IN THE ITAT HYDERABAD BENCH ‘B’
G.K. Properties (P.) Ltd.
v/s.
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:
