RAMESHBHAI BABUBHAI PATEL,BAPUNAGAR vs. ACIT, CIRCLE 3(1)(1), AMBAWADI

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ITA 356/AHD/2026Status: DisposedITAT Ahmedabad20 August 2026AY 2016-175 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the issue of proportionate cost of acquisition after statutory surrender of land requires examination of facts and law, and thus cannot be rectified under Section 154. The AO exceeded his jurisdiction by modifying the capital gains computation.

What were the facts?

The assessee purchased agricultural land and later converted it to non-agricultural land. During conversion, a portion was retained by AUDA, and the remaining was reassigned to owners. The AO reduced the indexed cost of acquisition proportionately to the land transferred, which was upheld by the CIT(A).

What were the issues?

Whether the AO exceeded the scope of Section 154 by rectifying the capital gains computation based on a disputed interpretation of land acquisition cost after statutory surrender.

Which sections of the Income-tax Act were involved?

Section 154,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD

For Appellant: Shri Karan Shah, AR
For Respondent: Shri Amit Pratap Singh, Sr DR
Hearing: 29.06.2026Pronounced: 20.08.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE DR. B.R.R. KUMAR, VICE-PRESIDENT SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 356/Ahd/2026 (Assessment Year: 2016-17)

Rameshbhai Babubhai Patel, ACIT, Vs. 13/14, Kailashdham Society-1, Circle 3(1)(1), India Colony, Bapunagar, Ahmedabad Ahmedabad-380024 [PAN : AIAPP 4976 E] (Appellant) .. (Respondent) Appellant represented by : Shri Karan Shah, AR Respondent represented by: Shri Amit Pratap Singh, Sr DR Date of Hearing 29.06.2026 Date of Pronouncement 20.08.2026

O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-

This appeal has been filed by the assessee against the order dated 30.12.2025 passed by the Ld. Addl./JCIT (A)-1, Hyderabad (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2016-17.

2.

The assessee has raised following grounds of appeal:-

“I. ALLEGED EXCESS ALLOWANCE OF COST OF ACQUSITION RS. 5,42,537/- 1. The Ld. CIT (A) has erred in law and on facts in confirming the disallowance of Rs. 5,42,537/- merely on surmises and conjectures by making an observation that in the present case, it is an undisputed fact that out of the total land measuring 8,919 sq. meters, only 5,351 sq. meters were transferred during the year. 2. The Ld. CIT(A) and Ld. AO failed to appreciate that the appellant, along with two other co-owners (each holding a 1/3rd share), jointly purchased agricultural land at Kathwada, admeasuring 8,919 sq. meters, on 05.07.2010 for a consideration of Rs. 26,76,000/-. Subsequently, the appellant and co- owners opted to convert the land to non-agricultural land and pursuant to the conversion, AUDA retained 40% of the total area (3,568 sq. meters), and only

ITA No. 356/Ahd/2026 Rameshbhai Babubhai Patel Vs. ACIT Asst.Year : 2016-17 - 2– the remaining 5,351 sq. meters was converted to non-agricultural land and reassigned to the holders. The conversion order explicitly confirms that only 5,351 sq. meters was assigned back to the appellant and co-owners and 40% of the land area admeasuring 3568 sq.mtrs was kept by the AUDA. 3. The Ld. AO has erred in law in presuming that only a part of the land was transferred during the relevant previous year and hence indexed cost of acquisition only in proportion to the land transferred is required to be allowed. The Ld. Assessing Officer failed to appreciate that the purchase cost of Rs. 26,76,000/- was incurred for the entire land admeasuring 8919 Sq. Meters and not for part of the land. It is the Government policy that when a person converts agricultural land into Non-Agricultural (NA) land, the net usable area is almost always less than the original agricultural area as almost 40% of the land may be "deducted" or surrendered to the local authority like AUDA or the government and the purchase cost remains the same.”

3.

The brief facts of the case are that the assessee filed his return of income for A.Y. 2016-17 on 23.09.2016 declaring total income of Rs.63,67,140/-. The assessment was completed u/s 143(3) of the Act on 17.10.2018 determining the total income at Rs.64,48,840/-. Subsequently, the Assessing Officer issued a notice u/s 154 of the Act dated 16.03.2021 on the ground that there was a mistake apparent from the record in the computation of long-term capital gains. According to the Assessing Officer, while completing the assessment under section 143(3), indexed cost of acquisition had been allowed at Rs.13,56,191/- instead of Rs.8,13,653/-. The Assessing Officer observed that although the assessee had originally purchased land admeasuring 8,919 sq. metres, only 5,351 sq. metres had been transferred during the relevant previous year and, therefore, indexed cost of acquisition was allowable only proportionately. Accordingly, by passing an order under section 154 dated 24.03.2021, the Assessing Officer reduced the indexed cost of acquisition by Rs.5,42,537/- and enhanced the long-term capital gain by the said amount.

4.

