VISHRAM HADHUBHAI GAGIYA,MUNDRA KUTCH vs. ITO, WARD-5, GANDHIDHAM, GANDHIDHAM

आयकर अपीलीय अिधकरण, राजकोट �यायपीठ, राजकोट। In The Income Tax Appellate Tribunal, “SMC” Rajkot Bench, Rajkot Before Dr. Arjun Lal Saini, Accountant Member आयकरअपीलसं./ITA No. 159/RJT/2026 (�नधा�रणवष�/Assessment Year: (2016-17) Shri Vishram Hadhubhai Gagiya The Income-tax Officer, Ward-5, Wadi Vistar, Village Bhujpur, Tal. Aayakar Bhavan, Sector-8, Vs. Mundra Dist. Kutch Gujarat - Gandhidham Gujarat 370110 370405 �ायीलेखासं./जीआइआरसं./PAN/GIR No.: BBEPG4422J (अपीलाथ�/Assessee) (��यथ�/Respondent) Assessee by : Shri Mehul Ranpura. Ld. AR Respondent by : Shri Shishir Kumar, Ld. SR DR Date of Hearing : 30/07/2026 : 26/10/2026 Date of Pronouncement ORDER Per, Dr. Arjun Lal Saini, AM:

Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2016-17, is directed against the order passed under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 05.12.2025 by the National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income Tax (Appeals) [in short ‘Ld.CIT(A)’] which in turn arises out of an assessment order passed by the Assessing Officer s(in short ‘assessing officer’) u/s 147 read with section 144B of the Act, dated 09.02.2024.

From the information, it transpires that the assessee had sold immovable properties worth Rs.2,09,00,000/- during the year under consideration and did not file return of income showing the capital gain/ profit on sale of such immovable property. Hence, as per the procedure, a notice u/s 148A(b) of the I.T. Act, 1961 has been issued on 03.03.2023 to show-cause on or before 10.03.2023, as to why a notice under section 148 of the Act should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year”. 4. In compliance, the assessee filed his reply on 06.03.2023, as under:

“Vide point No.02, the assessee submitted that I hereby want to inform that total amount relating to me regarding sales of immovable property is Rs. 1,02,74,000 (Rs. 71,00,000/- from sale deed dated 01.07.2015 which is fully owned by me and Rs. 31,74,0000/- from sale deed dated 23.09.2015 which jointly owned with above mentioned parties.” 5. The reply filed has been considered by assessing officer and the information and material available on record has been analyzed by assessing officer and the following observations were made by assessing officer:

(a) The assessee is a non-filer and has not filed his return of income for the assessment year under consideration as well.

(b) The assessee has sold immovable properties for an aggregate consideration of Rs.2,09,00,000/-during the relevant assessment year. The sale transaction under consideration comes under the purview of the capital assets, as defined under section 2(14) of the Act. As the assessee has not proved with cogent evidences that the land in question is not a capital asset. 3 In the case, the capital gain in the hands of the assessee is considered at Rs. 1,02,74,000/- as per the sale agreement submitted by the assessee.

Thus, the 'CAPITAL GAINS/ PROFIT' on sale of such property remains undeclared/ undisclosed, as such, the assessee has not filed return of income for the year under consideration.

"Now, I hereby want to inform that total amount relating to me regarding, sales of immovable property (Agricultural Land) is Rs. 1,02,74,000/- (i.e. 71,00,000/- from Sales Deed dated 01/07/2015 which is fully owned by me and 31,74,000/- is from of sales deed dated 23/09/2015 which jointly owned with above mentioned parties. I request you to kindly update your record as per information given above." 7. On perusal of the sales deed submitted, it was noticed by assessing officer, that there were three parties who have sold the above properties. Members of the 4 parties are Mr. Bharu Ram Gadhavi, Mr. Punshi Samat Barot, Mr. Veeshram Hadhu Gagiya, Mr. Ala Devraj Tapariya. The Purchaser has paid the consideration amount of the Seller as per agricultural Juntry Rate Rs. 280/-. The Purchasee has paid the Stamp Duty as per Non Agricultural Industrial Juntry of Rs. 520/- which is a Statutory requirement.Thus, based on the above facts and documents on record, final show cause notice was issued to the assessee on 29.12.2023

