IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No.1682/Hyd/2011 :Assessment year 2002-03 ITA No.1683/Hyd/2011 : Assessment year 2003-04 ITA No.1684/Hyd/2011 : Assessment year 2004-05 ITA No.1685/Hyd/2011 : Assessment year 2005-06 ITA No.1686/Hyd/2011 : Assessment year 2006-07 ITA No.1687/Hyd/2011 : Assessment year 2007-08
Shri K.Srinivasulu, V/s Dy. Commissioner of Income- Hyderabad tax, Central Circle 6, , Hyderabad
( PAN - AIBPK 4574 E )
Appellant by : Shri S.Rama Rao
Respondent by : Smt. Amisha S. Gupt
Date of Hearing 26.7.2012
Date of 25/09/2012
O R D E R
Per Smt. Asha Vijayaraghavan, Judicial Member:
This is a bunch of six appeals filed by the assessee for the assessment years 2002-03 to 2007-08. These appeals are directed against three similar but separate orders of the CIT(A)-I, Hyderabad, all dated 20.7.2011. Since factual background and the issues 2 ITA No.1682 to 1687/Hyd/11
involved in these appeals are common, these appeals are being disposed off with this common order for the sake of convenience.
2. Facts of the case in brief, common in all these appeals, as taken from the appeal for the assessment year 2002-03, are that a search and seizure operation under S.132 of the Income-tax Act was conducted in the case of Radha Realty group on 17.10.2007. Consequently, notice under S.153C was issued by the assessing officer, In response thereto assessee filed return of income for the assessment year 2002-03, admitting total income of Rs.22,000 and agricultural income of Rs.12,000. In the course of assessment proceedings, the assessing officer found that the assessee had sold agricultural land at Pedda Mangalram village, Moinabad Mandal and profit from the same amounting to Rs.4,73,800 was claimed as exempt stating that the land sold was not capital asset within the meaning of S.2(14) of the Act. The assessing officer found that the assessee had purchased the land, developed the same and divided the land into plots and developed plots were sold to various parties. The assessing officer therefore, held that the profit generated on this activity is taxable under the head 'business income'. Accordingly, rejecting the claim of the assessee, the assessing officer treated the profit on sale of land of Rs.4,73,800 as business income. The assessing officer further, rejected the claim of the assessee with regard to agricultural income of Rs.12,000 in the absence of any evidence furnished by the assessee in support of such agricultural income, and added the same as assessee's income from other source assessable to tax. The assessing officer thus completed the assessment on a total income of Rs.5,07,800, raising a tax demand of Rs.2,60,955, vide order of assessment dated 31.12.2009 passed under S.143(3) read with S.153C of the Act.
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3. On appeal, the CIT(A), dealing with assessee's claim of agricultural income, observed that in the written submission though the appellant has stated to have submitted copies of the documents evidencing purchase of agricultural land the same was in fact not enclosed. In similar manner no certificate from the Village Revenue Officer was filed though it was claimed to have been enclosed with the submission. The CIT(A) noted that it was the contention of the appellant that he had purchased agricultural land from Sri N.Krishna Reddy and Smt. M.Niramala on which agricultural operation was carried on initially and hence the income generated was agricultural income. The CIT(A) pointed out that no documents were filed in support of the same. Otherwise also even if the description in the documents is shown as agricultural land, that itself cannot be a conclusive proof that agricultural operation was actually being carried on by the appellant and no proof of any agricultural operation or sale o agricultural produce has been filed by the appellant in support of the claim of agricultural income. The CIT(A) opined that since the appellant has claimed an income which is exempt from tax, it is for the appellant to conclusively prove that the land owned by him had in fact generated agricultural income. Further, it is on record that the appellant himself had sub-divided the said land as plots and sold to various parties and so it cannot be said that the intention of the appellant was to derive agricultural income from acquisition of the said land. The CIT(A) concluded that the intention of the appellant is to earn business profit by developing and selling the land after dividing into small plot, and it is also agreed by the assessee that he has sub-divided the plots and sold. The CIT(A) further held that the assessee had divided the plots and grown fruit orchards thereon and even for developing a fruit orchard there will be expenditure for which no evidence has been filed that the appellant has developed fruit orchards on the land acquired by him. The CIT(A) observed that the appellant contended that initially he was growing paddy and 4 ITA No.1682 to 1687/Hyd/11
other crops and later on developed orchards and held that the fact that he had sold part of the land is itself a pointer to the fact that agricultural operation was never the intention of the appellant.
4. In view of the aforesaid findings of the CIT(A) and also following the appellate order passed by him in the case of Shri D.S.Karunakar Reddy for assessment year 2002-03, confirming similar addition made by the assessing officer, on similar facts and circumstances of the case, the CIT(A) upheld the addition made by the assessing officer, disbelieving the agricultural income claimed by the assessee.
