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ORDER
14. The appellant craves leave of this Hon'ble Tribunal, to add, alter,
delete, amend, or substitute any or all of the above grounds of appeal as
may be necessary at the time of hearing.
15. For these and other grounds that may be urged at the time of
hearing of appeal, the appellant prays that the appeal may be allowed for
the advancement of substantial cause of justice and equity.”
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2.4 In response to said notice, the appellant vide its letter dated
27-9-2016 submitted copies of ITR, Statement of Total Income,
audited Financial Statements, etc. to the learned Assessing Officer.
2.7 When the learned AO, after finding that the appellant has not
done any business activity and nor earned any income from business
during the A.Y.2015-16, the AO had sought the approval of the then
Principal Commissioner of Income-tax-1, Bengaluru (PCIT-1) to
convert the limited scrutiny into complete scrutiny for disallowing the
general & establishment expenses claimed as deduction by the
appellant in the Return.
2.10 From the above facts, it is obvious that the Return of Incomes,
audited Financial Statements, Joint Development Agreement and
other relevant records of the appellant have been verified & scrutinized
at following three levels before the assessment order is passed by
learned A.O. –
i) first by the prescribed authority u/s.133C of the Act,
ii) secondly by learned Assessing Officer (AO) during scrutiny
proceedings u/s.143(3) of the Act, and
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2.13 According to Ld. A.R., the learned AO being conscious and well
aware of the nature of business of the appellant has stated in the
assessment order dated 18.12.2017 (at Sr. No.10 of page-1) as
“Income from capital gains” The learned A.O. having gone through
the records and satisfied that income from Capital gains returned by
the appellant was accepted without any additions or deletions under
the jurisdictions and guidance of the higher authorities.
ii) In para 4.5 “4.5 After going through the submissions, the
assessee has placed reliance on Madras High Court case CIT vs
Electron India (241 ITR 166). In the referred case, the assessee is
a manufacturing concern engaged in the manufacturing of
cadmium sulphide sale. However, there were no sales during the
year. However, in the present case, the assessee firm is engaged
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v) “6. Conclusion
6.1. Under the provisions of section 37(1) any expenditure laid out
or expended wholly and exclusively for the purpose of business or
profession shall be allowed in computing the income chargeable
under the head “Profits and Gains of Business or Profession.” As
there is no corresponding business income during the
relevant financial year 2014-15, the business expenses
claimed by the assessee in his return filed for A.Y.2015-16
is not allowable as per provisions of section 37(1) of the
Income-taxAct,1961.”
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2.15 According to Ld. A.R., the observations and findings given in the
assessment order cogently establishes the fact that the learned AO
has conducted a detailed inquiry on the nature of business activities
undertaken by the appellant during AY 2015-16 and applied her mind
in reaching a conclusion that the appellant has not done any business
activity & not derived any income from business. The learned AO on
perusal all the records and being satisfied with the submissions of the
appellant, has accepted long-term capital gains & interest income
declared by the appellant in the Return & disallowed the general &
establishment expenses claimed by the appellant.
2.16 The appellant wish to submit that the present learned Pr.CIT-1
cannot review the same records for A.Y. 2015-16, once already
examined by his learned predecessor of same rank on merits while
granting approval for converting limited into complete scrutiny. The
then learned Pr.CIT-1 had concurred with findings of the AO that the
appellant had not carried out any business activity and had not
earned any income from business during AY 2015-16. In the
Instructions No.20/2015 dated 29-12-2015 issued by CBDT in para-3
it is mentioned that -
2.17 From the above CBDT Instructions, it can be inferred that before
granting the approval for converting limited into complete scrutiny,
the then Pr.CIT-1, Bengaluru has applied his mind and satisfied on
merits of the issue (i.e the appellant has neither carried out any
business activity and nor earned any income from business) after
going through entire records of the appellant for A.Y.2015-16.
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2.18 The appellant places reliance on the decision of the Hon’ble High
Court of Karnataka in the case of CIT vs Smt. Annapoornamma
Chandrashekar reported in (2012) 204 Taxman 158.
2.19 According to Ld. A.R, it was only change of opinion, the Ld. PCIT
invoked the provisions of section 263 of the Act and he cannot take a
different view from that of his predecessor of same rank and conclude
that the appellant has done business activity by signing JDA dated
28-3-2011 with a Developer and proposing to receive sale proceed on
year-to-year basis, make the activity of the appellant as an adventure
in the nature of trade.
2.21 The learned Pr. CIT did not demonstrate how the Assessing
Officer, without making inquiries and verification, who is in the
custody and possession of all the records including that of JDA,
Statement of Accounts, Books of Accounts, Financial Statements,
other documents including submissions made in the course of
scrutiny proceedings, has accepted & taxed the income from JDA as
LTCG. It is not in dispute that such records are in possession at the
time of examination by the then learned Pr. CIT as well as the
Assessing Officer, besides the investigating officers. It is submitted
that the documents and records in the custody of the Revenue are
consequent to inquiry by the Revenue and hence, the present learned
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Pr. CIT erred in concluding that the learned AO has passed the
assessment order without making enquiries or verification.
2.22 It is submitted that the learned Pr. CIT did not pass speaking
order after considering all the submissions made by the appellant
giving due weightage to the facts, circumstances of the case. In the
revision order, the learned Pr. CIT has failed to consider the entire
objections given by the appellant in its reply dated 10-03-2020 against
treating the income received by the appellant from JDA (as per its
terms) on account of sale of Undivided share of Land, under heading
“Income from Business & Profession” instead of LTCG. The learned Pr.
CIT did not even consider the various decisions of Hon’ble Supreme
Court, jurisdictional High Court of Karnataka and other High Courts
and Hon’ble Tribunal, Bengaluru and other ITATs relied upon by the
appellant in its reply dated 10-03-2020 in support of the merits of its
case and lack of jurisdiction for invoking revision proceedings under
section 263 of the Act. Thus, the learned Pr. CIT has passed the
revision order dated 18-3-2020 u/s.263 of the Act summarily without
application of mind.
“It has to be kept in mind that while the Commissioner is exercising his
revisional jurisdiction over the assessment order, he has to exercise his
power in an objective manner and not arbitrarily or subjectively since he
is discharging quasi judicial powers vested in him while doing so. Thus
according to us, Explanation (2) inserted by the Parliament u/s.263
cannot override the main section i.e. section 263(1) of the Act. The
learned CIT can exercise his revisional jurisdiction in the event the
assessment order is erroneous as well as prejudicial to the interest of the
Revenue as discussed above & not otherwise.”
ii) The Ld. A.R. also relied on the order of Tribunal, Ahmedabad
in case of Torrent Pharmaceuticals Ltd. Vs DCIT in ITA
No.164/Ahd/2018 for A.Y.2014-2015 decided on 8-8- 2018.
2.24 Thus, he submitted that the findings of learned Pr. CIT that the
A.O. has not done proper inquiry and hence assessment order is
erroneous pursuant to sub-clause (a) to Explanation-2 to Section
263(1) of the Act is based on unfounded grounds and untenable. The
learned Pr. CIT having failed to establish that the order of the A.O. is
erroneous, the revision order dated 18-3-2020 u/s.263 of the Act is
not valid in law.
2.25 The Ld. A.R. submitted that the observations and findings given
by the learned Pr.CIT-1 in the revision order amounts to change of
opinion which is outside the ambit of an erroneous order. It is
submitted that change of opinion to tax is much larger and broader in
nature than the scope of erroneous order which is limited in its scope.
