIVED FROM SUPPLIER MANIFEST ABOU T THE USABILITY OF EQUIPMENTS. THE CERTIFICATION BY AN INDEPENDENT THIRD PARTY IS CONCLUSIVE EVIDENCE AS REGARDS THE IMPLEMENTATION. THE IMPLEMENTATION ENTAILS BOTH INSTALLATION AND OPERAT IONALISATION OF ASSET FOR THE PURPOSE OF BUSINESS. THE CONTENTION O F ASSESSEE WAS REPORTED TO BE FORTIFIED BY THE FOLLOWING. USE MEANS KEPT READY FOR USE AND NOT ACTUAL USE ALLOWANCE FOR NORMAL DEPRECIATION ALLOWANCE DOES NO T DEPEND UPON THE ACTUAL WORKING OF THE MACHINERY. IT IS SUF FICIENT IF THE MACHINERY IN QUESTION IS EMPLOYED BY THE ASSESSEE F OR THE PURPOSE OF THE BUSINESS AND FOR NO OTHER BUSINESS AND IT IS KEPT BY HIM READY FOR ACTUAL USE IN THE PROFIT MAKING APPARATUS THE MOMENT A NEED ARISES CAPITAL BUS SERVICE (P) LTD. V. CIT ( 1980) 123 ITR 404 (DELHI / FOREST INDUSTRIES TRAVANCORE LTD. V. CIT (1964) 51 ITR 329 (KER.). THE USER OF MACHINES FOR TRIAL PRODUCTION BEFORE G IVING FULL THROTTLE IS AS MUCH USE OF MACHINES FOR THE PURPOSE OF BUSINESS CIT V. NAKODA METALS (2006) 204 CTR (RAJ.) 514. 5 MAGNITUDE OF PRODUCTION IS NOT DETERMINATIVE OF USE LAW DOES NOT REQUIRE THAT THERE MUST BE OPTIMUM PRODUCT ION FOR GRANTING THE BENEFIT OF DEPRECIATION. LAW ONLY REQU IRES THAT THERE MUST BE USE OF PLANT AND MACHINERY FOR THE PURPOSE OF BUSINESS. USE OF SUCH WORDS THAT PLANT AND MACHINERY WAS RUN MORE EXTENSIVELY OR WAS REQUIRED TO BE USED FOR LARGER P RODUCTION IS NOT BE FOUND IN THE ACT OR RULES. WHETHER THE PLANT AND MACHINERY IS USED TO THE EXTE NT OF ITS EFFICIENCY IS IRRELEVANT FOR THE PURPOSE OF ALLOWIN G DEPRECIATION. THE TEST IS THAT THE BUILDING. PLANT AND MACHINERY ARE USED FOR THE PURPOSE OF BUSINESS ASSTT. CIT V. ASHIMA SYNTAX L TD. CONTINUOUS USE FOR SAME PURPOSE IS NOT NECESSARY IT IS NOT THE REQUIREMENT OF SECTION 32 THAT DEPRECIATION CLA IMED IN RESPECT OF ANY ASSET HAS TO BE ALLOWED ONLY IF IT CONTINUES TO BE USED FOR ALL PURPOSES FOR WHICH IT WAS BEING USED EARLIER CIT V. UDAIPUR DISTILLERY CO. LTD. (2004) 135 TAXMAN 487 (RAJ.) IT WAS HELD IN ACIT V. ASHIMA SYNTEX LTD. (2002) 12 2 TAXMAN 230 (GUJ). EVEN TRIAL PRODUCTION OF MACH WOU LD FALL WITHIN AMBIT OF USED FOR PURPOSE OF BUSINESS & THER E IS NO REQUIREMENT OF OPTIMUM PRODUCTION FOR CLAIMING DEP. U/S 32 OF THE I.T. ACT. 2.4 THE LD.CIT(A) AFTER CONSIDERING THE SUBMISSIONS DELETED THE DISALLOWANCE AFTR OBSERVING AS UNDER:- I HAVE GONE THROUGH THE RIVAL SUBMISSION AND AM O F THE OPINION THAT IT IS WELL SETTLED BEYOND THE SHADOW OF DOUBT THAT SUBSTANCE SHOULD PREVAIL OVER ANY FORM OF TRANSACTION AND MODE OF EN TRY. THE USABILITY OF ASSET IS SOLE CRITERIA FOR THE ALLOW ABILITY OF DEP RECIATION. THE TIMING OF PAYMENT IN IT SELF IS NOT A SOLE PARAMETER FOR JUDG ING THE ALLOWABILITY OF 6 DEPRECIATION. THE CONTENTION AS REGARDS THE MODULAR IMPLEMENTATION OF ERP SYSTEM ENTAILING BOTH INSTALLATION AND OPERATIO NALISATION OF ASSET FOR THE PURPOSE OF BUSINESS MERITS CONSIDERATION. THERE FORE I HEREBY DELETE THE ADDITION OF RS. 392805/- WHICH WAS MADE BY DISALLOW ING THE DEPRECIATION. THE APPELLANT SUCCEEDS ON THIS GROUND. 