M/S. ADIYAMAN TEXTILES LTD.,KRISHNAGIRI vs. ACIT, CIRCLE-1, HOSUR

आयकर अपीलीय अधिकरण, ‘ए’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI श्री एबी टी वर्की, न्याययर्क सदस्य एवं श्री एस. आर. रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.2279/Chny/2025 ननिाारण वर्ा / Assessment Year: 2016-17 M/s.Adiyaman Textiles Limited The Assistant Commissioner Paiyur Village vs. of Income-tax Kaveripattnam Circle – 1, Krishnagiri – 635 112. Hosur. [PAN: AABCA8139N] (प्रत्यथी/Respondent) (अपीलाथी/Appellant)

अपीलाथी की ओर से/Appellant by : Shri. R.Viswanathan, CA प्रत्यथी की ओर से/Respondent by : Ms. Anshu Sharawat, Addl.CIT सुनवाई की तारीख/Date of Hearing : 22.07.2026 घोर्णा की तारीख/Date of Pronouncement : 17.09.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : This appeal has been preferred by the assessee against the order passed by the Learned Commissioner of Income Tax, Appeal (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT(A)”], dated 07.07.2025, arising from the assessment order dated 29.12.2018 for the Assessment Year (AY) 2016-17 passed by the Assistant Commissioner of Income-tax, Circle-1, Hosur [hereinafter referred to as “the AO”], u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

:-2-: ITA. No:2279/Chny/2025. 2. The brief facts of the case emanating from the records are that the assessee is a company Incorporated on 18.04.1994, carrying on the business of spinning, weaving of cotton yarns. However, the assessee did not continue the business from the year 2014 onwards. The assessee filed the return of income for the AY 2016-17 on 30.09.2016 declaring a total income of Rs.2,82,43,270/-. The return of income was selected for limited scrutiny under CASS. Accordingly, statutory notices were issued to the assessee calling for details in support of the return of income filed. The assessee had declared long term capital gains of Rs.6,79,05,888/-. In support of the capital gains, the assessee furnished sale deeds executed on 07.12.2015 at Kaveripattinam between the assessee and M/s.DITI Resources Private Limited, Ahmedabad for sales consideration amounting to Rs.7,95,00,000/- consisting of Rs.1,67,26,500/- towards land Rs.6,13,73,500/- towards factory building and properties in the form of trees to the tune of Rs.14,00,000/-. The assessee filed the guideline value as on the date of transfer, i.e., on 07.12.2015 obtained from the Registration Department of the Tamil Nadu shows that Rs.3 lakhs per acre for Survey Nos.613/2A and 613/2B. The AO verified the guideline value with the Sub Registrar Office, from whom the details of registration done on 30.03.2016, wherein the guideline value was shown as Rs.180 per sq.ft. for the Survey Nos.613/2A and 613/2B as per the order of the Assistant Inspector General of Registration dated 24.03.2016. Accordingly, the AO completed the assessment by invoking sec.50C of the Act and arrived at the consideration as Rs.3,84,51,808/- as against the consideration as per the sale deed amount of Rs.1,67,26,500/-. The AO passed an order u/s.143(3) of the Act dated 29.12.2018 by revising the total income of the assessee. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). The assessee submitted that the AO has erred that the assessment has been done beyond the scope of limited scrutiny. The assessee also submitted that the AO has erred in assessing the capital gain on the land, which is agricultural in nature and has failed to verify the nature of land being

:-3-: ITA. No:2279/Chny/2025. agricultural and hence the capital gains arising from the sale of such land cannot be considered as a capital gain. The assessee also asserted that the land which has been sold is measured in terms of acre only and not by square feet.

“5.3. Vide ground 3, the Appellant is aggrieved that the AO has ignored the fact the land sold is agriculture land and, therefore, the gains on its alienation is not chargeable to tax under the head 'capital gains'. In this regard, however, I find that the Appellant has not produced even a single document in support of the ground. The Appellant has not shown that the land was being used for the purpose of agriculture activities. The Appellant has not submitted any evidence of having earned agriculture income from cultivation of such parcels of land. On the other hand, I find that the AO has obtained details from the O/o Sub registrar that the parcels of land sold by the Appellant are classified as 'dry' land in revenue records i.e. such land are not fit for cultivation. This fact coupled with the fact that Appellant has failed to submit even a single evidence of having used the land for agriculture purpose and having earned any agriculture income, I hold that the parcels of land sold by the Appellant is not agriculture land and, therefore, gains on sale of such land is liable for taxation under the head 'capital gains'. Ground is, thus, dismissed. 5.4. Vide Grounds 4 and 5, the Appellant has raised three issues:

:-4-: ITA. No:2279/Chny/2025. i. The AO ought to have adopted the guidance value as on 07/12/2015 when the sale deed was registered ii. The AO ought to have referred the valuation of the property to the DVO iii. The AO should have applied the guiding value to 1.72 acres of land instead of 1.92 acres 5.4.1. The above issues are discussed herein below: i. The AO ought to have adopted the guidance value as on 07/12/2015 when the sale deed was registered. In this regard, I find that the AO had specifically asked the Appellant to furnish guideline values for properties in Survey No.613/2A and 613/2B to support the sale consideration of Rs.7,95,00,000/-. In response, the Appellant furnished a letter dated 07/12/2018 from the O/o Sub-Registrar that the as per guiding value, the rate of the property is Rs.3,00,000/- per acre. In this regard, the AO made further enquiry from the O/o Sub-Registrar seeking guidance value of the properties in Survey No.613/2A and 613/2B as on 07/12/2015. The AO was supplied with documents which showed that as per the guideline value, the value of the property sold by the Appellant was Rs.180/- per square feet. Infact, the buyer of the property M/s Diti Resources Pvt Ltd had filed an appeal before the District Registrar, Dharmapuri on the grounds that said properties are to be valued at Rs.3,00,000/- per acre and not Rs180/- per square feet. The District Registrar passed order dated 24/03/2016 holding that registry of the property in Survey No.613/2A and 613/2B had to be done at Rs.180/- per square feet. Thus, the plea of the Appellant that the AO ought to have adopted the value of the property at Rs.3,00,000/- per acre, is baseless. The AO has correctly valued the property at Rs. 180/- per square feet. ii. The AO ought to have referred the valuation of the property to the DVO In this regard, I find that the Appellant has not submitted any evidence that it had objected the valuation adopted by the AO. On perusal of the assessment order, it is observed that the Appellant vide letter 20/11/2017 has specifically stated that there is no variance in sale value as per the registration deed and value for calculation of profit. The Appellant was, further, specifically asked vide notice u/s 142(1) dated 23/05/2018 to justify the sale consideration mentioned in the sale deed. However, the Appellant failed to justify the same. Thus, it is evident from the assessment order that the Appellant has nowhere disputed the valuation by the AO and has not made any request to refer the valuation of the property to the DVO. Thus, in absence of any such dispute raised by the Appellant about valuation of the property and in absence of any specific request for making reference to the DVO, in my considered, the AO has not contravened any provisions under the Act by not making reference to the DVO. As regards various case laws relied upon by the Appellant, I find that the facts being distinguishable, these case laws have no relevance in case of the Appellant. iii. The AO should have applied the guiding value to 1.72 acres of land instead of 1.92 acres. Though, the Appellant has not furnished any evidence in this regard, in the interest of justice, the AO is directed to verify the area of property under Survey

:-5-: ITA. No:2279/Chny/2025. No.613/2A and 613/2B on which the rate of Rs.180/- per square feet is to be applied. The Appellant is directed to furnish online before the AO all relevant details. In view of the above, the grounds are partly allowed.”

“The appellant respectfully submits the following grounds of appeal against the order passed under Section 250 of the Income-tax Act, 1961 by the NFAC dated 07.07.2025 for the A.Y. 2016-17: 1. General Ground The order passed by the Learned Commissioner of Income-tax (Appeals) is contrary to the facts and circumstances of the case, bad in law, and hence liable to be set aside. 2. Regarding Agricultural Land Misclassification 2.1 The CIT(A) erred in upholding the assessment of capital gains on land which is agricultural in nature without proper appreciation of the revenue records. The appellant was not given adequate opportunity to furnish supporting evidence for the agricultural status of the land. 2.2 The Learned Assessing officer erred in Assessing the Capital gains on the land which is Agricultural in Nature 2 Incorrect Adoption of Guideline Value under Section 50C a) The CIT(A) erred in confirming the adoption of a higher guideline value based on the District Registrar's later revision dated 24.03.2016, while the sale deed was executed on 07.12.2015. The rate prevailing on the date of transfer should have been considered, i.e. Rs3,00,000 per acre and not Rs 180 per sq.ft. b) The guideline value as on the date of execution should be adopted. The registrar has adopted the revised value on the date of registration after 3 months from the date of execution. There is a correction in the sale deed by the buyer and No consideration was passed as per the corrected deed 3 Failure to Refer to Valuation Officer (DVO) The CIT(A) erred in upholding the AO's decision to not refer the valuation to the Departmental Valuation Officer under Section 50C(2) despite the dispute in valuation. The appellant was denied a statutory remedy which is mandatory under law where the valuation is challenged. 4 Wrong Extent of Land Considered for Valuation The CIT(A) failed to properly appreciate the factual error in the area considered. The AO adopted the extent as 1.92 acres, whereas the actual extent of land transferred was 1.72 acres. The CIT(A) directed the AO to verify this, but did not issue a clear direction to rectify the computation.