For change of opinion, there are more than two opinions or treatment
and interpretations possible, but in the case of erroneous order, there
is no scope for discretion and interpretation. In the appellant case, on
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2.26 According to Ld. A.R,, the reliance placed by Ld. PCIT on the
judgement in the case of M/s Daniel Merchants Pvt. Ltd. vs ITO
dated 29-11-2017 is not applicable to facts of the case. This
judgement relates to a case wherein order passed u/s 263 of the Act
was confirmed by Hon’ble Kolkata High Court against which SLP was
filed and dismissed by Hon’ble Supreme Court. In that case Hon’ble
High Court confirmed the revision order of learned Pr. CIT for
conducting of detailed verification on raising of bogus share capital by
the Companies through the device of money laundering and hence it is
not applicable on the facts and circumstances of the present case and
the same is distinguishable on facts.
(i) CIT v. Razia Sulaiman, ITA No. 412 of 2007 dated 19.09.2011
(Karn. HC)
(iii) CIT v. M/s. Bagmane Developers, Bangalore, ITA No. 157 of 2011
dated 03.11.2016 (Karn HC)
(v) CIT v. M/s. Rungta Properties Pvt. Ltd. (2018) 403 ITR 234
(Calcutta)
(vii) CIT vs MLM Mahalingam Chettiar (1977) 107 ITR 236 (Mad)
(viii) CIT vs Suresh Chand Goyal (2008) 298 ITR 277 (MP)
2.28 The Ld. A.R. submitted that it is a well settled principle of law
that in order to invoke the provisions of section 263 of the I.T. Act,
1961, the learned Pr. CIT shall ascertain from the records that twin
conditions embedded in said provision i.e, the assessment order of the
learned AO is erroneous and it is prejudicial to the interest of the
revenue are to be satisfied cumulatively. In the appellant’s case, the
learned AO has passed the assessment order after making adequate
inquiry and after having examined the replies of the appellant with
due application of mind and hence it is not the case where no inquiry
was made. Therefore, appellant’s case cannot be treated as a case of
“no inquiry”. From the facts of the appellant’s case as explained
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herein above, the first conditions regarding the term “erroneous” has
not been satisfied. The findings given by the learned Pr. CIT in the
revision order tantamount to change of opinion which is outside the
ambit of erroneous order. An assessment order should not be subject
to revision u/s.263 of the Act merely because another view is possible
on the issue decided by the AO.
From close scrutiny of section 263, it is evident that twin conditions are
required to be satisfied for exercise of revisional jurisdiction u/s 263 of
the Act, firstly, the order of the Assessing Officer is erroneous and
secondly, that it is prejudicial to the interest of the Revenue on account
of error in the order of assessment.
• The Hon’ble High Court cited the principles laid down by the
Hon’ble Supreme Court in the case of Malabar Industrial Company vs
CIT 243 ITR 83 on satisfaction of twin conditions and difference of
views between the Assessing Officer and CIT, when two views are
possible, cannot be treated as erroneous order prejudicial to the interest
of the revenue. The Hon’ble High Court also referred to the decisions of
Hon’ble Supreme Court in “CIT VS Max India Ltd.” 295 ITR 282(SC) and
recently in “Ultratech Cement Ltd and Others vs State of Rajasthan &
Others (Civil Appeal No.2773/2020 decided on 17.7.2020 – on exercise
of revision of previous order under an Act enacted by State of
Rajasthan) wherein the Hon’ble Supreme Court has reiterated the above
well settled legal principles laid down in case of Malabar Industrial
Company Ltd.
• The Hon’ble High Court held that when the Assessing Officer has
taken one of the plausible views in allowing the claim of the assessee,
the CIT could not have set aside the order of assessment merely on the
ground of inadequacy of enquiry. In view of well settled legal position,
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2.32 The Ld. A.R. relied on the following case laws for the proposition
that for invoking revisionary powers u/s 263(1) of the Act, the twin
conditions regarding “erroneous and prejudicial to the interest of the
revenue” are to be satisfied:-
(i) PCIT vs Bangia Gramin Vikash Bank – Calcutta HC – IA
No.GA/1 & 2/2018 – Date of order – 23.11.2021
(ii) CIT vs Gabriel India Ltd – 1993 203 ITR 108 Bom
(iv) Spectra Shares & Scripts Pvt. Ltd 354 ITR 35 (Andhra
Pradesh)(2013)
(v) CIT vs Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi)
2.33 The appellant apprehends that the learned PCIT has invoked the
revision proceedings u/s.263 of the Act based on the audit objections
and not on suo-moto discretion. The respondent is put to strict proof
that the proceedings are not initiated on the basis of audit objection.
The appellant submits that the audit objection cannot be a basis of
revision of assessment orders. To support our view, the appellant
relies upon the following judicial pronouncements:-
(ii) Hon’ble High Court of Punjab and Haryana in the case of CIT v.
Sohana Woollen Mills [2018] 296 ITR 238 (Punjab HC), wherein the
Hon'ble High Court has held that –
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“Mere audit objection and merely because a different view could be taken, are not
enough to say that the order of the Assessing Officer was erroneous or prejudicial to
the interest of the revenue. The jurisdiction could be exercised if the Commissioner is
satisfied that the basis for exercise of jurisdiction existed.”
D.R’s submissions:-
3. The Ld. D.R. submitted that there was no enquiry from the end
of the AO with regard to head of income whether the income could be
treated under the head “capital gain” or under the head “business
income” while passing the assessment order. According to the Ld.
A.R., the AO required to conduct proper enquiry to come to the correct
conclusion whether income offered by assessee is to be taxed under
the head “business or income from capital gains”. According to the
Ld. A.R. there is no application of mind by AO and thereby incorrect
assessment was made, which was erroneous in so far as it is
prejudicial to the interest of the revenue, which was clearly mentioned
by the Ld. CIT in his order. Further, it was submitted that AO has not
examined the activity of the assessee in right perspective that
development agreement entered into with the builder and to receive
sale proceeds on year to year basis, make the activity as an adventure
in the nature of trade. The A.O. in the assessment order has taxed the
receipts as long-term capital gain, which make it as erroneous and
prejudicial to the interest of revenue within the meaning of
explanation 2 of section 263 of the Act. Hence, the notice u/s 263 of
the Act issued so as to revise the assessment order passed u/s 143(3)
of the Act dated 18.12.2017 in the assessment year 2015-16 and on
the same basis assessment order for the assessment year 2016-17
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4.2 Section 263 of the Income-tax Act seeks to remove the prejudice
caused to the revenue by the erroneous order passed by the Assessing
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legitimately due from him, and on the other hand, he has a duty to
protect the interests of the revenue and to see that no one dodged the
revenue and escaped without paying the legitimate tax. The Assessing
Officer is not expected to put blinkers on his eyes and mechanically
accept what the assessee claims before him. It is his duty to ascertain
the truth of the facts stated and the genuineness of the claims made in
the return when the circumstances of the case are such as to provoke
inquiry.
