September 10th, 2012
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S. 145: Excise duty need not be included in closing stock
The assessee valued its closing stock without including excise duty. The AO held that excise duty had to be included in the closing stock though the CIT(A), Tribunal and High Court (267 ITR 600 (Mad)) upheld the assessee's plea on the basis (following English Electric Co. 243 ITR 512 (Mad)) that the inclusion of excise duty in the valuation of closing stock was permissible only if the liability for that amount in the excise duty account was given a deduction and otherwise it would be anomalous. On appeal by the department to the Supreme Court, HELD dismissing the appeal:
The assessee has been following consistently the method of valuation of closing stock which is "cost or market price whichever is lower." Also, while the AO revalued the closing stock, he did not make any adjustment to the opening stock. Excise duty is on the manufacture of the finished product though it is quantified and collected on the selling price. Valuation of unsold stock at the close of the accounting period is a necessary part of the process of determining the trading results of that period. It cannot be regarded as source of profits. The true purpose of crediting the value of unsold stock is to balance the cost of the goods entered on the other side of the account at the time of the purchase, so that on cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions in which actual sales in the course of the year has taken place and thereby showing the profit or loss actually realized on the year's trading. The entry for stock which appears in the trading account is intended to cancel the charge for the goods bought which have remained unsold which should represent the cost of the goods" (Chainrup Sampatram 24 ITR 481 (SC) & Hindustan Zinc Ltd 291 ITR 391 SC) followed.
AO relied upon decision in M/s Bhalotia Engineering Works Pvt. Ltd. (supra) wherein it was held that receipt of share application monies in cash, in violation of provisions of section 269SS of the Act should be treated as "deposit" with the consequence that the assessee would be liable for penalty under Section 271D of the Act. The AO in the said case did not examine whether the share application money can be treated as "loan" or "deposit" within the meaning of provisions of sec. 269SS of the Act nor the Addl. CIT. The ld. CIT(A) found as a fact that the shares were subsequently allotted to the applicant-companies as shown by the form filed before the Registrar of Companies. Neither the AO nor the Additional CIT took the trouble to examine this aspect while imposing the penalty and merely relied on the judgment of the Hon'ble Jharkhand High Court (supra). Similar is the situation in the instant case. The AO did not even attempt to examine as to whether or not the share application money can be treated as "loan" or "advance" within the meaning of provisions of sec. 2(22)(e) of the Act. There is nothing on record to show that these transact ions were attached with certain conditions or stipulation as to period of repayment , rate of interest , manner of repayment , etc. so as to treat the said transact ions as loans or advances. Moreover, the Revenue have not placed before us any material, suggesting that the transact ions were actually in the nature of loans or advances. In these circumstances, the reliance on the decision in M/s Bhalotia Engineering Works Pvt. Ltd. (supra),in our opinion, is totally misplaced. Hon'ble Madras High Court in CIT Vs. Rugmini Ram Ragav Spinners Private Ltd. (2008), 304 ITR 417 held that the money in cash by a company towards allotment of shares, was neither a loan nor a deposit. In Baidya Nath Plastic Industries (P) Ltd. and Ors vs K.L. Anand (1998) 230 ITR 522, Hon'ble Delhi High Court pointed out the distinction between a loan and a deposit while observing that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement while in the case of a deposit it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. This judgment was cited in Director of Income Tax (Exemption) vs ACME Educational Society (2010) 326 ITR 146 (Del) and it was held that a loan grants temporary use of money, or temporary accommodation, and that the essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf it has been made, on fulfillment of certain conditions. In CIT vs. Sunil Chopra, Hon'ble jurisdictional High Court in their decision dated 27.4.2010 in ITA no.106 of 2011 held that share application money could not be construed as loan or advance within the meaning of sec. 2(22)(e) of the Act. In CIT vs. I.P. India Pvt. Ltd., Hon'ble jurisdictional High Court in their decision dated 21.11.2011 in ITA no. 1192/2011 concluded that the receipt of share application monies for allotment of shares in the assessee-company could not be treated as receipt of loan or deposit. In the light of view taken by the Hon'ble jurisdictional High Court in the aforesaid decisions, especially when the ld. CIT(A) found as a fact that the amount of Rs. 1 crore was indeed received by the assessee from KMPTL as share application money, we are not inclined to interfere with the findings of the ld. CIT(A).
INCOME TAX APPELLATE TRIBUNAL, DELHI
ITA No.2858/Del/2012 – Assessment year: 2008-09
Deputy CIT V/s. M/s Alpex Exports (P) Ltd.
Date of pronouncement 28-08-2012
O R D E R
A.N.Pahuja:-
This appeal filed on 08th June, 2012 by the Revenue against an order dated 30th March, 2012 of the ld. CIT(A)-IV, New Delhi, raises the following grounds:-
1 "The ld. CIT(A) has erred on facts and in law in deleting addition of Rs. Rs. 1,03,96,888/- on account of disallowance u/s 2(22)(e) of the Income-tax Act, 1961. The learned CIT(A) has totally ignored the reasons given by the Assessing Officer for application of section 2(22)(e). The assessee is trying to show the real transaction of loan/advance as receipt of share application money and allotment of share (which is not genuine activity); only as an afterthought.
2 That the appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground (s) of appeal at any time before or during the hearing of this appeal. "
2. At the outset, considering the nature of issue, the Bench rejected the request for adjournment on behalf of the assessee and proceeded to dispose of the appeal after hearing the representatives from both the sides.
