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Facts
The assessee sold a piece of land, claiming it was agricultural and exempt from capital gains tax. The Assessing Officer (AO) treated it as a capital asset and added the gains to the income. The CIT(A) deleted this addition, holding the land was rural agricultural land outside municipal limits.
Held
The Tribunal held that the land in question was agricultural land situated beyond the prescribed distance from the municipal limits of Nagercoil Municipal Corporation, as evidenced by a certificate from the Village Administrative Officer. Therefore, it did not fall within the definition of a "capital asset" under Section 2(14) of the Income Tax Act.
Key Issues
Whether the land sold by the assessee is a "capital asset" under Section 2(14) of the Income Tax Act, considering its classification as agricultural land and its distance from municipal limits.
Sections Cited
2(14), 40(a)(ia), 45, 143(1), 143(3), 144, 144B, 147, 194 IA, Rule 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM:
1. This appeal by the revenue is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2015-16, dated 28.05.2025.
The Revenue has raised the following effective grounds:
1. The Ld. CIT(A) erred in law and on facts in deleting the addition made towards capital gains.
:-2-: ITA. No:2079/Chny/2025
2. The Ld. CIT(A) erred in admitting additional evidence without remanding the same to the Assessing Officer, in violation of Rule 46A of the Income-tax Rules, 1962.
3. The Ld. CIT(A) ought to have restored the order of the Assessing Officer.
The brief facts emanating from the records are that the assessee is an individual filed his return of income for A.Y.2015-16 on 31.10.2015, declaring total income of Rs.9,71,540/-. The return was processed u/s.143(1) of the Act and subsequently assessed u/s.143(3) of the Act on 27.09.2017, assessing income at Rs.72,66,560/-.
Later, the assessment was reopened u/s.147 of the Act, and reassessment was completed u/s.144 r.w.s. 144B of the Act on 28.03.2022, making the following additions:
i) Disallowance u/s.40(a)(ia) of Rs.2,68,449/- for alleged non-deduction of TDS on interest paid of Rs.8,94,831/- to M/s.Cholamandalam Finance Ltd. ii) Addition of Rs.10,18,03,600/- by treating sale of land situated at Villukuri Village, Kanyakumari District as taxable long-term capital gain, holding that the land was a capital asset under section 2(14) of the Act.
4.1 On appeal the Ld.CIT(A) confirmed the disallowance u/s.40(a)(ia) and deleted the addition made towards capital gains, holding that the land sold by the assessee was rural agricultural land situated beyond the prescribed municipal limits and therefore not a capital asset u/s.2(14) of the Act by passing an order dated 28.05.2025 by holding as under:
“9.8 Therefore, considering the facts and circumstance of the case and placing reliance upon the certificate issued by the village administrative officer, as mentioned supra, it is inferred that the impugned land transferred by the assessee and his wife is situated beyond 8 km of the municipal limits of the Nagercoil Municipal Limits. As such, the impugned land cannot be termed as capital asset within the meaning of provisions of section 2 (14) of the IT Act. 9.9 It may be appreciated that the nature and character of the agricultural and as compared to its distance from the municipal limits is a cardinal principle with respect to the taxability of transfer of agricultural land. When the agricultural land is situated beyond prescribed limits as mentioned in provisions of section 2 (14), the same cannot be brought to tax under the provisions of the IT Act. The reliance is placed on the decision of Hon'ble jurisdictional Madras High Court in case of Ramesh Shroff Vs CIT, Chennai [2020] 120 taxmann.com 403 wherein it is found that the :-3-: ITA. No:2079/Chny/2025
Assessee sold a land on 18-1-2011 for sale consideration of certain amount and the Assessee filed its return of income contending that said land was agricultural land and, thus, capital gain on its transfer was exempt. Same was accepted and return of assessee was processed under section 143(3). Subsequently, Assessing Officer issued a reopening notice against assessee on ground that land sold by assessee was situated within limits of city corporation and same could not be treated as an agricultural land. Accordingly, he assessed sale consideration from sale of lands as long-term capital gains. It was noted that Tribunal found that land sold by assessee came within corporation limits by virtue of Government order no. 97, dated 19-7- 2011. Thus, when assessee sold such land it was not within city municipal corporation limits. Tribunal further found that assessee had already brought entire details about sale of land during original assessment. Said Government notification was also very much available when original assessment was completed and Assessing Officer had no new tangible material available to clarify its reopening. Tribunal also noted that in case of assessee's spouse who was co-owner of very same land, same was treated as agricultural land and said finding was undisturbed. 