opinion, therefore, the requirement that reasons be recorded should govern the
decisions of an administrative authority exercising quasi-judicial functions
irrespective of the fact may, however, be added that it is not required that the reasons
should be as elaborate as in the decision of a court of law. The extent and nature o f
the reasons would depend on particular facts and circumstances. What is necessary is
that the reasons are clear and explicit so as to indicate that the authority has given
due consideration to the points in controversy. The need for recording of reasons is
greater in a case where the order is passed at the original stage. The appellate or
revisional authority, if it affirms such an order, need not give separate reasons if the
appellate or revisional authority agrees with the reasons contained in the order under
challenge. ”
4.5 Similar view was earlier taken by the Hon'ble Supreme Court in
Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled
law that while making assessment on assessee, the ITO acts in a quasi-judicial
capacity. An assessment order is amenable to appeal by the assessee and to
revision by the Commissioner under Sections 263 and 264. Therefore, a
reasoned order on a substantial issue is legally necessary. The judgments on
which reliance was placed by the learned Counsel for the assessee also points to
the same direction. They have held that orders, which are subversive of the
administration of revenue, must be regarded as erroneous and prejudicial to the
interests of the revenue. If the Assessing Officers are allowed to make
assessments in an arbitrary manner, as has been done in the case
before us, the administration of revenue is bound to suffer. If without
discussing the nature of the transaction and materials on record, the
Assessing Officer had made certain addition to the income of the
assessee, the same would have been considered erroneous by any
appellate authority as being violative of the principles of natural
justice which require that the authority must indicate the reasons for
an adverse order. We find no reason why the same view should not
be taken when an order is against the interests of the revenue. As a
matter of fact such orders are prejudicial to the interests of both the
parties, because even the assessee is deprived of the benefit of a
positive finding in his favour, though he may have sufficiently
established his case.
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(iii) The order passed by the Assessing Officer is a stereotype order which
simply accepts what the assessee has stated in his return or where he fails
make the requisite enquiries or examine the genuineness of the claim which is
called for in the circumstances of the case.
4.7 Coming to the facts of the present case, the assessment order for the
assessment year 2016-17 has been completed u/s 143(3) of the Act. Before that
AO issued notice u/s 133C of the Act on 11.2.2016 calling for information under
these provisions. Further, the assessee filed a reply to this notice u/s 133C of the
Act on 17.12.2016. At the time of assessment, A.O. issued a notice u/s 143(2) of
the Act on 19.9.2016.
4.8 The assessee furnished reply to the notice u/s 143(2) of the Act on
27.9.2016. The A.O. also called for information u/s 142(1) of the Act on
4.8.2017. The assessee furnished the information on 22.8.2017 in response to
notice u/s 143(2) of the Act dated 19.9.2016 and also replied to notice u/s 142(2)
of the Act issued on 4.8.2017 by AO. On 10.11.2017, the AO further called for
information for the assessment year 2015-16. The assessee furnished
information to this notice to AO on 15.11.2017. Finally, the assessing officer
passed the assessment order on 18.12.2017 for the assessment year 2015-16.
The assessee was selected for limited scrutiny for considering following issues:-
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4.9 Later the scrutiny was converted into complete scrutiny and after
converting into complete scrutiny, the AO observed that assessee claimed
business expenditure to the extent of Rs.51,74,991/-. However, there was no
corresponding business income offered by assessee in the relevant assessment
year, the business expenses claimed by assessee in his return filed for
assessment year 2015-16 is not allowable as per the provisions of section 37(1) of
the Act. Accordingly, he disallowed a sum of Rs.51,74,991/-.
4.10 Under the provisions of section 263 of the Act, the Ld. PCIT/CIT may call
for and examine the record of any proceeding, if he considers that any order
passed therein by the AO is erroneous and prejudicial to the interest of revenue.
The Ld. PCIT/CIT may after giving the opportunity to the assessee of being heard
and after making necessary enquiry as he deems necessary to pass such order
thereon as the circumstances of the case justified including order enhancing or
modifying the assessment, or cancelling the assessment and directing the fresh
assessment. As per section 263 of the Act, Ld. PCIT/CIT can exercise such
powers when the following factors exceed:-
1. There should be a proceeding under the Act;
2. No such proceedings; the AO must have the order;
3. Ld. PCIT/CIT should consider that order or order so passed is erroneous;
4. Ld. PCIT/CIT should consider the order so passed is prejudicial to the interest
of revenue.
4.11 As held in the case of Gabril India Ltd. (203 ITR 108) (Bom), that Suo moto
revision can be exercised by Ld. PCIT/CIT only on examination of records under
this Act if he considers that no order passed therein by the AO is erroneous in so
far as it is prejudicial to the interest of revenue. It is not an arbitrary error. It can
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be exercised that only on fulfilling of requirements laid down u/s 263(1) of the
Act. The consideration of the Ld. P/CIT as to whether the order is erroneous in so
far as it is prejudicial to the interest of revenue musts be based on material record
proceedings called for. If there are no material on record on the basis of which it
can be said that the Ld. P/CIT acting in the reasonable manner could have given
to such conclusion, the very initiation of proceedings by him will be illegal and
without jurisdiction. The Ld. P/CIT cannot initiate proceedings with the view to
starting fishing and rooving enquiries, in matters or orders, which are already
concluded. Such action will be against the well accepted policy of law that there
must be a kind of finality in all legal proceedings, without stale issues should not
be reactivated with a particular state and that lapse of time must induce repose
in and set at rest judicial and quasi-judicial controversies as it must in other
spheres of human activity. The first requirement to exercise the power suo-moto
is that the order is erroneous, secondly it should be prejudicial to the interest of
revenue. If the order is erroneous but not prejudicial, Ld. CIT cannot exercise the
power u/s 263 of the Act. Every erroneous order cannot be subject matter of
revision because second requirement must also be fulfilled. There must be prima
facie of material on record to show that tax which was lawfully leviable was not
imposed or by application of relevant statute on an incorrect interpretation a
lesser tax than was just has been imposed. Thus, u/s 263 of the Act, the
revisionary power can be exercised only if the order of AO is erroneous and
prejudicial to the interest of the revenue. In the absence of any one of the said
conditions, the revisionary power cannot be exercised by Ld. P/CIT. Further,
Hon’ble Supreme Court in the case of Malabar Industrial Company Ltd. Vs. CIT
has held as under:-
4.14 Further, in the case of CIT Vs. Anil Kumar Sharma (335 ITR 83),
wherein held as under:
Held, dismissing the appeal, that the present case would not be one of
“lack of inquiry” even if the inquiry was termed inadequate. The Tribunal
found that complete details were filed before the Assessing Officer and
that he applied his mind to the relevant material and facts, although such
application of mind was not discernible from the assessment order. The
Tribunal held that the Commissioner in proceedings under section 263
also had all these details and material available before him, but had not
been able to point out defects conclusively in the material, for arriving at
a conclusion that particular income had escaped assessment on account of
non-application of mind by the Assessing Officer. The Tribunal was right
and the order of revision was not valid.”
4.15 In the case of CIT Vs. Sunbeam, Auto Ltd. 332 ITR 167, wherein
held as under:
4.16 In the case of CIT Vs. Saravana Developers (2016) 387 ITR 239
(Karn) wherein held that:-
“Held , that the Commissioner had proceeded to initiate proceedings under
section 263 of the Act only on the ground that the Assessing Officer had not
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4.17 In the case of Spectra Shares and Scripts Pvt. Ltd. Vs. CIT
(2013) 354 ITR 35 (AP) wherein held that:-
“That the Assessing officer passed the assessment order accepting the case of the
assessee that its income had to be taxed under the head “Capital gains” as he
was satisfied with the explanation and data submitted by the assessee that it is an
investment company on business in shares and such investment was made for the
sole purpose of deriving dividend income. The Assessing Officer while making an
assessment had examined the accounts, made enquiries, applied his mind to the
facts and circumstances of the case and determined the income of the assessee.