5. As for the addition of Rs.4,73,800 made by the assessing officer, treating the gain on sale of plots of land as income from business, it was pleaded by the assessee through written submissions filed before the CIT(A) that the assessee had sold the agricultural land though in bits of 1000 sq. yards and agricultural operations were being carried on prior to the date of transfer and even after the date of transfer. It was claimed that the intention of the assessee was to carry on agricultural operation and not to treat the same as stock in trade. However, as the assessee was not in a position to carry on the agricultural operation by himself on the entire land due to high cost of maintenance, he proposed to sell a part of such land. As no party was coming forward to purchase the land in acres, the same was divided into bits of 1000 sq. yards with a view to sell the land easily. It was also stated that another company M/s. Pink Estates Pvt. Ltd. was prepared to develop the orchards further and prepared to maintain the same subsequently. Hence the land was sold in bits. It was therefore, claimed that the income was not assessable as income from business, but as income from capital gains, and further since the land was agricultural in nature, the same is not subject to capital gains tax.
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6. The CIT(A) however, was not convinced with the above submissions of the assessee. He held that the the assessee has purchased the land with an intention to do business in real estate, and the facts on record show that the intention of the assessee right from the beginning was to do business in real estate by dividing the land into smaller plots and selling the same to parties with an intention to earn profits. For these reasons and also following the appellate order passed by me in the case of Shri D.S.Karunakar Reddy for assessment year 2002-03, confirming similar addition made by the assessing officer, on similar facts and circumstances of the case, the CIT(A) upheld the addition made by the assessing officer, treating the profit on sale of plots as income from business.
7. Aggrieved by the order of the CIT(A), assessee preferred the present second appeal, in all the assessment years 2002-03 to 2007-08 in ITA Nos. 1682 to 1687/Hyd/2011.
8. Effective grounds of appeal raised by the assessee in its appeal for assessment year 2002-03, being ITA No.1682/Hyd/2011, read as follows-
2) The learned CIT(A) erred in confirming the action of the Assessing officer in treating the agricultural income of Rs.12,000/- derived by the appellant herein as the income from other sources.
3) The learned CIT(A) erred in confirming the action of the Assessing officer in treating the profit earned on sale of agricultural land of Rs.4,73,800/- as the income from business. He ought to have considered the fact that the land held by the appellant was a capital asset and not a business asset and the gain 6 ITA No.1682 to 1687/Hyd/11 Shri K.Srinivasulu
on sale of such agricultural land is exempt from capital gains tax.
4) The learned CIT(A) erred in confirming the charging of interest under S.234A and 234B of the I.T. Act.
9. Grounds taken by the assessee, in appeals for assessment year 2003-04 in ITA No.1683/Hyd/2011, for assessment year 2005- 06 in ITA No.1685/Hyd/2011 and for assessment year 2006-07 in ITA No.1686/Hyd/2011 are identical, except for the amounts involved in grounds 2 and 3 above. In the other two appeals, viz. for assessment year 2004-05 in ITA No.1684/Hyd/2011 and for assessment year 2007-08 in ITA No.1687/Hyd/2011 only two effective grounds are taken by the assessee and they are identical to grounds No.2 and 4 above, again excepting for the amount mentioned in ground No.2 above.
10. The amounts of additions made by the assessing officer and confirmed by the CIT(A) on account of denying the assessee's claim for agricultural income and addition made by bringing to tax the profit on sale of plots of land under the head 'business' for all the six years under appeal, are tabulated hereunder for ready reference-
Asst . Year Addition made reject- Addition made ing the claim of agricul under the head
tural income 'business' for
bringing to tax
profit on sale of
2002-03 12,000 4,73,800 2003-04 11,200 89,800 2004-05 9,500 ------- 2005-06 10,750 1,69,800 2006-07 12,300 17,24,300- 2007-08 6,420 ----- 7 ITA No.1682 to 1687/Hyd/11
11. The learned counsel for the assessee Shri S. Rama Rao filed written submissions pointing out that the case of Sri D.S. Karunakar Reddy in ITA No. 752 to 757/Hyd/2011, which was followed by the CIT(A) in dismissing the assessee's appeal is entirely different set of facts and the decision is not applicable to the facts of the case of the assessee. It was pointed out by the learned counsel for the assessee that the entire property was purchased by Sri D.S. Karunakar Reddy in the year 2000 and immediately in the succeeding year he plotted and sold the land and this has been observed by the Hon'ble Tribunal at page 5 para 10 of the ITAT's order.