3. Facts, in brief, as per relevant orders are that the return declaring income of Rs. Rs. 4,29,40,331/- filed on 27.09.2008 by the assessee, engaged in the business of import and trading in yarn and knitting needles besides generation of wind power, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act 1961 (hereinafter referred to as the 'Act') issued on 17th August, 2009. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that Shri Ashwani Sehgal and Mrs. Monica Sehgal had 41.52% and 24.81% of the shareholding of the company while M/s Karsihma Machine Tools Pvt. Ltd. was reflected as sundry creditor to the tune of Rs. 1,67,42,661/-. To a query by the AO , the assessee replied that M/s Karishma Machine Tools Pvt. Ltd.[KMPTL] had invested Rs. 100 lacs by way of share application money besides advance of Rs. 63,58,573 against purchase of material and Rs. 3,96,888/- on account of advance against order. Since Mr. Ashwani Sehgal & Mrs. Monica Sehgal had 39.2% share holding each in M/s Karishma Machine Tools Pvt. Ltd. and the said company had reserves and surplus of Rs. 3,42,23,672.26, the AO show caused the assessee as to why the amount of Rs. 100 lacs by way of share application money as also advances of Rs. 63,58,573 and Rs. 3,96,888/- , be not taxed as deemed dividend u/s 2(22)(e) of the Act. In reply, the assessee submitted that share application money of Rs. Rs. 1 crore was not covered within the meaning of provisions of sec. 2(22)(e) of the Act nor the aforesaid two advances. However, the AO did not accept the submissions of the assessee in view of decision in the case of Balotia Engg. Works Pvt. Ltd. vs. CIT, 275 ITR 399 (Jharkhand),holding that share application money part took the character of deposit. Since the share application money was deposited with the assessee on 20-12-2007 while shares were allotted only in July, 2010 i.e. after a period of more than 30 months in pursuance to the board resolution dated 22nd July, 2010, the AO concluded that the amount of Rs. Rs. 1 crore was, in fact, advance and explanation regarding share application money was an afterthought, query having been raised much earlier regarding taxation of amount as deemed dividend . Accordingly, the AO brought to tax the amount of Rs. 1 crore and advance of Rs. 3,96,888/- as deemed dividend within the meaning of provisions of sec. 2(22)(e) of the Act while accepting the contentions of the assessee in respect of the amount of Rs. 63,58,573/-.
4. On appeal, the assessee contended before the ld. CIT(A) that the aforesaid amounts were not covered within the definition of deemed dividend u/s 2(22)(e) of the Act and relied upon a number of decisions in Ardee Finvest (P) Ltd. DCIT; 79 ITD 547 (Del),CIT Vs. Sunil Chopra in I.T.A. No.106/2011, dated 27.4.2011; VLS Foods (P) Ltd. Vs. ACIT, (2010) 128 TTJ (Del.)(UO) 1;CIT Vs. Raj Kumar, 318 ITR 462,;CIT Vs. Shri Satyanarayan Nuwal In I.T.A. 19/2009, dt. Of order 17.9.2010 ;CIT Vs. Creative Dyeing and Printing (P) Ltd., 318 ITR 476(Del.), and CIT Vs. Arvind Kumar Jain in I.T.A. No.589/2011, dated 30.9.2011(Del.). In the light of these decisions, the ld. CIT(A) deleted the addition,holding as under:
"6.2 I have carefully considered the assessment order and the submission made by the learned AR along with the documents placed on record as part of the paper book. It is seen that the break up and nature of advances received from KMTPL along with documentary evidences were duly produced by the appellant before the Assessing Officer during the assessment proceeding. The appellant has furnished copy of share application form dt. 20.12.2007 filed by KMTPL clearly indicating the amount of Rs. 1 crore and the cheque numbers etc. for purchase of 50,000 shares of the appellant company, copy of related share certificate no.01/10-11 dt. 22.07.2010, copy of the audited balance sheet, ledger accounts etc. of the appellant company and KMTPL for the year ended 31.3.2008 duly showing the receipt of the above amounts as chare capital/advance against orders, copy of Board Resolution dt. 22.7.2010 of the appellant company allotting 50,000 share KMTPL, copy of list of allottees, copy of receipt no.GAR7 of MCAS and Form No.2 showing the above allotment of shares, copy of bank statement with Indusland Bank, New Delhi Branch maintained by the appellant company and 10B, Vasant Vihar Branch maintained by KMTPL showing the payments and receipts of the above amounts, copy of the Income Tax return of KMTPL for assessment year 2008-09 etc. in support of its contention. In view of the aforesaid documentary evidence, it is abundantly clear that the impugned amounts were received by the appellant company from KMTPL on account of share application money and advance against orders. It is settled law that commercial advance and advance for business transaction is outside the purview of the deeming provisions of section 2(22)(e) of the Act. The Assessing Officer has also himself accepted the receipt of Rs. 63,58,573/- against purchase of material, while he has rejected the other two amounts on account of share application money and advance against orders under similar facts and circumstances without assigning any valid reason. In view of the above, the impugned addition of Rs. 1,03,96,888/- cannot be sustained either on facts or in law. The same is, therefore, deleted."
5. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A) . The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings in the impugned order.
6. We have heard both the parties and gone through the facts of the case. The issue before us is as to whether the amount of Rs. 1 crore on account of share application money and Rs. 3,96,888/- by way of advance against order received by the assessee from M/s Karishma Machine Tools Pvt. Ltd., could be taxed in the hands of the assessee, by way of deemed dividend in terms of provisions of sec. 2(22)(e) of the Act. The AO brought to tax the amount of Rs. 1 crore in the hands of the assessee in the light of decision in Balotia Engg. Works Pvt. Ltd. (supra) and did not adduce any reason in support of the amount of Rs. 3,96,888/- .On appeal, the ld. CIT(A) ,on the basis of copy of share application form dated 20.12.2007 filed by KMTPL for purchase of 50,000 shares of the assessee company, copy of related share certificate no.01/10-11 dated 22.07.2010, copy of the audited balance sheet, ledger accounts etc. for the year ended 31.3.2008 of the assessee company and KMTPL copy of Board Resolution dated 22.7.2010 of the assessee company allotting 50,000 share to KMTPL, copy of list of allottees, copy of receipt no.GAR7 of MCAS and Form No.2 showing the allotment of shares, and copy of the Income Tax return of KMTPL for assessment year 2008-09, concluded that the amount was actually received by way of share application money from KMPTL. Accordingly, the ld. CIT(A) concluded that commercial advance and advance for business transaction is outside the purview of the deeming provisions of section 2(22)(e) of the Act. In order to bring within the ambit of provisions of sec. 2(22)(e) of the Act, the amount of loan or advance paid by a company should be made to any of the following three persons viz. :
i) a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten percent of the voting power; or
ii) any concern in which, such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern); or
iii) a shareholder, for his behalf, or for his individual benefit, to the extent to which the company in either case possesses accumulated profits.
