ITAT Indore Remands Agricultural Land Capital Gains Dispute for De Novo Adjudication

Vasudev Vs ITA DHAR (ITAT, Indore Bench)

Summary: The appeal concerned Assessment Year 2012-13 and arose from an assessment order dated 21.12.2019 passed by the ITO, Dhar, under section 144 read with section 147 of the Income-tax Act, 1961. The returned income was NIL, whereas the total income was assessed at Rs 1,35,78,710/-. The assessee had sold land valued at Rs 60,63,500/- during FY 2011-12.

The assessee’s case was that he and his mother owned approximately 1.783 acres of ancestral agricultural land situated at Baggad, District Dhar, in a rural area. The land had been used for agricultural purposes for many years. It was sold to M/s VE Commercial Vehicles Ltd., which established a manufacturing unit on the land. The registered sale deed was dated 24.11.2011, following an earlier sale agreement. At the instance of the buyer company, the land was diverted for industrial purposes by order of the Anuvibhagiya Adhikari, Dhar, dated 01.08.2011 and subsequently by the District Collector, Dhar, on 02.11.2011.

The assessee contended that despite the land being described as diverted land in the registered sale deed, it continued to be used for agricultural purposes. According to the assessee, the short interval between diversion and sale showed that the diversion was undertaken at the buyer’s instance to facilitate registration and did not alter the substance of the land. On this basis, the assessee claimed that the rural agricultural land was outside the definition of “capital asset” under section 2(14) of the Act and that the transaction was not chargeable to capital gains tax. The assessee also raised an alternative claim for exemption under section 54B, stating that another agricultural land had been purchased on 16.01.2012 out of the sale proceeds, for a total purchase price of Rs 27,16,970/-.

The Assessing Officer considered whether the date of transfer was the date of the agreement for sale rather than the registered sale deed. The AO examined the effect of section 53A of the Transfer of Property Act and observed that an agreement for sale could constitute transfer where the prescribed conditions, including possession, were fulfilled. The AO further examined sections 165 and 172 of the Madhya Pradesh Land Revenue Code and concluded that the assessee remained the “Bhuswami” when the agreement dated 17.06.2011 was executed because the diversion orders were passed subsequently. The AO also noted that the final payment of Rs. 1,36,55,250/- was made on 17.11.2011 and concluded that the capital asset was transferred under section 2(14) of the Act.

The assessee’s first appeal before the CIT(A) was dismissed. The CIT(A) recorded that several communications had been issued through the ITBA portal and that the appellant had not responded. A final show cause notice dated 29.11.2023 was issued, again without response. The CIT(A), relying upon CIT Vs. B.N. Bhattacharjee and another, reported in 118 ITR 461, referred to the principle that an appeal requires effective pursuit and not merely filing. The CIT(A) consequently proceeded on the material available on record, upheld the addition of Rs. 1,35,78,713/- and dismissed the grounds.

Before the Tribunal, the assessee challenged the treatment of the land as a capital asset, disputed the computation by pointing out that the assessment allegedly adopted a sale value of Rs. 1,36,55,250/- although the assessee’s share had been stated elsewhere as Rs. 30,31,750/-, and alternatively sought section 54B relief.

There was a delay of 575 days in filing the appeal before the Tribunal. The assessee’s authorised representative relied upon the condonation application and supporting affidavit. The Revenue left the question of condonation to the Tribunal’s discretion. After examining the COD application and affidavit, the Tribunal found sufficient cause and condoned the delay, thereby admitting the appeal.

On the merits, the Tribunal did not finally decide whether the land was rural agricultural land outside the definition of capital asset, nor did it finally adjudicate the alternative section 54B claim. The Tribunal found that the assessment was under section 144 and that only a part reply was on record. Crucial documents, including the agreement of sale dated 17.06.2011, the sale deed, and the SDM and Collector’s orders concerning diversion, had not been placed on record.

The Tribunal considered these documents material to proper adjudication by the original adjudicating authority. It also noted that the assessee had remained non-compliant and non-participative before the CIT(A), and that even before the Tribunal the agreement of sale and diversion orders had not been included in the paperbook.

Accordingly, the Tribunal set aside the impugned CIT(A) order and remanded the matter to the Assessing Officer on a de novo basis. The assessee was directed to place all relevant documents, material and evidence before the AO, including the agreement of sale dated 17.06.2011 and other deeds and documents supporting the claim. The AO was directed to pass a speaking and well-reasoned order, including on the alternative plea of the assessee and the material relating to reinvestment of proceeds and fresh deeds.

The Tribunal also imposed a token cost of Rs. 2,500/- on the assessee, payable in favour of the PM Relief Fund, with proof to be examined by the AO, and directed the assessee to update his email address and that of his authorised representative.