9.10 Further, the reliance is also placed on the decision of Hon'ble jurisdictional Madras High Court in the case of K.P.R. Developers Ltd Vs Principal Commissioner of Income Tax-l, Coimbatore [2020] 117 taxmann.com 822 (Madras) wherein it is found that Assessee sold land and contended that same was agricultural land and it was beyond 8 k.m., from notified cities, therefore, it should not be considered as a capital asset under section 2(14)(ii) and gain arose on its sale was exempt Assessee had also produced certificate from Village Administrative Officer (VAO), stating that said land was primarily agricultural land and it was under cultivation and crops like maize were grown on it. However, before Assessing Officer said VAO gave a statement that he had given extract of Adangal without proper verification of original records. Thus, Assessing Officer rejected claim made by assessee with regard to long term capital gain being an exempt income. It was noted that Tahsildar while submitting report to Assessing Officer had enclosed copies of Patta a document which proved possession and classification of land and said Patta. clearly showed that said land was wet land. Copy of patta issued was a computerised patta and there was a presumption to validity of such official document. There was no allegation made by Assessing Officer that said patta was a bogus patta. Further, merely because an agricultural activity could not be carried on for various reasons including natural causes, it would not cease to be an agricultural land. Further, Commissioner (Appeals) and Tribunal had done an elaborate exercise. assessed documents placed before it and given a categorical finding that land continued to remain an agricultural land. Therefore, considering the facts and circumstances of the case it is held by the Hon'ble High Court that impugned land sold by assessee was to be considered as agricultural land and capital gain arising from same was exempt from tax. 9.11 It may be appreciated that when there is a dispute with respect to the distance of transacted land, the certificate issued by the competent authority administering the land records cannot be set aside and ignore to determine whether the impugned land falls within the distance prescribed in the provisions of section 2 (14). The reliance is placed on the decision of Hon'ble jurisdictional Madras High Court in the case of Commissioner of Income-tax, Coimbatore Commissioner of Income-tax, Coimbatore Vs K.R.N. Prabhakaran (HUF) [2016] 73 taxmann.com 305 (Madras) wherein it is found that Assessee claimed exemption in respect of agricultural land sold by it during relevant assessment year on ground that same was situated beyond 8 kms of municipal limit. Assessing Officer, however, relying on report of :-4-: ITA. No:2079/Chny/2025 investigation wing held that land was situated within 8 kms of municipal limit and assessee was liable to capital gain tax and accordingly, assessed long term capital gains. Survey Department of State government and Tahsildar of relevant zone, had consistently certified that land was situated beyond 8 kms from Corporation limits of Coimbatore The Hon'ble High Court held that revenue department and survey authorities were competent to measure land and issue appropriate certificates, and same could not have been ignored by Assessing Officer, by relying on report of investigation wing. It is also held that amongst report of departmental inspector vis- a-vis certificates of revenue authorities, produced before Assessing Officer, latter should be given weightage and accepted, unless contrary is proved. For the sake of reference the relevant para from the order of the Hon'ble High Court is reproduced as under- 26. in the light of the decisions of the Courts, considered in the foregoing paragraphs and the question called upon to decide, as to whether, both the fact finding authorities, are right in accepting the reports of the Tahsildar and on the aspect, as to how, the distance between the agricultural land and the nearest Municipality has to be measured, vis-a-vis, the report of the departmental inspector, we are of the view that the decision of the fact finding authorities that there cannot be any justifiable reason to reject the certificates produced, is correct. Our view is also fortified by the decision of the Punjab and Haryana High Court in Lal Singh (supra).