Aggrieved by the rectification order, the assessee preferred an appeal before the Ld. CIT(A). The assessee contended that the rectification order had been passed without considering the reply filed on 22.03.2021. It was further submitted that the assessee, along with two co-owners having one-third share each, had jointly purchased agricultural land admeasuring 8,919 sq. metres for a

ITA No. 356/Ahd/2026 Rameshbhai Babubhai Patel Vs. ACIT Asst.Year : 2016-17 - 3– consideration of Rs.26,76,000/-. Subsequently, the land was converted into non- agricultural land, pursuant to which AUDA retained 40% of the land measuring 3,568 sq. metres for public purpose and only the balance land measuring 5,351 sq. metres was reassigned to the owners. It was, therefore, submitted by the assessee that the entire purchase cost pertained to the land originally acquired and merely because a portion of the land was surrendered to AUDA as a statutory consequence of conversion, the indexed cost of acquisition could not be proportionately reduced. The assessee also contended that the issue involved interpretation of law and facts and, therefore, no rectification under section 154 could have been made.

5.

The Ld. CIT(A), however, was not convinced with the submissions of the assessee. He upheld the action of the Assessing Officer by observing that it was an undisputed fact that only 5,351 sq. metres of land had been transferred during the relevant year out of the total land originally purchased measuring 8,919 sq. metres. According to the Ld. CIT(A), the Assessing Officer had correctly restricted the indexed cost of acquisition proportionately to the land transferred and accordingly confirmed the rectification made under section 154 of the Act.

6.

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

7.

Before us, the Ld. AR submitted that the authorities below have failed to appreciate the factual background relating to conversion of agricultural land into non-agricultural land. The Ld. AR reiterated the submissions made before the lower authorities and submitted that the surrender of land to AUDA was a statutory consequence of conversion of agricultural land into non-agricultural land and not a case where only part of the original land was sold. It was further submitted that the issue involved examination of facts and law and, therefore, did not fall within the ambit of section 154.

ITA No. 356/Ahd/2026 Rameshbhai Babubhai Patel Vs. ACIT Asst.Year : 2016-17 - 4– 8. The Ld. DR, on the other hand, relied upon the orders of the lower authorities. The Ld. DR contended that the assessee had transferred only 5,351 sq. metres during the relevant previous year whereas the original purchase was for 8,919 sq. metres. Therefore, according to the Revenue, only proportionate indexed cost of acquisition could be allowed while computing long-term capital gains.

9.

We have heard the rival submissions and perused the material available on record. It is a settled principle of law that the jurisdiction u/s 154 is confined only to rectification of mistakes which are apparent from the record. In the present case, the assessee has consistently contended that the land originally purchased measured 8,919 sq. metres and, upon conversion into non- agricultural land, 40% thereof was compulsorily retained by AUDA in accordance with the applicable development regulations. Consequently, only 5,351 sq. metres was reassigned to the assessee and the co-owners. According to the assessee, the original purchase consideration related to the entire land and, after such statutory surrender, the entire cost of acquisition became attributable to the balance land available for transfer. On the other hand, the Assessing Officer has proceeded on the assumption that only a portion of the original land had been transferred and, therefore, indexed cost of acquisition was allowable only proportionately. Therefore, in our considered opinion, the aforesaid controversy cannot be characterised as a mistake apparent from the record. The issue necessarily requires examination of the conversion order issued by AUDA, the legal consequences flowing from compulsory surrender of land under the development regulations, and the correct principles governing computation of cost of acquisition under the provisions of the Act.

9.1 We also find force in the contention of the assessee that the Assessing Officer proceeded on the premise that the assessee continued to hold the balance land measuring 3,568 sq. metres, whereas the assessee's case is that such land stood permanently retained by AUDA pursuant to the conversion

ITA No. 356/Ahd/2026 Rameshbhai Babubhai Patel Vs. ACIT Asst.Year : 2016-17 - 5– proceedings and no ownership remained with the assessee. This itself demonstrates that determination of the issue requires investigation into the factual position and cannot be resolved by way of rectification under section 154.

9.2 In these circumstances, we hold that the Assessing Officer exceeded the scope of jurisdiction conferred under section 154 of the Act in modifying the computation of long-term capital gains by reducing the indexed cost of acquisition. Consequently, the rectification order dated 24.03.2021 cannot be sustained. We accordingly set aside the order of the Ld. CIT(A) and quash the rectification order passed under section 154 of the Act. The addition of Rs.5,42,537/- made on account of alleged excess allowance of indexed cost of acquisition is directed to be deleted.

10.

In the result, the appeal of the assessee is allowed.

The order pronounced in the open Court on 20.08.2026

Sd/- Sd/-

(RAHUL CHAUDHARY) (DR. B.R.R. KUMAR) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 20.08.2026 **btk आदेश की �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent. 2. संबंिधतआयकरआयु�/ Concerned CIT 3. 4. आयकरआयु�(अपील) /The CIT(A)- 5. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, अहमदाबाद/ DR, ITAT, Ahmedabad 6. गाड�फाईल /Guard file. आदेशानुसार/ BY ORDER,

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