Agricultural Land Taxable as Capital Asset as It Fell Within Statutory Distance from Municipality

Narayanan Sundaramahalingam Rajkumar Vs ACIT (ITAT Chennai)

ITAT: Agricultural land falls within the ambit of a capital asset under section 2(14)(iii) upon fulfilment of the prescribed population and distance criteria

Summary: The ITAT Chennai partly allowed the assessee’s appeal concerning taxation of gains arising from the sale of agricultural land and alleged undisclosed cash consideration. The Tribunal held that agricultural land situated within the prescribed distance from a municipality having the requisite population falls within the definition of a capital asset under section 2(14)(iii)(b), irrespective of its classification in revenue records or agricultural use. Accordingly, the gains were taxable as capital gains. On the issue of alleged on-money, the Tribunal held that only the cash consideration of ₹84.60 lakh, which was ultimately admitted by the assessee during assessment proceedings, could be added as part of the sale consideration. It ruled that the balance addition of ₹3.87 crore could not be sustained solely on the basis of search statements and third-party electronic records without independent corroborative evidence. The Tribunal also directed the Assessing Officer to allow 70% of the indexed cost claimed while recomputing capital gains, sustaining a 30% disallowance.

Facts

• The assessee, is an individual carrying on business as the proprietor of M/s.Guru Builders, engaged in the business of construction and development of residential flats. For the impugned assessment year, the assessee filed his original return of income on 30.09.2015 declaring a total income of Rs.70,41,740/-.
• Subsequently, a search and seizure operation u/s.132 of the Act was conducted on 27.11.2019 in the cases belonging to the group of M/s.Asvini Fisheries Pvt. Ltd. (“AFPL”). During the course of such search proceedings, the Investigation Wing unearthed certain transactions relating to acquisition of lands by M/s.Prathishri Properties Pvt. Ltd., a group concern of AFPL. The investigation revealed that the assessee had sold lands situated at Madambakkam Village, Tambaram Taluk, during the financial year 2014-15 to M/s.Prathishri Properties Pvt. Ltd. It was further alleged that consideration in excess of the value disclosed in the registered sale deed had been paid to the assessee in cash. Consequently, the residential premises of the assessee were also subjected to search u/s.132 of the Act.
• During the course of search and post-search investigations, the Department found and seized various documents, loose sheets and property related records. According to the Revenue, such materials evidenced payment of substantial cash consideration over and above the registered value reflected in the conveyance documents executed in favour of M/s.Prathishri Properties Pvt. Ltd.
• The record reveals that the assessee had transferred land admeasuring approximately 1.41 acres situated at Madambakkam Village. The sale transaction was evidenced by registered Sale Deed bearing Document No.1357/2015 dated 09.02.2015. As per the registered document, the assessee sold the land comprised in Survey Nos.77/2, 88/1B, 86/2B2 and 92/1 for a consideration of Rs.1,26,90,000/-, which was also stated to be the market value adopted for registration purposes.
• The Revenue relied heavily upon the statement recorded u/s.132(4) of the Act from Shri K.Sreejith, Managing Director of M/s.Lotus Castle Pvt. Ltd., a company stated to have acted as land aggregator for M/s.Prathishri Properties Pvt. Ltd. During the search conducted in the cases of Lotus Group on 29.01.2019, Shri K.Sreejith allegedly admitted that an amount of Rs.4,72,35,000/- had been paid in cash to the assessee over and above the registered consideration for acquisition of the aforesaid land. According to him, the agreed rate for acquisition was Rs.4,25,000/- per cent and a substantial portion of the agreed consideration was discharged in cash.
• The assessee was confronted with the aforesaid information during the search conducted at his premises on 27.11.2019. In the statement recorded u/s.132(4) of the Act, the assessee acknowledged that the land at Madambakkam belonged to him and had been sold to M/s.Prathishri Properties Pvt. Ltd. He further stated that while he had received Rs.1,26,90,000/- through demand drafts as reflected in the sale deed, he had also received approximately Rs.4.72 crores in cash. The assessee specifically admitted that the total consideration received by him was around Rs.5.99 crores. The assessee further admitted that the cash component had not been incorporated in his books of account and had never been offered to tax in any assessment year. In response to a specific question, the assessee admitted that the cash component represented his undisclosed income pertaining to Financial Year 2014-15.
• Consequent to the search, the case of the assessee was centralized. Thereafter, proceedings u/s.153C of the Act were initiated against the assessee. Notice u/s.153C of the Act dated 17.02.2021 was issued calling upon the assessee to furnish a return of income for A.Y. 2015-16. In response thereto, the assessee filed his return of income on 28.02.2021 declaring the same total income of Rs.70,41,740/- as originally returned.
• Subsequently, notice u/s.143(2) of the Act dated 13.03.2021 and notice u/s.142(1) of the Act dated 15.04.2021 were issued. The assessee, furnished details and explanations from time to time. During the course of assessment proceedings, the AO observed that despite the categorical admission made by the assessee during the search proceedings, the additional cash consideration had not been offered for taxation in the return filed pursuant to notice issued u/s.153C of the Act.
• Accordingly, the AO issued a show-cause notice proposing to bring to tax the sum of Rs.4,72,00,000/- received in cash over and above the registered consideration. In response, the assessee submitted that the land transferred was agricultural land and that exemption had been claimed in respect thereof. It was contended that since the assessee was under the bona fide belief that the land was not a capital asset, the additional consideration was also not offered to tax. The assessee requested that the amount should not be assessed as income from other sources u/s.56(2)(vii)(a) of the Act.
• The AO examined the nature and location of the land and found that the land was situated within an aerial distance of 4.45 kilometres from the limits of Tambaram Municipality. The AO further noted that the population of Tambaram Municipality as per Census 2011 was 1,64,830. Relying upon the provisions of section 2(14)(iii) of the Act, the AO concluded that although the land was agricultural in nature, it constituted an urban agricultural land falling within the definition of “capital asset”. Consequently, the exemption claimed by the assessee on the footing that the land was not a capital asset was proposed to be denied.
• During the course of assessment proceedings, the assessee sought copies of the seized documents and the statement recorded from Shri K.Sreejith. The AO furnished the same. Thereafter, the assessee requested that an opportunity be granted to cross-examine Shri K.Sreejith. Accepting the request, the AO arranged for cross-examination on 10.08.2021.
• In the course of cross-examination, Shri K.Sreejith reiterated his earlier statement and maintained that cash consideration of Rs.4,72,35,000/- had been paid to the assessee in connection with the purchase of 1.41 acres of land at Madambakkam. He affirmed that the agreed rate was Rs.4,25,000/- per cent and that the registered consideration represented only a part of the actual consideration agreed between the parties. The assessee, however, disputed the quantum and contended that he had received only Rs.84,60,000/- in cash in addition to the documented consideration of Rs.1,26,90,000/-.
• Following the cross-examination, the assessee furnished a revised computation of income wherein he admitted receipt of cash consideration of Rs.84.60 lakhs but continued to claim exemption on the ground that the land was agricultural land not falling within the ambit of a capital asset. It was also argued that any additional consideration received was intrinsically connected with the transfer of land and therefore could not be assessed separately under the head “Income from Other Sources”.
• The AO accepted the latter contention and held that the additional amount received by the assessee represented consideration for transfer of land and therefore formed part of the full value of consideration for the purposes of computation of capital gains. Consequently, the proposal to assess the amount u/s.56(2)(vii)(a) of the Act was dropped.
• However, the AO rejected the assessee’s contention regarding the quantum of on-money received. The AO observed that the assessee had unequivocally admitted receipt of approximately Rs.4.72 crores in his statement recorded u/s.132(4) of the Act on the date of search. Further, during post-search proceedings before the Investigation Wing, the assessee had again referred to receipt of Rs.4,72,35,000/- and had even prepared a cash book reflecting receipt of such amount in February 2015 while explaining the source of cash found during the search. The AO noted that the assessee had not disputed the quantum in his earlier replies and that the plea of receipt of only Rs.84.60 lakhs had been raised for the first time much later during the assessment proceedings.
• The AO further observed that despite being afforded an opportunity of cross-examination, the assessee had failed to discredit the testimony of Shri K.Sreejith. It was also noted that although the assessee claimed to have negotiated the transaction through one Shri Bala and one Shri Sivaramakrishnan, neither of them was produced before the Department to substantiate the assessee’s version. The valuation report subsequently produced by the assessee estimating the value of the land at Rs.2.04 crores was also rejected by the AO as a self-serving document incapable of displacing the categorical admissions and corroborative evidence available on record.
• Based on the foregoing, the AO held that the retraction attempted by the assessee was belated, unsupported by evidence and merely an afterthought. Accordingly, the entire amount of Rs.4,72,35,000/- was treated as additional sale consideration and included in the full value of consideration for computing long-term capital gains arising from transfer of the Madambakkam property.
• The AO also examined the deductions claimed by the assessee towards indexed cost of acquisition and indexed cost of improvement/development. In respect of the Madambakkam land, while evidence regarding cost of acquisition was furnished, no satisfactory evidence was produced in support of the indexed cost of development amounting to Rs.68,70,154/-. The assessee was unable to establish either the nature of the development activities allegedly undertaken or the expenditure incurred thereon. Consequently, the claim of indexed cost of development was disallowed.
• Similarly, in respect of capital gains arising from sale of lands situated at Athur, the assessee claimed indexed cost of development amounting to Rs.21,19,754/-. Although a year-wise break-up of expenditure was furnished, no supporting vouchers, bills or documentary evidence substantiating the expenditure were produced. In the absence of adequate supporting evidence, the AO disallowed 30% of the indexed cost of development amounting to Rs.6,35,926/- while computing long-term capital gains from the Athur land transaction.
• The assessment was ultimately completed by treating the land at Madambakkam as a capital asset within the meaning of section 2(14) of the Act, by including the alleged on-money consideration of Rs.4,72,35,000/- in the full value of consideration for computation of long-term capital gains, and by making consequential disallowances in respect of the indexed cost of development claimed by the assessee. Thus, the impugned assessment was completed u/s.153C of the Act on 21.09.2021 determining the total income of the assessee at Rs.6,56,09,211/-.
• Aggrieved of the above assessment order, the assessee carried the matter in appeal before the Ld.CIT(A), who vide the impugned appellate order dated 16.12.2024 dismissed the appeal of the assessee.

