Ratilal Patel Vs ITO (ITAT Surat)
Agricultural Land’s Capital Asset Status Requires Examination of Land Records, Population and Location
Background of the Case
The assessee, an individual, filed his return declaring total income of ₹2,48,950. During scrutiny assessment, the Assessing Officer noticed that he had sold two parcels of land situated at Survey Nos. 235 and 270, Village Jitali, Ankleshwar, for ₹2,19,37,600 and ₹90,00,000, respectively.
The assessee had not offered any capital gains from these transactions, proceeding on the basis that the lands were not capital assets within the meaning of section 2(14).
The Assessing Officer disputed this position and sought information from different authorities regarding the character and location of the lands.
Assessing Officer’s Enquiries and Addition
The Assessing Officer obtained information from the Sub-Registrar, Ankleshwar, under section 133(6) and concluded that the lands were non-agricultural.
He also sought information from the Deputy Executive Engineer, Roads and Buildings, which indicated that the lands were situated 5.2 kilometres from the Municipal Corporation. A departmental Inspector’s report further indicated that they were within five kilometres of the Notified Area Committee, Ankleshwar.
On this basis, the Assessing Officer held that the lands were non-agricultural and, additionally, situated within the specified distance of six kilometres from the relevant urban area. He therefore treated them as capital assets and brought the resulting gains to tax.
The assessee alternatively claimed exemption under section 54B for investment in another land. That claim was also rejected.
The Assessing Officer computed taxable capital gains of ₹2,99,34,839, increasing the assessed income to approximately ₹3.02 crore. The CIT(A) upheld the assessment, leading to the appeal before the Tribunal.
Assessee’s Grievances
The assessee challenged the treatment of the lands as non-agricultural and the consequential capital gains addition.
He also objected to the CIT(A)’s reliance on his alternative section 54B claim. His position was that seeking exemption if the gain was held taxable could not justify an adverse conclusion on his primary contention regarding the lands’ character.
Another ground challenged the invocation of Goetze (India) Ltd. v. CIT, 284 ITR 323, for denying the section 54B benefit.
However, the Tribunal did not finally decide these legal objections because additional evidence required factual examination.
Additional Evidence Before the Tribunal
During the hearing, the Tribunal noted that the assessee had furnished additional documents at pages 112 to 122 of the paper book.
These included information from the Sub-Registrar concerning whether the lands were agricultural or non-agricultural, and information from the Ministry of Home Affairs and Gram Panchayat, Jitali, concerning the population of Ankleshwar Municipal Corporation and related matters.
The documents had either not been available before the Assessing Officer or had not been considered while framing the assessment.
The Tribunal found that they went to the root of the controversy, having a material bearing on both the nature of the lands and their status as capital assets under section 2(14).
The Revenue did not object to admission of the evidence and restoration of the matter for fresh examination.
Tribunal’s Decision
The Tribunal identified the central question as whether the lands constituted capital assets under section 2(14) and, consequently, whether the gains from their sale were chargeable to tax.
Since the additional evidence directly concerned the character of the lands, relevant population and other factors affecting the statutory enquiry, the Tribunal restored the matter to the Assessing Officer.
The Assessing Officer was directed to examine the documents and adjudicate the issue afresh in accordance with law, after providing a reasonable opportunity of hearing.
The Tribunal expressly refrained from expressing any opinion on merits. The appeal was allowed for statistical purposes. Thus, neither exclusion from capital gains taxation nor exemption under section 54B was finally granted.
Author’s Comments
The character of the land and its location are separate enquiries, and both must be examined accurately. Evidence regarding agricultural status cannot replace the location enquiry, while a distance report alone cannot resolve every requirement governing the exclusion of agricultural land from section 2(14).
The order also illustrates the importance of identifying the relevant urban authority and population data before applying a particular distance limit. Here, the assessment referred to both a Municipal Corporation and a Notified Area Committee. The additional official information therefore deserved examination rather than being left outside the assessment record.
A further practical point concerns alternative claims. An assessee may maintain that a transaction is outside the capital gains charge while seeking section 54B relief if that primary contention fails. Such a claim should be examined on its own conditions. The assessee raised this objection here, but the Tribunal did not pronounce upon it.
Likewise, this decision cannot be cited as settling the applicability of Goetze (India) to the section 54B claim. That question remained undecided.
The relief is therefore an opportunity to establish the facts through authoritative records. The ₹2.99 crore capital gains computation is open to fresh adjudication; the Tribunal has not declared the sale tax-free.
Cases Discussed
- Goetze (India) Ltd. Vs CIT (Supreme Court)– (2006) 284 ITR 323 (SC).
FULL TEXT OF THE ORIGINAL ORDER OF ITAT SURAT
Feeling aggrieved by the order of first appeal dated 02.04.2025 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“Ld. CIT(A)”], which in turn arises out of the assessment-order dated 28.12.2017 passed by learned ITO, Ward-2(2), Bharuch [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2015-16, the assessee has filed this appeal on following grounds:
“1. Ld. NFAC (APPEAL) is erred to hold agricultural land as non agricultural land and confirmed the order of AO and thereby erred to assess returned income Rs.248950 to Rs.30183789.