2.5 BEFORE US THE LD. DR SUBMITTED THAT THE ASSES SEE HIMSELF IN THE BOOKS OF ACCOUNT HAS SHOWN THE EXPENDITURE UNDER THE HEAD CAPITAL WO RK IN PROGRESS. BEFORE THE AO THE ASSESSEE CONTENDED THAT THE PAYMENTS WERE MADE IN A DVANCE BUT THE DELIVERY OF THE ITEMS WERE RECEIVED QUITE EARLIER THAN THE FAG END OF THE FINANCIAL YEAR. IT IS TRUE THAT THE INVOICES BEAR THE DATE OF FALLING IN THE LAST WEEK OF MARCH. ACCORDING TO THE LD. DR THE AO HAS POINTED OUT THAT THE ASSESSEE HAS NOT SUBMIT TED ANY EVIDENCE TO SHOW THAT EQUIPMENTS WERE RECEIVED EARLIER BEFORE CLOSE OF TH E FINANCIAL YEAR. THE LD. DR FURTHER SUBMITTED THAT ASSESSEE HAS NOT CLAIMED ANY DEPRECI ATION ON SUCH ASSETS FOR A SINGLE DAY. FOR THE PURPOSE OF MAKING ACCOUNTS UNDER THE COMPAN IES ACT IT WAS THEREFORE STATED BY THE LD. DR THAT THE ASSETS WERE NOT PUT TO USE AND THEREFORE DEPRECIATION IS NOT ALLOWABLE. 2.6 ON THE OTHER HAND THE LD. AR HAS SUBMITTED AS UNDER:- (1) DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY PURCHASED EQUIPMENTS FOR THE PURPOSE OF SET TING ERP SYSTEM IN THE ORGANISATION. THE ERP SYSTEM HAS GOT VARIOUS MODULES THE IMPLEMENTATION OF SYSTEM TAKES PLACE IN MODULAR FORM. THE MODULES OF ERP TAKE THE FORM OF INVENTORY PRODUCTI ON SALES ACCOUNTING QUALITY CONTROL SO ON SO FORTH. (2) THAT DURING THE YEAR UNDER CONSIDERATION THE AS SESSEE COMPANY WENT FOR THE IMPLEMENTATION OF SALES MODULE S OF ERP. THE SALES MODULES BECAME OPERATIONAL AND LIVE IN THE SE COND WEEK OF THE 7 MARCH 2005. AS THE ASSESSEE WAS PLANNING TO IMPLEME NTATION OF OTHER MODULES SUCH AS PRODUCTION AND ACCOUNTING TH E SALES MODULES ALTHOUGH IMPLEMENTED THE ENTIRE COST OF THAT PROJEC T WAS CATEGORIZED AS WORK IN PROGRESS. THE CATEGORIZATION WAS MADE IN THE BOOKS OF ACCOUNTS SO AS TO GIVE REFLECTION IN THE FINANCIAL STATEMENTS THAT ERP SYSTEM IMPLEMENTATION IS UNDER WAY. (3) IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER T HAT MODE OF BOOK ENTRIES GENERALLY NOT RELEVANT THE SUB STANCE WILL BE RELEVANT. IT IS NOW WELL SETTLED LAW THAT THE WAY I N WHICH ENTRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNTS IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PR OFIT OR LOSS. THE ASSESSEE MAY BY THE MAKING ENTRIES WHICH ARE NOT IN CONFORMITY WITH THE PROPER ACCOUNTING PRINCIPLES CANNOT BE REGARDED AS CONCLUSIVE. WHAT IS NECESSARY IS TO BE CONSIDERED IS THE TRUE N ATURE OF THE TRANSACTION. RELIANCE IS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE SUTLEJ COTTON MILLS LTD. V/S CIT REPORTED IN 116 ITR PAGE 1 (SC) AND THE DECISION IN THE CASE OF ASH OKA VINYOGA LTD. V/S CIT REPORTED IN 84 ITR PAGE 264 (SC). (4) IT WAS FURTHER HELD BY THE HONBLE ANDRA PRADES H HIGH COURT IN THE CASE OF NAGASURI RAGHAVESWARA RAO V/S CIT REPORTED IN 66 ITR PAGE 496 THAT INTENTION OF THE PARTIES AS GA THERED FROM THE DOCUMENTS AND SURROUNDING CIRCUMSTANCES IS DECISIVE THE NOMENCLATURE GIVEN TO THE DOCUMENT MAY NOT BE DECIS IVE OR CONCLUSIVE. WHAT IS TO BE GATHERED IS THE INTENTION OF THE PARTIES. THE PROBE MUST BE FULL AND ATTEMPT MUST BE SINCERE OF A SCERTAIN THE TRUE INTENTION OF THE PARTIES THAT IS MATERIAL AND SHALL DETERMINE THE NATURE OF THE TRANSACTION. 