6.1 We find that the AO relied upon decision in M/s Bhalotia Engineering Works Pvt. Ltd. (supra) wherein it was held that receipt of share application monies in cash, in violation of provisions of section 269SS of the Act should be treated as "deposit" with the consequence that the assessee would be liable for penalty under Section 271D of the Act. The AO in the said case did not examine whether the share application money can be treated as "loan" or "deposit" within the meaning of provisions of sec. 269SS of the Act nor the Addl. CIT. The ld. CIT(A) found as a fact that the shares were subsequently allotted to the applicant-companies as shown by the form filed before the Registrar of Companies. Neither the AO nor the Additional CIT took the trouble to examine this aspect while imposing the penalty and merely relied on the judgment of the Hon'ble Jharkhand High Court (supra). Similar is the situation in the instant case. The AO did not even attempt to examine as to whether or not the share application money can be treated as "loan" or "advance" within the meaning of provisions of sec. 2(22)(e) of the Act. There is nothing on record to show that these transact ions were attached with certain conditions or stipulation as to period of repayment , rate of interest , manner of repayment , etc. so as to treat the said transact ions as loans or advances. Moreover, the Revenue have not placed before us any material, suggesting that the transact ions were actually in the nature of loans or advances. In these circumstances, the reliance on the decision in M/s Bhalotia Engineering Works Pvt. Ltd. (supra),in our opinion, is totally misplaced. Hon'ble Madras High Court in CIT Vs. Rugmini Ram Ragav Spinners Private Ltd. (2008), 304 ITR 417 held that the money in cash by a company towards allotment of shares, was neither a loan nor a deposit. In Baidya Nath Plastic Industries (P) Ltd. and Ors vs K.L. Anand (1998) 230 ITR 522, Hon'ble Delhi High Court pointed out the distinction between a loan and a deposit while observing that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement while in the case of a deposit it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. This judgment was cited in Director of Income Tax (Exemption) vs ACME Educational Society (2010) 326 ITR 146 (Del) and it was held that a loan grants temporary use of money, or temporary accommodation, and that the essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf it has been made, on fulfillment of certain conditions. In CIT vs. Sunil Chopra, Hon'ble jurisdictional High Court in their decision dated 27.4.2010 in ITA no.106 of 2011 held that share application money could not be construed as loan or advance within the meaning of sec. 2(22)(e) of the Act. In CIT vs. I.P. India Pvt. Ltd., Hon'ble jurisdictional High Court in their decision dated 21.11.2011 in ITA no. 1192/2011 concluded that the receipt of share application monies for allotment of shares in the assessee-company could not be treated as receipt of loan or deposit. In the light of view taken by the Hon'ble jurisdictional High Court in the aforesaid decisions, especially when the ld. CIT(A) found as a fact that the amount of Rs. 1 crore was indeed received by the assessee from KMPTL as share application money, we are not inclined to interfere with the findings of the ld. CIT(A).
6.2 As regards advance of Rs. 3,96,888/- against order, the AO did not record any reasons to tax the amount by way of deemed dividend. On appeal, the ld. CIT(A) concluded that commercial advance was outside the purview of the deeming provisions of section 2(22)(e) of the Act. Hon'ble jurisdictional High Court in Raj Kumar(supra) following the view in CIT vs. Nagindas M Kapadia,177 ITR 393(Bom.) held that the trade advance which is in the nature of money transacted to give effect to a commercial transaction does not fall within the ambit of the provisions of sec. 2(22)(e) of the Act. Similar view was taken in Creative Dyeing & Printing (P) Ltd.(supra) and Arvind Jain(supra). In the light of these decisions, especially when the Revenue have not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter, we are not inclined to interfere.
6.3. In view of the foregoing, ground no.1 in the appeal is dismissed.
7. No additional ground having been raised before us in term of residuary ground no.2 in the appeal, accordingly, this ground is dismissed.
8. No other plea or argument was made before us.
9. In the result, appeal is dismissed.
Main object clause suggests that the assessee's main business is to deal in real estate. After forming the company, the assessee started buying of land. The assessee has taken a plea before us that it has earned income by leasing these agricultural lands to other parties to carryon agricultural operations and the land was subjected to agricultural operations by other persons. Being so, the income earned by sale of such land is to be treated as capital gain and that has to be exempted from tax in view of provisions of section 2(14)(iii) of the Act. In our opinion, this argument of the assessee's counsel is having no merit. The assessee carried on the activity of buying and selling of lands and in each case the land was not subjected to cultivation by the assessee. We cannot accept the argument of the assessee on an assumption the land is fit for agriculture and was used for agriculture purpose by somebody on behalf of the assessee. The assessee's intention is to be seen. It is on record that there is a series of transactions by which the assessee bought the land and sold for profit. It is a well settled principle that the Court in each case has to determine the nature of transaction with reference to its volume, frequency, continuity and regularity. If a assessee invests money in land intending to hold it for longer period, enjoys its income for some time and then sells at a profit, it would be a clear case of capital accretion and not profit derived from adventure in the nature of trade. Cases of realisation of investment consisting of purchase and sale, though profitable are clearly outside the domain of adventure in the nature of trade. While deciding the character of such transaction one has to see various relevant facts. We have to see whether buying and selling activities is in the course of main business activity of the assessee or incidental thereto. As we discussed earlier, the assessee firm is a private limited company with the main object to deal with in real estate. The land purchased by the assessee in the present case is subject matter of trade and it has purchased at regular intervals and it cannot be considered as investment activity of the assessee. Even after purchasing the agricultural land, the assessee cannot be said to be carrying on any agricultural operation. There were no activities connected with the land. Though the assessee taken a plea that the land was leased for agricultural operations, the evidence brought on record does not suggest that the agricultural operation was actually carried on the said land. Though the assessee shown the land as an investment in the Balance Sheet it cannot change the character of land as stock-in-trade. The entry in the books of account is not conclusive to hold that the assessee has not dealt with in land. In our opinion, the land dealt by the assessee is a stock-in-trade. It is carrying on business and making profit by buying and selling the land. The facts of case suggest that the assessee with a sole motive of dealing in land acquired the land and sold the same which can be nothing but adventure in the nature of trade. Further the facts of the case show that the land is situated in surrounding urban areas. Had the intention of the assessee is to carry on agricultural operations; it would not have left the land without cultivation. The assessee before us relied on various judgements of various courts. In our opinion, these judgements were delivered on their own set of facts. Whether a land is agricultural land or not is an essential question of fact. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. The court has to answer the question on a cumulative consideration of all of them. The various circumstances appearing for and against the assessee are to be considered. Though, in the present case the land registered as agricultural land in Revenue records, payment of land revenue and leasing of the land for agricultural purposes are in favour of the assessee. However, the assessee is a private limited company having the main object of dealing in real estate has not actually carried on the agricultural operations in the said land and even if it is accepted that the land was leased for agricultural purposes, it is only a stop gap arrangement and the evidence brought on record is not enough to show there was actual agricultural operation. The land was sold for non-agricultural purposes at heavy price. The intention of the assessee was to deal in the land and earn profit. Being so, in our opinion, the facts and circumstances brought on record clearly demonstrate that the assessee is a dealer in real estate and carried on the business of buying and selling of land and income arising out of this activity is nothing but business income and it has to be taxed accordingly.
