Vithalrao Ranganathrao Ambarwadikar Vs ACIT (ITAT Pune)
Summary: The appeal before the Pune Bench of the Income Tax Appellate Tribunal concerned two issues for AY 2013-14: long-term capital gain of Rs.9,92,38,664/- arising from sale of land and disallowance of interest expenditure. The assessee, an individual engaged in the business of dealership of HPCL Petrol Pump, had declared total income of Rs.15,98,709/- in the return filed on 30.09.2013. The assessment was completed u/s. 143(3) of the Income-tax Act, 1961 on 31.03.2016, and the CIT(A) passed the appellate order u/s. 250 on 14.07.2025.
On the capital-gain issue, the assessee contended that the land sold was agricultural land and therefore was not a capital asset. It was also submitted that the Assessing Officer had relied on a Municipal Corporation certificate dated 06.10.2023 stating that the land was within 8 KM, without supplying its copy to the assessee. The assessee further submitted that no agricultural activities had been carried on since the land was purchased and stated that the claim under section 54B was therefore not valid.
The Revenue submitted that the land bearing City Survey No. 18348/2/A, admeasuring 1350.25 Sq. Mtr., situated at Hamalwadi, Near Railway Station, Aurangabad, was urban land. The assessee had purchased it from Maharashtra Housing and Area Development Authority, which, according to the Revenue, did not sell agricultural land. The Revenue relied on the sale deed and the proximity of the land to the Aurangabad Railway Station and contended that the land was within 8 KM of Aurangabad Municipal Corporation. On this basis, it argued that the assessee’s claim that the land was agricultural was factually incorrect.
The Tribunal noted that the assessee had purchased the land from Maharashtra Housing and Area Development Authority on 23.03.1995 and had subsequently sold it to Deogiri Nagari Sahakari Bank Ltd. The Tribunal observed that the authority had jurisdiction over urban lands and that the assessee had purchased non-agricultural land from it. The Tribunal further noted that the assessee had not filed documents proving that the land was agricultural and had admitted that no agricultural activities had been performed on the land since 1981. The land was also adjacent to Aurangabad Railway Station. The Tribunal therefore held that the impugned land was a capital asset and that the Assessing Officer was right in treating its sale as a sale of capital asset and taxing the long-term capital gain.
The Tribunal also considered the assessee’s ground concerning the assessment year in which the capital gain was taxable. The registered sale deed showed that the land was sold on 10.04.2012 and the sale deed was registered on 11.04.2012. The Tribunal held that it was therefore clear that the capital gain was taxable in AY 2013-14. As no submission was made before the Tribunal on this issue, and no material was brought on record regarding any land dispute, the Tribunal dismissed the ground. Ground No.1 was accordingly dismissed.
On the interest disallowance, the assessee relied on CIT Vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340 (Bombay), contending that sufficient funds were available and therefore a presumption arose that the advances had been made out of own funds. The assessee submitted that total funds were Rs.17,12,65,921/- while advances were only Rs.1,42,56,800/-.
The Revenue relied on East India Pharmaceutical Works Ltd. Vs. CIT, (1997) 224 ITR 627 (SC), and argued that the advances were not for business purposes and that the Reliance Utilities decision was therefore distinguishable. The Revenue submitted that proportionate interest was rightly disallowed.
The Tribunal found that the assessee admittedly had funds of Rs.17,12,65,921/- against advances of Rs.1,42,56,800/-. Since the assessee maintained a common fund flow, the Tribunal applied the principle stated in Reliance Utilities & Power Ltd. and held that the advances were presumed to have been made from the assessee’s own funds and not from interest-bearing funds. The Tribunal distinguished the decision relied upon by the Revenue on facts and directed the Assessing Officer to delete the addition of Rs.6,50,110/- made u/s 36(1) of the Act.
The Tribunal thus partly allowed the appeal: Ground No.1 concerning the capital gain addition was dismissed, while Ground No.2 concerning the interest disallowance was allowed. The order was pronounced in open Court on 25th August, 2026.