8 (5) THAT ERP INSTALLATION IS SUCH WHICH IS LIKE PLU G & PLAY. THE ERP INSTALLATION IN RESPECT OF SALES MODU LE WAS OPERATIVE IN MARCH AND AS SUCH THE ASSESSEE HAS RIGHTLY CLAIM ED DEPRECIATION AT THE RATE OF 50% OF THE NORMAL RATE OF DEPRECIATION. (6) THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V/S UDAIPUR DISTILLERY COMPANY LTD. REPORTED IN 135 TAXMAN 487 HELD THAT IT IS NOT THE REQUIREMENT OF SECTION 32 T HAT DEPRECIATION CLAIM IN RESPECT OF ANY ASSETS HAS TO BE ALLOWED ON LY IF IT CONTINUES TO BE USED FOR ALL PURPOSES FOR WHICH IT WAS BEING USED EARLIER. THE SIMILAR VIEW WAS ALSO TAKEN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ACIT V/S ASHIMA SYNTEX LTD. REPORTED IN 122 TAXMAN 230 (GUJ) IN THIS CASE IT WAS HELD THAT TRIAL PRODU CTION OF MACH WOULD FALL WITHIN AMBIT OF USED FOR PURPOSE OF BUSINESS A ND THERE IS NO REQUIREMENT OF OPTIMUM PRODUCTION FOR CLAIMING DEPR ECIATION U/S 32 OF THE ACT. IN LIGHT OF ABOVE THE LD CIT (A) HAS RIGHTLY ALLOWE D THE CLAIM OF DEPRECIATION IN RESPECT OF SALES MODULES OF ERP SYSTEM AND HIS DECISION IS DULLY SUPPORTED FROM THE VARIOUS JUDICI AL AUTHORITIES AS REFERRED TO ABOVE AND AS SUCH THERE IS NO SUBSTANCE IN THE GROUND OF APPEAL RAISED BY THE REVENUE AND THE SAME MAY KINDL Y BE DISMISSED. 2.7 WE HAVE HEARD BOTH THE PARTIES. A SUM OF RS. 4 03 846/- IS A LICENSE FEE AND THE INVOICE IS DATED 25-03-2005. THIS LICENSE FEE I S FOR RAMCO E APPLICATIONS . THE REVENUE THEREFORE CANNOT DISALLOW DEPRECIATION IN RESPECT OF THIS INVOICE. THERE IS ANOTHER INVOICE FOR COLOUR MONITOR. THIS INVOICE IS DATED 30-03-205. THIS 9 COLOUR MONITOR CAN BE USED AS AND WHEN THE SAME IS RECEIVED. HENCE DEPRECIATION CANNOT DISALLOWED ON THIS COLOUR MONITOR. IT IS TRU E THAT OTHER INVOICES ARE OF DATED 31-03-2005. BEFORE THE LD.CIT(A) THE ASSESSEE HAS SUBMITTED THAT OTHER MODULES OF ERP LIKE INVENTORY PRODUCT ETC. WERE STILL TO BE IMPLEMENTED AND THEREFORE THESE WERE SHOWN AS CAPITAL WORK IN PROGRESS. THE S ALES MODULES WERE IMPLEMENTED. IT IS A SETTLED LAW THAT BOOK ENTRIES ARE NOT CONCLUSIVE FOR DECIDING THE ISSUE. RELIANCE IS PLACED ON THE FOLLOWING DEC ISIONS. 1. SUTLEJ COTTON MILLS LIMITED. VS CIT 116 ITR 1 2. CIT BOMBAY CITY I. VS MESSRS. SHOORJI VALLABHDA S AND COMPANY. 46 ITR 144 (BOM) 2.8 LOOKING TO THE APPRECIATION OF THE FACTS ON REC ORD BY THE LD.CIT(A) WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO ALLOW DEPRECIATION. IN THE CONCEPT OF OF BLOCK OF ASSTS THE WRITTEN DOWN VALUE MEANS THE WR ITTEN DOWN VALUE OF PRECEDING YEAR AND INCREASING THE COST OF ANY ASSET IN THAT BLOCK AS ACQUIRED IS TO BE ADDED. THE WORD USE IS NOT MATERIAL FOR ANY SPECIFIC ITEM OF BLOCK OF A SSETS. 3.1 THE SECOND GROUND OF REVENUE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 62 500/- MADE BY THE AO ON ACCO UNT OF DEDUCTION U/S 80G OF THE ACT 3.2 THE LD.CIT(A) HAS DELETED THE ADDITION AFTER OB SERVING AS UNDER :- THE FOURTH GROUND OF THE APPEAL RELATES TO THE AD DITION OF 62500/- ON ACCOUNT OF DEDUCTION CLAIMED OF RS. 75000/- UNDE R SCHEME 80G OF IT ACT. THE AO HAS ALREADY TAKEN THE GROSS TOTAL INCOM E AS PER RETURN BEFORE ALLOWING THE DEDUCTION U/S 80G OF IT ACT AND FURTHE R MADE ADDITION OF RS. 62500/- DISALLOWING THE EXEMPTION TO THAT EXTENT. I T IS OBVIOUS FROM THE MATERIAL ON THE RECORD THAT IN THE ASSESSMENT ORDER ITSELF THE AO HAS CONSIDERED THE GROSS TOTAL INCOME FOR THE PURPOSE O F TAX CALCULATION. SUBSEQUENTLY ADDING THE DISALLOWABLE COMPONENT OF R S.62500/- U/S 80G 10 OF IT ACT TOWARDS THE TOTAL INCOME IS UNCALLED FOR AND THE SAID ADDITION NEEDS AND DESERVES TO BE DELETED. THE APPELLANT SUC CEEDS IN THIS GROUND. 