The learned AR made one more argument that in earlier year the Assessing Officer accepted the income arising out of sale of such land as income from agriculture and consistency is to be followed for this assessment year also. More so, in the Wealth-tax returns for A.Ys. 2003-04 till 2007-08 this land was treated as exempted asset for the purpose of Wealth-tax by the Department. We are unable to appreciate this contention of the AR. Time and again it has been stated that each assessment year is a separate unit of assessment and principles of res judicata did not apply to the income-tax proceedings. The issues in the present year may be the same as they may have been in the earlier but still it is expected of the Assessing Officer to verify the facts on those issues and then he may follow his order in the earlier years. That too he is not bound to follow if a mistake has been committed persistently over the past number of years as was held by the Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44. Therefore, we are not agreeing with the contention of the assessee's counsel.
IN THE ITAT HYDERABAD BENCH 'B'
G.K. Properties (P.) Ltd.
v.
Income-tax Officer, Ward 2(2)
IT APPEAL NO. 287 (HYD.) OF 2011
[ASSESSMENT YEAR 2007-08]
AUGUST 31, 2012
ORDER
Chandra Poojari, Accountant Member – This appeal by the assessee is directed against the order of the CIT(A)-III, Hyderabad dated 28.12.2010 for assessment year 2007-08.
2. The grievance of the assessee in this appeal is with regard to confirming of action of the Assessing Officer that the profit on sale of agricultural land as income from business instead of treating it as exempted income.
3. Brief facts of the issue are that the assessee is a company which derives income from business of construction and sale and purchase of lands. For the Asst. Year 2007-08, it has filed its return of income on 29.10.2007 showing income of Rs. 6,21,400. After processing of the said return, the same was selected for scrutiny assessment. In the return the assessee has declared profit of Rs. 69,00,224 on sale of agricultural lands and claimed the same as exempt from tax. During the assessment proceedings, from the details furnished by the assessee, the Assessing Officer noticed that such profit has arisen from sale of land at Turkapally and at Kompally. In support of claim of agricultural land, the assessee has filed a certificate dated 24.12.2009 in that regard from the Tahasildar, Shameerpet Mandal. The assessee has also furnished the details of lands purchased at Turkapally village and at Qudbullapura village, Medchal Mandal. In response to query raised by the Assessing Officer to furnish details of agricultural operation carried out on the said land, the assessee has submitted that the said land has been leased out earlier and an income of Rs. 15,000 was earned. In response to further query raised by the Assessing Officer, the assessee has furnished the details of purchase and sale of agricultural lands made during earlier years. It has furnished the details of purchase of agricultural land during the previous years 2002-03 to 2003-04 and the sales made out of such land during the previous years 2004-05, 2005-06 and 2006-07. Such statement as furnished by the assessee is extracted by the Assessing Officer at page 5 & 6 of the assessment order. After considering such details furnished by the assessee, the Assessing Officer noted that though such lands were shown as capital assets, the same were actually constituting stock-in-trade of the business in the case of the assessee and he was of the view that such sale transactions carried out by the assessee during the previous year were actually business transactions made during the year. He noted that the assessee has not explained the reasons for purchase of such agricultural lands. Such lands purchased by the assessee have neither yielded any substantial agricultural income nor they are fertile lands. The said lands, in fact, were dry lands. Mentioning that, the claim of receipt of agricultural income from alleged lease has not been substantiated by any evidence, he noted that the assessee has purchased such lands with the only intention to sell them at a later date to earn profit. He further noted that such lease of those lands in the case of the assessee was merely a stop gap arrangement, to sell that land at a higher profit margin later. He further mentioned that on a personal visit made by him of that land, he found that there were some real estate activities being carried out in the vicinity of that land. Further referring to sale deeds executed in respect of lands situated at Kompally and quoting the relevant portion from the same at page-9 of the assessment order, he noted that such land sold by the assessee, though claimed as agricultural land, in fact, was not agricultural land, but clearly falls within the meaning of urban land. With these observations he held that the claim of the assessee that such profit earned from sale of said lands is exempt, cannot be accepted. According to him, such sale transactions made by the assessee are to be considered as business transactions and accordingly, that profit has to be taxed treating the same as business income. Therefore, during the assessment proceedings, he has asked the assessee to explain why such profit from sale of said lands should not be taxed treating as business income?
4. In response to such query, the assessee has submitted that the company in their case was incorporated on 23.11.1992 and its main object was not buying and selling of agricultural lands. It has purchased agricultural lands during different years with an intention of investment. It has shown agricultural income in form of lease rentals from the same and the said claim has been accepted in the previous assessments made in the case of the assessee. In the Wealth Tax returns filed for the Asst. Years 2003-04 to 2007-08, their claim about said lands being exempted assets, has been accepted. It was further stated that they have sold a part of the said lands and no capital gains was paid and their such claim was accepted by the department. It was further submitted that the buyer who has purchased the land has also indulged in agricultural activity. It was stated that the said agricultural lands in the case of the assessee, is not a capital asset within the meaning of section 2(14) of the Act. With these submissions, the assessee has contended that such profit earned from sale of those land during the previous year, cannot be taxed treating as business income.
5. However, the Assessing Officer did not accept such submissions of the assessee. He noted that purchase of lands at frequent intervals during the earlier years points to the intention of the assessee of engaging in business activity. He stated that such purchases made by the assessee, were with a motive to earn profit from sale of such lands at a later date. The said lands purchased by the assessee were dry lands and from mere declaration of lease rental from the same during the earlier years at Rs. 15,000, it cannot be said that the assessee was actually having agricultural income from such lands. He further noted that from mere acceptance of their wealth tax returns, it cannot be said that such profit earned from sale of the said lands during the previous year is exempt from tax. Stating that it was the intention of the assessee at the time of purchase of said lands to earn profit by selling them subsequently and referring to the fact of real estate activity being carried out in the vicinity of the said lands, the Assessing Officer held that the profit from sale of those lands in the case he assessee, has to be taxed treating as business income. Accordingly, he rejected the claim of the assessee for exemption of such profit from tax. After adding the said amount of Rs. 69,00,224 treating the same as income from business, to the returned income of the assessee, he completed the assessment on a total income of Rs. 75,21,624, vide his order dated 31.12.2009 passed u/s. 143(3) of the Act. On further appeal, the CIT(A) confirmed order of the Assessing Officer. Against this the assessee is in appeal before us.