:-6-: ITA. No:2279/Chny/2025. 5 Violation of Natural Justice The appellant was not granted adequate opportunity to produce evidence and explain the genuineness of the sale consideration, and the entire assessment was completed in violation of the principles of natural justice. 6 Denial of Opportunity to Justify Sale Consideration The lower authorities failed to appreciate the appellant's genuine business situation and bonafide reasons for the sale below guideline value, including absence of ongoing business and commercial distress. 7 Incorrect Understanding of Scrutiny Scope The appellant submits that the Assessing Officer enlarged the scope of limited scrutiny without obtaining necessary approvals or providing reasons, thereby [9:40 am, 11/9/2026] G Devadas: exceeding the jurisdictional limits set by CBDT Instruction No. 20/2015 dated 29-12-2015. B PRAYER In view of the above grounds, the appellant humbly prays that the Hon'ble Tribunal may be pleased to: Set aside or modify the impugned order, Direct the AO to adopt correct fair market value, Or refer the valuation to the DVO, And grant such other relief as deemed fit in the interest of justice. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered.”

:-7-: ITA. No:2279/Chny/2025. Therefore, the value adopted at the time of registration of sale deed on 07.12.2015 was rightly considered and guideline value applicable for agricultural land. The subsequent registration done based on the guideline value of the property sold as Rs.180 per sq.ft. for the Survey Nos.613/2A and 613/2B on 30.03.2016 by the Assistant Inspector General of Registration order dated 24.03.2016. Therefore, the impugned additions are made by the AO on erroneous understanding of the facts and hence prayed for setting aside the order of the ld.CIT(A) and delete the impugned additions. 7. Per contra, the ld.DR for the Revenue submitted that the assessee has not shown any agricultural land in its fixed assets schedule in the audited balance sheet furnished. Further, the assessee has built the factory building and sold the entire property including the factory building to another industry M/s.DITI Resources Private Limited. The ld.DR also submitted that the assessee himself has already shown as a taxable income under the head capital gains for sale of the immovable property and paid the taxes on its own in the return of income filed. Now the assessee has taking a contrary view to claim the exemption of taxes on the basis of treating the property as agricultural land, since the AO has invoked the provisions of sec.50C of the Act based on the applicable guideline value given by the Assistant Inspector General of Registration for the impugned immovable property sold on the date of registration, i.e., on 07.12.2015. Therefore, the ld.DR prayed that the appeal of the assessee needs to be dismissed as there is no reason to interfere in the order of the ld.CIT(A). 8. We have heard the rival submissions, perused the material available on record and carefully gone through the orders of the authorities below as well as the documents placed in the paper book. The controversy before us essentially revolves around: (i) whether the land transferred by the assessee could be regarded as agricultural land so as to fall outside the ambit of capital asset; (ii)whether the AO was justified in invoking the provisions of section 50C of the Act and adopting the guideline value of Rs.180/- per sq.ft.; (iii) whether non-

:-8-: ITA. No:2279/Chny/2025. reference of the valuation to the Departmental Valuation Officer (DVO) vitiates the assessment; (iv) the extent of land to which the guideline value has to be applied; and (v) whether the AO travelled beyond the permissible scope of limited scrutiny. 9. The undisputed facts are that the assessee is a company which was carrying on the business of spinning and weaving of cotton yarn and had discontinued its business operations from the year 2014 onwards. During the relevant previous year, the assessee transferred immovable properties to M/s.DITI Resources Private Limited, Ahmedabad, for an aggregate consideration of Rs.7,95,00,000/-, comprising Rs.1,67,26,500/- towards land, Rs.6,13,73,500/- towards factory building and Rs.14,00,000/- towards trees. The assessee itself declared long-term capital gains of Rs.6,79,05,888/- in the return of income. 10. The first substantive contention of the ld.AR is that the land in question was agricultural land and, therefore, the gain arising from its transfer could not have been subjected to tax under the head "capital gains". We have carefully considered the contention. The burden to establish that a particular parcel of land falls outside the definition of "capital asset" by virtue of its agricultural character rests upon the assessee claiming such exclusion. The character of land cannot be determined merely by its description in one document or by the unit in which the land is measured. The surrounding circumstances, actual user of the land, nature and character of the property and other relevant evidence have to be considered. In the present case, the ld.CIT(A) has recorded a categorical finding that the assessee failed to produce evidence demonstrating that the land was actually used for agricultural operations or that agricultural income was earned from cultivation of the parcels in question. On the other hand, information obtained from the office of the Sub-Registrar indicated that the parcels were classified as "dry" land. The assessee has now relied upon revenue records, patta and chitta and has contended that the property continued to retain its agricultural character. However, such description, by