3.3 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HA S ADDED BACK THE DONATIONS OF RS. 75 000/- TO THE NET PROFIT IN THE COMPUTATION OF TO TAL INCOME. THE TOTAL INCOME BEFORE ALLOWNG DEDUCTION U/S 80G IS RS. 1 69 45 139/- . IT MEANS THAT A SUM OF RS. 75 000/- DEBITED AS DONATION STANDS ADDED. THE AO WHILE COMP UTING THE INCOME IN THE ASSESSMENT ORDER HAS TAKEN GROSS TOTAL INCOME AS PER RETURN OF INCOME AT RS. 1 69 45 140/-. FROM THIS THE AO ALLOWED DEDUCTION U/S 80G TO THE EXTENT OF R S. 12 500/-.THUS A SUM OF RS. 62 500/- STANDS ADDED IN THE FIGURE OF RS. 1 69 45 139/-. HENCE THE LD.CIT(A) WAS JUSTIFIED IN HOLDING THAT THE AMOUNT CANNOT BE SEPA RATELY ADDED BECAUSE IT STANDS INCLUDE IN THE COMPUTATION OF INCOME DETERMINED BY THE AO. 4.1 THE THIRD GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 22 74 134/- MADE BY THE AO ON ACCOU NT OF SALE OF PLOTS TREATED AS BUSINESS INCOME BY HOLDING THAT INCOME FROM SALE OF PLOTS PART TAKES THE CHARACTER OF LONG TERM CAPITAL GAIN RATHER THAN INCOME FROM BUSINESS. ALTERNATELY IT WAS SUBMITTED THAT FOR CAPITAL GAIN PURPOSES FULL VALUE OF THE CONSIDERAT ION SHOULD BE TAKEN AS PER PROVISIONS OF SECTION 50C OF THE ACT. 4.2 THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN O F RS. 9L16 891/-. THE AO TREATED THE SAME AS BUSINESS INCOME OF RS. 22 74 134/-. THE FACTS OF THE CASE ARE AS UNDER:- (1) THE ASSESSEE COMPANY PURCHASED AGRICULTURAL LAND FR OM TWO PERSONS MEASURING 2 BIGHA 6 BISWA IN THE FINANCIAL YEAR 1995-96 AND THE SAME WAS REFLECTED IN THE FIXED ASSETS OF THE C OMPANY FOR ALL THE PRECEDING YEARS FOR WHICH AUDITED BALANCE SHEETS AR E PLACED ON RECORD. THE ASSESSEE ALSO PURCHASED SOME PIECE OF A GRICULTURAL LAND 11 IN THE FINANCIAL YEAR 1997-98 MEASURING 1800 SQ. FT . AND THE SAME IS ALSO REFLECTED HAS A FIXED ASSETS OF THE COMPANY. (2) THAT THE MAIN OBJECT OF THE COMPANY IS TO MANUF ACTURE AND SALE BHUJIA NAMKEEN & SWEETS AND THE AGRICULTURAL LAND WAS PURCHASED FOR THE INSTALLATION OF FACTORY BUILDING. (3) THAT DUE TO URBANIZATION OF THE AREA THE FACTOR Y COULD NOT BE INSTALLED IN THE AREA AND AS SUCH TO GET BETTER CAP ITAL APPRECIATION THE COMPANY CONVERTED A PORTION OF LAND IN THE ABADI AN D SOLD THE SAME BY REGISTERED SALE DEED. A PIECE OF LAND COVERED BY FOUR PLOTS WHICH WAS IN POSSESSION OF CERTAIN PERSONS RIGHT FROM THE DAY OF PURCHASES WAS NOT CONVERTED AS ABADI LAND AND WAS KEPT IN THE SHAPE OF AGRICULTURAL LAND AND WAS SOLD AS SUCH BY AGREEMENT TO SALE FOR RS. 200000/- I.E. FOR RS. 50 000/- EACH AND NO DOCUMENT OF SALE WAS REGISTERED FOR THE SAME. (4) THAT FOR THE YEAR UNDER CONSIDERATION THE COMPA NY DECLARED LONG TERM CAPITAL GAIN AT RS. 916891/-. 4.3 THE AO TREATED THE LONG TERM CAPITAL GAIN AS B USINESS INCOME AND ALSO ENHANCED THE VALUE OF 4 PLOTS SOLD BY THE AGREEMENT TO SALE FOR WHICH NO DOCUMENT OF SALE WAS REGISTERED AT RS. 11 45 962/- AND ALSO INCREASED TH E VALUE OF PLOT NO. 13 BY RS. 1.70 LACS AS AGAINST DECLARED AT RS. 1.00 LAC. THUS THE AO CO MPUTED THE BUSINESS INCOME AT RS. 22 74 134/-. 4.4 BEFORE THE LD.CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF BHUJIA NAMKEEN AND SW EETS. THE ASSESSEE COMPANY NEVER SOLD THE LAND EARLIER. IT WAS AN ISOLATED AND SOLIT ARY ACTIVITY IN THE HISTORY OF THE COMPANY. 