12. In the present case, the learned counsel for the assessee submitted that the property was purchased vide sale deed registered as document No. 1849/95, dated 31/07/95 from Shri N. Krishna Reddy and vide sale deed No. 8227/98 dated 23/10/1998 from Majjiga Nirmala. It was argued that agricultural lands were in the possession of the assessee for more than 5 years and it is a fact that the lands were purchased much earlier to the date of sale. The second argument taken by the learned counsel was that Sri D.S. Karunakar Reddy was in the business of real estate whereas the assessee is an agriculturist and at the time of transaction of sale he was only agriculturist. The learned counsel for the assessee pointed out that in the case of D.S. Karunakar Reddy (supra) at page 6 para 10 of the order, the ITAT has observed that there was no intention of carrying on agricultural operations by him whereas in the case of the assessee agricultural operations were carried on for more than 5 years and the transaction in question is sale of agricultural land. 8 ITA No.1682 to 1687/Hyd/11
13. The learned DR Smt. Amisha S. Gupt, on the other hand, argued that the case of Sri D. S. Karunakar Reddy (supra) squarely applies to the cases of the assessee also.
14. We have heard both the parties, perused the record and gone through the orders of the authorities below. We find merit in the arguments of the learned counsel for the assessee that the lands have been held as agricultural lands and agricultural operations have been carried on by the assessee to earn agricultural income. We are inclined to accept the submission of the assessee that circumstances had changed subsequent to purchase of land and it was not possible to carry on agricultural operations due to high cost of maintenance and also due to labour problems i.e., in procuring farm workers, and the assessee himself had sub-divided the lands as plots of 1000 sq.yard each for developing them into orchards with fruit bearing trees and the said bits of land were sold as orchards to Pink Estates Pvt. Ltd., which was maintained by Pink Estates Pvt. Ltd. with fruit bearing trees on behalf of the members, who purchased the orchards. We observe that the conditions prevailing with respect to managing agricultural operations have indeed become more difficult and challenging that the persons who have been agriculturists have started exploiting their land, for the real estate value by plotting them. We are of the opinion that the present case is different from the case of Sri D. S. Karunakara Reddy (supra) relied upon by the CIT(A) as the assessee in the case under consideration was basically an agriculturist and was carrying on agricultural operations for the initial 5 years and later on converted the same into orchards and sold them to Pink Estates Pvt. Ltd. Hence, the action of the CIT(A) in confirming the addition made by the AO rejecting the claim of the assessee as agricultural income and addition made on the profit on sale of agricultural land treating the same as business income, cannot be sustained.
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15. Furthermore, the assessee has sold the bits of land plotted as orchards consisting of 1000 sq.yards each, still, holding the character of agricultural land. Fruit bearing trees earning agricultural income had been maintained by M/s Pink Estates Pvt. Ltd. and the assessee has not resorted to plotting of land for the purpose of building houses as housing plots. In these circumstances, the land held by the assessee is a capital asset and not a business asset and the sale of such agricultural land is exempt from capital gains tax and cannot be taxed as business income.
16. Therefore, we set aside the order of the CIT(A) and allow the assessee's appeals on both the grounds raised by the assessee namely, i) treating the agricultural income as the income from other sources.
ii) treating the profit earned on sale of agricultural land as income from business.
17. The assessee has raised both ground Nos. i) and ii) as above in Para No. 16 in AY 2002-03 being ITA No. 1682/Hyd/11, 2003-04 being ITA No. 1683/Hyd/11, AY 2005-06 being ITA No. 1685/Hyd/11, and in AY 2006-07 being ITA No. 1686/Hyd/11 and the same are allowed.
18. The assessee has raised only ground No. (ii) as above in para 16 in AY 2004-05 being ITA No. 1684/Hyd/11 and in AY 2007-08 being ITA No. 1687/Hyd/11, is also allowed.
19. The last issue involved in these appeals relates to charging of interest under S.234A, 234B and 234C of the Income-tax Act. 10 ITA No.1682 to 1687/Hyd/11
Charging of interest under these sections is consequently in nature, therefore, the AO is directed accordingly.
20. In the result, all the appeals filed by the assessee are allowed.
Order pronounced in the court on 25/09/2012.
(Chandra Poojari) (Asha Vijayaraghavan) Accountant Member Judicial Member
Hyderabad, Dt/- 25 th September, 2012
Copy forwarded to:
1. Shri K.Srinivasulu, C/o Shri S. Rama Rao, Advocate, Flat No. 102, Shriya's Residency, Road No. 9,
2. Dy. Commissioner of Income-tax Central Circle 6,
Commissioner of Income-tax(Appeals) I, Hyderabad
4. Commissioner of Income-tax(Central), Hyderabad
5. Departmental Representative, ITAT, Hyderabad.