Issues:

• Whether the land sold by the assessee constituted an agricultural land excluded from the definition of a capital asset under section 2(14)(iii) of the Act.
• Whether the addition towards alleged cash consideration of Rs. 4,72,35,000 received over and above the registered sale consideration was justified.
• Whether the disallowance of indexed development expenditure of Rs. 68,70,154 claimed while computing long-term capital gains was justified.

Observations:

• The Tribunal first dealt with the assessee’s contention that the land situated at Madambakkam Village was agricultural land and, therefore, outside the ambit of section 2(14) of the Act. The assessee relied upon revenue records such as Chitta, Adangal and Patta showing the land as Nanjai land and contended that agricultural operations were actually carried on thereon.
• The Tribunal observed that the decisive question was not whether the land was classified as agricultural land in the revenue records or whether agricultural activities were carried on. The real issue was whether such agricultural land satisfied the statutory conditions prescribed under section 2(14)(iii). The statutory scheme makes it clear that once agricultural land is situated within the prescribed distance from a municipality having the requisite population, it loses the exclusion provided under section 2(14)(iii) and assumes the character of a capital asset for the purposes of the Act.
• The Tribunal noted that the Assessing Officer had independently verified that the impugned land was situated at an aerial distance of approximately 4.45 kilometres from the limits of Tambaram Municipality and that the population of the Municipality as per Census 2011 was 1,64,830. The Commissioner (Appeals), instead of merely affirming these findings, independently examined the geographical location of the property and the municipal limits prevailing during the relevant period. Upon such examination, the Commissioner (Appeals) recorded that the limits of Tambaram Municipality extended up to Selaiyur and that the aerial distance between the assessee’s land and Camp Road, Selaiyur, was only about 3.70 kilometres. It was further observed that the actual municipal boundary would be even nearer.
• The Tribunal further observed that the assessee had failed to produce any survey report, municipal records or any geographical evidence to establish that the land was situated beyond the statutory distance prescribed under section 2(14)(iii)(b). Likewise, the statutory population criterion remained undisputed. Once these two conditions stood established, the inevitable legal consequence was that the land fell within the ambit of a capital asset irrespective of its classification in the revenue records or the agricultural operations allegedly carried on therein.
• The Tribunal also held that the decisions of the Hon’ble Supreme Court relied upon by the assessee regarding the agricultural character of land did not advance his case. Those decisions merely laid down the tests for determining whether land possesses agricultural character. In the present case, however, the controversy was governed by the statutory fiction contained in section 2(14)(iii)(b), which becomes applicable once the land is situated within the prescribed distance from a municipality having the requisite population. Consequently, the Tribunal upheld the findings of the Commissioner (Appeals) and held that the land constituted a capital asset, making the gains arising therefrom chargeable to tax under the head “Capital Gains.”
• Addition towards alleged unaccounted cash consideration
• The Tribunal thereafter considered the principal controversy relating to the alleged receipt of cash consideration of Rs. 4,72,35,000 over and above the registered consideration. It observed that the Revenue had primarily relied upon the statement of Shri K. Sreejith recorded under section 132(4), the Evernote electronic records maintained by Lotus Castle Pvt. Ltd., the assessee’s own statement recorded during the course of search and the proceedings before the Interim Board for Settlement.
• The Tribunal observed that there was no dispute that during the course of search the assessee had admitted receipt of cash consideration over and above the registered sale consideration. It also noted that during the assessment proceedings and cross-examination the assessee clarified that the actual cash received by him was only ₹84.60 lakh and not Rs. 4.72 crore.
• According to the Tribunal, while appreciating such evidence, it was necessary to distinguish between the amount clearly admitted by the assessee and the balance amount sought to be assessed on the basis of third-party materials. Insofar as ₹84.60 lakh was concerned, the Tribunal observed that the assessee himself had unequivocally admitted receipt of the said amount during the assessment proceedings after examining the seized material and after availing the opportunity of cross-examination. The receipt of that amount therefore stood established beyond doubt and rightly formed part of the full value of consideration.
• However, with regard to the balance amount of Rs. 3,87,75,000, the Tribunal found that there was no independent evidence demonstrating its actual receipt by the assessee. Apart from the entries contained in the Evernote records and the original statement recorded during search, the Revenue had failed to establish movement of cash from the purchaser to the assessee. No corresponding withdrawals, investments, acquisition of assets, expenditure pattern or deployment of funds attributable to such huge cash receipts had been brought on record despite extensive investigation carried out over several years.
• The Tribunal observed that the transaction pertained to February 2015 whereas the search was conducted only in November 2019. During this intervening period, the Department had examined several assessment years. If the assessee had in fact received cash consideration of Rs. 4.72 crore, some evidence relating to its investment, utilisation or deployment would ordinarily have surfaced during the course of investigation. The complete absence of such evidence assumed considerable significance while evaluating the correctness of the Revenue’s allegation.
• The Tribunal further observed that although a statement recorded under section 132(4) constitutes an important piece of evidence, it is not conclusive. Its evidentiary value must always be tested in the light of surrounding circumstances and corroborative evidence. Courts have consistently held that substantial additions cannot be sustained solely on the basis of confessional statements where independent supporting evidence is lacking.
• Similarly, the Tribunal observed that the Evernote entries undoubtedly constituted relevant evidence but they were merely records maintained by a third party. Such records could justify further investigation and lend support to the Revenue’s case, but where the assessee disputed the quantum recorded therein, the Revenue was still required to establish by cogent evidence that the amount recorded therein had actually changed hands. In the present case, such corroborative evidence was conspicuously absent.
• The Tribunal also accepted the assessee’s contention that the proceedings before the Interim Board for Settlement in the case of Lotus Castle Pvt. Ltd. could not be treated as substantive evidence against him. Since the assessee was not a party to those proceedings, the findings recorded therein could not automatically bind him and could only serve as background material.
• Considering the entirety of the facts and circumstances, the Tribunal concluded that the Revenue had successfully established receipt of cash consideration only to the extent of ₹84.60 lakh, which stood admitted by the assessee. Insofar as the balance amount of ₹3,87,75,000 was concerned, the evidence fell short of the degree of proof required to sustain the addition. The Tribunal accordingly restricted the addition to ₹84.60 lakh and directed deletion of the balance addition.
• Indexed cost of acquisition/improvement
• The Tribunal finally considered the disallowance of the indexed cost of acquisition and improvement. It observed that although the assessee had failed to substantiate the entire expenditure with complete documentary evidence, it would be wholly unrealistic to presume that no expenditure whatsoever had been incurred towards acquisition, maintenance, improvement and development of the property during the long period of ownership.
• The Tribunal emphasised that the provisions governing computation of capital gains contemplate taxation of real gains and not hypothetical gains. Where expenditure is demonstrably relatable to the asset but precise quantification becomes difficult owing to lapse of time and non-availability of complete records, a reasonable estimate is permissible. The Tribunal also noted that in another land transaction involving the same assessee, the Revenue itself had adopted an estimated disallowance of 30% of similar expenditure. Applying the principle of consistency and considering the totality of the facts, the nature of the asset, the long period of ownership and the probabilities of the case, the Tribunal held that the ends of justice would be served by allowing 70% of the indexed cost claimed by the assessee while sustaining a disallowance of 30%.
• Accordingly, the Tribunal upheld the finding of the Commissioner (Appeals) that the land sold by the assessee constituted a capital asset within the meaning of section 2(14)(iii)(b) of the Act. It further held that the addition towards undisclosed cash consideration should be restricted to Rs. 84.60 lakh and the balance addition of Rs. 3,87,75,000 was liable to be deleted. The Assessing Officer was also directed to allow 70% of the indexed cost claimed by the assessee while recomputing the capital gains. Consequently, the appeal of the assessee was partly allowed.

