Sale of Multiple Plots Not an Adventure in Trade Despite Basic Levelling | ITAT

Case Details: Keshavareddy Krishnareddy vs. Assistant Commissioner of Income-tax - [2026] 186 taxmann.com 773 (Bangalore-Trib.)

Judiciary and Counsel Details

• Prashant Maharishi, Vice President & Soundararajan K., Judicial Member
• P.K. Prasad, Adv. for the Appellant.
• Balusamy N., JCIT for the Respondent.

Facts of the Case

Assessee was engaged in the business of running a bar and restaurant. During the relevant assessment year, the assessee sold 25 plots of land and claimed long-term capital gain. Assessee claimed exemption in respect of the sale of agricultural land and compensation for the compulsory acquisition of agricultural land, relying on section 10(37).

Upon scrutiny, the Assessing Officer (AO) treated the sale of the plots as an adventure-like trade. He contended that the assessee had incurred development expenses and consequently treated profits from the sale of agricultural lands and acquisition compensation as business income. Aggrieved by the order, the assessee preferred an appeal to the CIT(A), wherein the appeal was dismissed. The matter then reached the Bangalore Tribunal.

ITAT Held

The Tribunal held that the assessee had used its funds for purchasing the plots. The assessee had purchased 25 plots from a single seller and levelled them, incurring the expenditure. He subsequently sold them to 25 buyers using his funds and did not deal in the purchase and sale of plots. The assessee was not engaged in the real estate business, and dealing in real estate was wholly unaccounted for and not allied with the usual trade of the assessee.

The assessee entered into only one transaction of purchasing all these 25 plots and sold 25 plots to 25 different persons in one financial year, and does not show a rapid turnover of buying and selling. Although the assessee sold 25 plots, this was not decisive. The quantum number of items is one circumstance among many, but it is a cumulative effect that needs to be examined. The assessee did not use operating funds, did not make any advertisement for sale, did not engage anyone as a dealer, and the treatment in its books of account as an investment, not as stock-in-trade, clearly shows that the impugned transactions cannot be said to be an adventure-like trade.

Thus, the assessee cannot be said to be a developer in the trade sense. The assessee held plots for more than 6 years. The holding period was consistent with the investment objective. The levelling activity was not prima facie a character indicative of trade. There was no suggestion of records or systematic dealing. In the absence of any material to establish a contemporaneous intent of trade at the time of purchase, it clearly shows that the plot of land purchased by the assessee was for investment and not for business.

List of Cases Reviewed

• Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC)
• Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC)
• Raja J. Rameshwar Rao v. CIT [1961] 42 ITR 179 (SC) (para 17) followed
• G. Venkataswami Naidu and Company v. CIT [1959] 35 ITR 594 (SC) (para 19) distinguished

List of Cases Referred to

• R. Dalmia v. CIT [1981] 7 Taxman 284 (Delhi)/[1982] 137 ITR 665 (Delhi) (para 5)
• Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC) (para 5)
• G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594 (SC) (para 7)
• Dilip Battu Karanjule v. ITO [2016] 74 taxmann.com 12 (Pune – Trib.)/[2016] 161 ITD 172 (Pune – Trib.) (para 7)
• Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC) (para 16)
• Raja J. Rameshwar Rao v. CIT [1961] 42 ITR 179 (SC) (para 16).