"First of all thanking you for taking into consideration my reply and accepted the same. Now I hereby request you to kindly consider my reply regarding why total amount of Rs. 31,56,965/- should not be added to my income as long term capital gain. So my reply is as under. (i). I want to submit here that the agricultural land at Revenue Survey No. 2/1 Paiky 1, Named "Vadikhari" which was sold on 23/09/2016, Doc No: 6114, was agriculture land the same situated at outskirt village Bhorora, which is very small village, and mentioned Agricultural land is Rural Agricultural Land. (ii). I also want to inform that we are jointly holding above mentioned agricultural land, we have total admeasuring area Hector 6-00-67 Are(Acre 14-33 Guntha), and sold Hector 4-92-74 Are (Acre 12-07 Guntha), which can be confirmed from Sale deed, now we have remaining Hector 1-07-35 of agricultural land as on date. (iii). I also want to inform that Revenue Survey No 2/1 Paiky 1, was of "Old Tenure" and now its new Survey number as per land revenue record is Survey No 400. (iv). Now I have collected one document from rural land record confirming that remaining agricultural land i.e. Hector 1-07-35 which is hold by us is agricultural land. This record also contains information regarding seasonal crop details year wise. So from this we can confirm that this land was used by us since 2007 as agricultural land and growing crop regularly, it means that it is agricultural land. Copy of Land Record is attached herewith. (v). As additional document I hereby submitting 7/12 copy of agricultural land Revenue Survey No 2/1 Paiky 1 dated 20/7/2012. Confirming that this land was agricultural land. Copy of 7/12 and 8A dated 20/7/2012 is attached herewith.

(vi). Total population of 1003 people as per details available online. Copy of population details attached herewith. (vii). From above mentioned points and attachments I only want to justify that my land was agricultural land and the same was rural agricultural land. And as per income tax act Rural Agricultural Land or Land which is situated in rural areas in India is not consider as capital assets and the same is not subject to income tax. 9. However, assessing officer rejected the above contention of the assessee and noted that payment of stamp duty as per non -agricultural industrial, Juntry is not considered as agriculture purpose. The assessee also failed to furnish any documentary evidence to substantiate his claim, therefore, the total amount of Rs.31,56,965/-(Capital Gain computed by AO from the proceeds of immovable property No.2 which was purchased on 2007 for an amount of Rs. 36,190/- and now sold for Rs.31,74,000/-) was added to total income as Long Term Capital Gain received (in respect of Land Survey No 2/1 Paiki 1 Hector 4-92-74) for the period under consideration.

“Conclusion of CIT(A): After considering the submissions, the assessment order, and the judicial authorities, my findings are as under: (a). The appellant has failed to conclusively establish that the land was agricultural at the time of transfer. (b). capital asset, and the long-term capital gain b. The land is therefore held to be a addition of Rs. 31,56,965/- is upheld. (c ). however, the tax rate applied must be corrected to the special rate under section 112. (d). The appeal is thus largely decided in favour of the Revenue, with partial relief granted only on the limited issue of correct tax rate”.

"(i) The said property was sold to M/s Argus Container Freight Station Pvt Ltd.(a U.S.A.based company). As per website of the said company, the company is engaged in the business of supporting and auxiliary transport activities. The company cannot be purchased the said property for agricultural purpose. It is clearly mentioned on page no. 20 in the sale deed-"That the purchaser has purchased the said land for Bonafide industrial purpose and the Firm shall obtain the certificate from District Collector, Bhuj- Kachchh". From the above, it is clear that this land is not used for agriculture purpose. However, this village is situated near Arabian sea, therefore, this land is likely to be used for storage and transportation purpose." 13. Therefore, ld.Counsel argued that it is amply clear from the above finding recorded in the assessment order that the Assessment Unit ( assessing officer) has not disputed the following facts.

(i) the subject agricultural land is not situated with the limit of any municipal area as prescribed in section 2(14) of the Act.

(ii) the population of village Bhorara where this land is situated has population of less than ten thousand as per the last census.

Thus, it is not in dispute that the subject agricultural land is not within the areal distance of two kilometre from the nearest municipal limit and that the population of village Bhorara is less than ten thousand as per last census, therefore, land was sold by the assessee in the status of agricultural land, which is exempt from Tax. The ld.Counsel also submitted that the purchaser expressed intention to use the said land for Industrial purpose or that the purchaser has paid the stamp duty applicable to 'Non-Agricultural Industrial Jantry' would not change the character of land in the hands of seller who has sold his agricultural land. It is the Policy of the State Government that purchaser would pay stamp duty as per jantry applicable to non-agricultural industrial rate. This would not change the character of the agricultural land in the hands of seller who sold his agricultural land to an Industrial Unit. Therefore, addition made by the assessing officer may be deleted.

(i) Copy of land revenue record evidencing the fact that the said land was agricultural land.

(ii) Copy of census details of village Bhorara as per last census, the population of village- Bhorara, as per last census was 1003 only.

(iii) Mundra-Baroi Municipality was constituted on 25-08-2020 and hence the said land was not situated within the prescribed areal distance of any Municipal area.

(iv) Land was being used for agricultural purposes Therefore, I note that the impugned land was old -tenure, agricultural land which was never converted to non-agricultural purpose by the seller and hence the said land was not a 'capital asset' within the meaning of section 2(14)(iii) of the Act.