FAQs

Q.1 Why did the Tribunal treat the agricultural land as a capital asset?

Ans. The Tribunal held that the land satisfied the statutory population and distance conditions under section 2(14)(iii)(b), making it a capital asset regardless of its agricultural classification or use.

Q.2 Did the Tribunal uphold the entire addition towards alleged cash consideration?

Ans.  No. It restricted the addition to Rs. 84.60 lakh, which the assessee admitted receiving, and deleted the balance addition of Rs. 3.87 crore due to lack of independent corroborative evidence.

Q.3 Why was the balance cash addition deleted?

Ans. The Tribunal found that third-party electronic records and search statements alone were insufficient, as the Revenue failed to produce independent evidence showing actual receipt of the remaining amount.

Q.4 What did the Tribunal decide regarding indexed development expenditure?

Ans. The Tribunal directed that 70% of the indexed cost claimed should be allowed and sustained a 30% disallowance on an estimated basis while recomputing capital gains.

Q.5 What was the final outcome of the appeal?

Ans.  The Tribunal upheld the finding that the land was a capital asset, restricted the addition for cash consideration to Rs. 84.60 lakh, allowed 70% of the indexed cost claimed, and partly allowed the appeal.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

The present appeals of the assessee are directed against the separate orders of the Learned Commissioner of Income Tax (Appeals)-20, Chennai [hereinafter referred to as “the Ld.CIT(A)”] both dated 16.12.2024, arising out of the assessment orders passed u/s.153C of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] by the Assistant Commissioner of Income Tax, Central Circle 3(2), Chennai [hereinafter referred to as “the AO”] pertaining to the Assessment Year 2015-16.

2. Since the issues involved in both the appeals are common and the additions have been made on identical facts and circumstances, both the appeals are being disposed of by this consolidated order for the sake of convenience and to avoid repetition of facts. With the consent of the parties, ITA No.432/Chny/2025 has been taken as the lead case. Accordingly, the findings and conclusions recorded herein in the said appeal shall apply mutatis mutandis to ITA No.439/Chny/2025 as well.

ITA No.432/Chny/2025

3. The brief facts of the case are that assessee, is an individual carrying on business as the proprietor of M/s.Guru Builders, engaged in the business of construction and development of residential flats. For the impugned assessment year, the assessee filed his original return of income on 30.09.2015 declaring a total income of Rs.70,41,740/-.

4. Subsequently, a search and seizure operation u/s.132 of the Act was conducted on 27.11.2019 in the cases belonging to the group of M/s.Asvini Fisheries Pvt. Ltd. (“AFPL”). During the course of such search proceedings, the Investigation Wing unearthed certain transactions relating to acquisition of lands by M/s.Prathishri Properties Pvt. Ltd., a group concern of AFPL. The investigation revealed that the assessee had sold lands situated at Madambakkam Village, Tambaram Taluk, during the financial year 2014-15 to M/s.Prathishri Properties Pvt. Ltd. It was further alleged that consideration in excess of the value disclosed in the registered sale deed had been paid to the assessee in cash. Consequently, the residential premises of the assessee were also subjected to search u/s.132 of the Act.

5. During the course of search and post-search investigations, the Department found and seized various documents, loose sheets and property- related records. According to the Revenue, such materials evidenced payment of substantial cash consideration over and above the registered value reflected in the conveyance documents executed in favour of M/s.Prathishri Properties Pvt. Ltd.

6. The record reveals that the assessee had transferred land admeasuring approximately 1.41 acres situated at Madambakkam Village. The sale transaction was evidenced by registered Sale Deed bearing Document No.1357/2015 dated 09.02.2015. As per the registered document, the assessee sold the land comprised in Survey Nos.77/2, 88/1B, 86/2B2 and 92/1 for a consideration of Rs.1,26,90,000/-, which was also stated to be the market value adopted for registration purposes.

7. The Revenue relied heavily upon the statement recorded u/s.132(4) of the Act from Shri K.Sreejith, Managing Director of M/s.Lotus Castle Pvt. Ltd., a company stated to have acted as land aggregator for M/s.Prathishri Properties Pvt. Ltd. During the search conducted in the cases of Lotus Group on 29.01.2019, Shri K.Sreejith allegedly admitted that an amount of Rs.4,72,35,000/- had been paid in cash to the assessee over and above the registered consideration for acquisition of the aforesaid land. According to him, the agreed rate for acquisition was Rs.4,25,000/- per cent and a substantial portion of the agreed consideration was discharged in cash.

8. The assessee was confronted with the aforesaid information during the search conducted at his premises on 27.11.2019. In the statement recorded u/s.132(4) of the Act, the assessee acknowledged that the land at Madambakkam belonged to him and had been sold to M/s.Prathishri Properties Pvt. Ltd. He further stated that while he had received Rs.1,26,90,000/- through demand drafts as reflected in the sale deed, he had also received approximately Rs.4.72 crores in cash. The assessee specifically admitted that the total consideration received by him was around Rs.5.99 crores. The assessee further admitted that the cash component had not been incorporated in his books of account and had never been offered to tax in any assessment year. In response to a specific question, the assessee admitted that the cash component represented his undisclosed income pertaining to Financial Year 2014-15.

9. Consequent to the search, the case of the assessee was centralized. Thereafter, proceedings u/s.153C of the Act were initiated against the assessee. Notice u/s.153C of the Act dated 17.02.2021 was issued calling upon the assessee to furnish a return of income for A.Y. 2015-16. In response thereto, the assessee filed his return of income on 28.02.2021 declaring the same total income of Rs.70,41,740/- as originally returned.

10. Subsequently, notice u/s.143(2) of the Act dated 13.03.2021 and notice u/s.142(1) of the Act dated 15.04.2021 were issued. The assessee, furnished details and explanations from time to time. During the course of assessment proceedings, the AO observed that despite the categorical admission made by the assessee during the search proceedings, the additional cash consideration had not been offered for taxation in the return filed pursuant to notice issued u/s.153C of the Act.