The appeal was ultimately allowed for statistical purposes. The Tribunal therefore restored the matter for fresh adjudication without finally deciding the underlying capital-gains or section 54B issues.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, INDORE BENCH

This is an Appeal filed by the Assessee for the Assessment Year 2012-13 under section 250 of the income tax Act 1961,[ herein after referred to as the Act for the sake of brevity] before this tribunal as & by way of a second Appeal. The Assessee is aggrieved by the order bearing Number :-ITBA/NFAC /S / 250 /2023-24/ 1058557647 (1) dated 07.12.2023 passed by the Ld. CIT(A) u/s 250 of the Act [National Faceless Appeal Centre (NFAC)], which is hereinafter referred as the “Impugned order”. The Relevant Assessment Year is 2012-13 and the corresponding Previous Period is from 01/04/2011 to 31/03/2012.

2. FACTUAL MATRIX

2.1) That as and by way of an Assessment Order made u/s 144 RWS 147 of the Act, the total Income of the Assessee was computed and Assessed at Rs 1,35,78,710/-. The total Income as per the Return of Income was NIL. That the aforesaid Assessment Order is dated 21/12/2019 of ITO Dhar MP which is hereinafter referred to as the “Impugned Assessment Order”.

2.2) The brief facts of the case are that the case of the Assessee was selected u/s 148 of Act for Scrutiny.

2.3) That as per the record available; the Assessee had sold land valued at Rs 60,63,500/- during FY 2011-12.

2.4) Notice(s) u/s 148,142(1) were served on the Assessee.

2.5) That it was stated by the Assessee that he along with his mother was the owner of the land situated at Baggad, District –Dhar which was about -1.783 Acre, The land was situated in a rural area. The Assessee is 46 years old and has done his elementary education. The land was Agriculture land and was Ancestral Property of Assessee’s late father and that the same was used for the agriculture purpose since many years. The said land was sold in the year 2011 by the Assessee along with his mother to M/s VE Commercial Vehicles Ltd which company established its manufacturing Unit on the said land. The Registered sale deed is dated 24/11/2011 in this regard. That before the sale, the Assessee and his mother had entered into a sale agreement with the buyer company. This sale Agreement was then followed by the registered sale deed. That after the sale Agreement the buyer company was requiring the land for the Industrial Purposes and hence the land was got diverted on 01/08/2011 by order of “Anuvibhagiya Adhikari” Dhar, MP and later by the District Collector Dhar, MP on 02/11/2011.

2.6) That the Assessee further contended that though the land has been mentioned as diverted land in the Regd Sale deed however it was used for agriculture purpose only. The diversion of the land was done at the instance of Buyer Company. The limited time gap between diversion and sale deed clearly indicated that diversion was only to facilitate the Registry of the land in the Name of buyer. There was change in the legal form which should not over ride the substance of the land specially when no further activity was done by the Assessee and his family members after the Diversion of land and that the land got sold immediately after the Diversion. The Assessee and his mother being illiterate person were not in a position to understand the impact and implications of the Diversion of land as for them the Diversion of land was a legal process for getting the land Registered in the Name of Buyer Company. Accordingly it was submitted that the transaction is for sale of the Agriculture land situated in the rural area which is not a capital asset and as such the transaction is not liable for tax under the provision of the Act.

2.7) That without Prejudice to the above, the Assessee also stated that the Assessee had also purchased another agriculture land on 16/01/2012, the payment of which was made from the sale proceeds of the above mentioned agriculture land. Accordingly the Assessee was also entitled for the exemption u/s 54B. [Total Purchase Price was Rs 27,16,970/-].

2.8) The Ld AO in the “Impugned Assessment order” identified the following points:-

(i) Date of transfer is date of Agreement for sale and not the date of registration of sale deed.

(ii) On the date of Agreement for sale dated 17/6/2011, the land under consideration was a rural agriculture land and hence was not capital asset within the meaning of Section 2(14) of the Act.

2.9) That the Ld AO basis examination of documents i.e. Regd deed found that there was an Agreement for Sale of land in question and whether such an “Agreement for Sale” can be considered as “ transfer” in the light of Section 53A of the Transfer of Property Act. The Ld Assessing Officer then has reproduced 53A of Transfer of Property Act As below:-

“53A Part performance-Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in-possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that 2[***] where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the or continued in possession, other than a right expressly provided transferee has taken by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.’”

Basis Provisions of Section 53A of TP Act in other words the Ld AO remarked and observed that the Agreement of sale can be treated as Transfer when:-

(i) There is contract in writing.