As rightly contended by the respondent, revenue department and survey authorities are competent to measure the land and issue appropriate certificates, and the same cannot be ignored by the assessing officer, by relying on the report of the investigation wing. In such matters, it would be appropriate, to take the assistance of the survey authorities, to arrive at the conclusion. On the facts and circumstances of this case, we also wish to state that in the matter giving weightage to the evidence adduced in this regard, report of the departmental inspector vis-a-vis certificates of the revenue authorities, produced before the assessing officer, the latter should be given weightage and accepted, unless the contrary is proved". 9.12 Therefore, considering the facts and circumstance of the case and respectfully following the ratio laid down by the Hon'ble jurisdictional High Court in the cases as mentioned supra, the grounds of appeal
contested by the assessee at serial No. 2 and 3 with respect to the applicability of provisions of section 2. (14) of the IT Act the sale of impugned agricultural land, are allowed.”
5. Aggrieved by deletion of capital gains by the ld.CIT(A), the Revenue is in appeal before the us.
The ld.DR for the revenue assailing the action of the ld.CIT(A) submitted that the deletion of addition of long term capital gain is erroneous and also is in violation of Rule 46A of the Income Tax Rules. Further, the ld.DR relied on the grounds of appeal and prayed for reversing the impugned order and instead confirming the order of the Assessing Officer.
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Per contra the ld.AR for the assessee supported the action of the ld.CIT(A) and stated that the ld.CIT(A) has rightly deleted the addition as the assessee has sold the agricultural property which does not fall into section 2(14) of the Act, which is evident from the certificate issued by the VAO. Furthermore, the ld.AR contended that there is no violation of Rule 46A, since the said certificate was already brought on record before the AO during the original assessment itself and the assessment order was passed u/s.143(3) of the Act only after considering the same and other relevant evidence and documents wherein the AO allowed the exemption claimed on sale of agricultural land.
Further, the ld.AR argued that it is fact that the property is an agricultural land which has been certified by the appropriate authority and hence there is no TDS been deducted u/s.194 IA of the Act in respect of the sale transaction. Hence, the ld.AR submitted that there is no infirmity in the order of the ld.CIT(A) and prayed for non-interference of the impugned order.
We have carefully considered the rival submissions, perused the orders of the authorities below, examined the material available on record, and applied our thoughtful consideration to the statutory provisions governing the issue. The assessee is an individual filed his return of income for A.Y.2015-16 on 31.10.2015, declaring total income of Rs.9,71,540/-. The return was processed u/s.143(1) and subsequently assessed u/s.143(3) of the Act on 27.09.2017, assessing income at Rs.72,66,560/-. Later, the assessment was reopened u/s.147 of the Act, and reassessment was completed u/s.144 r.w.s. 144B of the Act on 28.03.2022, making the following additions:
i) Disallowance u/s.40(a)(ia) of Rs.2,68,449/- for alleged non-deduction of TDS on interest paid of Rs.8,94,831/- to M/s.Cholamandalam Finance Ltd. ii) Addition of Rs.10,18,03,600/- by treating sale of land situated at Villukuri Village, Kanyakumari District as taxable long-term capital gain, holding that the land was a capital asset u/s.2(14) of the Act.
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On appeal the ld.CIT(A) has deleted the additions made under the head capital gains on account of sale of agricultural land stating that the impugned land is not a capital asset.
The principal controversy arising for adjudication before us is whether the land sold by the assessee situated at Villukuri Village, Kalkulam Taluk, Kanyakumari District, constitutes a “capital asset” within the meaning of section 2(14) of the Act, so as to attract capital gains tax under section 45 of the Act. Section 2(14)(iii) of the Act specifically excludes agricultural land in India from the definition of “capital asset”, except where such land is situated;
Within the jurisdiction of a municipality or municipal corporation having population exceeding the prescribed limits; or 2. Within the prescribed aerial distance from such municipal limits, depending upon the population as per the last preceding census.
The Explanation to section 2(14) clearly mandates that population figures must be taken from the last published census prior to the relevant previous year, and distance must be measured aerially. Thus, distance from municipal limits and population are decisive statutory tests, not mere ancillary considerations.
