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Facts
The assessee sold a piece of land along with family members, claiming it was agricultural land exempt from capital gains tax. The Assessing Officer (AO) treated it as a non-agricultural land, computed long-term capital gains, and made an addition. The CIT(A) confirmed the AO's action.
Held
The Tribunal held that the land was agricultural land based on revenue records, certificates, and distance from municipalities, as per Section 2(14)(iii)(b) of the Act. Therefore, no capital gains tax was applicable. The Tribunal also partly allowed the appeal regarding disallowance under Section 14A, restricting it to the extent of exempt income.
Key Issues
Whether the land sold by the assessee was agricultural land exempt from capital gains tax, and the extent to which disallowance under Section 14A could be made.
Sections Cited
2(14), 14A
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 06.03.2025 for the Assessment Year (hereinafter referred to as "AY”) 2016-17.
The first issue that has been raised by the assessee is against the action of the Ld.CIT(A) confirming the addition made by the AO towards ‘Long Term Capital Gains’ to the tune of ₹1,66,40,480/-.
2.1 The brief facts are that the assessee is an individual and filed her return of income (RoI) on 30.09.2016 declaring an income of ₹7,49,940/- And the assessee also reported agricultural income of ₹34,200/-. The case was selected for complete scrutiny. The AO noted that assessee is a financier and also she derives income from salary, house property and share trading. And that she is also a partner in a firm called M/s Srinivas Packaging & Swasthik Industries. The AO noted that during the previous year relevant to AY 2016-17, the assessee along with two of her family members sold 2.74 acres of vacant land at Survey No. 1/2B, 2/3 & 1/2C3B of Padarvadi Village, Sriperumbudur Taluk vide three Sale Deeds registered as Document Nos.3826, 3827 & 3828/2015 dated 06.07.2015 with Sub Registrar, Walajabad. The sale consideration shown to have been received by the assessee was ₹1,78,13,934/-. Therefore, the AO asked the assessee the details of the sale transaction. In response, the assessee claimed that the land sold was agricultural land , and the asset being exempt u/s.2(14) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) claimed that no capital gain had arisen from such a transaction. For making such a claim before the AO, the assessee filed copy of adangal issued by the Village Administrative Officer (VAO), Pathervadi Village. However, according to the AO, though the lands are classified as Punja lands in revenue records [as per the Adangal register of Patharvedi village], he held the impugned lands are Banjar lands; and also by taking note that there was no reference of any agricultural activities being carried out, the AO didn’t accept the claim of assessee that land she sold was agricultural land. Further, the AO noted that the assessee had purchased the land in question from a real estate firm M/s.
Aishwaryam Real Estates in the year 2008 and the said land was classified as ‘Residential lands’ by the Registration Department of Tamil Nadu from the year 2007 onwards. And that the guideline value adopted for the land was ₹300/- per sq. feet and noted that the assessee sold the land at ₹500/- per sq. feet. Holding the land sold by the assessee as not an agricultural land, the AO computed Long Term Capital Gain (LTCG) from the sale transaction of the land and considering that assessee’s share was 1/3rd, LTCG was computed at ₹1,66,40,480/- after allowing indexed cost of acquisition. On appeal, the Ld.CIT(A) confirmed the action of the AO.
2.2 At the time of hearing, the Ld.AR of the assessee submitted that the issue before us is no longer res-integra. To buttress this contention, he pointed out that the property in question was sold by the assessee along with two of her family members; and pursuant to sale, they had divided the sale consideration among them as per their respective interest in the said property. And taking note of this very same sale transaction of the jointly held immovable property, the AO had taken similar action in the case of co-owner of the land sold i.e. Shri Parasmal Ravindra Kumar, whose return was also fully scrutinized by the very same AO, who made similar/identical addition of capital gains in the hands of Shri Parasmal Ravindra Kumar to the tune of ₹1,66,40,480/- and the same was confirmed by the Ld.CIT(A) and that the matter came up before this Tribunal recently and by order dated 29.05.2025, this Tribunal was pleased to allow the grounds of appeal raised by the assessee and drew our attention to the Tribunal order in the case of Shri Parasmal Ravindra for AY 2016-17 dated 29.05.2025] and especially Para Nos.3-13, wherein the Tribunal has discussed the issue and was pleased to allow the same and deleted the addition of ₹1,66,40,480/-. On a query from the Bench, the Ld.DR appearing for the Revenue couldn’t point out any change in facts or law and conceded that Shri Parasmal Ravindra Kumar was co-owner/party to sell the land in question and similar action was taken by the AO and the Tribunal has deleted the ‘capital gains’ from sale of property to the tune of Rs. ₹1,66,40,480/-. However, the Ld.DR has supported the action of the AO/Ld.CIT(A).