12 THE ASSESSEE COMPANY IN ORDER TO GET BETTER UTILIZA TION CONVERTED THE LAND INTO 9 PLOTS ON DIFFERENT DATES AND THE REMAINING 04 PLOTS WERE SOL D ON AGREEMENT BASIS ON A FIXED PRICE OF RS. 50 000/- EACH. MERE CONVERSION OF AGRICULTUR AL LAND INTO RESIDENTIAL ONE DOES NOT CHANGE THE CHARACTER OF INCOME. BEFORE THE LD.CIT(A ) THE ASSESSEE RELIED ON THE FOLLOWING CASES LAWS. (A) IT WAS HELD IN THE CASE OF CIT V. GOYAL (MP) 209 CT R 410 THAT ISOLATED ACTIVITY OF SALE OF PLOTS AFTER CONVERTING AGRICULT URAL LAND INTO NON AGRICULTURAL LAND AND DEVELOPING THE SAME WITH THE VIEW TO SECUR E BETTER PRICE CANNOT COME WITHIN THE PURVIEW OF ADVENTURE IN THE NATURE OF TRADE AND THEREFORE THE SURPLUS ON THE SALE OF LAND WAS IN THE NATURE OF CA PITAL GAIN. (B) IT WAS HELD IN ECLAT CONSTRUCTION (P) LTD. V. CIT(1 988) 172 ITR 84 (PAT.) THAT GENERALLY SINGLE TRANSACTION IS NOT TREATED AS BUSI NESS THE EXPRESSION BUSINESS IN ORDINARY PARLANCE MEANS ANY TRADING ACTIVITY AC COMPANIES BY REGULARITY OF TRANSACTION INTENDED FOR THE PURPOSE OF MAKING PROF IT. IN GENERAL A SINGLE TRANSACTION IS NOT TAKEN AS BUSINESS. (C) IT WAS HELD IN CIT V. DISTRIBUTORS (BARODA) (P) LTD . (1972) 83 ITR 377 (SC)/ NARAIN SWADESHI WVG. MILLS V. CEPT (1954) 26 ITR 76 5 (SC) /CIT V. ADMIRALTY FLATS MOTEL (1982) 133 ITR 95 (MAD.) THAT ACTIVITY MUST BE REAL SUBSTANTIAL SYSTEMATIC AND ORGANISED THE EXPRESSION BUSINESS IS A WELL KNOWN EXPRESSION IN THE INCOME TAX LAW. IT MEANS SOME REAL SUBSTANTI AL AND SYSTEMATIC OR ORGANISED COURSE OF ACTIVITY OR CONDUCT WITH A SET PURPOSE. (D) IT WAS HELD IN JANKI RAM BHADUR RAM V. CIT (1965) 5 7 ITR 21 (SC) THAT A TRANSACTION OF PURCHASE OF LAND CANNOT BE ASSUMED W ITHOUT MORE TO BE A VENTURE IN THE NATURE OF TRADE. FOR INSTANCE A DIRE CTOR OF A COMPANY CARRYING ON THE BUSINESS OF WAREHOUSEMEN PURCHASING A NUMBER OF HOUSES WITH A VIEW TO RESALE AND SELLING THEM AT A PROFIT SOME YEARS A FTER THE PURCHASE. THESE ARE CASES IN WHICH THE COMMODITY PURCHASED AND SOLD IS NOT ORDINARY COMMERCIAL AND THE MANNER OF DEALING WITH THE COMMODITY DOES N OT STAMP THE TRANSACTION AS TRADING VENTURE. 4.5 BEFORE THE LD.CIT(A) IT WAS SUBMITTED THAT THE AO INVOKED THE PROVISIONS OF SECTION 50C AND SUCH PROVISIONS CANNOT BE INVOKED I F THE INCOME IS BEING TAXED UNDER THE HEAD BUSINESS INCOME. IT WAS SUBMITTED THAT 4 PLOTS WHICH WERE SOLD THROUGH SALE 13 AGREEMENT WERE NOT REGISTERED AND THESE WERE AGRICU LTURAL PLOTS WITH DEFECTIVE TITLE. THESE PLOTS WERE NOT CAPABLE OF CONVERSION. THE OTHER 09 PLOTS WERE RESIDENTIAL ONE DULY CONVERTED BY UIT WITH IMPECCABLE TITLE. SECTION 50C IS NOT APPLICABLE IN CASE THE SALE IS THROUGH AGREEMENT. RELIANCE IS PLACED ON THE DECISI ON OF JODHPUR BENCH IN THE CASE OF NAVNEET THAKAR VS ITO 112 TTJ 76. BEFORE THE LD.CIT (A) THE ASSESSEE PUTFORTH FOLLOWING POINTS TO SHOW THAT 4 PLOTS WERE NOT COM PARABLE WITH THE REST 09 PLOTS. (I)THE PLOTS WERE NOT CONVERTED BY UIT BIKANER OW ING TO DEFICIENCY IN TITLE. (II) THE ASSESSEE DID PAY ANY CONVERSION CHARGES IN RELATION TO THESE FOUR PLOTS. (III)THE LEGAL DOCUMENT WHICH IS CALLED PATTA IN LO CAL PARLANCE COULD NOT BE OBTAINED FOR THESE FOUR PLOTS. (IV)THE PLOTS WERE OCCUPIED BY BAD ELEMENTS. (V)THE TITLE OVER PLOTS WERE SOLD ON AS AND WHERE BASIS. (VI)THE FOUR PLOTS WERE AGRICULTURAL PLOT WHERE AS OTHERS WERE RESIDENTIAL PLOTS. 