11. Accordingly, the AO issued a show-cause notice proposing to bring to tax the sum of Rs.4,72,00,000/- received in cash over and above the registered consideration. In response, the assessee submitted that the land transferred was agricultural land and that exemption had been claimed in respect thereof. It was contended that since the assessee was under the bona fide belief that the land was not a capital asset, the additional consideration was also not offered to tax. The assessee requested that the amount should not be assessed as income from other sources u/s.56(2)(vii)(a) of the Act.

12. The AO examined the nature and location of the land and found that the land was situated within an aerial distance of 4.45 kilometres from the limits of Tambaram Municipality. The AO further noted that the population of Tambaram Municipality as per Census 2011 was 1,64,830. Relying upon the provisions of section 2(14)(iii) of the Act, the AO concluded that although the land was agricultural in nature, it constituted an urban agricultural land falling within the definition of “capital asset”. Consequently, the exemption claimed by the assessee on the footing that the land was not a capital asset was proposed to be denied.

13. During the course of assessment proceedings, the assessee sought copies of the seized documents and the statement recorded from Shri K.Sreejith. The AO furnished the same. Thereafter, the assessee requested that an opportunity be granted to cross-examine Shri K.Sreejith. Accepting the request, the AO arranged for cross-examination on 10.08.2021.

14. In the course of cross-examination, Shri K.Sreejith reiterated his earlier statement and maintained that cash consideration of Rs.4,72,35,000/- had been paid to the assessee in connection with the purchase of 1.41 acres of land at Madambakkam. He affirmed that the agreed rate was Rs.4,25,000/- per cent and that the registered consideration represented only a part of the actual consideration agreed between the parties. The assessee, however, disputed the quantum and contended that he had received only Rs.84,60,000/- in cash in addition to the documented consideration of Rs.1,26,90,000/-.

15. Following the cross-examination, the assessee furnished a revised computation of income wherein he admitted receipt of cash consideration of Rs.84.60 lakhs but continued to claim exemption on the ground that the land was agricultural land not falling within the ambit of a capital asset. It was also argued that any additional consideration received was intrinsically connected with the transfer of land and therefore could not be assessed separately under the head “Income from Other Sources”.

16. The AO accepted the latter contention and held that the additional amount received by the assessee represented consideration for transfer of land and therefore formed part of the full value of consideration for the purposes of computation of capital gains. Consequently, the proposal to assess the amount u/s.56(2)(vii)(a) of the Act was dropped.

17. However, the AO rejected the assessee’s contention regarding the quantum of on-money received. The AO observed that the assessee had unequivocally admitted receipt of approximately Rs.4.72 crores in his statement recorded u/s.132(4) of the Act on the date of search. Further, during post-search proceedings before the Investigation Wing, the assessee had again referred to receipt of Rs.4,72,35,000/- and had even prepared a cash book reflecting receipt of such amount in February 2015 while explaining the source of cash found during the search. The AO noted that the assessee had not disputed the quantum in his earlier replies and that the plea of receipt of only Rs.84.60 lakhs had been raised for the first time much later during the assessment proceedings.

18. The AO further observed that despite being afforded an opportunity of cross-examination, the assessee had failed to discredit the testimony of Shri K.Sreejith. It was also noted that although the assessee claimed to have negotiated the transaction through one Shri Bala and one Shri Sivaramakrishnan, neither of them was produced before the Department to substantiate the assessee’s version. The valuation report subsequently produced by the assessee estimating the value of the land at Rs.2.04 crores was also rejected by the AO as a self-serving document incapable of displacing the categorical admissions and corroborative evidence available on record.

19. Based on the foregoing, the AO held that the retraction attempted by the assessee was belated, unsupported by evidence and merely an afterthought. Accordingly, the entire amount of Rs.4,72,35,000/- was treated as additional sale consideration and included in the full value of consideration for computing long-term capital gains arising from transfer of the Madambakkam property.

20. The AO also examined the deductions claimed by the assessee towards indexed cost of acquisition and indexed cost of improvement/development. In respect of the Madambakkam land, while evidence regarding cost of acquisition was furnished, no satisfactory evidence was produced in support of the indexed cost of development amounting to Rs.68,70,154/-. The assessee was unable to establish either the nature of the development activities allegedly undertaken or the expenditure incurred thereon. Consequently, the claim of indexed cost of development was disallowed.

21. Similarly, in respect of capital gains arising from sale of lands situated at Athur, the assessee claimed indexed cost of development amounting to Rs.21,19,754/-. Although a year-wise break-up of expenditure was furnished, no supporting vouchers, bills or documentary evidence substantiating the expenditure were produced. In the absence of adequate supporting evidence, the AO disallowed 30% of the indexed cost of development amounting to Rs.6,35,926/- while computing long-term capital gains from the Athur land transaction.

22. The assessment was ultimately completed by treating the land at Madambakkam as a capital asset within the meaning of section 2(14) of the Act, by including the alleged on-money consideration of Rs.4,72,35,000/- in the full value of consideration for computation of long-term capital gains, and by making consequential disallowances in respect of the indexed cost of development claimed by the assessee. Thus, the impugned assessment was completed u/s.153C of the Act on 21.09.2021 determining the total income of the assessee at Rs.6,56,09,211/-.

23. Aggrieved of the above assessment order, the assessee carried the matter in appeal before the Ld.CIT(A), who vide the impugned appellate order dated 16.12.2024 dismissed the appeal of the assessee.

24. The assessee before the Ld.CIT(A) urged that the land sold is an agricultural land and not a capital asset within the meaning of section 2(14) of the Act and also contended that the that he never received alleged on-money consideration of Rs.4,72,35,000/-. The assessee also contended AO’s action of the disallowance of indexed development expenditure amounting to Rs.68,70,154/-.

25. The Ld.CIT(A) after considering the assessment records, seized materials, statements recorded during search proceedings and the submissions advanced by the assessee, dismissed all the grounds raised in appeal for the reasons recorded in detail in the appellate order.

26. The first issue adjudicated by the Ld.CIT(A) was whether the land measuring 1.41 acres situated in Survey Nos.77/2, 88/1B, 86/2B2 and 91/1 at Madambakkam Village, Tambaram Taluk, sold by the assessee to M/s.Prathishree Properties on 09.02.2015, constituted an agricultural land excluded from the definition of “capital asset” u/s.2(14)(iii) of the Act.

27. Before the Ld.CIT(A), the assessee contended that the land in question was a “Wet Irrigation Nanjai Land”, that agricultural operations had been carried out thereon and that the transfer of such agricultural land could not give rise to taxable capital gains. In support of the said contention, the assessee relied upon the revenue records evidencing classification of the land as Nanjai land and also furnished a valuation report dated 07.09.2021 obtained from a registered valuer.

28. The Ld.CIT(A) examined the findings recorded by the AO and noted that during the assessment proceedings, the AO had already verified the location of the land and found that the distance between the subject property and Tambaram Municipality was within the prescribed limit contemplated u/s.2(14)(iii)(b) of the Act. The AO had further observed that the population of Tambaram Municipality, as per Census 2011, was 1,64,830 and therefore satisfied the statutory population criterion prescribed under the Act.

29. The Ld.CIT(A) specifically recorded that the assessee had not disputed either the population of Tambaram Municipality or the distance adopted by the AO. Nevertheless, to independently verify the issue, the Ld.CIT(A) examined the municipal boundaries of Tambaram Municipality and the subsequent expansion of the municipal area into Tambaram City Municipal Corporation. After analysing the available geographical and municipal records, the Ld.CIT(A) observed that prior to its conversion into a Corporation, the limits of Tambaram Municipality extended up to Selaiyur and that the assessee’s land was situated well within the prescribed aerial distance from the municipal limits. Referring to the amendment introduced by the Finance Act, 2013, which mandated measurement of distance on an aerial basis, the Ld.CIT(A) recorded a finding that the aerial distance between the assessee’s land and Camp Road, Selaiyur, which formed part of the municipal limits, was only about 3.70 kilometres and that the distance from the actual municipal boundary would be even lesser. Upon the aforesaid factual findings, the Ld.CIT(A) concluded that the subject land was situated within six kilometres from the limits of Tambaram Municipality, whose population exceeded one lakh but remained below ten lakhs as per the last preceding census.