6. The learned AR submitted that the assessee is a Private Limited Company incorporated in 1992. The Memorandum and Articles of Association of the Company are furnished in the Paper Book from Page 132 till the end. The main object of the company is to do and be in Real Estate Business in respect of land or buildings. The objects are specified in the first page of the Memorandum at Para (A) with Clauses I to 4. For the Assessment Year under consideration 2007-08, the assessee admitted an income of Rs. 6,21,400/- from the business carried on by the company. The assessment was completed by making an addition of Rs. 69,00,224. This amount is shown in the Profit & Loss A/c but reduced from the net profit in the adjusted statement with the narration "Profit on sale on Agricultural land being exempt". The details of agricultural lands sold are as under:
Sy. No. Turkapally village | Area | Date of sale | Date of purchase | Sale consideration Rs. |
| 571 564 6.00 | 3 acs 26 gts | 10.4.2006 | 23.5.2003 | 28.95,000 |
| 560 | 4 acs 15 gts | 10.4.2006 | 4.2.2003 | 13,12,500 |
| 512 | 14 acs 13 gts | 10.4.2006 | 5.3.2003 | 42,97,500 |
| 22/A, 22/B in Kompally | 0 acs 6 gts | 25.9.2006 | 10.1.2006 | 3,75,000 |
7. The AR submitted that the Assessing Officer (AO) held that the assessee indulged in an Adventure in the nature of trade in buying the agricultural lands and in selling them later. Therefore he assessed the amount of Rs. 69,00,224/- as income from business. It is the assessee's contention that there is no object in the Memorandum of Association to do Business in Agricultural lands and that the Memorandum and Articles confine the activities to the business Real Estate, that the agricultural lands were purchased nearly after 10 years after the existence of the company as a matter of investment and also shown in the account Books accordingly through out the period of holding. The Income Tax Officer, i.e. AO proposed to treat the income from agriculture as income from business on the ground that the assessee indulged in an adventure in the nature of trade in buying and selling agricultural lands, that the "capital assets" shown in the balance sheet should be treated as "stock-in-trade of the business", that the agricultural activity carried out was of a minimal nature and that the ancillary activities in Clause 11 at page 3 of the Memorandum and Articles of Association cover the agricultural lands. The assessee submitted before the AO that The company was incorporated on 23-11-1992 and that its main objects as mentioned are not buying and selling of agricultural lands. It had purchased agricultural lands in various years as per statement mentioned supra and that the said agricultural lands are purchased with an intention of investment It has shown agricultural income in the form of lease rentals and that the previous assessments have been completed by accepting the said claim. It had filed Wealth Tax returns for Assessment Year 2003-04 till 2007 -08 and that it has shown the said lands are exempted assets and that the claim was accepted. It had sold some part of these lands and that no capital gains was paid and that the claim was accepted by the department The personal visit of the assessing officer revealed that the buyer who purchased the lands has also carried out agricultural activity. The assessee relied on the ratio of the decision in the case of CIT Vs Tarachand Jain (123 ITR 567) (Patna) wherein it was held that the important factors that should be taken into consideration to determine whether a piece of land can be said to be agricultural or not are whether the land has been assessed to land revenue or not whether the agricultural operations are carried on in the land whether the land is capable of agricultural operations the intention of the owner or the purpose for which he is retaining the land, such intention not being fluctuating or ambulatory character of adjoining land and description of land in the official records.
8. Reliance is also placed on the decision in the case of M.S. Srinivasa Naicker v. ITO (292 ITR 481) (Mad) wherein it was held that it was admitted cases that till the date of sale, agricultural operations were carried on by the assessee. The land was put to use only for agricultural purposes and not for anything else. The lands in question were also registered as agricultural lands and assessed to land revenue. The fact that the purchaser had put it to use for a totally different purpose from that of the assessee ought not to have weighed with the tax authority. Capital gains tax could not be levied. The AO however has rejected all the contentions. He has not adverted to the above decisions of the High Courts relied on by the assessee. It may be stated here that the AO made conflicting statements while rejecting the contentions of the assessee. They are as follows:
At page 4(ii): "the lands have not yielded any income whether exempt or not thereby indicating a possible change in their true 'character' from agricultural lands".
At page 7(iv) : "the lands in fact were dry lands which have not yielded any agricultural income"
At page 12 (e): "the description of the land in the official records though indicate the lands to be agricultural lands except certification the nature and extent of crops grown, yield per acre etc have not been furnished by the Tahsildar as there is no such activity in connection with agricultural during the year"
9. The AR submitted that at the same time the Assessing Officer made the following observations in his order which are at variance with the preceding observations:
At page 4(iii): "the assessee has invested huge sums of money by purchasing agricultural lands and has earned mere income from lease".
At page 5(vii): "mere receipt of lease income from alleged agricultural lands cannot determine the nature of the said lands as 'agricultural lands' whereas the fact remains that the same are dry lands".
At page 7(iii) : "the lands that have been purchased have neither yielded any substantial agricultural income nor they were fertile lands".
At page 8(vi): "mere receipt of lease in earlier years of Rs. 15,0001- cannot alter the true nature and characterstic of the lands which have been purchased with the only intention to sell them at a later date with profit margins. Even if the lands are given on lease, the arrangement can be nothing but a stop gap arrangement waiting to sell the same at a profit margin".
10. The AR submitted that, thus on one hand, the AO stated that no agricultural activity whatever was carried out and no income was derived whereas he also stated that lease income was received but not substantial. In any case, Courts have held that if the land is assessed to land revenue and classified as agricultural in revenue records, the land does not cease to be agricultural even if it is left lying as fallow.
11. The AR submitted that the Assessing Officer relied on certain assumptions for reaching his conclusions without any valid material.
At page 4(ii): "the lands have not yielded any income whether exempt or not thereby indicating a possible change in their true 'characterstic' from agricultural lands".
At page 4 (v): "the transactions of sale after some time out of some part of the land indicate that the assessee 'ventured' to sell the lands at a higher price keeping in view the growing nature of real estate in and around the vicinity of the lands".
At page 8(vi) : "mere receipt of lease in earlier years of Rs. 15,000 cannot alter the true nature and characterstic of the lands which have been purchased with the only intention to sell them at a later date with profit margins. Even if the lands are given on lease, the arrangement can be nothing but a stop gap arrangement waiting to sell the same at a profit margin".
At page 11 (iii): "mere declaration of lease income in earlier years of Rs. 15,000 is only an alternate claim of the assessee to colour the receipt of agricultural income in respect or 'dry lands' which have been kept idle expecting them to be sold at a future date for profit".