(ii) The Transferee has paid consideration as willing to perform the part of the contract and

(iii) The Transferee should have taken the possession of the property

2.10) The Ld AO remarked and observed that the possession of the property was not transferred by the Assessee which is evident from Registered deed itself where order of SDM and Collector are stated clearly. The Ld AO after analyzing the Provisions of MP land revenue code section 165 and 172 which deals with “Right of Transfer” and “Diversion of land” also concluded that Reading of both the section of MP land revenue code makes it clear that only “Bhuswami” Land owner can get the land diverted. Both the orders of SDM and Collector was passed after the “Agreement of Sale” dated 17/06/2011 which proves that at the time of Agreement of Sale dt 17/06/2011 the possession of the land was not transferred and the Assessee was “Bhuswami”. It was further held that Perusal of “Regd Deed” shows that the Final Payment of Rs. 1,36,55,250/- was made on 17/11/2011. Hence No Transfer till full payment was made. No copy of Agreement has been placed on record showing that the possession was transferred to Transferee Company (Buyer). Hence the Capital Asset transferred u/s 2(14) of the Act.

2.11) That the Assessee being Aggrieved by the aforesaid “Impugned Assessment Order” prefers the first appeal u/s 246A of the Act before the Ld CIT(A) who by the “Impugned Order” has dismissed the first Appeal of the Assessee on the grounds and the reasons stated therein. The core grounds for the dismissal of the first appeal were as under”:-

5. Decision:

5.1 It is pertinent that in order to decide this appeal in a timely manner notices/ communications through ITBA portal were sent to the appellant, viz. communications dated 29.01.2021, 30.04.2023 and 22.11.2023. The same has been successfully delivered

5.2 Finally on 29.11.2023 the appellant was issued following show cause notice:

“…..Please refer to the above. In this regard, it is noted that you have been issued various notices from time to time, however, no response has been received from you till date. The details of such notices by this office are as under:-

2. In the case of CIT Vs. B.N. Bhattacharjee and another, reported in 118 ITR 461 [relevant pages 477 & 478] wherein their Lordships have held that:

“The appeal does not mean merely filing of the appeal but effectively pursuing it.”

3. In view of the above facts and legal position, you are hereby given the show cause as to why the appeal in your case be not decided on the basis of material available on record, due to continued non-compliance at your end till date. However, to meet the ends of natural justice, you are hereby given a final opportunity to make the submissions to substantiate the grounds of appeal taken by you in this appeal. If you have made any submission in this case so far (either physically or through online mode), these may be uploaded in the ITBA, as the online portal is showing that no submission had been made by you till date in this appeal. Your reply should be furnished on or before 05.12.2023 on ITBA, failing which it will be considered that you don’t want to pursue the appeal and the appeal would be decided based on the material available on record..,”

However, there evidently has appellant till date. been no response from the There is no gainsaying that once the appeal is filed by the appellant., it is obligatory on his part to pursue purposefully and co-operatively the same in a worthwhile manner, which the appellant has evidently failed to do. It clearly appears that the appellant’s compliance or rather lack of it, the appellant has not even bothered to pursue this appeal in any productive manner. Hence, in view of the aforesaid total on the part of the appellant, non-compliance/non prosecution of the instant appeal as under, ex-parte primarily on the instant appeal is adjudicated and disposed off, the basis documentation available on record.

5.3 I have perused the assessment order u/s 144 rws 147, Grounds of Appeal and SOF. The case of the appellant was reopened u/s 147. The AO after examination of the contention of the appellant observed that the appellant has sold capital asset within the meaning of section 2(14) of the Act and calculated long term capital gain at Rs.1,35,78,713/- which was added back to the total income of the appellant. The AO held that the appellant was a Bhuswami as per MP Land Revenue Code and also held that it fulfils definition of transfer under Transfer of Property Act.

5.4 During the course of appellate proceedings, sufficient opportunities were given to the appellant, however, no submissions/evidences/documents have been filed by the appellant to substantiate the grounds of appeal. The appellant was given specific opportunity to file any details filed by him before any authority physically/online earlier as no replies of the appellant are found existing in the online system. Thus, in the absence of any submission/documents, have no material to interfere with observations and addition made by the AO. In view of the above. 1 upheld the decision of the AO and confirm the addition of Rs.1,35,78,713/- Accordingly, all grounds of appeal are hereby dismissed.

8. In the result, the appeal is dismissed. Order passed under section 250 read with section 251 of the Act.

2.12) That the Assessee being Aggrieved by the “Impugned Order” has preferred the Instant second Appeal before this Tribunal and has raised following grounds of apeeal in the form No.- 36 against the “Impugned Order” which are as under:-

1. On the facts and in the circumstances of case and in law. Ld CIT (A) erred in not accepting assessee’s contention about the land sold by assessee being erroneously treated as capital asset in the assessment order, even though the said land was an agriculture land situated in rural area and accordingly was not a capital asset. It is prayed that land sold by the assessee be treated as agriculture land situated in rural area and accordingly capital gain calculated by the Ld. AO may please be deleted

2. On the facts and in the circumstances of case and in law and without prejudice to above ground of appeal, Ld. CIT (A) ought to have appreciated that the impugned assessment order is erroneous and suffers from non-application of mind since the capital gain has been calculated by taking sale value as Rs 1,36,55,250 whereas, in the order itself and notices issued to the assessee, his share of sale consideration had been stated to be 30,31,750 only.