Thus, it was not open to the CIT, on the ground that a different view is possible, to
revise the assessment on the ground that the A.O. did not make an elaborate
discussion in that regard.”
5.1 The Ld. A.R. submitted that it is not at all engaged in the
business of real estate development by itself and not involved in real
estate business activities. The appellant is an investment Firm
engaged in making investment in properties and shares of the
Companies in the Group and holding the said investments on long-
term basis to derive capital appreciation. The appellant was not
holding any Land/ property except Binny pet Land contributed under
JDA. Till date, the appellant has neither carried out any business
activities including any real estate business, nor earned any income
from business. The appellant has derived income from capital gains
under JDA dated 28-3-2011, Capital gain from sale of shares of a
group company and interest income from Deposits with Banks.
Therefore, the learned Pr. CIT’s observation that income of
Rs.47,42,88,744/- (received from sale of Undivided Share of Land
pursuant to terms of JDA dated 28-3-2021) taxed as long-term capital
gains by the learned AO instead of “income from business” is incorrect
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and untenable and the land is always held as a capital asset right
from inception.
5.2 The appellant had received the Land at Binny pet (not
purchased) from a Partner as capital contribution on capital account
and in accordance with the provisions of section 45(3) of the Act the
said Land was accounted as Capital Asset at its book value in its
Books of Accounts. Every year, in its Balance-sheet, the said Land is
shown as Fixed Asset/Capital Work-in-Progress., Initially, the
appellant had the plan to set up of an IT-SEZ Park on the said Land
but due to financial & other constraints, the appellant had to abandon
the said proposal. This is another reason that appellant has accounted
the said Land as Capital Asset in its Books of Accounts. He placed
reliance on the decision of the Hon’ble Karnataka High Court in the
case of CIT vs M/s. Bagmane Developers, Bangalore (ITA No.157/2011
–c/w ITA No.145/2011, ITA No.146/2011, ITA No.183/2014, ITA
No.349/2014 & ITA No.350/2014 – Date of judgment – 3.11.2016), a
Software Park project shall be treated as an investment and not as
stock-in-trade.
5.3 The Ld. A.R. submitted that the assessee has not done any
improvements or any development by itself on the Binny pet Land
given under JDA. The appellant held the said Land as capital asset
with an intent to derive capitation accretion and later derived income
from sale of Undivided Share of Land by entering into a Joint
Development Agreement dated 28-3-2011 with a Developer. The
Developer is executing the whole project on the said Land in a phased
manner during 8 years from its commencement. Hence, the income
received by way of such activity is capital gains and cannot be termed
as income from business.
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5.4 The assessee, being a Landowner has just contributed the said
Land for development by the Developer and has neither
involved/interfered in the project activities in any manner nor has a
right to do so. The Developer has to do the entire development and
construction of the project at their own cost and resources. All the
activities relating to the project, such as obtaining Plan sanctions
and other approvals from various Government Authorities, planning
& execution of development & construction of the project, formulating
marketing strategies, pricing & sales promotional activities, selling of
flats to prospective buyers, collecting receivables from flat buyers as
per payment schedules, arranging of funds & other resources for
development and construction of project, etc are done by the
Developer alone. Except the right to receive agreed revenue share
through designated Escrow Bank Accounts towards consideration for
Land contribution, the assessee has no role, right, responsibility,
accountability, liability in the said Project.
i) Towards Land contribution in the JDA, the assessee Firm and Landowner No.2 are
entitled to receive the revenue share as & when the Developer realizes sale proceeds
from the Flat Buyers in the project and deposits the collections in the designated
Escrow Bank Accounts. The appellant is not entitled to any flats/ area share from the
said development.
ii) Irrespective of successful completion of the project or sale of agreed saleable area
by the Developer during a period of 8 years from the commencement of the project,
the JDA cast an obligation upon the Developer for achievement of minimum
consideration to the Landowners at the end of 8th year. This minimum consideration
is equivalent to 31% of total saleable area available in the project multiplied by
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minimum average selling rate at Rs.4,800/- per sq.ft. Based on this minimum
consideration, a schedule exhibiting year-wise projected entitlement to the
Landowners are given in Annexure-IV to the JDA.
iii) Clause-4.1 of the JDA casts upon the obligations of the Developer with regard to
development and construction of the Project in detail. As per clause 4.1.d, “the
Developer shall ensure that the Project yields revenues to the Landowner as set out in
clause 7 below.” In terms of clause 4.1.v, “ Developer shall be liable and responsible
to all the third party purchaser during the defect liability period provided in the third
party purchaser agreements.” As per clause 4.1.x, “the Developer shall indemnify
and keep indemnified the Landowners and save harmless the Landowners, from and
against any and all actions, suits, claims, proceedings, costs, damages, judgments,
amount paid in settlement and expenses relating to or arising out of - i) any of the
representations made and assurances given by the Developer being found to be not
correct or untrue or false or misleading; ii) any breach by or of the Developer of the
terms and conditions herein; iii) any act, omission or conduct of or by the Developer
or their employees or agents ………………………………………… and iv)
contravention of any Law and/or Rules and/or Regulations and/or conditions
…………………………………..”
iv) In clause 7.5 of the JDA, “the Developer gives assurances as to the realization of
projected revenues & acknowledges as one of the factors which constitute
consideration for the Landowners to enter into JDA.”
v) As per clause 7.6 of JDA, the Landowners have right to review the total of the Net
Revenue realized at the end of 3rd Contract Year, 5th Contract Year and 7th Contract
Year. In the event of the Revenue realized being less than the Projected Revenue for
those years, by a margin of greater than 15% (Projected Revenue Shortfall), the
Developer till realization of the Projected Revenue shortfall shall pay an additional
compensation on such shortfall @ 12% per annum and such additional compensation
shall be paid separately on monthly basis.
vi) Clause-8 of the JDA provides the manner & method of fulfilment of 8th year
obligations by the Developer. Clause 8.2 talks about non-achievement of minimum
average selling rate @ Rs.4800/- per sq.ft. at the end of 8th year and the Developer
has to make good of the shortfall in cash to the Landowners.
vii) As per Clause 8.3, if the Developer has not fully developed or sold the agreed
saleable area at the end of 8th year, then the Developer can further develop or sell the
saleable area for a period of one year (9th year) to meet 31% of the balance saleable
area exclusively for the Landowners, who shall be entitled to 100% of the Revenue
realized from such sale. Even after completion of 9th year, there is a shortfall in
achieving 31% saleable area, then in that event, the Developer has to pay cash to the
Landowners for the shortfall in saleable area at the average selling rate during 9th
period or minimum average rate @ Rs.4800/- per sq.ft, whichever is higher.