12. The AR submitted that the above observations of the Assessing Officer show that he has relied on his own surmise and conjecture to arrive at the conclusion that the assessee had the intention of indulging in adventure in the nature of trade. The Assessing Officer has also made an incorrect statement in his reasons. At page 12(d) the Aa states that "the character of the adjoining land has also not proved since in the vicinity of the lands the activity of some real estate by way of huge building has been constructed". This is not correct as the adangal records of the State Revenue Authorities show.
13. Adangal register copies are filed before the Bench. The most significant evidence in the form of a letter from the Tahsildar of Shamirpet Mandal in reply to the AOs own letter calling for information u/s 133(6) of the IT Act (P 6 of the PB) has been omitted to be considered. The letter shows that as late as in December 2009 the lands in Turkapally which were sold by the assessee were under cultivation even by the purchasers from the assessee. The courts have held that even in a case where the seller-assessee sold the agricultural lands which were used by the purchasers for non-agricultural purposes would not render the seller – assessee as deriving non-agricultural income. The case of the assessee is on a better footing. In the case of the assessee as late as in December 2009, the lands transferred by it were with teak plantation, paddy cultivation, mango plantation etc. The AO has not considered the case law presented to him. But he sought to rely on the decision in the case of Deep Chandra & Co v. CIT (107 ITR 746) (ALL) which actually is in favour of the assessee's stand. He relied on another decision in the case of CIT v. R Ramaiah (146 ITR 39) (KAR). That decision is not at all applicable to the facts of the assessee's case because the land there was converted into a non-agricultural land. In the case of the assessee, the Tahsildar clearly stated (Page 6 of the PB) that the assessee did not apply for the conversion of the land for non-agricultural purposes. The AR submitted that the lands are assessed to land revenue, they are dry lands, cultivation is being carried on in the vicinity the land was sold on an acreage basis not on the basis of yardage and the land was not converted into plots Adangal registers Tahsildar's certificate and sale deeds prove the above facts. Therefore the income derived is clearly agricultural income.
14. The AR submitted that In the case of Raghottama Reddy v. ITO (169 ITR 174, 184) the Andhra Pradesh High Court held "Accordingly, we hold that the profit or gain resulting from sale of agricultural land is "revenue derived from land", i.e., it is agricultural income within the meaning of clause (1) in Sec 2 of the Act."
15. The AR submitted that the explanation – 1 inserted by the Finance Act 1989 with retrospective effect from 1-04-1970 does not make any difference because the explanation ropes in the revenue derived from the agricultural lands located in the municipalities and from those within the notified limits of the municipalities. Therefore the profit and gains on sale of agricultural lands which do not come u/s. 2(14)(iii) continue to be agricultural income in terms of the AP High Court judgement (Supra). Further the judgement does not differentiate between the agricultural lands held as capital asset or even otherwise to hold that profit and gain is agricultural income. However the Assessing Officer sought to hold the income as on sale of stock-in-trade. It is submitted that the facts on record clearly show that the agricultural lands are not stock-in-trade. Actually the AOs stand that the agricultural lands are the stock-in-trade of business of the assessee is at variance with his another statement that the assessee indulged in an adventure in the nature of trade. An adventure in the nature of trade cannot be the trade itself. The stock-in-trade is relevant only for trade and not if it is an adventure in the nature of trade. Trade cannot be adventure and an adventure does not involve stock-in-trade.
16. The AR relied on the judgement of Gujarat High Court in the case of CIT v. Siddhartha J Desai (139 ITR 628) where after considering a long catena of judgements, the High Court laid down several tests which are as follows:
• classification in the revenue records
• assessment to land revenue
• usage of the land either actually or ordinarily at about the relevant time
• period of user whether long or short or by way of stop gap arrangement
• Proportion of income and investment
• Whether permission for non-agricultural use of the land is obtained
• whether the land also was put to alternative user
• non-user of the land for agriculture at any time
• whether the owner meant or intended to use the land for agricultural purposes
• whether the land was in a developed area and the nature of user of the lands in the adjoining area
• whether the land was plotted and roads and other facilities provided
• Whether the sale was to be in favour of a non-agriculturists or for non-agricultural purposes
• Whether the land was sold on yardage or acreage basis
• Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold.
17. The AR submitted that it is very clear from the wide ranging and comprehensive tests laid down by the Gujarat High Court as above that the assessee's case for agricultural income is very well supported. Even in regard to the last factor, it is whether the agriculturists who purchased the land continued to carry on agricultural operations, it is stated by the Tahsildar in his letter that the lands were being used for agricultural purposes by the purchasers till Dec 2009. The Gujarat High Court went on to hold that "at the risk of repetition, we may mention that not all of these factors would be present or absent in any case and that in each case one or more of those factors may make appearance and that the ultimate decision will have to be reached on a balanced consideration of the totality of circumstances". As the assessee passes the test in almost all the above parameters the income is agricultural income only and therefore exempts u/s 10(1) of the IT Act . The schedule of fixed assets shows that the assessee spent far less amounts on agricultural land than on the urban lands, vehicles etc which would not be the case if lands were a stock-in-trade or business asset.
18. The AR submitted that on appeal, the commissioner of Income Tax (Appeals) has clearly accepted the position that the lands are agricultural and the income was from agriculture. He however sought to apply the decision of the Allahabad High Court in the solitary case of DCIT v. Gopal Ram Narayan Kasat (328 ITR 5556,570). It is submitted by the assessee before the Hon ble Bench that this decision is not applicable to the case of the assessee as the facts there in on the basis of which the High Court came to conclusion are entirely different. In that case, the assessee was involved in a series of transactions of purchasing lands which were notified or likely to be notified for acquisition by the Government and the transactions were not only pertaining to the Jalgaon District but also Aurangabad District far away from the company's business activity. In the case of the assessee neither of these factors namely (a) acquisition or purchase of lands with an eye on the impending acquisition and the compensation amounts by the State Government or (b) the far-away nature from the place of business is present in this case.