2. That ld. NFAC(APPEAL) is erred to confirm the addition made in assessment order treating the land as non- agricultural stating that, “the appellant himself has stated that if the AO has treated said land non-agricultural deduction u/s.54B should be allowed by the AO” is contrary to the rule of law, as income has to be assessed in accordance to the Statutory provision as applicable to facts of the case, and hence, order confirming the addition is arbitrary and merely on conjecture and surmises.
3. That Id. NFAC(A) is erred to invoke the decision of the SC in the case of Goetz (India). Ltd 284 ITR 323 so as to deny the benefit of s.54B of the Act.”
2. The background facts leading to present appeal are such that the assessee-individual filed return of AY 2015-16 declaring a total income of Rs. 2,48,950/- u/s 139. The case of assessee was selected for scrutiny assessment and the Ld. AO issued notices u/s 143(2)/142(1) which were complied by assessee. During proceeding, the Ld. AO observed that the assessee sold two lands situated at Survey No. 235 & 270, village – Jitali, Ankleshwar for sale considerations of Rs. 2,19,37,600/- and Rs. 90,00,000/- respectively. The Ld. AO further observed that the assessee had not offered income from sale of those lands. The Ld. AO sought information from the office of Sub-Registrar, Ankleshwar u/s 133(6) and taking into account same concluded that the land sold by assessee was non-agricultural. Further, the Ld. AO also sought information from the office of Dy. Executive Engineer (Road & Buildings) u/s 133(6) and came to know that the distance of the sold lands from the Municipal Corporation was 5.2 Kms. Further, the Ld. AO sought a report from departmental inspector and came to know that the distance of the sold lands was within 5 kms. from the Notified Area Committee, Ankleshwar. Taking into account this information, the Ld. AO concluded that the land was non-agricultural and also it was situated within the specified distance of 6 kms., hence it was a capital asset within the meaning of section 2(14) and resultant capital gain was taxable. Further, the assessee, as an alternative, claimed exemption u/s 54B for re-investment in another land, which also the Ld. AO denied. Ultimately, the Ld. AO made working of taxable capital gain at Rs. 2,99,34,839/- and made addition in assessment-order. Aggrieved, the assessee carried matter in first-appeal before Ld. CIT(A) but did not get any success. Still aggrieved, the assessee has come in present appeal before us.
3. We have heard learned Representatives of both sides and perused the case record including the Paper-Book filed by assessee and the orders of lower authorities.
4. After some initiation deliberation of facts, it transpired during hearing that the assessee has filed additional evidences at Page No. 112 to 122 of the Paper-Book. These evidences are (i) Information obtained from the office of Sub-Registrar, Ankleshwar about the nature of impugned lands, whether agricultural or non-agricultural, and (ii) Information obtained from Ministry of Home Affairs, Government of India and Gram Panchayat, Jitali about the population of Ankleshwar Muncipal Corporation, etc. These documents were either not available before Ld. AO or not considered by Ld. AO in framing assessment. Therefore, these documents go to the root of the controversy involved in the present appeal and have material bearing on determination of the nature of the impugned lands and their status as a capital asset u/s 2(14) of the Act. Hence, the present matter needs to be restored at the level of Ld. AO for a fresh adjudication.
5. Ld. DR for Revenue did not have any objection if the aforesaid additional evidences are admitted and the matter is restored to the file of Ld. AO for examining the same and deciding the issue afresh in accordance with law.
6. We have considered rival contentions of both sides and perused the orders of lower authorities as well as the material held on record to which our attention has been drawn. The core issue involved in the grounds raised by assessee is with respect to the taxability of capital gain arising from sale of the impugned lands, particularly whether the said lands constituted a “capital asset” within the meaning of section 2(14) of the Act and, consequently, whether the resultant gain was chargeable to tax. The admitted facts are such that the assessee had sold the impugned lands situated at Survey Nos. 235 and 270, Village Jitali, Ankleshwar and had not offered any capital gain therefrom on the premise that the lands were not capital assets. The Ld. AO, however, treated the lands as non-agricultural and, further, held them to be situated within the specified distance from the relevant urban area and accordingly brought the resultant gain to tax. Since the evidences placed in Paper-Book, as discussed in earlier para, relate directly to the nature of the lands as well as the relevant population and other factors having bearing on the applicability of section 2(14), we deem it appropriate, in the interest of justice, to restore the matter to the file of Ld. AO for examining the aforesaid additional evidences and adjudicating the issue afresh. Needless to say, the Ld. AO shall afford reasonable opportunity of being heard to the assessee and shall decide the matter in accordance with law. Since the matter is being restored for fresh adjudication, we refrain from expressing any opinion on the merits of the issue.
7. In result, this appeal is allowed for statistical purposes.
Order pronounced in open court on 09/10/2026