2.3 Having heard both the parties and after perusal of the records, we note [from the three Sale Deeds all dated 06.07.2015] that the assessee along with two others [Shri Parasmal Ravindra Kumar & Shri P. Mahendra Kumar] had sold the three parcels of land in Survey No.1/2B measuring an extent of 1 acre & 73 cents for a consideration of ₹3,77,16,000/-, Survey No.2/3B measuring an extent of 58 cents for ₹1,26,45,000/- and Survey No.1/2C3B measuring an extent of 43 cents for ₹93,75,000/- totalling to ₹5,97,36,000/-. Taking note of the sale transaction, the AO asked for the details of the same and wondered ‘as to why’ no capital gains was offered by the assessee. Then the assessee contended that the property in question was an agricultural land and so, it is exempt u/s.2(14) of the Act. The AO didn’t agree and held it to be agricultural land and then computed the ‘long term capital gains’ [LTCG] after allowing indexed cost of acquisition, and determined the LTCG at ₹4,99,21,440/-. And the AO after considering the fact that assessee had only 1/3rd share in the ibid property computed 1/3rd of it computed the LTCG in the hands of assessee at ₹1,66,40,480/-. On appeal, the Ld.CIT(A) confirmed the action of the AO. Before us, the assessee has brought to our notice that the case of one of the co-owners of the property in question i.e. Shri Parasmal Ravindra Kumar, had come up before this Tribunal, wherein, the Tribunal had an occasion to examine similar action taken by the AO in the hands of co-owner Shri Parasmal.
And the Tribunal is noted to have upheld the claim of co-owner Shri Parasmal that the immovable property sold was agricultural land and deleted the addition of ₹1,66,40,480/-. It would be gainful to reproduce the Tribunal order dated 29.05.2025 in the case of Shri Parasmal Ravindra Kumar (co-owner of land sold along with assessee) wherein Tribunal held as under:
Heard both the parties and perused the material available on record. We note that the assessee placed on the record three sale deeds all dated 06.07.2015 which are at page 40, 52 and 66 of the paper book, wherein, the assessee and two others sold three parcels of land in Survey No. 1/2B measuring an extent of 1 acre and 73 cents for a consideration of ₹.3,77,16,000/-, Survey No. 2/3B measuring an extent of 58 cents for ₹.1,26,45,000/- and Survey No. 1/2C3B measuring an extent of 43 cents for ₹.93,75,000/- totalling to ₹.5,97,36,000/- and by allowing indexed cost of acquisition, the Assessing Officer determined the long term capital gains at ₹.4,99,21,440/- and 1/3 of assessee’s share of ₹.1,66,40,480/- was brought to tax being non-agricultural land.
We find, on perusal of the section 2(14)(iii) (b) of the Act explains that in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the central government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the official Gazette, meaning thereby, land situated beyond eight kilometres from the local limits of any municipality or cantonment, is agricultural land.
In this regard, we find copy of certificate dated 14.09.2015 in native language (Tamil) issued by the Village Administrative Officer at page 78, true translation of which at page 79 of the paper book. On perusal of the same, we note that the Village Administrative Officer certified that the population of the Parthavadi village is less than 7000 and the distance between the nearby Municipalities to Parthavadi village is approximately 16 kms. Further, the assessee produced copy of unregistered lease agreement executed on 16.01.2009 for cultivation in the impugned agricultural land at page 85 to 87 and English version of the same at page 88 of the paper book. The assessee placed on record at page 81 of the paper book, the copy of Patta issued by the Deputy Tashildar, Sriperumbudur Taluk dated 12.01.2009 in favour of the assessee and two others by stating the impugned land is an agricultural land. The assessee also produced
:: 7 :: copy of Chitta Adangal issued by the Village Administrative Officer Parthavadi Village, Sriperumbudur Taluk, wherein, it has been mentioned that cultivation of groundnut has been carried out in the impugned lands. The assessee also brought on record copy of the assessment order for AY 2015-16 in respect of Smt. Nainmaljan Anitha being one of the co-parceners, wherein, the agricultural income earned in the impugned land has been accepted by the Assessing Officer at page 127 of the paper book. The assessee brought on record the copy of the ITR filed for AY 2014-15 and 2015-16, wherein, net agricultural income claimed at ₹.1,97,500/- and ₹.1,06,400/- respectively has not been 9 disputed by the Assessing Officer at pages 141 & 142 and page 194 of the paper book.