4.6 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE THE LD.CIT(A) DELETED THE ADDITION OF RS. 22.74 134/- AND RESTORED THE INCOME FROM LONG TERM CAPITAL GAIN AMOUNTING TO RS. 9 16 891/- AFTER OBSERVING AS UNDE R:- FROM THE AFORESAID IT IS EVIDENT THE LEGAL TITLE OF ASSESSEE CO. WAS DEFICIENCY AND THE POSSESSION WAS IN JEOPARDY. IT W AS THE VIEW POINT OF THE AO THAT NOTHING WAS PLACED ON THE RECORD TO SUBSTAN TIATE THE FACT THAT BAD ELEMENTS HAD OCCUPIED THE LAND. IN THIS CONNECTION IT WAS STATED THAT THE AO HAS TRIED TO TURN BLIND EYE TOWARDS ALL THE CIRC UMSTANTIAL EVIDENCE. THE LAND PERTAINING TO THESE FOUR PLOTS REMAINED AGRICU LTURAL AS AGAINST RESIDENTIAL IN CASE OF OTHER PLOTS AND THE UIT HAD NOT DEPOSITED ANY 14 CONVERSION CHARGES. THE SALE BY THE ASSESSEE OF THE MERE DEFECTIVE TITLE OF PLOTS ON AS IS AND WHERE IS BASIS WAS REPORTED TO B E TESTIMONY TO STRESS SALE CONDITION THROUGH WHICH FOUR PLOTS WERE SOLD WERE NOT EVEN REGISTERED. THE ASSESSEE SOLD THE FOUR PLOTS THROUGH SALE AGREE MENT EXECUTED ON THE STAMP PAPERS. THE VALUATION WAS NOT DONE/ DE TERMINED OF THESE PLOTS BY ANY AUTHORITY. THE SALES CONSIDERATION FOR THESE FOUR PLOTS WERE RECEIVED THROUGH CHEQUE AND SALE AGREEMENT WAS DULY NOTARIZED. THE PRO. OF 50C IS NOT APPLICABLE BECAUSE NO VALUATION WAS D ONE BY STAMPING AUTHORITY AND PRECONDITION REMAINED UNFULFILLED. TH E CASE OF THE ASSESSEE IS FULLY AND SQUARELY COVERED BY THE RATIO OF DECIS ION PRONOUNCED IN THE CASE OF NAVNEET THAKHAR V. ITO 112 TTJ (JD.) 76 SEC ONDLY UNDOUBTEDLY THE LAND RELATING TO FOUR PLOTS WAS TOTALLY DIFFERE NT AND DISTINGUISHABLE FORM THAT OF OTHER NINE PLOTS. THE DETAILED POINTS OF DISTINCTION ARE CONTAINED IN THE PRECEDING PARA. THEREFORE NO GUIDA NCE OR INSPIRATION CAN BE TAKEN FROM THE SALES CONSIDERATION PERTAINING TO OTHER NINE PLOTS COMPARISON CAN ONLY BE DONE WITH EQUALS. THE SUBSTI TUTIONS OF INCOME FROM CAPITA GAIN BY THE INCOME FROM BUSINESS OR PRO FESSION IS BASED IN HYPOTHESIS AND IS ARBITRARY. IN VIEW OF THE FORGOIN G I HEREBY HOLD THAT INCOME FROM SALE OF PLOTS PART TAKES THE CHARACTER OF LONG TERM CAPITAL GAIN RATHER THAN INCOME FROM BUSINESS. FURTHER THE PROVI SION OF SEC. 50C HAS NO APPLICATION IN THE INSTANT CASE OF APPELLANT. THERE FORE I DELETE THE ENTIRE ADDITION OF RS.2274134 MADE BY THE AO AND RESTORE T HE INCOME FROM LONG TERM CAPITAL GAIN AMOUNTING TO RS. 916891 AS SHOWN BY THE ASSESSEE. IN RESULT THIS GROUND OF APPEAL STANDS ACCEPTED AND TH E APPELLANT SUCCEEDS ON THIS GROUND. 4.7 BEFORE US THE LD. DR STATED THAT ASSESSEE PURC HASED THE PIECE OF LAND. THEREAFTER THAT LAND WAS SUB-DIVIDED INTO PLOTS. THE ASSESSEE ALSO GOT CONVERTED THE LAND INTO RESIDENTIAL PLOTS. SUCH ACTIVITY IS IN THE NATURE O F ADVENTURE OF TRADE. IT WAS THEREFORE SUBMITTED THAT THE AO WAS JUSTIFIED IN TREATING THE INCOME AS BUSINESS INCOME. 4.8 BEFORE US THE LD. AR HAS FILED THE FOLLOWING SUBMISSIONS. 15 (A) AS REGARDS TREATING THE LONG TERM CAPITAL GAIN AS B USINESS INCOME. (I) THE MAIN OBJECT OF THE COMPANY IS TO MANUFACTURE AN D SALE OF BHUJIYA & SWEETS. THE COMPANY NEVER PURCHASED ANY L AND FOR THE PURPOSE OF BUSINESS RIGHT FROM ITS INCORPORATIO N. (II) THE LAND PURCHASED WAS AGRICULTURAL LAND AND WAS PU RCHASED WITH THE OBJECT TO CONVERT THE SAME TO INDUSTRIAL LAND A ND INSTALLED A FACTORY BUILDING. (III) THE LAND RIGHT FROM DAY OF PURCHASE WAS TREATED AS CAPITAL ASSET AND NOT AS A BUSINESS ASSET. THE DEPARTMENT IT SELF TREATED THE SAME AS CAPITAL ASSET IN PAST. (IV) DUE TO EXPANSION OF BIKANER CITY THE PERMISSION WAS NOT AVAILABLE FOR USE OF LAND AS AN