:-9-: ITA. No:2279/Chny/2025. itself, cannot be treated as conclusive when the surrounding circumstances indicate otherwise. 11. More importantly, the Revenue has pointed out that the assessee was engaged in the spinning and weaving business and that a factory building stood on the property. The entire property, including the factory building, was ultimately transferred to another industrial concern, namely M/s.DITI Resources Private Limited. The ld.DR has also pointed out that the assessee had not separately reflected the alleged agricultural land in the fixed-assets schedule of the audited financial statements. These circumstances materially weaken the subsequent contention that the property transferred was agricultural land simpliciter. 12. We also cannot lose sight of the manner in which the assessee itself treated the transaction in its return of income. The assessee declared long-term capital gains arising from the transfer of the immovable property and offered the same to tax. It is only upon the AO invoking section 50C that the assessee sought to contend that the land was agricultural land and consequently outside the ambit of capital gains taxation. Though an assessee cannot be taxed merely because of an erroneous position adopted in the return if the receipt is otherwise not taxable under law, a contrary claim subsequently raised must nevertheless be established by cogent evidence. In the facts before us, the material relied upon by the assessee does not satisfactorily establish that the property transferred, particularly in the factual setting of an existing factory property, was agricultural land falling outside the definition of capital asset. 13. We, therefore, find no infirmity in the conclusion of the ld.CIT(A) that the assessee has failed to establish its claim that the land transferred was agricultural land not exigible to capital gains tax. The grounds raised by the assessee in this regard are accordingly rejected. 14. The next controversy relates to the adoption of guideline value for the purpose of section 50C of the Act. The assessee contends that the guideline

:-10-: ITA. No:2279/Chny/2025. value prevailing on 07.12.2015 was Rs.3,00,000/- per acre and that the subsequent determination of Rs.180/- per sq.ft. could not retrospectively be applied to the transfer made on 07.12.2015. We have considered the matter. The AO did not mechanically substitute an arbitrary value for the consideration disclosed by the assessee. During the assessment proceedings, the AO specifically called upon the assessee to furnish the applicable guideline value and also made an independent enquiry with the office of the Sub-Registrar in respect of Survey Nos.613/2A and 613/2B. The material received pursuant to such enquiry disclosed the guideline value applicable to the subject property at Rs.180/- per sq.ft. 15. Of particular significance is the fact recorded by the ld.CIT(A) that the purchaser, M/s.DITI Resources Private Limited, itself carried the matter before the District Registrar, Dharmapuri, contending that the property ought to be valued at Rs.3,00,000/- per acre instead of Rs.180/- per sq.ft. The District Registrar, by order dated 24.03.2016, rejected such contention and determined that registration of the property comprised in Survey Nos.613/2A and 613/2B had to be made by adopting Rs.180/- per sq.ft. Thus, the higher valuation was not a mere subsequent guideline value unconnected with the transaction; rather, it arose from the registration authorities' determination concerning the very property and transaction in question. Consequently, the buyer accepted the rate @ Rs.180/- per sq.ft and registered the document on 30.03.2016 by remitting the differential stamp duty. 16. In these circumstances, we are unable to accept the contention that the AO applied a wholly subsequent or unrelated guideline value retrospectively. The material emanating from the registration authorities demonstrates that the rate of Rs.3,00,000/- per acre claimed by the assessee was specifically disputed and the competent registration authority determined the applicable value at Rs.180/- per sq.ft. The assessee has not placed before us any material demonstrating that such determination by the competent registration authority was subsequently reversed, modified or declared inapplicable to the subject

