Karan Dilipkumar Patel Vs DCIT (ITAT Surat)
Agricultural Land’s Municipal Distance Not Verified: ITAT Remands ₹4.93 Crore Capital Gains Addition
The Surat Bench of the Income Tax Appellate Tribunal (ITAT) restored a ₹4,93,12,007 capital gains dispute to the Assessing Officer after finding that the location of the land relative to municipal limits had not been properly verified. The Tribunal also identified gaps in examination of the valuation material.
In Karan Dilipkumar Patel, legal heir of late Lallubhai Jogibhai Patel, vs. DCIT, Vapi Circle, ITA No. 353/SRT/2024, concerning Assessment Year 2011-12, the assessee claimed that the properties were agricultural lands situated more than eight kilometres from municipal limits.
Judicial Member Suchitra Kamble and Accountant Member B.M. Biyani pronounced the order on 14 October 2026.
Land Sale and Acquisition Cost Disputed
The assessee filed his original return on 2 December 2011, declaring total income of ₹25,82,790. A revised return filed on 16 February 2012 declared total income of ₹2,43,83,480.
The returns also disclosed agricultural income of ₹11 lakh.
The dispute concerned land sold to a private limited company for ₹5.50 crore. The assessee claimed that the land was agricultural and that the surplus arising from its sale was not taxable as capital gains.
For computing the surplus, he adopted ₹17.50 lakh as acquisition cost, resulting in a stated surplus of ₹5,32,50,000.
Reassessment Results in Capital Gains Addition
A notice under Section 148 was issued on 27 March 2018. The assessee responded by requesting that the revised return already filed be treated as the return furnished in compliance.
The Assessing Officer observed that some purchase deeds had been submitted, but the assessee had not produced all the purchase documents and valuation material supporting the acquisition-cost claim.
He rejected adoption of ₹17.50 lakh as purchase consideration.
The assessee’s grounds recorded that the assessment instead adopted acquisition cost of ₹7,99,999. The resulting disputed addition was ₹4,93,12,007 as long-term capital gains.
Thus, the controversy involved both the land’s tax classification and the amount deductible as acquisition cost.
Agricultural Character Challenged Before CIT(A)
The assessee appealed before the CIT(A)/NFAC, contesting treatment of the land as a capital asset under Section 2(14).
He also challenged computation of long-term capital gains and rejection of the higher acquisition-cost claim.
The CIT(A) dismissed the appeal through an order dated 14 February 2024.
Before the Tribunal, the representative submitted that the assessee had died during the first appellate proceedings. He argued that the CIT(A) had dismissed the matter without deciding the substantive issues on merits.
The appeal before the Tribunal was pursued through the deceased assessee’s legal heir.
Eight-Kilometre Location Claim Requires Examination
The representative maintained that the Assessing Officer had not properly verified the claim that the land was outside the eight-kilometre distance from municipal limits.
He sought restoration to the Assessing Officer for examination of that factual contention and fresh adjudication.
The Revenue supported the assessment and first appellate orders.
On considering the record, the Tribunal noted that the assessee had raised the distance explanation during assessment proceedings and supplied details concerning two agricultural lands.
The question was therefore not a new factual assertion requiring no further scrutiny. It was an existing contention whose verification the Tribunal found deficient.
Relative’s Tax Treatment Does Not Resolve Location
The Tribunal observed that the Assessing Officer had discussed the land’s location in paragraph 5.13 of the assessment order.
However, the assessment reasoning compared the area with property involving a relative and referred to that relative having treated the land as a capital asset.
The Tribunal distinguished that comparison from actual verification of the assessee’s land and its distance from municipal limits.
It found that the necessary location inquiry had not been undertaken at any stage. The relative’s treatment therefore did not resolve the specific factual issue presented by the assessee.
This omission was central to the decision to remand.
Valuation Material Also Requires Verification
The Tribunal additionally observed that the valuation report had not been commented upon and that the Assessing Officer had not called for the DVO’s report.
These shortcomings were relevant to the disputed acquisition cost and capital gains computation.
The Bench concluded that the valuation aspects, together with the location issue, required proper verification.
It did not accept ₹17.50 lakh as the established acquisition cost or finally reject the lower figure used in assessment. Those matters were left for examination in the restored proceedings.
Matter Restored Without Final Exemption Finding
The Tribunal remanded the disputed issues to the Assessing Officer for proper verification and adjudication according to the Income Tax Act.