(i) On identical facts, the Hon’ble Gujarat High Court in the case of Principal Commissioner of Income Tax vs. Heenaben Bhadresh Меhtа (2018) 409 ITR 0196 (Guj), (2018) 257 Τaxman 0219 (Gujarat) has held that intention of the purchaser cannot be the determine factor of the agricultural land. The High Court while dismissing the case of the Department observed as under:

"7. From the order passed by the Assessing Officer, it appears that the Assessing Officer treated the profit of Rs. 68,18,800/- earned by the assesssee from sale of agriculture lands as business income mainly on the grounds that (i) the land was sold to the company, which used the said land for industrial purpose; (ii) that there was a steep rise in the profit and (iii) that the lands were sold within a short span of time. However, it is required to be noted and it is not in dispute that as such, what was sold by the assessee was agriculture land. In the revenue record also, lands were shown as agriculture lands. It is also required to be noted that the agriculture lands in question were sold by the assessee after a period of approximately 15 to 16 months from purchase. Therefore, as such, it 9 cannot be said that the agriculture lands were sold within a short span of time. It is also required to be noted that the assessee is an agriculturist and also belongs to family of agriculturists. Therefore, as the assessee sold agriculture lands and profit therefore, claimed exemption under Section 2(14) of the Act on the profit earned on sale of agriculture lands, Section 2(14) of the Income Tax is required to be referred to and reproduced hereunder:- "2(14) "capital asset" means xxxxxxxx but does not include xxxxXXX (iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand (b) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation- For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;]]" 8. Therefore, on plain reading of Section 2(14) of the Act, if the "agriculture land" as mentioned in Section 2(14)(iii) is sold, the assessee shall be entitled to claim exemption on profit earned on sale of agricultural land as per Section 2(14) read with Section 45 of the Act, unless it is established and proved that the transaction carried out was "adventure in the nature of trade" and the profit thus required to be taxed as business Income. On appreciation of evidence, the learned Tribunal has specifically observed and held that the transaction carried out by the assessee was not "adventure in the nature of trade" and therefore, profit earned was not required to be taxed as business income. The aforesaid is the finding recorded by the learned Tribunal on appreciation of evidence. 9. As observed hereinabove, the land was sold as an agricultural land and in fact, what was sold was agriculture land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by the assessee on sale of agriculture land as business income. Similarly, merely because for whatever reason, the assessee has 10 earned sufficient huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agriculture land as business income. 10. Under the circumstances and on the facts and circumstances of the case, the learned Tribunal has not committed any error in directing the Assessing Officer to treat the profit of Rs.68, 18,800/- earned by the assessee on the sale of agriculture land as exempt under Section 2(14) of the Income Tax Act. (ii) On the similar facts and identical issue, the Hon’ble Madras High Court in the case of Pallavarajha vs. Principal Commissioner of Income-Tax and others reported in (2018) 103 CCH 0150 (Chen-HC), (2019) 176 DTR 0115 (Mad), while deciding the matter in favour of assessee held as under:

"32. A careful perusal of the Impugned order would show that the first respondent, first of all, has not discussed the above aspect in detail except extracting the particular clause in his order and thereafter, to decide only by saying that the case of the assessee is rejected. As rightly pointed out by the learned counsel for the petitioner, the character of the property, at the relevant point of time, at the hands of the vendor, alone should be taken into consideration and that the intention of the purchaser as to how he is going to treat the property after such purchase, cannot be a determinative factor to decide such character. Even otherwise, the above clause in the Power of Attorney relied on by the first respondent clearly indicates that the Power of Attorney is going to convert the entire property as house sites. Therefore, it is evident that at the relevant point of time, the character of the lands at the hands of the assessee cannot be construed as house sites, since such conversion was intended to take place in future. Therefore, the first respondent ought to have gone by the other relevant revenue records and supportive confirmation certificates to arrive at a conclusion with regard to the nature of the land. At this juncture, the Division Bench decision of the Gujarat High Court reported in (2018) 96 Taxmann.com 164 (Gujarat), Principal Commissioner of Income Tax vs Heenaben Bhadresh Mehta, is relevant to be quoted, wherein at paragraph No.9, it is observed as follows: "9. As observed herein above, the land was sold as an agricultural land and in fact, what was sold was agricultural land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by the assessee on sale of agriculture land as business income. Similarly, merely because for whatever reason, the assessee has earned sufficient huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agriculture land as business Income." 17. Therefore, considering the above facts, and applicable case law on facts, I find that land is an agricultural land, therefore, respectfully following the binding judgement of Hon’ble jurisdictional, Gujarat High Court in the case of Heenaben Bhadresh Меhtа(supra), the addition made by the assessing officer is hereby deleted.

Order is pronounced in the open Court Today on 26/10/2026.

Sd/- [ Dr. Arjun Lal Saini ] Accountant Member राजकोट/Rajkot िदनांक/ Date: 26/10/2026 Copy of the order forwarded to : 1. The assessee 2. The Respondent 3. CIT 4. The CIT(A) 5. DR, ITAT, RAJKOT 6. Guard File By order

Assistant Registrar/Sr. PS/P.S. ITAT, Rajkot