3. On the facts and in the circumstances of case and in law and without prejudice to above grounds of appeal, Ld. CIT (A) erred in not accepting claim of assessee for exemption u/s. 54B of the act. It is prayed that the claim of the assessee u/s 54B be allowed.

3. Record of Hearing

3.1) The Hearing in the matter took place on 11/06/2026 before this Tribunal when the Ld AR for and on the behalf of the Assessee appeared before us and Interalia contended that the “Impugned Order” is bad in law, illegal and not proper. It is the violation of the Principles of Natural Justice. The Ld AR has placed on the record of this Tribunal a paperbook containing pages 1 to 66. A condonation of delay application is from pages 7 to 10. Affidavit in support is from pages 11 to 14. The Ld AR submitted that there is a delay of 575 days in filling the Instant Appeal. He relied upon contents of “COD” Application and Affidavit in support the relevant portion of which were read out by him. The Ld DR appearing for the Revenue stated that he leaves the Issue of the Condonation of delay to the wisdom of this Tribunal. After perusing the COD Application and Affidavit in support we are of the considered view that for the condonation of delay there is sufficient cause. Hence we condone the delay and admit the Appeal.

3.2) The Ld AR then readout the relevant portion of the Impugned Order and in the ultimate analysis submitted that the Impugned Order is not on merits. The LD DR also submitted that full and complete documents and the explanations were not furnished to the Ld Assessing Officer by the Assessee despite opportunities in this regard. Hearing was then over and concluded.

4) Observations, Findings and Conclusions

4.1) We have to decide the legality, validity and proprietary of the “Impugned order” basis records of the case & the rival submission canvassed before us.

4.2) We have carefully perused the records of the case and have heard the submissions.

4.3) We basis records of the case and after hearing and further upon examining the rival contentions of the Ld AR and the LD DR canvassed before us are of the considered opinion that the “Impugned Assessment Order” is under 144 of the Act and part reply is on record. Full and complete documents including the Agreement of sale, dated 17/06/2011 SDM order and Collectors’ order on Diversions are not placed on record. It is for the Assessee to place on the records of the Ld Assessing Officer who is the original Adjudicating Authority to place the Agreement of sale, Sale deed , Orders of SDM and Collector on Diversions etc along with all the material, evidences, supportings etc so that Ld AO can without any difficulties could do proper Adjudication and Adjudgement. The Opportunities to the Assessee should be utilized fully and half hearted information and the documents should not be given. In the instant case even before Ld CIT(A) the Assessee has remained Non Compliant and was not participative. We thus find Assessee to be a Non Complaint Assessee at both the levels. Ultimately Income of Assessee is required to be computed and Assessed basis all documents, material and evidences which has not happened. Even before us “Agreement of Sale” dt 17/06/2011 is not placed in paperbook nor any attention towards the same is invited basis the paperbook filed. Copy of SDM and Collector’s diversion orders are not filed in the paperbook. Under these facts and circumstanced we set aside the Impugned Order and remand the matter back to the file of Ld AO on denovo basis with a direction to the Assessee to place all the documents, material and evidence before the Ld Assessing Officer including the Agreement of Sale dated 17/06/2011 and all other deeds and documents pertaining to his claim. Since we have found the Assessee to be Non Compliant and not Co operative we impose a token cost of Rs. 2500/- on him. We hope and trust that imposition of such cost would have a deterrent effect on Assessee. We direct Assessee to update his email and that of his Authorized representative.

4.4) In view of the premises drawn by us, we set aside the “Impugned Order” and remand the case back to the file of Ld Assessing Officer on denovo basis who shall now pass a speaking and well reasoned order including on the alternative plea of the Assessee made before us and in respect of which all necessary material too should be placed on records on the file of “Ld AO like reinvestment of proceeds fresh deeds etc such pleas also to be considered in the totality of the circumstances.

5. Order

5.1) In the result the “Impugned Order” is set aside and case is remanded back to the file of Ld Assessing Officer on denovo basis with directions as aforesaid. Cost of Rs. 2500/- to be paid in favour of PM Relief Fund. Proof in this regard to be examined by Ld Assessing Officer.

5.2) The appeal of the Assessee is allowed for Statistical Purpose.

Pronounced in open court on 30.06.2026.