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viii) Clause-9 of the JDA speaks about the abandonment of the project. In case the
project is abandoned or not commenced within two years period by the Developer due
to their inability, the Landowners have a right to terminate the JDA.
i) to enter into Agreements for Sale of undivided share in the project land with the
prospective purchasers.;
ii) after receipt of all sums from third party buyers in respect of undivided share in the
land, the Developer is empowered to transfer and convey by way of sale of undivided
share in the land and execute necessary Deeds of Sale/Conveyance in favour of the
intending purchasers;
iii) to receive consideration, as also advances, earnest money deposits, part payments
into the prescribed bank accounts, in regard to the sale of the undivided share in the
project land or portions/shares and issue receipts and acknowledgements thereof in
terms of the JDA;
iv) to hand over possession of the undivided share in the project land to any of the
purchasers/ or person authorized to occupy the constructed area in the building
constructed on the project land or any part thereof, only after the occupation
certificate is issued by the concerned authority to the completed building/s from time
to time;
5.7 He submitted that from the above terms of JDA & Power of
Attorney as enunciated above, it is amply clear that the JDA dated 28-
3-2011 entered into by the appellant with the Developer & the receipt
of revenue on year to year basis towards Land, is not an adventure in
the nature of trade on the facts and circumstances of the appellant’s
case. For an adventure in the nature of trade, there have to be certain
essential components and features such as risks, rewards,
involvement, intention, exploitation, longevity and there have to be a
series of activities which are absent in the JDA dated 28-3-2011 and
the appellant being Landowner is a silent spectator and has no roles
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5.8 The Ld. A.R. submitted that the learned Pr. CIT, in para-3.2 (last
sentence) of the revision order erred in concluding that appellant is
receiving the sale proceeds on year to year basis depending on the
profit in the project. The appellant is receiving “Net Revenues”, which
is defined in the JDA and not “any Profit in the project” as mentioned
by the learned Pr.CIT. The profit or loss arising out of the development
and construction, sale and marketing of the apartments are entirely of
the Developer and no share in profits belong to the appellant. Once
the rights are assigned, the responsibility of the appellant completes
and its expectations are only to that of receipt of the “Net Revenue”
and the appellant does not venture into the development, construction
and sale of the apartment as presumed by the learned Pr.CIT.
5.9 In this context, the Ld. A.R. submitted that Hon’ble Supreme
Court in the case of Faqir Chand Gulati vs Uppal Agencies Pvt. Ltd. &
Anothers in Civil Appeal No.3302 of 2005 decided on 10.7.2008 and
also in case of Bunga Daniel Babu vs M/s. Sri Vasudeva
Constructions & Others decided on 22.7.2016, wherein the Hon’ble
Supreme Court analysed the nature of Development Agreement or
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5.12 According to Ld. A.R., the learned PCIT erred in relying on such
observations given in para 2.1.2 and no such presumptions can be
drawn contrary to the intention and objective of the appellant as set
out in the JDA. It is submitted that in terms of clause-7 of the JDA,
the appellant is receiving its revenue entitlement towards
consideration for its Land contribution under JDA, as and when the
collections are deposited by the Flat buyers in the Primary Escrow
Bank Collection Accounts and not year to year basis as mentioned by
the learned PCIT. But the appellant offers the said income for tax as
LTCG in its Return of Income on year to year basis. It is further
submitted that Clause -7 of the JDA dated 28-3-2011 lays down the
mechanism of receipt of net revenue entitlement which is contingent
upon the receipt of collections from the Flat Buyers. If no sale of flats
happens and consequently no collection is received from flat buyers in
a particular day or month, due to non-achievement of construction
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5.13 He submitted that in the instant JDA, the appellant has just
contributed the Land only for development by the Developer at their
cost and resources. As a consideration for said Land
contribution/granting the Development Rights on said Land to the
Developer, the appellant and Landowner No.2 has agreed to receive
31% of Net Revenue from the development on deferred basis, instead
of lump-sum payment. Since the developer is executing the project in
three phases during a period of 8 years and the Flats are under
construction, and to ensure transparency in the dealings, the
Landowners (appellant) have agreed to receive the consideration
towards the Land through an Escrow Bank Collection Accounts
opened by the Developer, as & when sale proceeds of the flats are
received by the Developer from the flat buyers and this method of
receipt of deferred consideration against sale of Land/UDS, has been
provided in the JDA
5.15 He also drew our attention to clause 8.(b).3 of the JDA, if the
Developer has not developed fully or fails to sell agreed saleable area
at the end of 8th year and there is a shortfall in achieving 31% of the
saleable area falling to the share of Landowners, then during 9th year,
the Landowner is entitled to 100% Net Revenue till the shortfall in
revenue is achieved. After 9th year, if the shortfall continues, the
Developer has to pay shortfall/deficit amount to the Landowners.
5.16 Similarly, according to Ld. A.R., as per clause 8.(b).2 of the JDA,
the Developer is required to achieve minimum average rate of
Rs.4,800/- per sq.ft. to which Landowners are entitled at the end of
8th year and in case of shortfall, the Developer has to make good of
the shortfall. These clauses clearly indicates that irrespective of
successful completion of the project/development or not, the
Landowners have been assured to receive minimum consideration
from the development to the extent of 31% of the total saleable area at
the end of 8th year, failing which the Developer shall make good of the
short fall in minimum consideration.
5.20 He submitted that the assessee has been offering the entire
revenue received from developer through Escrow Collection Account
towards Land contribution after deducting nominal Land cost for tax
as Long-term Capital Gains and no proportionate cost incurred for
development and construction of flats to the extent of its revenue
share is being deducted from the said revenue. Hence it is a capital
gains derived from sale of Land/UDS under JDA.
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“17. We notice that the assessing officer has treated the amount received by the
assessee as business receipts, solely for the reason that the amounts were received in
instalments. The undisputed facts remain that the assessee is the owner of land and he
has transferred the same to the developer, M/s Shriram Properties Ltd under a Joint
Development Agreement. It is a fact that the assessee has not carried on any venture
or business activity by so transferring the land. On the contrary, it is M/s. Shriram
Properties Ltd. is carrying on business activity. The role of the assessee is restricted
to transferring the land and receiving the consideration. There is no dispute with
regard to the fact that the land was held by the assessee as “capital asset” only.
Hence the transfer of land would give rise to capital gains only as per the provisions
of the Act.
18. It so happened that the consideration for transfer of land was so fixed that the
assessee would be receiving 2.64% of the sale consideration of flats that are going to
be constructed. Hence the assessee would be receiving amounts as and when the flats
are sold. As rightly observed by learned CIT(A), the receipt of consideration over a
period on sale of a capital asset does not change the true nature of transactions from
capital gains to business. Irrespective of timing of capital asset would give rise to
capital gains only. Hence we are of the view that the learned CIT (A) was justified in
holding that the amounts received by the assessee is assessable as long term capital
gains.”
5.23 The Ld. A.R. submitted that the appellant is a partnership firm
and there is no standard format prescribed for preparation of financial
statements by partnership firms, unlike for companies under
Companies Act,2013. Instead of Statement of Profit and Loss, a
partnership firm prepares “Statement of Income and Expenditure”
wherein all the income received/earned by the Firm during the
financial year are reported under main heading “Income” with no
prescribed set of sub-classifications. Whereas in Statement of Profit &
Loss, the Companies are mandatorily required to show the income
from operations and other income separately. The appellant, in the
main “Statement of Income & Expenditure” for the FY ended 31st
March, 2015, has shown the net long-term capital gains of Rs.
47,42,88,744 (after deducting proportionate cost of acquisition of Rs.
27,52,638) as “Other Income” and Interest income of Rs. 30,50,632
separately. Whereas, in the Tally Accounting Software used by the
appellant, all the income received are shown under sub-heading
“Direct Income” and all the direct costs/expenses are shown under
sub-headings “Cost of Trading Properties”/ “Direct Expenditure”
and the General & Administrative expenses incurred as “Indirect
Expenses” etc. Due to these wrong classifications in the Tally
Software, inadvertently the same headings are extracted in the
relevant Schedule No.8 to Statement of Income & Expenditure.