From the record, the following facts remain undisputed the land sold by the assessee is classified as agricultural land / wet land in revenue records. The land is situated in Villukuri “C” Village, which is outside the municipal limits of Nagercoil Municipal Corporation and the population of Nagercoil Municipal Corporation as per 2011 Census is 2,24,849, i.e., between 1 lakh and 10 lakhs. Furthermore, a certificate dated 08.03.2016 issued by the Village Administrative Officer, a competent statutory authority under the Tamil Nadu Revenue administration, certifies that the impugned land is situated beyond 8 kilometres (aerial distance) from the municipal limits of Nagercoil. We note that the Assessing Officer has not conducted any survey, field measurement, or verification through revenue or survey authorities.
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Further, we note that the original assessment u/s.143(3) has been concluded by the AO dated 27.09.2017 was based on the limited scrutiny selected under CASS and one of the reasons was to verify the sale of immovable properties. On perusal of the assessment order, it is noticed that the assessee had produced the details of the sale of the agricultural land during the course of assessment proceedings, and after verification of the same the AO has concluded the assessment without making any additions on this account.
However, during the reassessment proceedings u/s.147 of the Act, the AO treated the land as a capital asset solely on the basis of Google Maps / open internet search, and approximate visual estimation of distance. It is evident from the assessment order that exact survey coordinates of the land were not verified, no official measurement from competent land or survey authorities was obtained. Further, no material was brought on record to disprove or contradict the VAO certificate produced by the assessee.
It is a settled principle of law that revenue records and certificates issued by statutory authorities carry evidentiary value and must be given weightage unless it is bogus. The Hon’ble jurisdictional Madras High Court, in a catena of decisions as rightly noted by ld.CIT(A) have held that the certificates issued by Village Administrative Officer / Tahsildar / Survey Authorities are competent to give evidence for determining distance and nature of land. Such certificates issued by them should be given due weightage. The AO erred in placing reliance on the internet sources or departmental approximations when the VAO certificate is on record. Unless the VAO certificate dated 08.03.2026 is found to have some infirmity, giving weightage to internet data is flawed. Hence, the ld.CIT(A) rightly relied on VAO certificate which was already existing on file before the original assessment order was passed on 27.09.2017. Hence, the action of ld.CIT(A) is found to be passed on relevant material, which we give our imprimatur.
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In Commissioner of Income Tax vs K.R.N. Prabhakaran (HUF) [2016] 73 taxmann.com 305 (Madras), the Hon’ble High Court categorically held that certificates issued by revenue authorities regarding distance from municipal limits cannot be ignored merely on the basis of investigation wing reports or estimations.
Similarly, in Ramesh Shroff vs CIT [2020] 120 taxmann.com 403 (Madras) and K.P.R. Developers Ltd vs PCIT [2020] 117 taxmann.com 822 (Madras), it has been held that aerial distance certified by competent authorities is determinative, and agricultural land situated beyond prescribed limits does not constitute a capital asset.
The Revenue has raised an objection alleging violation of Rule 46A of the Income-tax Rules, 1962. We find this objection to be misplaced and devoid of merit, as the certificate relied upon by the Ld.CIT(A) is a document issued by a statutory authority, and not a private or self-serving document and the issue involved is purely legal, going to the root of jurisdiction u/s.2(14) of the Act.
Further, as asserted by the ld.AR these documents are not the fresh documents, which were produced before the AO during the original assessment made u/s.143(3) of the Act. Further, the Assessing Officer himself relied on material (Google search) without confronting the assessee, thereby violating principles of natural justice and no prejudice has been demonstrated to have been caused to the Revenue. It is well settled that procedural rules cannot defeat substantive justice, particularly where jurisdictional facts are involved.
In view of the above factual and legal position, we uphold the action of ld.CIT(A) finding the land sold by the assessee is rural agricultural land since it was situated beyond the prescribed distance from the municipal limits of Nagercoil Municipal Corporation on the basis of certificate issued by the VAO.
:-9-: ITA. No:2079/Chny/2025 Consequently, the land does not fall within the definition of “capital asset” u/s.2(14) of the Act. Hence, the AO erred in computing capital gains which has been rightly deleted by ld.CIT(A). Accordingly, we find no infirmity in the impugned action of the Ld.CIT(A) deleting the addition made towards capital gains. The grounds raised by the Revenue are dismissed, and the order of the Ld.CIT(A) is affirmed.
In the result the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 02nd February, 2026 at Chennai.