30. Having recorded the aforesaid findings, the Ld.CIT(A) held that the question whether agricultural operations were actually carried out on the land became irrelevant in view of the statutory provisions contained in section 2(14)(iii)(b) of the Act. According to the Ld.CIT(A), once an agricultural land is situated within the prescribed distance from a municipality satisfying the population criterion, such land automatically assumes the character of a capital asset irrespective of its actual agricultural use. The Ld.CIT(A) therefore, rejected the assessee’s reliance upon the revenue records and valuation report and held that even assuming the land to be agricultural in nature, the same would nevertheless constitute a capital asset u/s.2(14)(iii)(b) of the Act. Consequently, the action of the AO in bringing the gains arising from transfer of the land to tax under the head “Capital Gains” was upheld.

31. The second and principal issue before the Ld.CIT(A) related to the addition made by the AO on account of alleged cash consideration of Rs.4,72,35,000/- received by the assessee over and above the registered consideration of Rs.1,26,90,000/-.

31. The assessee challenged the addition on various grounds, namely that there was no documentary evidence to establish receipt of such amount, that only Rs.84,60,000/- had actually been received in cash, that the valuation report demonstrated a substantially lower value of the property and that the statements relied upon by the AO had been obtained under circumstances which rendered them unreliable.

32. The Ld.CIT(A) traced the genesis of the addition to the search action conducted u/s.132 of the Act in the case of M/s. Lotus Castle Pvt. Ltd. (LCPL) on 29.01.2019. During the said search, certain electronic records maintained in an online application known as “Evernote” by Shri K.Sreejith, Director of LCPL, were seized. The seized records allegedly contained details of substantial cash receipts received by LCPL from M/s.Asvini Fisheries Pvt. Ltd./Prathishree Properties and corresponding cash payments made to various landowners in connection with acquisition of lands at Madambakkam Village. The Ld.CIT(A) observed that Page No.45 of the seized Evernote records specifically contained entries showing payment of Rs.4,72,35,000/- to the assessee and Rs.6,78,40,000/- to his father, Shri S.Narayanan, towards sale of their respective lands.

33. The Ld.CIT(A) further noted that Shri K.Sreejith, in his statement recorded u/s.132(4) of the Act, had categorically admitted receipt of cash aggregating to Rs.57.20 crores from the purchaser group and payment of Rs.35.70 crores to landowners and brokers. He had further explained that the details of such receipts and payments were contemporaneously recorded in the Evernote account maintained by him.

35. The Ld.CIT(A) thereafter referred to the search conducted in the assessee’s own case on 27.11.2019. During the course of the said search, the assessee’s statement was recorded u/s.132(4) of the Act. The Ld.CIT(A) extracted the relevant portions of the statement and observed that the assessee had unequivocally admitted receipt of total sale consideration amounting to Rs.5,99,25,000/- for the sale of the Madambakkam land, consisting of Rs.1,26,90,000/- received through demand drafts; and Rs.4,72,35,000/-received in cash. The Ld.CIT(A) noted that the assessee had not only admitted receipt of the aforesaid cash component but had also explained the manner in which the said cash had been utilised for business purposes, purchase of lands, brokerage payments, litigation expenses, jewellery purchases and other personal expenditures. The assessee had further stated that a part of the cash found during search represented the balance of the said on-money receipts. The Ld.CIT(A) further observed that the assessee had specifically affirmed that the statement had been given voluntarily, without threat, coercion or undue influence and while being in a sound state of mind.

36. The Ld.CIT(A) next considered the assessee’s subsequent claim that he had actually received only Rs.84,60,000/- in cash and not Rs.4,72,35,000/-. The Ld.CIT(A) observed that this stand was taken for the first time during the assessment proceedings through a submission dated 06.08.2021, nearly twenty-one months after recording of the statement u/s.132(4) of the Act. According to the Ld.CIT(A), the assessee had failed to furnish any contemporaneous evidence demonstrating that the original statement was factually incorrect. The retraction was therefore held to be belated, unsupported by evidence and legally ineffective. The Ld.CIT(A) also took note of the fact that even after completion of the search proceedings, the assessee had submitted a letter dated 09.03.2020 before the Investigation Wing wherein he had once again admitted receipt of cash consideration of Rs.4,72,35,000/-. The Ld.CIT(A) therefore held that the subsequent retraction was an afterthought and could not displace the evidentiary value of the original statement.

37. The Ld.CIT(A) further examined the statement recorded from Shri K.Sreejith during the cross-examination afforded to the assessee on 10.08.2021. The Ld.CIT(A) observed that even during cross-examination, Shri K.Sreejith consistently maintained that the entries in Evernote were contemporaneously recorded in 2015; the records were produced before the Income-tax Department during search; the entries were genuine and not fabricated; cash of Rs.4,72,35,000/- was paid to the assessee at the time of registration; and the assessee’s claim that he received a lower amount was incorrect. The Ld.CIT(A) observed that the testimony of Shri K.Sreejith remained consistent throughout and was fully corroborated by the seized documents as well as by the assessee’s own admissions.

38. The Ld.CIT(A) devoted considerable discussion to the evidentiary value of the Evernote records. The Ld.CIT(A) held that the seized records clearly identified the assessee and his father, quantified the cash payments made to them and were directly relatable to the land transactions under consideration. It was further observed that the entries were corroborated by the statements recorded from Shri K.Sreejith and the assessee himself. The Ld.CIT(A) therefore rejected the contention that the seized documents were “dumb documents” and held that they constituted valid and reliable evidence. Invoking the presumption u/s.132(4A) of the Act, the Ld.CIT(A) further held that the contents of the seized records were presumed to be true and correct and that the said presumption extended to the transactions recorded therein.

39. The Ld.CIT(A) additionally referred to proceedings before the Interim Board for Settlement in the case of LCPL. It was noted that LCPL had filed a settlement application wherein the cash receipts and corresponding cash payments recorded in the seized Evernote records were accepted and offered for settlement. According to the Ld.CIT(A), the Interim Board had accepted the authenticity of the seized records and determined the income of LCPL on that basis. The Ld.CIT(A) treated this as further corroboration of the genuineness of the entries showing payment of Rs.4,72,35,000/- to the assessee.

40. Upon cumulative consideration of the seized Evernote records, statements of Shri K.Sreejith, the assessee’s statement u/s.132(4) of the Act, the assessee’s subsequent admission before the Investigation Wing, the cross-examination proceedings, and the settlement proceedings in the case of LCPL, the Ld.CIT(A) concluded that the assessee had in fact received cash consideration of Rs.4,72,35,000/- over and above the registered consideration. The addition made by the AO by adopting total sale consideration of Rs.5,99,25,000/- for computation of long-term capital gains was therefore confirmed.

41. The final issue considered by the Ld.CIT(A) concerned the disallowance of indexed development expenditure of Rs.68,70,154/- claimed by the assessee while computing long-term capital gains. The Ld.CIT(A) noted that the AO had disallowed the claim on the ground that no evidence whatsoever had been furnished to establish that any developmental work had been carried out on the land. The Ld.CIT(A) observed that despite repeated opportunities during appellate proceedings, the assessee failed to produce any documentary evidence, bills, vouchers, agreements, details of contractors, or any other material substantiating the claim. The Ld.CIT(A) therefore held that the assessee had completely failed to discharge the burden cast upon him to prove the incurrence of such expenditure. In the absence of any supporting evidence, the claim of indexed development expenditure was held to be unsubstantiated. Accordingly, the disallowance of Rs.68,70,154/- made by the AO was confirmed.