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5.25 In this context, the Ld. A.R. relied on the judgement of Hon’ble
Supreme Court in the case of Kedarnath Jute Manufacturing
Co.Ltd. vs CIT (Central) Calcutta 82 ITR 363 (SC) wherein, the
Hon’ble Supreme Court has held that –
“We are wholly unable to appreciate the suggestion that if an assessee under some
misapprehension or mistake fails to make an entry in the books of account and
although, under the law, a deduction must be allowed by the Income-tax officer, the
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assessee will lose the right of claiming or will be debarred from being allowed that
deduction.
Whether the assessee is entitled to a particular deduction or not will depend on the
provision of law relating thereto and not the view which the assessee might take of his
rights nor can the existence or absence of entries in the books of account be decisive
or conclusive in the matter….”
“In para – 2.1.3 of the revision order, the learned Pr.CIT has
incorrectly stated that “the assessee has also claimed certain business
expenditure in the Return of Income which shows the intention of the
assessee was to conduct business by entering into Development
Agreement dated 28.03.2011.”
5.27 The LD. A.R. submitted that it has claimed only General &
Establishment Expenses amounting to Rs.51,74,991 (including
depreciation on a vehicle) incurred during the year in its Return of
Income. These expenses are not related to any specific business
activities as held by the learned Assessing officer in the original
assessment order dated 18.12.2017, the appellant has NIL business
income and has not carried out any business activities. All these
expenses are revenue in nature and are incurred to keep its legal
existence alive, to maintain its establishment & to facilitate smooth
conduct of its activities. Other than general & establishment expenses,
the appellant has not incurred any business expenses pertaining to
any business activities in any previous years. As such, the appellant
has never claimed any business specific expenses right from its
inception to till date. Hence the presumption of the learned Pr.CIT that
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In para 2.1.2 of the revision order, the learned Pr.CIT has stated that
“It is also seen from the return of income filed for AY 2011-12 that
assessee has not disclosed any income on signing of Development
Agreement under head long-term capital gains. The assessee has not
treated the handing over the land to the Builder vide Development
Agreement dated 28.3.2011 as deemed transfer within the meaning of
section 2(47)(v) of the Act.”
5.29 The learned Pr. CIT is first admitting that land given under
JDA is capital asset
It is obvious from these statements of the learned Pr.CIT that the Land
contributed by the appellant under JDA is a Capital Asset, subject
matter of transfer u/s.2(47)(v) of the Act and resulting income received
from JDA is Capital Gains. It is apparent from these observations, that
the Revenue’s intention was to tax the income from JDA as Capital
Gains in the year of transfer or deemed transfer, but it could not do
so. Hence section 263 of the Act has no application with a view to
change the taxing of said income from Long-term Capital Gains to
Income from Business for A.Y.2015-16. The learned Pr.CIT is
restrained from bringing the same as business income at a later date
due to change of his mind through revision order u/s.263 of the Act.
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The Ld. A.R. submitted that under section 45 read with section 48 of
the Income Tax Act, “Profits and gains should arise” from the
transfer of a capital asset and income should be computed after the
consideration has been received or accrued. Some real income must
arise on the assumption that there is transfer of capital asset. This
concept of real income theory has been canvassed by the Hon’ble
Supreme Court in the following cases:- .
5.32 The Ld. A.R. submitted that the above mentioned decisions of
Hon’ble Supreme Court validate the action of the appellant offering the
income received from JDA towards consideration for sale of Undivided
Share in Land, as Long-term capital gains in its Return of Income for
A.Y.2015-16, when the said income was actually received or accrued
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to the appellant as per explicit terms contained in the JDA dated 28-3-
2011.
5.34 He also drew our attention to the Clause 5.1.(a) of the JDA
dated 28.3.2011, which says as under:-
“(a) The Landowners shall grant license to the Developer for bringing his men,
material, and plant and equipment for development on the Project Land for
construction and development of the proposed Project to utilize the permissible FAR
available on the said Land.”
5.36 In this connection, the Ld. A.R. relied on the following case
laws:-
He placed reliance on the Section 2(14) of the Act and also CBDT
circular No.4 dt 15-6- 2007 which confirms that an assessee can
hold same class of assets as investment and stock-in-trade
simultaneously.
5.38 According to him, from the above definition, that a property can
be ‘capital asset’ even if connected with the business of the assessee.
Therefore, an assessee is entitled in law to hold certain class of assets
as capital assets even while he is dealing with the asset of similar type
in business with idea of commercial exploitations.
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5.40 He submitted that an assessee can hold the same class of assets
as investment and also as stock-in-trade simultaneously. Th above
views of the CBDT expressed in their circular no.4 of 2007 dated 15-6-
2007 has been upheld by the Courts/Tribunals in the following cases
and relied on following judgements:-
from arising out of transfer of land and claim exemption under section
54F. Based on the crux of CBDT Circular dated 15.6.2007, the
Hon’ble Bench further held that where an assessee has two portfolios,
the assessee may have income under both heads i.e., capital gains as
well as business income.
5.41 According to Ld. A.R., the learned Pr. CIT erred in concluding
that the case of the appellant is an adventure in the nature of trade,
on the basis of certain court decisions, but did not specify or mark the
said proposition - the enabling legal provision of invocation of clause
(d) of Explanation 2 to Section 263 of the Act in the revision order
dated 18-3-2020.
5.43 Ld. A.R. also submitted that the decisions relied upon by the
learned Pr.CIT in the case of CIT v. Ramaiah and Others 146 ITR
39 (Karnataka) is again as that of sale of building sites after
converting agricultural lands into multiple plots. The assessee went on
selling the plots year after year realising more and more profits. In the
case of CIT v. P. Kannan 154 ITR 441 (Karnataka), the assessee was
a building contractor, and he divided the land into plots and sold the
plots immediately after purchase of land. Therefore, the facts of both
case are not comparable to the facts and circumstances of the case of
the appellant. The test to be applied whether a particular activity is an
adventure in the nature of trade or not is whether the assessee
exploits by investing and employing money, machinery and manpower
on the property by way of dividing the land into plots or developing
them and construction of apartments and reselling or not?
(i) CIT vs Razia Sulaiman (ITA No.412 of 2007 – Date of Order – 19-
9-2011)
(i) PCIT vs Rungta Properties Pvt. Ltd – 403 ITR 234 (Calcutta)
(i) CIT vs Kasturi Estates Pvt. Ltd. (1966) 62 ITR 578 (Mad)
(ii) CIT vs MLM Mahalingam Chettiar (1977) 107 ITR 236 (Mad)
(iii) CIT vs Suresh Chand Goyal (2008) 298 ITR 277 (MP)
5.52 The Ld. A.R., in view of the above submissions prays that this
Tribunal allow the appeal filed by the appellant for advancement of
substantial cause of justice.
7.1 In other words, the case was selected for limited scrutiny for
examination of above issues. The assessee submitted various details
including Form 26AS, audited financials, agreement copy dated
28.3.2011 between the assessee and Relationship Properties Pvt. Ltd.
