Narendrakumar Rameshbhai Patel Vs DCIT (ITAT Ahmedabad)
The appeal before the Income Tax Appellate Tribunal (ITAT), Ahmedabad arose from the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2015-16. The assessee challenged, among other issues, the Assessing Officer’s (AO) expansion of a limited scrutiny assessment into a complete scrutiny without obtaining the approval required under CBDT instructions, the treatment of capital gains as business income, and the disallowance of deduction under Section 54F.
The assessee had sold a 30% share in a jointly owned parcel of land and declared capital gains after claiming deduction under Section 54 of the Income-tax Act. The return was selected for limited scrutiny on four specified issues: sale of property mismatch, mismatch in income/capital gain on sale of land or building, deduction claimed under the head capital gains, and increase in capital.
During assessment, the AO examined the nature of the land transaction and concluded that the assessee, along with co-owners, had undertaken activities amounting to property development. The AO noted that agricultural land had been converted into non-agricultural land, survey numbers were merged, plotting approval was obtained, and residential as well as commercial projects were initiated. On this basis, the AO treated the sale proceeds as business receipts instead of capital gains and disallowed the deduction claimed under Section 54.