:-11-: ITA. No:2279/Chny/2025. transfer. Section 50C creates a statutory deeming fiction whereby, where the consideration received or accruing as a result of transfer of land or building is less than the value adopted or assessed or assessable by the stamp valuation authority for the purpose of payment of stamp duty, such value shall, subject to the provisions of the section, be deemed to be the full value of consideration for computation of capital gains. Once the competent stamp valuation authority has determined the value applicable to the subject property and the consideration disclosed for the land is lower than such value, the AO cannot be faulted for invoking section 50C of the Act, subject of course to the safeguards contained in sub-section (2). We, therefore, find no reason to interfere with the finding of the ld.CIT(A) upholding the adoption of Rs.180/- per sq.ft. for the purpose of section 50C of the Act. 17. The assessee has further contended that the AO was mandatorily required to refer the property to the DVO u/s.50C(2) of the Act. On examination of the assessment record as noticed by the ld.CIT(A), however, we find that the assessee had not raised the requisite objection before the AO disputing the stamp valuation and seeking reference to the Valuation Officer. The ld.CIT(A) has specifically recorded that vide letter dated 20.11.2017 the assessee stated that there was no variance between the sale value appearing in the registration deed and the value considered for computation of profit. Thereafter, vide notice u/s.142(1) dated 23.05.2018, the assessee was specifically called upon to justify the sale consideration. Despite such opportunity, the assessee did not seek a reference to the DVO during the assessment proceedings. 18. Section 50C(2) of the Act operates in circumstances where the assessee claims before the AO that the value adopted or assessed or assessable by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer, subject to the other statutory requirements. In the present case, the assessee did not invoke this statutory mechanism before the AO by making the necessary claim regarding fair market value. Therefore, in the peculiar facts of the case, the AO cannot subsequently be faulted for not making

:-12-: ITA. No:2279/Chny/2025. a reference which was never sought on the basis contemplated u/s.50C(2) of the Act. Accordingly, we find no infirmity in the conclusion reached by the ld.CIT(A) on this aspect and reject the ground raised by the assessee. Extent of land – 1.72 acres versus 1.92 acres: 19. The assessee has further contended that the AO erroneously applied the guideline value to an extent of 1.92 acres whereas the actual extent transferred was only 1.72 acres. We notice that the ld.CIT(A), instead of rejecting the claim, has already directed the AO to verify the correct extent of the property comprised in Survey Nos.613/2A and 613/2B to which the rate of Rs.180/- per sq.ft. is to be applied and has directed the assessee to furnish the relevant supporting material. Thus, adequate relief has already been granted by the ld.CIT(A) by directing factual verification. The assessee cannot have any legitimate grievance against such direction. We accordingly uphold the direction of the ld.CIT(A). The AO shall give effect to the same after verifying the actual extent of land transferred on the basis of the registered instruments and other relevant records and shall restrict the computation under section 50C to the correct extent so determined. 20. The assessee has also alleged violation of the principles of natural justice and denial of adequate opportunity to explain the sale consideration. We do not find merit in this ground. The material on record shows that the AO issued statutory notices and specifically called upon the assessee to justify the sale consideration and furnish the guideline value. The assessee participated in the assessment proceedings and furnished its explanation and documents. The AO further made independent enquiries with the registration authorities. 21. Likewise, before the ld.CIT(A), the assessee was permitted to raise its contentions regarding agricultural character of the land, guideline value, reference to the DVO and the extent of the property. Indeed, the ld.CIT(A) granted partial relief by directing verification of the correct extent of land. Therefore, the material placed before us does not establish any prejudice

:-13-: ITA. No:2279/Chny/2025. arising from denial of reasonable opportunity warranting interference with the assessment. 22. The assessee has further raised a ground that the AO travelled beyond the scope of limited scrutiny without obtaining the necessary approval as contemplated under the relevant CBDT instructions. However, except raising the ground, no material has been placed before us demonstrating what precisely was the issue for which the return was selected for limited scrutiny and how the examination of the capital gains arising from the transfer of the property and the application of section 50C of the Act fell outside such identified issue. 22. It is settled that a jurisdictional objection founded upon the scope of limited scrutiny has to be examined with reference to the reasons/issues for which the case was selected and the action actually undertaken by the AO. In the absence of material demonstrating that the AO examined an issue wholly unconnected with the limited-scrutiny parameters, we cannot presume that the AO exceeded his jurisdiction merely on the basis of an assertion made in the grounds of appeal. The assessee has failed to establish the factual foundation necessary for accepting this ground. Accordingly, the same is rejected. 23. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 17th September, 2026 at Chennai.

Sd/- Sd/- (एबी टी वर्की ) (एस. आर. रघुनाथा) (ABY T VARKEY) (S. R. RAGHUNATHA) न्याययर्क सदस्य/Judicial Member लेखासदस्य/Accountant Member चेन्नई/Chennai, दिन ांक/Dated, the 17th September, 2026 Devadas

:-14-: ITA. No:2279/Chny/2025. आदेश की प्रतिलिपि अग्रेपिि/Copy to: 1. अपीलाथी/Appellant 2. प्रत्यथी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. ववभागीय प्रनतननधि/DR 5. गार्ा फाईल/GF Digitally signed by DEVADAS DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.09.21 16:49:12 +05'30'