42. Based on the above reasoning, the Ld.CIT(A) held that:

1. The land sold by the assessee was a capital asset within the meaning of section 2(14)(iii)(b) of the Act;

2. The assessee had received cash consideration of Rs.4,72,35,000/- in addition to the registered sale consideration;

3. The total sale consideration for purposes of capital gains computation was correctly adopted at Rs.5,99,25,000/-; and

4. The claim of indexed development expenditure of Rs.68,70,154/- was unsupported by evidence and rightly disallowed.

43. Accordingly, all the grounds raised by the assessee were dismissed.

44. Aggrieved of the above order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.

45. The Ld.AR, appearing on behalf of the assessee submitted that the assessment framed u/s.153C of the Act and the order passed by the Ld.CIT(A) are contrary to the facts of the case, the evidence available on record and the settled principles of law. The Ld.AR submitted that the additions sustained by the Ld.CIT(A) deserve to be deleted for the reasons stated hereinbelow.

46. The Ld.AR submitted that the assessment year under appeal is an unabated assessment year. The original return of income had already attained finality prior to the date of search. The Ld.AR argued that it is a settled proposition of law that in respect of completed assessments, no addition can be made in proceedings u/s.153A/153C of the Act in the absence of incriminating material belonging to or pertaining to the assessee. In the present case, no incriminating material evidencing receipt of any undisclosed consideration by the assessee was found from his possession. The addition has been made merely on the basis of third-party documents and statements. Therefore, even on this preliminary legal ground, the impugned addition is liable to be deleted. Reliance in this regard is placed on the recent decision of the Co-ordinate Bench of this Tribunal in the case of R.Viswanathan v. DCIT (ITA No.1321 to 1324/Chny/2025) and DCIT v. R.Viswanathan (ITA No.1556 & 1597/Chny/2025), wherein it has been held that no addition can be made in respect of completed assessments in the absence of incriminating material.

47. The Ld.AR further submitted that the principal addition sustained by the Ld.CIT(A) relates to the alleged undisclosed cash consideration of Rs.3,87,75,000/-. The entire addition is founded upon the statement recorded from the assessee during the course of search proceedings u/s.132(4) of the Act and certain electronic data maintained by M/s.LCPL, the purchaser of the property. The Ld.AR submitted that the statement recorded during search cannot be treated as conclusive evidence. The statement was recorded when the assessee was under considerable mental stress and tension arising out of the search proceedings and was merely reiterating the version put forth by his father during the course of examination. Subsequently, after obtaining professional advice and after examining the actual facts, the assessee retracted the statement and explained the correct factual position. The Ld.AR contended that it is a settled principle that an admission is not conclusive and can always be explained or shown to be erroneous. The Ld.AR placing reliance in the judgment of the Hon’ble Supreme Court in Sarwan Singh Rattan Singh v. State of Punjab submitted that it has been clearly held that an admission is not conclusive proof of the matter admitted. Similarly, various judicial authorities have held that additions cannot be sustained solely on the basis of statements unless supported by independent corroborative evidence.

48. The Ld.AR submitted that both the AO and the Ld.CIT(A) have heavily relied upon the “Evernote” data seized from M/s. LCPL. The Ld.AR submitted that such electronic records are nothing but unilateral documents maintained by a third party. The same cannot be treated as conclusive evidence against the assessee in the absence of any corroborative material establishing that the alleged cash consideration had actually passed from the purchaser to the assessee. No evidence has been brought on record to demonstrate movement of cash, utilisation of such alleged cash, withdrawal of corresponding amounts by the purchaser or receipt thereof by the assessee. A one-sided record maintained by a third party cannot by itself establish receipt of undisclosed income in the hands of the assessee. The Ld.AR contended that the Hon’ble Rajasthan High Court in Bhanwarlal Murwatiya v. Commissioner of Income Tax has held that unless it is established that the alleged higher consideration had actually passed to the seller, no addition can be sustained.

49. The Ld.AR further submitted that the assessee had specifically requested for cross-examination and the same was conducted by the Department. During such cross-examination, the assessee categorically clarified that he had received cash only to the extent of Rs.84,60,000/- and not the amount alleged by the Department. The cross-examination proceedings were conducted subsequent to the search and afforded the assessee an opportunity to explain the true factual position. The statement recorded during cross-examination clearly establishes that the actual cash received was only Rs.84,60,000/-. The Department has not brought any material on record to disprove the specific admission made during cross-examination. Therefore, the authorities below were not justified in ignoring the cross-examination proceedings and relying solely upon the original statement recorded during search.

50. The Ld.AR argued that the conduct of the Department itself demonstrates the improbability of the alleged receipt of Rs.3,87,75,000/-. Assessments for several assessment years were completed subsequent to the search. Despite detailed scrutiny, the Department could not identify any investment, expenditure, asset creation or utilisation attributable to the alleged cash receipt of Rs.3,87,75,000/-. The Ld.AR submitted that the assessee consistently maintained that only Rs.84,60,000/- was received in cash and the utilisation thereof was explained as having been incurred towards development and construction activities. Had the assessee actually received the much larger amount alleged by the Department, some trace of its deployment or utilisation would necessarily have surfaced during the course of assessment proceedings. The complete absence of any such evidence strongly supports the assessee’s case and demolishes the allegation of receipt of additional cash consideration. The Ld.AR further submits that the assessee had also furnished an independent valuation report prepared by a qualified valuer during the course of assessment proceedings. The valuation report determined the fair market value of the property at Rs.2,04,00,000/-. The actual consideration admitted by the appellant was Rs.2,11,50,000/-, which is broadly in line with the fair market value determined by the expert. On the contrary, the Revenue seeks to attribute an aggregate consideration of nearly Rs.6 crores to the transaction, which is substantially higher than the fair market value of the property. According to the Ld.AR that the Ld.CIT(A) dismissed the valuation report as a self-serving document without obtaining any contrary valuation report or any expert evidence to dislodge the findings contained therein. Such rejection of expert evidence without any supporting material is arbitrary and contrary to settled legal principles. The valuation report constitutes an important piece of evidence which clearly demonstrates the improbability of the alleged consideration adopted by the Revenue.

51. The Ld.AR further submitted that the Ld.CIT(A) has further relied upon the order passed by the Interim Board for Settlement in the case of M/s. LCPL. Such reliance is wholly misplaced and legally unsustainable. The assessee was not a party to the proceedings before the Settlement Commission or the Interim Board for Settlement. It is well settled that an order passed in the case of another assessee cannot operate as evidence against a person who was not a party to such proceedings. Every assessment must be decided independently on the basis of evidence available in the assessee’s own case. Therefore, the findings recorded in the settlement proceedings of M/s.LCPL cannot be treated as binding upon the assessee and could not have been relied upon to sustain the addition.

52. The Ld.AR submitted that the AO has also disallowed the entire indexed cost of development amounting to Rs.68,70,154/-. The Ld.AR submitted that the development expenditure had been incurred over a period of time and that complete supporting records were not readily available owing to the passage of time. Even assuming that all supporting documents were not available, the complete disallowance of the expenditure is highly excessive and arbitrary. In earlier assessment proceedings relating to the assessee, where similar circumstances existed, only an estimated disallowance of 30% of the expenditure had been made. The Ld.AR had therefore requested that, at the very least, a reasonable estimate be adopted and the disallowance be restricted to 30%. The Ld.AR argued that the authorities below failed to consider this request and proceeded to disallow the entire claim. Such an approach is contrary to settled principles governing estimation of expenditure and deserves to be interfered with.

53. The Ld.AR further submitted that the Ld.CIT(A) erred in holding that the land transferred by the assessee was not agricultural land. The Ld.AR submitted that the assessee had furnished copies of Chitta, Adangal and Patta during the course of assessment proceedings. These are official revenue records which clearly establish that the land was classified as agricultural land and that agricultural operations were being carried on therein. The land was categorised as wet irrigation Nanjai land and was capable of agricultural use. The authorities below have not disputed the authenticity of these records.

54. The ld.AR placing reliance on the judgment of the Hon’ble Supreme Court in the cases of CWT v. Officer-in-Charge (Court of Wards) and Smt. Sarifabibi Mohmed Ibrahim v. CIT submitted that the said decision has laid down various tests for determining the agricultural character of land, including actual agricultural use, classification in revenue records, nature of the soil, intention of the owner and surrounding circumstances. According to the Ld.AR that the assessee satisfies all these tests. The evidence on record clearly demonstrates that agricultural activities were being carried on and that the land continued to retain its agricultural character.