Otherwise also, we find in the case of P. Ashok Kumar in T.C.A. No. 268 of 2011, the substantial question of law before the Hon’ble High Court of Madras was, whether on the facts and circumstances of the case, the Tribunal was right in holding that non-cultivation of piece of land does not lose its character as an agricultural land unless the user had specifically got changed the nature of the land. The Hon’ble High Court was pleased to dismiss the said question of law by holding that entries made in the certificate issued by the Tashildar is important even there is no cultivation carried on the lands as per the land records. Another decision in the case of Sakunthala Vedachalam reported in (2015) 53 taxman.com 62 (Madras), wherein, it has been held where lands were classified as agricultural land as per Revenue records and satisfy other conditions of section 2(14) of the Act, though the assessee put the lands to commercial use, was irrelevant. In the present case, as discussed above, the subjected lands are agricultural land in pursuance of section 2(14)(iii)(b) of the Act read with Notification issued by the Central Government, fortified by the decisions of the Hon’ble High Court of Madras.
Therefore, in pursuance of the provisions under section 2 of the Act read with notification above, the subjected lands are situated 16 kms approximately and in our opinion, are agricultural lands. Further in support of the arguments, the ld. AR placed copy of Google Map at pages 82 to 84 of the paper book showing the distance between Sriperumbudur to Patharvadi village at distance of 16.74 kms. and the distance between Walajabad to Patharvadi village is 15.24 kms. Therefore, on an examination of copy of Patta at page 81, chitta adangal at pages 89, 90 & 91 and copy of certificate issued by the Village Administrative Officer at page No. 78, we hold that the subjected land is an agricultural land, exempt from taxation. Under the above facts and circumstances as well as in view of the decisions of Hon’ble High Court of Madras, we set aside the order of the ld. CIT(A) in confirming the addition made by the Assessing Officer on account of long term capital gains and accordingly, the ground Nos. 3 to 8 raised by the assessee are allowed.
2.4 Since the Revenue couldn’t point out any change in facts or law, the decision given by the co-ordinate bench of this Tribunal is binding on us and therefore, on the very same reasoning, we hold that the immovable property sold by assessee was agricultural land and therefore, ‘capital gains’ was not attracted in the hands of assessee and therefore, we direct deletion of ₹1,66,40,480/-.
The next issue is regarding the agricultural income claimed by the assessee to the tune of ₹34,200/-. In this regard, it is noted that the assessee in her ITR for earlier years had been showing regularly agricultural income and the Revenue has accepted the same. In this regard, the Ld.AR brought to our notice that for AYs 2014-15 & 2015-16, the ITR filed by the assessee was selected for scrutiny and the agricultural income from the very same property has been duly accepted by the AO.
A perusal of the copy of the ITR filed by assessee for AYs 2014-15 & 2015-16, reveals that assessee had shown net agricultural income to the tune of ₹1,77,500/- & ₹1,06,400/- respectively, which income has been accepted by the AO. In the light of the aforesaid facts as well as the property in question has been held to be agricultural land by this Tribunal (supra) and considering the fact that the sale of the property happened on 06.07.2015, the income earned of ₹34,200/- as shown by the assessee is found to be reasonable and therefore ought not to have been disallowed and therefore, the said issue is also allowed in favour of the assessee.
The next issue is regarding the disallowance made by the AO u/s.14A of the Act.
4.1 Brief facts are that in the assessment order, the AO noted that the assessee has debited interest of ₹23,76,128/- towards interest on capital amounting to ₹23,60,000/- received from her partnership firm M/s Swasthik Industries. The AO noted that the assessee has joined as Partner on reconstitution of the firm Swasthik Industries during the relevant previous year and has credit balance of ₹1,62,79,042/- in her capital account. The AO further noted that the assessee was in receipt of exempt income of ₹19,499/- on account of dividend & share of income from partnership firm and claimed interest expenditure of ₹23,76,128/-.
The AO invoked the provisions of section 14A r.w.s. Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as ‘the Rules‘), and was of the view that since the assessee has investment of ₹2,27,67,366/-, which was capable of generating exempt income, disallowance u/s.14A of the Act r.w. Rule 8D was warranted and therefore, the AO determined the same at ₹10,70,102/- and added to the total income of the assessee. On appeal, the Ld.CIT(A) confirmed the disallowance made by the AO.
4.2 Having heard both the parties and after perusal of the records, we note that the facts stated above are not disputed and the only plea made by the assessee is that direction may be given to the AO to restrict the disallowance to the extent of exempted income earned by the assessee and for such a proposition, he relied on the decision of the Hon’ble jurisdictional High Court in the case of PCIT v. Envestor Venture Ltd., reported in [2021] 431 ITR 221 (Mad). We find force in the aforesaid submission of the Ld.AR of the assessee and note that the Hon’ble jurisdictional High Court in the case of M/s.Envestor Venture Ltd. (supra), inter alia, held that disallowance made under Rule 8D r.w.s.14A of the Act can never exceed the exempt income earned by the assessee during the particular assessment year. Therefore, we partly allow the grounds of appeal of the assessee and direct the AO to restrict the addition at ₹19,499/- in place of ₹10,70,102/-. Thus, this grounds of appeal raised by the assessee is partly allowed.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced on the 07th day October, 2025, in Chennai.