19. The AR submitted that the CIT(A) has however observed mistakenly that the assessee was continuously selling lands during earlier years. The assessee sold the' lands only in one earlier year where the department has accepted the claim of exemption of the agricultural income. The CIT(A) has not denied that the agriculture operations were not carried out. His objection is that the lands were not personally cultivated by the assessee as in the cases relied on by him. The income froth land is agricultural if it is derived from agricultural operations. The nature of income from a particular land whether agricultural does not depend on the person, that is owner or lessee cultivating it. The character of income goes with the land and not with the person cultivating it. It is not correct to state that the agricultural operations were not carried out on the land because the lease income on the lands was only on account of agricultural operations. The reliance on the decision of the Supreme Court in the case of G Venkata Swamy Naidu & Co v. CIT (35 ITR 594) is misplaced because the asset there was not agricultural land. The decision is not at all applicable to the facts because there the issue is not whether the income is from agriculture or from business and the agriculture activity was not in issue. In fact agricultural lands can never be stock-in-trade. Neither the AO nor the CIT (A) could lay hands on a single case where the purchase and sale of agricultural lands were held to be in the nature of business activity. Before deciding whether an activity would amount to an adventure in the nature of trade, courts have held that it is to be seen whether the commodity is normally understood as commercial item. It is submitted that agricultural land is not such a commercial commodity. Businessmen never carry on trade in agricultural lands. Further in order to constitute adventure in the matter of trade, it was held that the assessee must have made some improvements or alterations or conversion into plots to make it tradeable. This has not been done. The dry lands purchased were sold in the same state without any improvement or change what so ever. Having regard to all the above submissions, the AR submitted that the orders of the lower authorities be set aside and the claim of exemption of agricultural income made u/s. 10(1) be accepted.
20. The learned DR submitted that the assessee submitted that such profit amounting to Rs. 69,00,224 earned from sale of agricultural lands made during the previous year, is exempt from capital gain tax and the same cannot be taxed treating it as business income. The assessee submitted that such profit arose from sale of lands at Turkapally village. However, as mentioned by the Assessing Officer at page-2 of the assessment order, the assessee has earned such profit from sale of lands situated both at Turkapally village and Kompally village. Huge lands falling in three different survey numbers, were sold at Turkapally and a part of the land was sold at Kompally. The land which was sold at Kompally, has been purchased in the immediately preceding year, as evident from the said statement given by the Assessing Officer at page-2 of the assessment order. Further, from the other statement regarding purchases and sales of land made during different years, as furnished by the assessee during the assessment proceedings, it is seen that the assessee was continuously purchasing lands at different villages during earlier years. It was also continuously selling lands during earlier years. As seen from the statement given at page 6 of the assessment order, the assessee has sold the alleged agricultural lands during the Asst. Years 2005-06, 2006-07 and 2007-08.
21. The DR submitted that as per the submissions of the AR, the assessee was engaged in real estate business. It has been submitted that such agricultural lands purchased by the assessee, is shown as fixed assets in the balance sheet. It is further stated that the same were purchased with an intention of investment. But, it has not been clarified as to what was the intention of the assessee for purchasing such huge agricultural lands during different years. It has not been explained as to why the assessee has made sales out of such lands, continuously during different years. In fact, on a careful appreciation of the entire facts of the case, it can be said that it was not the intention of the assessee to cultivate the said lands, purchased by it during different years. Though such lands purchased by it, are stated to be agricultural lands, the assessee has not carried out any agricultural operation on the same. During the assessment proceedings, in response to query from the Assessing Officer for substantiating the claim of any agricultural operation, vide letter dated 21.12.2009, the assessee has merely submitted that it has given such lands on lease and has shown lease rentals at Rs. 15,000 as agricultural income. Such amount has been shown consistently from 2003-04 to 2006-07. From such submission of the assessee, it is thus clear that, it was not the intention of the assessee to cultivate such lands purchased by it. Such lands were purchased by it during those years, with the sole motive of earning substantial profit from sale of such lands during succeeding years. Having regard to this objective on part of the assessee, the facts of continuous purchase and sale of such lands carried out during different years and the fact of a series of sale transactions made by the assessee during the previous year, the said profit of Rs. 69,00,224 earned from sale of those lands made during the previous year, has. to be taxed in the hands of the assessee, treating the same as business profit and hence, as income from business. In fact, such transactions of sale of lands made by the assessee during the previous year, having regard to the circumstances of the case, are squarely in the nature of business transactions, and thus, the resultant profit earned from such transactions in this case, has to. be taxed treating as business profit and thus as business income. The learned DR placed reliance on the decision of Hon'ble Bombay High Court in the case of DCIT v. Gopal Ramnaryan Kasat [2010] 328 ITR 556, Wherein, after referring to the decision of Supreme Court in G. Venkataswami Naidu & Co., v. CIT [1959] 35 ITR 594, and the facts of that case, the High Court upheld taxing the profit as business income, while rejecting the contention of the assessee that the land was acquired as a capital asset and the same being agricultural lands, there is no liability for capital gain tax. The DR submitted that the following observations were made by the High Court while rejecting the plea of the assessee regarding capital asset:
"…………. if the lands were not purchased with the intention of holding them as "capita asset" and only with an intention of earning huge profits on the said purchases, we do not find any infirmity with the finding of the Tribunal, that the reliance placed on the provisions of section 2(14)(iii)(a) and (b) is of no assistance to the assessee. If the lands, in question, were not purchased for the purpose of agriculture, with an intention to hold them as a "capital asset", we do not find any merit in the contention of the assessee, that the said agricultural lands were excluded from the definition of "capital asset" and, as such, the income from the sale thereof not liable to be taxed. In the result, we reject the contention of the assessee in the respect." (at page 570)
22. The learned DR submitted that the assessee made a reference to the assessment order passed in its case for the A.Y. 2005-06 in support of its plea but the principle of res-judicata are not applicable to income tax proceedings. Each assessment year is different and independent. Conclusions on certain issue in an assessment year, has to be arrived on the basis of prevailing facts during that year. Accordingly, the learned DR submitted that the profit arising from sale of such lands made by the assessee during the previous year, has to be taxed treating as business income in the Asst. Year 2007-08. The learned DR submitted in support of the contention that such profit earned from sale of lands during the previous year is exempt from tax, the assessee has relied on three decisions referred in para 4.2 of the CIT(A) order. However, as would be seen the facts in those cases are totally different from that of the assessee. In CIT v. Borhat Tea Co. Ltd., 7 Taxman 388 (Cal.), the assessee was engaged in business of cultivation, manufacture and sale of tea. In that case during the accounting year relevant to Asst. Year 1969-70, the assessee company sold a part of their agricultural land, under cultivation by them, to a company engaged in tea cultivation in adjoining areas. Under such facts, the Hon'ble Calcutta High Court held that resultant profit from sale of such land was not liable to capital gain tax. In the case of CIT v. Madhabhai H. Patel, 77 Taxman 408 (Guj), the assessee an individual, has sold certain agricultural lands under cultivation till the year 19967-68, personally by him. The said land belongs to his family and he got the same by way of inheritance. Since the said land was agricultural land and the same was under cultivation personally by the assessee, the Hon'ble Gujarat High Court held that the surplus arising from sale of such agricultural land was not liable for capital gain tax. In the case of Harish V. Milani v. JCIT, reported in 114 ITO 428, it was found by the Tribunal, that agricultural operations were carried out on such land by the owner himself. Under such circumstances, the Tribunal held that since the said land sold by the assessee was an agricultural land, any gain arising from sale thereof was exempted from tax. The learned DR submitted that in all the above three cases, those lands were under cultivation by the respective assessee. The DR submitted that the assessee was not carrying on any agricultural operation on such lands sold by it. The lands were purchased by the assessee with the sole intention of earning high profit from selling the same in subsequent years. The facts in the said three decisions being totally different from that of the assessee, the decisions rendered therein, would be of no help to the case of the assessee. Thus, the learned DR submitted that in view of the foregoing discussions, and having regard to the ratio of said decision of Hon'ble Bombay High Court in the case of DCIT v. Gopal Ramnaryan Kasat [2010] 328 ITR 556, the Assessing Officer was justified in taxing the entire profit of Rs. 69,00,224, treating the same as business profit in the hands of me assessee in this case.