INDUSTRIAL PLOT THE SAME WAS CONVERTED IN THE ABADI LAND AND SOLD THE SAME IN FO RM OF PLOTS TO GET BETTER APPRECIATION OF CAPITAL ASSET. (V) IN THE MEMORANDUM OF ASSOCIATION THE MAIN OBJECT IS TO MANUFACTURE AND SALE NAMKEEN BHUJIA & SWEETS. THE MEMORANDUM OF ASSOCIATION ALSO AUTHORIZE THE COMPAN Y TO DEAL IN VARIOUS OTHER LINE OF BUSINESS BUT IT DOES NOT M EAN THAT THE COMPANY DID ANY BUSINESS IN REAL ESTATE. THE PROFIT OF ASSESSEE COME OTHER THAN CAPITAL GAIN WAS RS. 1 60 28 248/- AS AGAINST CAPITAL GAIN OF RS. 9 16 891/-. (VI) THE SOLITARY SALES OF LAND PURCHASED A PART OF WHIC H WAS ALSO UNDER ADVERSE POSSESSION CAN NOT BRAND THE TRANSACT ION AS THAT OF 16 TRADING OF LAND. THIS VIEW IS SUPPORTED FROM THE DE CISION OF HONBLE ITAT MUMBAI BENCH IN THE CASE OF MOMAYA INV ESTMENT (P) LTD. V/S ITO REPORTED IN 63 DTR 192 (MUM). (VII) THE LD CIT (A) RIGHTLY HELD THAT IT WAS A CAPITAL G AIN AND NOT A BUSINESS INCOME AS THE BALANCE SHEET OF COMPANY ALW AYS DISCLOSED THE COST OF LAND IN THE FIXED ASSET AND T HIS POINT IS NOT DISPUTED BY AO AT ANY PLACE. B] AS REGARDS APPLICATION OF SEC 50C IN RESPECT OF PLO TS SOLD BY AGREEMENT TO SALE. (I) AT THE ONE BREATH THE AO TREAT THE TRANSACTION AS T HAT OF BUSINESS INCOME AND AT THE SAME TIME APPLYING THE PROVISIONS OF SECTION 50C. THE PROVISIONS OF SECTION 50C ARE MENT FOR COM PUTATION OF CAPITAL GAIN AND NOT FOR THE BUSINESS INCOME. (II) FURTHER THE LD CIT (A) WHO IS DUTY BOUND TO FOLLOW THE DECISION OF JURISDICTIONAL TRIBUNAL HAS RIGHTLY FOLLOWED THE SAME. THE HONBLE ITAT JODHPUR BENCH IN THE CASE OF SHRI NAV NEET THAKKAR V/S ITO REPORTED IN 112 TTJ (JD) 76 HAS LAI D DOWN THAT THE PROVISIONS OF SECTION 50C ARE NOT APPLIED UNLES S THE SALE DEED IS REGISTERED. SIMILAR VIEW WAS ALSO TAKEN BY HONB LE ITAT JAIPUR BENCH IN THE CASE OF VIJAY LAXMI DHADDA VS I TO 20 DTR 365 AND ITAT LUCKNOW BENCH IN THE CASE OF CARLTON H OTEL (P) LTD. VS ACIT 22 TTJ 515 IN LIGHT OF ABOVE THE ACTION OF CIT (A) IS PERFECTL Y IN LIGHT OF THE ORDER PASSED BY HONBLE TRIBUNAL AND AS SUCH TH E SAME MAY KINDLY MAINTAINED. 17 C] AS REGARDS APPLICATION OF SECTION 50C (I) THE PROVISIONS OF SECTION 50C ARE APPLICABLE IN RES PECT OF COMPUTATION OF CAPITAL GAIN. SINCE THE AO TREATED T HE INCOME FROM LONG TERM CAPITAL GAIN AS BUSINESS INCOME AND AS SUCH THE PROVISIONS OF SECTION 50C HAS NO APPLICATION. (II) FURTHER THE PLOTS SOLD BY AGREEMENT TO SALE WERE NO T CONVERTED IN THE ABADI LAND AND WAS SOLD AS SUCH TO THE PERSONS IN POSSESSION OF LAND EVEN PRIOR TO DATE OF PURCHASE OF LAND BY T HE COMPANY. THUS THE VALUE OF SUCH LAND CANNOT BE COMPARED WITH THE LAND WHICH WAS CONVERTED IN TO ABADI AND WAS CAPABLE TO DELIVER WITH THE POSSESSION. (III) RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: - (1) CIT V/S EMERALD 212 CTR 20 (RAJ) (2) CIT V/S DAYA CHAND JAIN 98 ITR 280 (ALL) IN LIGHT OF ABOVE THE LD CIT (A) HAS RIGHTLY HELD T HAT INCOME IS TAXABLE UNDER THE HEAD CAPITAL GAIN AND THE PROV ISIONS OF SECTION 50C CANNOT BE INVOKED. 