It directed that the assessee receive an opportunity of hearing consistent with the principles of natural justice.
The appeal was partly allowed for statistical purposes. The Tribunal did not conclusively hold that the lands were outside the capital-asset definition or delete the capital gains addition on merits.
The final outcome depends on verification of municipal distance, the relevant valuation material and the remaining contested computation issues.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT SURAT
The appeal filed by the assessee is against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short “CIT(A)”] dated 14.02.2024 for the Assessment Year (in short “AY”) 2011-12.
2. The assessee has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in not accepting the claim of the appellant that the land under consideration sold during the year being agriculture land, was not a capital asset u/s.2(14) of the Act. The action of the learned Assessing Officer is not in accordance with the facts of the case and law and deserves to be deleted.
2. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in computing the income of the appellant from sale of agriculture land as Rs.4,93,12,007/- by way of long term capital gains from sale of non-agriculture land. The action of the leaned assessing officer is not in accordance with the facts of the case and law and deserves to be deleted.
3. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in rejecting the claim of purchase consideration to the tune of Rs.17,50,000/- and computing long term capital gains as Rs.4,93, 12,007/- by adopting the purchase cost as Rs.7,99,999/- from sale of non-agriculture land. The action of the leaned assessing officer is not in accordance with the facts of the case and law and deserves to be deleted.
4. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has not offered adequate opportunities to hear the case and passed ex-parte order and hence the case may please be set aside and restored back to the CIT(A) or AO.
5. It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper.
6. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”
3. The assessee filed original return of income on 02.12.2011 declaring total income at Rs.25,82,790/- and filed revised return of income on 16.02.2012 declaring total income of Rs.2,43,83,480/-. The assessee has shown agricultural income of Rs.11 lakhs. The Assessing Officer (in short “the AO”) observed that the assessee sold a land to a private limited company for a consideration of Rs.5,50,00,000/- in AY 2010-11. The assessee, in his revised return of income, considered the surplus to the tune of Rs.5,32,50,000/- arising out of sale of said land as exempt u/s 10(38) of the Income Tax Act (in short “the Act”). While working out the said sale consideration the assessee had considered cost of acquisition of the said land as Rs.17,50,000/-. The assessee claimed exemption from capital gain on sale of said land as the land was an agricultural land. Notice u/s 148 of the Act was issued on 27.03.2018 and the assessee submitted the response thereby stating that the return of income filed on 16.02.2012 should be taken as return in response to notice u/s 148 of the Act. The AO observed that the assessee had submitted some of the purchase deeds, but could not produce all the purchase deeds and valuation report as on 01.04.1981 in support of the claim of cost of acquisition. The AO therefore rejected the claim of the assessee that the purchase consideration be considered as Rs.17,50,000/-. The AO therefore made addition of Rs.4,93,12,007/- on account of long term capital gains from sale of land.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal.
5. The Ld. Authoritised Representative (in short “the Ld. AR”) for the assessee submitted that the AO has not verified that the land was away from 8 kms of the municipal limits and is very much agricultural land. The Ld. AR further submitted that the assessee died during the appellate proceedings before the CIT(A) and therefore the CIT(A) has not decided anything on merit and dismissed the appeal for default. The Ld. AR submitted that the matter may be remanded back to the file of the AO for proper verification and adjudication of the contention of the assessee that the land was beyond the limits of 8 kms from the municipal limits. This aspect was not thoroughly verified by the AO.
7. The Ld. Departmental Representative (in short “Ld. DR”) relied upon the assessment order and the order of the CIT(A).
8. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the assessee during the assessment proceedings, has given the response that the sale of two agricultural lands was situated more than 8 kms distance from municipal limits, for which the assessee has given the details of which the AO commented in para 5.13 of the assessment order and compared the located area with late Smt. Champa alias Lallubhai Jogibhai Patel who is a relative of the assessee and observed that she treated the said land as capital assets. But the actual verification whether the land is outer limits of 8 kms of the municipal limit or not has not been verified by the AO at any stage. Besides this, the valuation report has not been commented and the AO has also not called the DVO’s report. Therefore, these aspects need to be verified. The matter is remanded back to the file of the AO for proper verification of the issues contested by the assessee and adjudicate the same as per Income Tax Act. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice.
9. In result, appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open court on 14.10.2026