Cases Discussed
- CIT Vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340 (Bombay)
- East India Pharmaceutical Works Ltd. Vs. CIT, (1997) 224 ITR 627 (SC)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT PUNE
This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), Pune-12 [Ld.CIT(A)], passed u/s. 250 of the Income Tax Act, 1961 (‘the Act’) for AY 2013-14 on 14.07.2025, emanating from the Assessment Order u/s 143(3) of the Act, dated 31.03.2016.
Submission of Ld. AR :
2. The Ld. AR submitted that there are two issues on which appeal has been filed. First is Capital Gain of Rs.9,92,38,664/- and second is Interest Disallowance.
2.1 Regarding first issue Capital Gain, the Ld. AR submitted that the land sold was agricultural land hence no capital asset. The Ld. AR also pleaded that during the remand report the
Assessing Officer (AO) relied on certificate of Municipal Corporation dated 06.10.2023 to state that land was within the 8 KM. The Ld. AR submitted that copy of the said letter was not provided to the assessee. The Ld. AR submitted that there were no agricultural activities since the day the land was purchased from Maharashtra Housing and Area Development Authority in 1981. The Ld. AR submitted that hence section 54B is not a valid claim by the assessee.
3. Regarding the second issue i.e. Interest Disallowance, the Ld. AR read out the relevant paragraph of the assessment order and stated that as per the Assessing Officer (AO) total funds were available were Rs.17,12,65,921/-, advances were only Rs.1,42,56,800/-. The Ld. AR submitted that as per the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340 (Bombay) once sufficient funds were available presumption is that advance has been provided from the funds. Accordingly, Ld. AR pleaded that addition on account of interest disallowance should be deleted.
Submission of Ld. DR :
4. The Ld. DR submitted that during the assessment proceedings, the AO made addition on capital gain for sale of land having City Survey No. 18348/2/A, admeasuring 1350.25 Sq. Mtr. situated at Hamalwadi, Near Railway Station, Aurangabad. The Ld. DR submitted that the assessee had purchased this land from Maharashtra Housing and Area Development Authority. The Ld. DR invited our attention to page Nos. 25-35 of the paper book which was the Sale Deed. The Ld. DR submitted that the said land as per Sale Deed is
urban land. The Ld. DR also submitted that the address of the land clearly mentioned near Railway Station that itself explained that the land is within 8 KM of Aurangabad Municipal Corporation. The Ld. DR further submitted that the assessee has purchased the impugned land from Maharashtra Housing and Area Development Authority which do not sale agricultural land. Thus, when the assessee purchased the impugned land it was urban land and not agricultural land and the said land was sold by the assessee. Hence, the assessee’s claim that it is agricultural land is factually incorrect. The Ld. DR relied on the order of the Ld. CIT(A), remand report and the AO’s order.
4.1 Regarding disallowance of interest expenditure, the Ld. DR relied on the decision of Hon’ble Supreme Court in the case of East India Pharmaceutical Works Ltd. Vs. CIT, (1997) 224 ITR 627 (SC). The Ld. DR submitted that the advances were not for business purpose. Hence, decision of the Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra) is not applicable as the Hon’ble Bombay High Court discussed the advances which were for business purpose. In this case, the assessee had given advances to two entities not for business purposes. Hence, the Ld. DR submitted that the AO was right in disallowing the proportionate interest, as the assessee had paid interest on borrowed funds. The Ld. DR submitted that the addition may be sustained.
Findings and Analysis :
5. We have heard both the parties and perused the records. In this case, the assessee is an individual engaged in the business of dealership of HPCL Petrol Pump. During the year the assessee has earned rental income, business income, capital gain, dividend and bank interest. For AY 2013-14, the assessee filed return of income on 30.09.2013 declaring total income at Rs.15,98,709/-. The assessee’s case was selected for scrutiny. Accordingly, notice u/s 143(2) and various notices u/s 142(1) of the Act were issued which are mentioned in the assessment order. As per the assessment order, Mr. D.B. Dighe, Chartered Accountant and Authorized Representative of the assessee attended the hearing before the AO.