4.9 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE PU RCHASED THE AGRICULTURAL LAND IN THE FINANCIAL YEAR 1995-96. THIS WAS BEING SHOWN AS FIXED ASSETS IN THE BALANCE SHEET OF THE COMPANY. SOME AGRICULTURAL LAND WAS ALSO PURCHA SED IN THE FINANCIAL YEAR 1997-98. THE ASSESSEE HAS CONTENDED THAT THE AGRICULTURAL LA ND WAS PURCHASED FOR INSTALLATION OF FACTORY BUILDING. ONE HAS TO UNDERSTAND THE INTENTI ON OF PURCHASE OF AN ASSET. IF THE INTENTION OF THE ASSESSEE IS TO RETAIN THE ASSET AS CAPITAL ASSET THEN THE PROFIT ARISING FROM 18 SALE OF SUCH ASSET IS CAPITAL GAIN. IF THE ASSET IS TREATED AS STOCK IN TRADE THEN THE PROFIT ARISING FROM SALE OF SUCH ASSET IS BUSINESS INCOME. IT HAS BEEN CONTENDED BEFORE THE AO THE AO THAT DUE TO URBANIZATION OF AREA IT WAS NOT POSSIBLE TO INSTALL THE FACTORY OF BHUJIA NAMKEEN AND SWEETS ETC. AFTER KEEPING THE L AND FOR SUFFICIENT LONG PERIOD AND NOTICING THAT FACTORY BUILDING CANNOT BE SITUATED I N THIS LAND THE ASSESSEE THOUGHT IT TO SELL THE LAND. THE SALE OF SUCH LAND CANNOT BE CONSIDERE D AS BUSINESS INCOME. THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS S. RAJ AMANNAR 329 ITR 626 HAD AN OCCASION TO CONSIDER THE SIMILAR ISSUE. THE ASSESSE E DEVELOPED THE LAND AND GOT A PORTION OF IT AS CONSIDERATION. THE ASSESSEE WAS NOT ENGAGE D IN THE DEVELOPMENT OF REAL ESTATE. THE GAIN ON SALE OF LAND IS CAPITAL GAIN. THE HON'B LE MADRAS HIGH COURT IN THE CASE OF CIT VS S PALANICHAMY 2011-TIOL-576-HC-MAD-IT HELD THAT SINGLE TRANSACTION OF THE PROPERTY TO WRIGGLE OUT OF THE FINANCIAL HARDSHIP W ILL NOT MAKE THE ACTIVITY AN ADVENTURE IN THE NATURE OF TRADE. IN THE INSTANT CASE THE AS SESSEE COMPANY IS HAVING TURNOVER OF MORE THAN CRORES IN THE BUSINESS OF BHUJIA NAMKIN W AS NOT INDULGING IN THE BUSINESS OF REAL ESTATE. THE JURISDCTIONAL HIGH COURT IN THE CA SE OF CIT VS SOHAN KHAN 304 ITR 194 HAD AN OCCASION TO CONSIDER AS TO WHETHER THE DISPO SAL OF LARGE EXTENT OF LAND UNDER SITE PLAN WILL RESULT INTO AN ADVENTURE IN THE NATURE OF TRADE OR PROFIT IS TO BE TAXED UNDER THE HEAD CAPITAL GAIN. IN THE CASE BEFORE THE JURISDICT IONAL HIGH COURT THE ASSESSEE WAS NOT REGULAR DEALER IN THE REAL ESTATE. THE LAND WAS PUR CHASED IN 1970 AND THE SAME WAS UNDER THE CLOUD OF LAND CEILING LAWS. WHEN THE CLOUD WAS CLEARED AND OTHER ADJOINING LANDS HAD BEEN DEVELOPED THE ASSESSEE DECIDED TO SELL THE LA ND IN PIECEMEAL AFTER EARMARKING PLOTS BUT THEN NONETHELESS IT WOULD REMAIN A DISPOSAL OF THE CAPITAL ASSET ONLY AND NOT A TRANSACTION OF ANY STOCK IN TRADE SO AS TO BE SUBS CRIBED AS ADVENTURE IN THE NATURE OF 19 TRADE. IF THE TESTS AS APPLIED BY JURISDCTIONAL HIG H COURT IN THE CASE CIT VS SOHAN KHAN (SUPRA) ARE APPLIED IN THE INSTANCE CASE THEN TRANS ACTIONS IN RESPECT OF SALE OF LAND IS TO BE CONSIDERED AS TRANSACTION OF SALE OF CAPITAL ASSET. THE WORD ASESSABLE HAS BEEN INCLUDED IN SECTION 50C W.E.F. 1-10-2009. HENCE BEFORE THA T DATE THE SAME MADE THROUGH AGREEMENT OF SALE ARE NOT COVERED U/S 50C OF THE AC T. ON THIS ISSUE BOTH THE JODHPUR AND JAIPUR BENCH HELD THAT SECTION 50C ARE NOT APPLICAB LE IN CASE THE SALES ARE MADE THROUGH AGREEMENT. WE THEREFORE HOLD THAT THE LD.CIT(A) WA S JUSTIFIED IN DIRECTING THE AO TO TREAT THE PROFIT FROM SALE OF PLOTS AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. 5 .0 IN THE RESULT THE APPEAL OF THE REVENUE IS DI SMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 16- 12-2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JODHPUR DATED: 16 /12/2012 MISHRA COPY TO: 1. THE ACIT CIRCLE- 1 BIKANER 2. M/S. SHIV DEEP INDUSTRIES LTD. 3.THE LD. CIT (A) BY ORDER 4.THE CIT 5.THE D/R 6.THE GUARD FILE (ITA NO.485//JU/08) A.R.. ITAT: JODHPUR 20