The A.O. observed that assessee has shown Nil business income
during this assessment year 2015-16. However, assessee claimed
expenditure of Rs.52,11,197/- though assessee has not carried out
any business in the assessment year under consideration. The
assessee has been given opportunity vide notice u/s 142(1) of the Act
through e-mail dated 10.11.2017 to explain why business expenses
should not be disallowed in the absence of business carried on by the
assessee. The assessee filed written submissions stating that the
business is nothing more than the continuous course of activities and
all these activities need not start simultaneously in order to commence
the business operation. It is also not necessary that business must be
equipped in the sense that it can commence all its activities in the
same time. He relied on the judgement of Hon’ble Madras High Court
in the case of CIT Vs. Electron India (241 ITR 166) (Mad.), wherein
held that saleability of product is not relevant criteria to find out
whether a business has commenced its activities or not. During the
year, the assessee has not earned business income except capital
gains from sale of land on account of JDA with the RRPL interest
income, and nil business income. But the activities of the assessee is
in existence and incurred general and administrative expenditure,
which are incidental to the assessee’s business. Further, assessee has
purchased a car and used for the purpose of business operation
during the relevant previous year and hence, depreciation and
maintenance expenses of car to be allowed as deduction. Meanwhile,
the A.O. converted the limited scrutiny into complete scrutiny through
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7.3 Thus, Principal CIT was of the opinion that the action of AO to
tax received under the head Long Term Capital gain is erroneous so
far as prejudicial to the interest of the revenue and set aside the
assessment order and directed the AO to proceed to assess the income
under head “business income” which is earned by the assessee from
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7.4 In this case, assessee received land at Binni Pet from a partner
as a capital contribution on capital account and in accordance with
provisions of section 45(3) of the Act and the said amount was granted
as capital asset at its book value in its books of accounts. Every year
in its balance sheet the said land was shown as fixed asset/capital
work in progress by setting up the IT SEZ park on said land
measuring about 42 acres. The said land has been not developed by
the assessee and same has been given for JDA dated 28.3.2011 and
the developer is permitted to develop the project over a period of 8
years. The assessee being a land owner just handed over the
possession of the impugned property to the developer and assessee
itself not involved in the development activities so as to show the
assessee engaged in the activities of adventure in the nature of trade.
The developer has to do entire development and construction of the
project at their own cost and resources. All the activities relating to
the project such as obtaining plan sanctions and other approvals from
various Government authorities, planning & execution of development
and construction of the project,, formulating marketing strategy,
pricing and sales promotional activities, selling of flats to prospective
buyers, collecting receivables from flat buyers as per demand
schedules, arranging finance and other resources for development and
construction of project, etc. done by the developer on his own. Except
to right to receive agreed revenue share, through a designated escrow
bank account towards consideration for land, contribution, the
assessee no role, right, responsibility, accountability, allowability in
such project, these are clearly mentioned in the JDA entered into by
the assessee with M/s. Relationship Property Ltd. for development of
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7.5 The learned Pr. CIT erred in concluding that the case of the
appellant is an adventure in the nature of trade, on the basis of
certain court decisions, but did not specify or mark the said
proposition and the enabling legal provision of invocation of clause (d)
of Explanation 2 to Section 263 of the Act in the revision order dated
18-3-2020.
7.6 The learned Pr.CIT, in the revision order, relied on the decision
of the Hon’ble Supreme Court in the case of Raja J. Rameshwar Rao
v. CIT 42 ITR 179 (SC) and came to the conclusion that the appellant
case is that of adventure in the nature of trade. The facts of the case
relied upon by the learned Pr. CIT are entirely different and are not
comparable, to the extent that in the case cited by the learned Pr. CIT
the assessee developed plots by itself and sold in order to earn higher
income and thus carried on activities that of business, undertaking all
risks and rewards, responsibilities and obligations as that of a
businessman but did not include the said receipts as income from
business. The assessing officer made addition, treating the sale of
divided plots after developing the area to make it more attractive and
treating the land as stock in trade “as an adventure in the nature of
trade”. Whereas in the appellant’s case, the appellant never carried
out any activity of developing the plots or construction of apartments
but simply assigned the Land to a Developer only to receive a passive
income. In the case relied upon by the learned Pr.CIT, income arising
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out of the activity is an active income and thus the activity may be
treated as adventure in the nature of trade. In the case of passive
income, no effort is required to earn passive income and no
responsibilities, no obligations, no risks need to be undertaken to earn
the passive income. Thus, the activity to earn passive income cannot
be treated income as that of adventure in the nature of trade.
7.7 The decisions relied upon by the learned Pr. CIT in the case of
CIT v. Ramaiah and Others 146 ITR 39 (Karnataka) is again as
that of sale of building sites after converting agricultural lands into
multiple plots. The assessee went on selling the plots year after year
realising more and more profits. In the case of CIT v. P. Kannan 154
ITR 441 (Karnataka), the assessee was a building contractor, and he
divided the land into plots and sold the plots immediately after
purchase of land. Therefore, the facts of both case are not comparable
to the facts and circumstances of the case of the appellant. The test to
be applied whether a particular activity is an adventure in the nature
of trade or not is whether the assessee exploits by investing and
employing money, machinery and manpower on the property by way of
dividing the land into plots or developing them and construction of
apartments and reselling or not?
7.8 In the case of CIT Vs. Administrator of the Estate of Late Shri
E.F. Dinshaw in ITA No.345 ITR 529 (Bom) wherein held that:-
“Held, that the acquisition of the land was evidently not motivated by an
adventure in the nature of trade. There was no transaction involving sale
of the land by D during his life time. Neither his son nor for that matter
his daughter purchased the land. The land had devolved on his son and
daughter. Upon the death of D in 1936, there was no transaction
involving the sale of the land for a period of sixty-five years since the
purchase of the land. The assessee was the administrator of the estate of
his father. Half the interest of the land devolved upon the assessee under
the will that was executed by D. The finding of fact recorded by the
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7.9 The issue as to whether income that is realised from the sale of
land is chargeable to income-tax as capital gains or, as income from
business, has been the subject-matter of a considerable amount of
judicial precedent. In Jani Ram Bahadur Ram v. CIT 1965) 57 ITR 21
(SC) the Supreme Court laid down the following guidelines (headnote):
“If a transaction is related to the business which is normally carried by the assessee,
though not directly part of it, an intention to launch upon an adventure in the nature
of trade may readily be inferred. A similar inference would arise where a commodity
is purchased and sub-divided, altered, treated, or repaired and sold, or is converted
into a different commodity and sold. Magnitude of the transaction of purchase, the
nature of the commodity, subsequent dealings and the manner of disposal may be such
that the transaction may be stamped with a character of a trading venture. But a
transaction of purchase of land cannot be assumed without more to be a venture in the
nature of trade.”
7.10 In G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594 , the
Supreme Court noted that several factors assumed relevance
including (i) Whether the purchaser was a trader and the purchase of
the commodity and its resale were allied to his usual trade or business
or incidental to it; (ii) The nature and extent of the transaction
involved in the purchase and sale; (iii) Acts subsequent to the
purchase for the improvement of the quality of the subject matter; (iv)
Any act prior to the purchase showing a design or purpose, the
incidents associated with the purchase and resale and the similarity of
the transaction to operations usually associated with trade or
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business; (v) The repetition of the transaction; and (vi) The element of
pride of possession.