5.1 During the assessment proceedings, the AO observed that the assessee had not offered capital gain in the return of income. It was observed by the AO that the assessee had sold land at City Survey No. 18348/2/A, admeasuring 1350.25 Sq. Mtr. situated at Hamalwadi, Near Railway Station (near Deogiri College), Aurangabad to Deogiri Nagari Sahakari Bank Ltd., Aurangabad vide Sale Deed dated 10.04.2012. During the assessment proceedings, Authorized Representative accepted that the assessee has not offered capital gain and accordingly agreed for addition on account of capital gain on sale of impugned land. This fact is recorded in the assessment order. Thus, the assessee had agreed for addition on account of capital gain of Rs.9,92,38,664/-. Accordingly, the AO added Rs.9,92,38,664/- as Long Term Capital Gain. However, subsequently, the assessee filed appeal before the Ld. CIT(A) and contended that the impugned land was agricultural land. The assessee filed additional evidences before the Ld. CIT(A). The Ld. CIT(A) called for remand report and also provided copy of remand report to the assessee. It is an admitted fact by the Ld. AR and the Ld. DR that the assessee had purchased the impugned land from Maharashtra Housing and Area Development Authority on 23.03.1995. Accordingly, the assessee’s claim was entered in property registration card in City Survey Office. The assessee sold the impugned land to Deogiri Nagari Sahakari Bank Ltd. during the year. The assessee has pleaded that it is an agricultural land, hence, not a capital asset. However, on perusal of the Sale Deed, it is observed that the assessee has purchased land from Maharashtra Housing and Area Development Authority, the Maharashtra Housing and Area Development Authority do not sale agricultural land. The Maharashtra Housing and Area Development Authority has jurisdiction over urban lands. The assessee had purchased non-agricultural land from Maharashtra Housing and Area Development Authority. The assessee has not filed any documents to prove that it was agricultural land. Rather, the assessee has admitted that no agricultural activities were performed on the impugned land since 1981. This explains that the land was not agricultural land. Also the land was adjacent to Aurangabad Railway Station which explains that it is within the 8 KM of Aurangabad Municipal Corporation Ltd. Therefore, the impugned land is a capital asset and hence the AO was right in treating the sale of land as sale of capital asset and taxing Long Term Capital Gain. In the grounds of appeal it is mentioned by the assessee that the Ld. CIT(A) did not decide the issue that to which Assessment Year capital gain needs to be taxed. However, during the proceedings before this Tribunal, no submission was made by the Ld. AR on this issue. We have perused the Registered Sale Deed which has been filed by the assessee in the paper book. The Registration date is 11.04.2012. Thus, as per the Registered Sale Deed, the impugned land was sold by the assessee on 10.04.2012 and the Sale Deed was registered on 11.04.2012. Thus, it is crystal clear that capital gain was taxable in AY 2013-14. The Ld. AR has not brought on record any documents pertain to any dispute regarding the land. The Ld. AR has not pleaded anything about any dispute pertaining to land. In this facts and circumstances of the case, the averments made in the grounds are factually incorrect and accordingly dismissed. For all the reasons discussed above, the Ground Number 1 raised by the assessee is dismissed.
6. Regarding disallowance of interest u/s 36(1) of the Act, it is an admitted fact in the assessment proceedings that the assessee was having funds of Rs.17,12,65,921/-. However, the assessee had given advances of Rs.1,42,56,800/-. The assessee maintained common fund flow, therefore, as per decision of Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra) the advances were given from the assessee’s own funds and not from the interest bearing funds. The decision relied by the Ld. DR is distinguishable on facts. In these facts and circumstances of the case, since the assessee had sufficient funds it is presumed that the advances given by the assessee were out of own money and not borrowed funds. Accordingly, the AO is directed to delete the addition of Rs.6,50,110/- made u/s 36(1) of the Act. Accordingly, ground No. 2 raised by the assessee is allowed.
7. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 25th August, 2026