55. The Ld.AR submitted that the Ld.CIT(A) appears to have proceeded on the basis that the land was situated near a municipality and therefore had potential for non-agricultural use. Such reasoning is contrary to settled law. Mere proximity to municipal limits or the existence of development in the surrounding area does not alter the agricultural character of land when agricultural operations are actually being carried on. The Ld.AR argued that in the case of George Gee Varghese v. ITO, this Tribunal has categorically held that agricultural land does not lose its character merely because it is situated in an area having road connectivity or because it is sold to a non-agriculturist. The crucial test remains the actual nature and use of the land. The Ld.AR submitted that the assessee had also furnished a valuation report confirming the agricultural nature of the property. The same has been rejected without any cogent basis.

56. In view of the facts and circumstances stated above, the Ld.AR submitted that the addition of Rs.3,87,75,000/- towards alleged undisclosed cash consideration is wholly unsustainable in law and on facts and deserves to be deleted. It is further submitted that the land transferred by the assessee was agricultural land and therefore not a capital asset within the meaning of section 2(14) of the Act. Consequently, no capital gains tax is exigible on the transfer of such land. It is also prayed that the indexed cost of development claimed by the assessee be allowed and, without prejudice, any disallowance may be restricted to a reasonable estimate of 30% in accordance with the consistent approach adopted in earlier proceedings. The Ld.AR therefore prays that the appeal be allowed and the additions sustained by the Ld.CIT(A) be deleted in full.

57. Per contra, the Ld.DR relied upon the orders of the lower authorities and prayed for confirming the order of the Ld.CIT(A) in dismissing the appeal of the assessee.

58. We have heard the rival submissions advanced by both sides, carefully perused the orders of the lower authorities and examined the entire material available on record. We have also considered the various judicial precedents relied upon by the parties. The issues arising for our adjudication relate to the character of the land transferred by the assessee, the addition made towards alleged receipt of unaccounted cash consideration over and above the registered sale consideration and the allowability of indexed cost of acquisition/improvement claimed while computing capital gains.

59. At the outset, we shall deal with the contention of the assessee that the land sold at Madambakkam Village was agricultural land and therefore did not constitute a capital asset within the meaning of section 2(14) of the Act. The Ld.AR placed considerable reliance upon the revenue records such as Chitta, Adangal and Patta, which classified the property as Nanjai land and further contended that agricultural operations were being carried on in the said land. It was argued that the authorities below failed to appreciate the true character of the land and erroneously proceeded on the footing that the property was liable to capital gains tax merely because of its proximity to municipal limits.

60. We have carefully considered the aforesaid submissions. The issue, however, is not whether the land was classified as agricultural land in the revenue records or whether agricultural operations were carried on therein. The decisive issue is whether such agricultural land falls within the exclusion provided u/s.2(14)(iii) of the Act. The statutory scheme makes it abundantly clear that agricultural land situated within the prescribed distance from a municipality having the requisite population ceases to enjoy the exclusion contemplated u/s.2(14)(iii) of the Act and consequently assumes the character of a capital asset for the purposes of the Act.

61. The AO, after conducting independent verification, recorded a finding that the impugned land was situated at an aerial distance of approximately 4.45 kilometres from the limits of Tambaram Municipality. The AO further found that the population of Tambaram Municipality as per the Census 2011 was 1,64,830. The Ld.CIT(A), instead of mechanically affirming the findings of the AO, undertook an independent examination of the geographical location of the property and the municipal limits prevailing during the relevant period. The Ld.CIT(A) has recorded a detailed factual finding that the limits of Tambaram Municipality extended up to Selaiyur and that the aerial distance between the assessee’s land and Camp Road, Selaiyur, which formed part of the municipal area, was only around 3.70 kilometres. The Ld.CIT(A) has further observed that the actual distance from the municipal boundary would be even lesser.

62. Significantly, the assessee has not produced any material before us to dislodge the aforesaid factual findings. No alternative survey report, municipal record, geographical study or other evidence has been placed on record to establish that the land was situated beyond the statutory distance prescribed under section 2(14)(iii)(b) of the Act. Equally, the population criterion recorded by the authorities below remains undisputed. Once these two statutory requirements stand established, the inevitable legal consequence is that the land falls within the ambit of a capital asset irrespective of its classification in revenue records or actual agricultural use.

63. The reliance placed by the assessee on the decisions of the Hon’ble Supreme Court in Officer-in-Charge (Court of Wards) and Sarifabibi Mohmed Ibrahim does not advance his case. Those decisions lay down various tests for determining whether a land possesses agricultural character. However, the present controversy does not primarily concern the agricultural nature of the land. Even assuming for the sake of argument that the land was agricultural in character and agricultural activities were carried on therein, the statutory fiction embodied in section 2(14)(iii)(b) of the Act would nevertheless apply once the land is situated within the notified distance from a municipality having the prescribed population. Therefore, the issue is governed not merely by the agricultural character of the land but by the specific statutory conditions contained in section 2(14)(iii)(b) of the Act.

64. We therefore find ourselves in complete agreement with the reasoning and conclusions recorded by the Ld.CIT(A). The findings recorded by the first appellate authority are based upon proper appreciation of the statutory provisions and the factual materials available on record. Accordingly, we uphold the conclusion of the Ld.CIT(A) that the land sold by the assessee constituted a capital asset within the meaning of section 2(14)(iii)(b) of the Act and consequently the gains arising therefrom are chargeable to tax under the head “Capital Gains”.

65. We shall now advert to the principal controversy relating to the addition made on account of alleged receipt of unaccounted cash consideration. The Revenue authorities have proceeded on the basis that the assessee received a sum of Rs.4,72,35,000/- in cash over and above the registered sale consideration of Rs.1,26,90,000/- and accordingly adopted a total sale consideration of Rs.5,99,25,000/- for computing capital gains.

66. The material relied upon by the Revenue in support of the aforesaid addition consists principally of the statement recorded from Shri K.Sreejith, Director of M/s.Lotus Castle Pvt. Ltd., certain electronic records maintained in the Evernote application, the statement recorded from the assessee u/s.132(4) of the Act during the course of search and the subsequent proceedings before the Interim Board for Settlement in the case of M/s.Lotus Castle Pvt. Ltd.

67. There is no dispute that during the course of search proceedings conducted on 27.11.2019, the assessee made a statement u/s.132(4) of the Act admitting receipt of cash consideration over and above the registered consideration. Equally, there is no dispute that subsequently during the assessment proceedings and during cross-examination proceedings, the assessee explained that the actual cash received by him was only Rs.84,60,000/- and not Rs.4,72,35,000/- as alleged by the Revenue.

68. In our considered opinion, while evaluating such evidence, it becomes necessary to distinguish between the portion of the cash receipt which stands clearly admitted and the balance amount sought to be assessed solely on the basis of inferences and third-party materials. So far as the sum of Rs.84,60,000/- is concerned, the assessee himself has unequivocally admitted receipt of the said amount in connection with the sale transaction. Such admission was made during the assessment proceedings after the assessee had the benefit of examining the seized materials and after availing the opportunity of cross-examination. Therefore, to that extent, the receipt of on-money stands established beyond doubt. The assessee cannot be permitted to approbate and reprobate by simultaneously admitting receipt of Rs.84,60,000/-and denying its taxability. We therefore hold that the authorities below were justified in treating the sum of Rs.84,60,000/- as additional sale consideration received by the assessee.

69. However, the position stands on an entirely different footing with regard to the balance amount of Rs.3,87,75,000/-. We find that apart from the entries found in the electronic records maintained by M/s.Lotus Castle Pvt. Ltd. and the original statement recorded during search, there is no independent material demonstrating actual receipt of the said amount by the assessee. The Revenue has not brought on record any evidence indicating movement of cash from the purchaser to the assessee. No corresponding withdrawals have been established. No asset acquisition, investment, expenditure pattern or deployment of funds corresponding to such huge cash receipts has been identified despite extensive investigation carried out over a prolonged period.