7.11 In the case of CIT v. V.A. Trivedi [1988] 172 ITR 95/ 38 taxman
102 a Division Bench of this Court, while holding that no single test or
formula can be applied in determining whether a transaction involving
purchase and sale of land is an adventure in the nature of trade
observed that generally speaking, the original intention of the party in
purchasing the property, the magnitude of the transaction of
purchase, the nature of the property, the length of its ownership and
holding, the conduct and subsequent dealings of the assessee in
respect of the property, the manner of its disposal and the frequency
and multiplicity of transactions afforded valuable guides in
determining whether the assessee was carrying on a trading activity
and whether a particular transaction should be stamped with the
character of a trading adventure. In CIT v. Dr. Indu Bala Chhabra
[2002] 258 ITR 111/[2003] 132 Taxman 45 Division Bench of the
Delhi High Court dealt with a case where the assessee who derived her
income from the medical profession had acquired certain properties as
an asset for constructing a Nursing Home. Subsequently, after a laps
of time, the assessee carried out construction on the property. The
Tribunal had noted that after making the purchase, the assessee had
disposed of the property nearly twenty years thereafter. No prudent
person, the Tribunal held, would have waited for such a long period of
time if it was a business proposition. The gain resulting from the sale
transaction was treated as capital gains and not as income arising out
of an adventure in the nature of trade. The Division Bench of the Delhi
High Court, relying inter alia upon the judgment of the Supreme Court
in G. Venkataswami Naidu (supra), affirmed the view of the Tribunal.
Similarly, in a decision of the Punjab and Haryana High in CIT v.
Sushila Devi Jain [2003] 259 ITR 671 /130 Taxman 120, the assessee
had acquired certain property under the will of her husband. The
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property consisted of a large tract of land which was sold out in part.
The High Court held that the relevant test was to find out the
intention of the assessee at the time of the purchase of the land. The
assessee had never purchased her land since it had devolved on her
through testamentary succession. The land was sold in parts because
the huge area could not be sold in one transaction and such an
activity was held not to amount to trade or business within the
meaning of the Act.
7.13 However, the circumstances of a case may indicate that the land
is acquired, developed and sold in plots by way of a venture in the
nature of trade (Rameshwar v. CIT 42 ITR 179 (SC); Mohammed
Meerakhan v. CIT 73 ITR 738 (SC); Seth v. CIT 74 ITR 852; Baijnath v.
CIT 91 ITR 208 ; CIT v. Krishna Rao 120 ITR 101 ; CIT v. Jawahar 127
ITR 431 ; Harbans Singh v. CIT 132 ITR 77; CIT v. Chikkaveerayya
164 ITR 41; Parvathi v. CIT 164 ITR 675 ; Re Mody 8 ITR 179;
Thakkar v. CIT 7 ITR 154; Pilkington v. Randall 42 TC 662 (CA);
Broadbridge v. Beattie 26 TC 63; Laver v. Wilkinson 26 TC 105. See
also Bhanumati v. CIT 119 ITR 69 ). A purchase and resale of land
may be held to be in the nature of trade even if the land is not
parcelled out or developed or advertised for sale (Venkataswami v. CIT
35 ITR 594 (SC); Reynolds v. Bennett 25 TC 401; Gray v. Tiley 26 TC
80; Somasundaram v. CIT 47 ITR 336 ; Praise v. CIT 60 ITR 566 ;
Estate Inv v. CIT 121 ITR 580 ; Bhagirath v. CIT 139 ITR 916 ; CIT v.
Minal 167 ITR507. Cf. Saroj v. CIT 37 242 (SC)
7.15 The onus of proving that the land formed part of the business
assets is on the Department, and in the absence of any evidence or
finding to the contrary the Court would conclude that the land was
treated and held as a capital investment (Wadia v. CIT 17 ITR 63),
Alapati v. CIT (35 ITR 73); Vadlamani v. CIT (51 ITR 304); CIT v.
Nathalal (126 ITR 555).”
7.16 In the case of CIT Vs. Delhi Apartments Pvt. Ltd. (2013) 352 ITR
322 wherein held as under:-
“An assessee hold lands for business or as an investment and there was no bar on an
assessee in undertaking, along with his business of sale/purchase of land also an
investment in land. 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. The Tribunal written a
finding that the land was purchased and shown as an asset in the balance sheet and
that land had also been used for agricultural purpose. It also noted the fact the land
had been held for a long time, having been purchased in 1994-96. The Tribunal was
also conscious of the fact that there was no evidence that borrowed capital had been
used for the purchase. All these circumstances, led to Tribunal to the inference that
the land was held as an asset, therefore, the assessee had appropriately offered it for
taxation under the head “Capital Gain”. There was no perversity in these findings,
and, therefore, there was to be no inference with the order.”
7.17 In the case of CIT Vs. Saravana Developers (2016) 387 ITR 239
(Karn) wherein held that:-
7.18 The assessee is only landlord who handed over the impugned
land to M/s. Relationship Property Ltd. for development of residential
flats. Being so, the gain arising out of said transaction from the JDA
dated 28.3.2011 is to be taxed as long term capital gain only.
Grounds on Order passed u/s 263 of the Act is in Violation of the Principles of
Natural Justice:
5. The order passed under section 263 of the Act by the learned Pr.
Commissioner of Income-tax is beyond the scope of issues raised in the
notice issued under section 263 of the Act and consequently the order passed
is bad in law on the facts and circumstances of the case.
Grounds on invoking the provisions of section 263 of the Act are without
jurisdiction:
11. The learned Pr. Commissioner of Income-tax failed to appreciate that the
learned Assessing Officer before passing the assessment order under
section 143(3) of the Act made inquiries and verification of Long-term
Capital gains and consequently there is no violation of clause — (a) of
Explanation 2 to section 263 of the Act by the Assessing Officer to invoke
the provisions of section 263 of the Act on the facts and circumstances of
the case.
Grounds on merits of the matter that the income offered by the appellant
under the head Long-term Capital gains is correct:
13. The learned Pr. Commissioner of Income-tax was not justified in law
holding that the income earned by the appellant from the sale of Land
given under a Joint Development Agreement as a Landowner is taxable
under the head income from business as an adventure in the nature of
trade instead under the head Income from Capital Gains, on the facts
and circumstances of the case of the appellant.
16. The learned Pr. Commissioner of Income-tax erred in holding that the
Joint Development Agreement entered is for the purpose of business and
not for earning the Long-term Capital gains and signing of Development
Agreement with the Builder is nothing but an "adventure in the nature of
trade" on the facts and circumstances of the case.
18. The learned Pr. Commissioner of Income-tax failed to appreciate that the
appellant correctly offered the income under the head Long-term Capital
gains and paid the tax in respect of the income from the Joint Development
Agreement and the learned Assessing Officer correctly assessed the same
and consequently the provisions of section 263 of the Act is not applicable
on the facts and circumstances of the case.
19. The appellant craves leave of this Hon'ble Tribunal, to add, alter, delete,
amend, or substitute any or all of the above grounds of appeal as may be
necessary at the time of hearing.
20. For these and other grounds that may be urged at the time of hearing of
appeal, the appellant prays that the appeal may be allowed for the
advancement of substantial cause of justice and equity.
8.1 We have heard the rival submissions and perused the materials
available on record. After hearing both the parties, we are of the
opinion that the issue raised in this appeal is identical as discussed in
ITA No.415/Bang/2020 for the assessment year 2015-16. Applying
the same ratio on both the legal issue and on merit of the issue, we
are of the opinion that both the issues to be decided in favour of the
assessee as held in AY 2015-16 in ITA No.415/Bang/2020. This
appeal in ITA No.248/Bang/2021 is allowed.
Sd/- Sd/-
(BEENA PILLAI) (CHANDRA POOJARI)
Judicial Member Accountant Member
Bangalore,
Dated 02.09.2022.
NS & VG/SPS
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Copy to:
1. The Applicant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR, ITAT, Bangalore.
6. Guard file
By order
Asst. Registrar,
ITAT, Bangalore.