IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI KESHAV DUBEY, JM ITA No. 54/Coch/2012 Assessment Year: 2008-09 P.C. Jose .......... Appellant Brothers Agencies, Jews Street Ernakulam 682031 [PAN: ABBPJ8250F]

vs.

Dy. Commissioner of Income Tax .......... Respondent Circle - 2(1), Kochi ITA No. 84/Coch/2012 Assessment Year: 2008-09 Dy. Commissioner of Income Tax .......... Appellant Circle - 2(1), Kochi vs.

P.C. Jose .......... Respondent Brothers Agencies, Jews Street Ernakulam 682031 [PAN: ABBPJ8250F]

Assessee by: Shri R. Krishnan, CA Revenue by: Shri Sanjit Kumar Das &

Smt. Leena Lal, Sr. D.R.

Date of Hearing: 20.02.2025 Date of Pronouncement: 18.03.2025

O R D E R

Per: Inturi Rama Rao, AM These are cross appeals filed by the assessee as well as Revenue directed against the order of the learned Commissioner of Income Tax (Appeals)-2, Kochi dated 15.12.2011 for AY 2008-09.

2. The brief facts of the case are that the assessee is an individual engaged in the business of real estate and dealing in wedding cards, New Year greeting cards, etc. The return of income for AY 2008-09 was filed declaring total income of Rs. 13,26,58,460/-. Against the said return of income the assessment was completed by the DCIT, Circle-2(1), Kochi (Hereinafter called "the AO") vie order dated 29.12.2010 passes u/s. 143(3) of the Income Tax Act, 1961 (the Act) at a total income of Rs.

24,99,82,580/-.

3. While doing so the AO brought to tax as business income gains arising out of sale of land, of Rs. 11,29,16,575/- claimed to the exempt from tax by holding that the lands sold were not agricultural land. Similarly, the AO also made an adhoc disallowance of expenditure of Rs. 1,92,763/-. The AO had disallowed the loss claimed from business of card division of Rs. 7,50,000/-. The brief factual background leading to the above addition is as under: -

Gains from sale of land

4. During the previous year relevant to the assessment year under consideration the assessee had sold properties situated in a place called ‘Kakkanad’ to a builder, details of which are given as under: -

5. The said lands were situated in Thrikkakara Panchayat. The area of Thrikkakara Panchayat was notified area during the period from 1984 to 1994, but denotified in the year 1994. The appellant purchased adjacent pieces of land from 8 different parties during F.Y. 2006-07. These lands were sold to different parties for a total consideration of Rs. 19,35,80,550/-. In the year of purchase of these lands, the appellant had shown the purchase consideration as advance and shown investment in the property under the head “loans and advances”. It was claimed that the lands sold were agricultural both at the time of purchase and as well as sale and the land was not situated within the notified distance from the local limit of any municipality and, therefore, the gain arising on sale of such lands to be exempt from tax, as it is not capital asset within the meaning of section 2(14)(iii) of the Act. However, the AO was of the opinion that it is a capital asset by citing the following reasons: -

I. The land sold was situated in a highly developed residential area. The mere fact that vegetable and crops were available at the time of sale cannot make the property exempt.

II. The lands purchased were sold within a short span of time to the real estate companies. Therefore the intention of the assessee behind the purchase of land is only for business purpose.

III. Not only the land must be capable of use for agricultural purpose but also should have actually used.

IV. The assessee was already in real estate business and there were frequent purchases and sales of land. Therefore, the lands were purchased with the intention for resale for a profit, which is “an adventure in nature of trade”. Accordingly the AO brought to tax the gains arising out of land amounting to Rs. 11,29,16,575/- as business income.

6. Further, the AO also made addition of the same amount under the head ‘capita