23. Further he submitted that the intention of the has to be seen to categorise the nature of income and due to change of economic conditions and boom in real estate market there was buying and selling of property around the city of Hyderabad for non-agricultural purposes. Admittedly, in this case the assessee's main object in the MOA is nothing but dealing in real estate and the assessee has to be considered as carrying out the activities as adventure in the nature of trade. He relied on 328 ITR 55..
24. We have heard both the parties and perused the material on record. In this case the main issue is with regard to treatment of income arising out of sale of land is income from business or capital gain. The assessee firm is a private limited company having main object clause in the Memorandum of Association, as follows:
"To do and be in Real Estate business and for the purpose buy, sell, take or lease give on lease or on licences, maintain, develop, demolish, alter construct, build and turn to account any land or buildings owned or acquired or leased by the company or in which the company may be interested as owners, lessors, lessees, licensors, licencees, architects, builders, interior decorators and designers, as vendors. contractors, property developers, and Real Estate owners and agents whether such land or building or the development thereof be for or in respect of residential or commercial purposes. such as multi-storeyed buildings, complexes, houses, flats, offices, shops, garages, cinemas, theatres, hotels, restaurants, Motels or other structures of whatsoever description including prefabricated and precast houses, buildings, and erections and to enter into contracts, sub-contracts, and arrangements including the raising of finances-from whatsoever sources and giving of loans and advances to give effect and implement the said objects."
25. Thus, the main object clause suggests that the assessee's main business is to deal in real estate. After forming the company, the assessee started buying of land. The assessee has taken a plea before us that it has earned income by leasing these agricultural lands to other parties to carryon agricultural operations and the land was subjected to agricultural operations by other persons. Being so, the income earned by sale of such land is to be treated as capital gain and that has to be exempted from tax in view of provisions of section 2(14)(iii) of the Act. In our opinion, this argument of the assessee's counsel is having no merit. The assessee carried on the activity of buying and selling of lands and in each case the land was not subjected to cultivation by the assessee. We cannot accept the argument of the assessee on an assumption the land is fit for agriculture and was used for agriculture purpose by somebody on behalf of the assessee. The assessee's intention is to be seen. It is on record that there is a series of transactions by which the assessee bought the land and sold for profit. It is a well settled principle that the Court in each case has to determine the nature of transaction with reference to its volume, frequency, continuity and regularity. If a assessee invests money in land intending to hold it for longer period, enjoys its income for some time and then sells at a profit, it would be a clear case of capital accretion and not profit derived from adventure in the nature of trade. Cases of realisation of investment consisting of purchase and sale, though profitable are clearly outside the domain of adventure in the nature of trade. While deciding the character of such transaction one has to see various relevant facts. We have to see whether buying and selling activities is in the course of main business activity of the assessee or incidental thereto. As we discussed earlier, the assessee firm is a private limited company with the main object to deal with in real estate. The land purchased by the assessee in the present case is subject matter of trade and it has purchased at regular intervals and it cannot be considered as investment activity of the assessee. Even after purchasing the agricultural land, the assessee cannot be said to be carrying on any agricultural operation. There were no activities connected with the land. Though the assessee taken a plea that the land was leased for agricultural operations, the evidence brought on record does not suggest that the agricultural operation was actually carried on the said land. Though the assessee shown the land as an investment in the Balance Sheet it cannot change the character of land as stock-in-trade. The entry in the books of account is not conclusive to hold that the assessee has not dealt with in land. In our opinion, the land dealt by the assessee is a stock-in-trade. It is carrying on business and making profit by buying and selling the land. The facts of case suggest that the assessee with a sole motive of dealing in land acquired the land and sold the same which can be nothing but adventure in the nature of trade. Further the facts of the case show that the land is situated in surrounding urban areas. Had the intention of the assessee is to carry on agricultural operations; it would not have left the land without cultivation. The assessee before us relied on various judgements of various courts. In our opinion, these judgements were delivered on their own set of facts. Whether a land is agricultural land or not is an essential question of fact. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. The court has to answer the question on a cumulative consideration of all of them. The various circumstances appearing for and against the assessee are to be considered. Though, in the present case the land registered as agricultural land in Revenue records, payment of land revenue and leasing of the land for agricultural purposes are in favour of the assessee. However, the assessee is a private limited company having the main object of dealing in real estate has not actually carried on the agricultural operations in the said land and even if it is accepted that the land was leased for agricultural purposes, it is only a stop gap arrangement and the evidence brought on record is not enough to show there was actual agricultural operation. The land was sold for non-agricultural purposes at heavy price. The intention of the assessee was to deal in the land and earn profit. Being so, in our opinion, the facts and circumstances brought on record clearly demonstrate that the assessee is a dealer in real estate and carried on the business of buying and selling of land and income arising out of this activity is nothing but business income and it has to be taxed accordingly.
26. The learned AR made one more argument that in earlier year the Assessing Officer accepted the income arising out of sale of such land as income from agriculture and consistency is to be followed for this assessment year also. More so, in the Wealth-tax returns for A.Ys. 2003-04 till 2007-08 this land was treated as exempted asset for the purpose of Wealth-tax by the Department. We are unable to appreciate this contention of the AR. Time and again it has been stated that each assessment year is a separate unit of assessment and principles of res judicata did not apply to the income-tax proceedings. The issues in the present year may be the same as they may have been in the earlier but still it is expected of the Assessing Officer to verify the facts on those issues and then he may follow his order in the earlier years. That too he is not bound to follow if a mistake has been committed persistently over the past number of years as was held by the Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44. Therefore, we are not agreeing with the contention of the assessee's counsel.
27. In the result, assessee's appeal is dismissed
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