Madhavi Farms Private Limited Vs ITO (ITAT Hyderabad)
The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeal and held that agricultural land situated beyond the prescribed municipal limits cannot be treated as a “capital asset” under Section 2(14)(iii)(b) of the Income Tax Act merely because the purchaser subsequently used or intended to use the land for commercial purposes.
The dispute related to the sale of agricultural land measuring 15 acres 28 guntas situated in Jainapally Village, Bibinagar Mandal, Nalgonda District, during AY 2017-18. The assessee contended that the land was rural agricultural land located beyond 8 kilometres from the nearest municipality, Bhongir Municipality, and therefore excluded from the definition of “capital asset.” The Assessing Officer nevertheless assessed the gains as taxable long-term capital gains under Section 45 on the ground that the assessee failed to prove actual agricultural operations and agricultural income from the land.
The Tribunal noted that the Assessing Officer’s own findings recorded that the land was situated at an aerial distance of 8.56 kilometres from Bhongir Municipality and that local enquiries with the Sarpanch confirmed that crops such as kandi, jowar and grass were cultivated on the land. The Assessing Officer had also accepted that the land was rural agricultural land in local records. However, the addition was made because the assessee allegedly failed to substantiate agricultural activities with documentary evidence.