70. We note that the search was conducted in November 2019 whereas the transaction pertains to February 2015. The Department had the benefit of examining several assessment years after the search. If indeed the assessee had received cash consideration aggregating to Rs.4.72 crores, some trace of its utilisation, investment or deployment would ordinarily have surfaced during the course of investigations. The absence of any such evidence assumes significance while evaluating the correctness of the Revenue’s allegation.

71. It is undoubtedly true that a statement recorded u/s.132(4) of the Act constitutes a relevant and important piece of evidence. However, it is equally well settled that an admission is not conclusive and the evidentiary value of such statement must be tested in the light of surrounding circumstances and corroborative evidence. Courts have repeatedly held that additions involving substantial tax consequences cannot be sustained solely on the basis of confessional statements where supporting evidence is lacking.

72. We find that the Evernote entries relied upon by the Revenue undoubtedly constitute relevant evidence. However, they are records maintained by a third party. Such records may justify further investigation and may lend support to the Revenue’s case, but where the assessee disputes the quantum recorded therein, the Revenue is still required to establish by cogent evidence that the amount mentioned therein actually changed hands. In the present case, such corroborative evidence is conspicuously absent.

73. We also find merit in the contention of the assessee that the proceedings before the Interim Board for Settlement in the case of M/s.Lotus Castle Pvt. Ltd. cannot be treated as substantive evidence against him. The assessee was not a party to those proceedings and therefore findings recorded therein cannot automatically bind him. At best, such proceedings may provide corroborative background material but cannot substitute independent evidence required to establish receipt of undisclosed income in the hands of the assessee.

74. Having regard to the entirety of the facts and circumstances, we are of the considered view that the Revenue has successfully established receipt of cash consideration only to the extent of Rs.84,60,000/- which stands admitted by the assessee. Insofar as the balance amount of Rs.3,87,75,000/- is concerned, the evidence available on record falls short of the degree of proof necessary to sustain the addition. We therefore hold that the addition deserves to be restricted to Rs.84,60,000/- and the balance addition of Rs.3,87,75,000/-is liable to be deleted. The AO is directed accordingly.

75. The remaining issue relates to the claim of indexed cost of acquisition/improvement. The authorities below have disallowed the claim primarily on the ground that complete supporting documents, bills and vouchers were not produced by the assessee. We find that the assessee has not been able to substantiate the entirety of the expenditure claimed by producing satisfactory documentary evidence. At the same time, it would be wholly unrealistic to presume that no expenditure whatsoever was incurred towards acquisition, maintenance, improvement and development of the property during the long period of ownership. The computation provisions relating to capital gains contemplate taxation of real gains and not hypothetical gains. Where some expenditure is demonstrably relatable to the asset but precise quantification becomes difficult because of lapse of time and absence of complete records, a reasonable estimate is permissible. The Revenue itself has adopted an estimated disallowance of 30% in respect of similar expenditure relating to another land transaction of the assessee. The principle of consistency also requires that similar treatment be accorded in comparable circumstances. Considering the totality of facts, the nature of the asset, the long holding period and the probabilities of the case, we are of the opinion that the ends of justice would be adequately served by disallowing 30% of the indexed cost claimed by the assessee towards acquisition/improvement. We accordingly direct the AO to allow indexed cost to the extent of 70% of the claim while recomputing the capital gains. The balance disallowance of 30% shall stand sustained.

76. In the result, we uphold the finding of the Ld.CIT(A) that the land sold by the assessee constituted a capital asset within the meaning of section 2(14)(iii)(b) of the Act. We further hold that the addition towards undisclosed cash consideration shall be restricted to Rs.84,60,000/- and the balance addition of Rs.3,87,75,000/- shall stand deleted. We also direct the AO to allow 70% of the indexed cost claimed by the assessee while recomputing the capital gains. The grounds raised by the assessee are partly allowed in the above terms.

77. In the result, the appeal of the assessee in ITA No.432/Chny/2025 is partly allowed.

ITA No.439/Chny/2025

78. The brief facts are that the assessee, an individual carrying on business in the name and style of M/s.Guru Foundations, filed his return of income for A.Y.2015-16 on 30.09.2015 declaring total income of Rs.75,80,310/-. Assessment u/s.143(3) of the Act was completed on 30.12.2017 determining the total income at Rs.2,75,59,940/-.

79. Subsequently, a search u/s.132 of the Act was conducted in the case of Lotus Castle Pvt. Ltd. on 29.01.2019. During the course of search, materials were seized evidencing payment of cash consideration towards acquisition of lands aggregated for Asvini Fisheries Pvt. Ltd. at Madambakkam Village, Tambaram. Based on the findings of the said search, a search u/s.132 of the Act was conducted in the group cases of AFPL on 27.11.2019, wherein the residential and business premises of the assessee were also covered.

80. During the search proceedings, it was found that the assessee had sold land admeasuring 2.12 acres situated at Madambakkam Village during F.Y. 2014-15 to M/s. Prathishri Properties, a group concern of AFPL, through LCPL. A statement u/s.132(4) of the Act was recorded from the assessee, wherein he admitted having received cash consideration of Rs.6,78,40,000/- over and above the registered sale consideration of Rs.1,91,30,000/-. Thereafter, notice u/s.153C of the Act was issued on 04.02.2021. In response, the assessee filed return of income on 28.02.2021 declaring the same income as originally returned and did not offer any additional income on account of the alleged on-money receipt.

81. The AO observed that, during the search in the case of LCPL, its Director, Shri K. Sreejith, in his statement recorded u/s.132(4) of the Act, had admitted payment of on-money of Rs.6,78,40,000/- to the assessee in respect of the aforesaid land transaction. Further, certain loose sheets and documents seized from the assessee’s premises contained details relating to the transfer of the said land. On the basis of the seized material and statements recorded, the AO concluded that the assessee had received total sale consideration of Rs.8,90,90,000/-, comprising Rs.1,91,30,000/- received through banking channels and Rs.6,99,60,000/- received in cash.

82. Since the assessee had not disclosed the alleged additional consideration in the return filed pursuant to notice under section 153C, the AO recomputed the Long-Term Capital Gain at Rs.8,83,51,515/- and completed the assessment u/s.153C of the Act vide order dated 24.09.2021, determining the total income at Rs.9,75,19,940/- after making an addition of Rs.6,99,60,000/-towards undisclosed Long-Term Capital Gain.

83. Aggrieved of the above assessment order, assessee carried the matter in appeal before the Ld.CIT(A), who vide the impugned appellate order dated 16.12.2024 dismissed the appeal of the assessee by confirming the addition made by the AO towards alleged on-money cash consideration of Rs.6,99,60,000/-.

84. Aggrieved of the above order of the Ld.CIT(A), assessee is in appeal before this Tribunal.

85. We have carefully considered the rival submissions, perused the orders of the lower authorities and examined the entire material placed on record. Since, the facts and issues are identical to the issue dealt in ITA No.432/Chny/2025 (supra), the detailed reasons recorded by us vide paragraphs 64 to 73 hereinabove, which shall form an integral part of this order, we are of the considered view that the Revenue has been able to establish, on the basis of cogent and reliable evidence, receipt of cash consideration by the assessee only to the extent of Rs.1,27,00,000/-. The said amount also stands admitted by the assessee and therefore constitutes a legally sustainable basis for making the addition. However, insofar as the balance amount of Rs.5,72,60,000/- is concerned, we find that the evidentiary material brought on record by the Revenue is insufficient to satisfy the degree of proof required for sustaining an addition under the provisions of the Act. The documents relied upon by the Revenue, when tested in the light of surrounding circumstances and the settled principles governing assessment of undisclosed income, do not conclusively establish receipt of the said amount by the assessee. Accordingly, we hold that the addition made by the AO and sustained by the Ld.CIT(A) is liable to be restricted to Rs.1,27,00,000/-. Consequently, the balance addition of Rs.5,72,60,000/- is directed to be deleted. The AO is directed to recompute the total income of the assessee in conformity with the above findings.

86. In the result, the appeal of the assessee in ITA No.439/Chny/2025 is partly allowed.

Order pronounced in the court on 15^th June, 2026 at Chennai.