NATARAJ RAMAIAH,CHENNAI vs. ITO INTERNATIONAL TAX ATION WARD 2(1), CHENNAI

The assessee is non-resident individual, filed his Return of Income for the AY 2015-16 on 20/01/2016 declaring a total income of Rs.99,27,500/- and claimed a refund of Rs.1,56,310/-. During the previous year relevant to the AY 2015-16 the assessee sold 77 cents of agricultural land in S.No.252/3 at No.18, Aryaperumbakkam Village, for a sale consideration of Rs.30,80,000/-. The above sale by the assessee was :-3-: ITA. No:849/Chny/2024 not offered to tax as the land sold is an "agricultural land" not falling within the definition of Capital Asset' in terms of section 2(14) of the Income Tax Act. The assessee's Return was processed u/s.143(1) on 18.02.2016 determining a refund of Rs.1,56,310/- as claimed by the assessee. The Notice u/s 148 dtd.09.03.2021 was served on the assessee for the following reason: "Sale of agricultural land (not being a capital asset) by the assessee on 25.02.2015 measuring 77 cents comprised in S.No.252/3 of Aryaperumbakkam Village being treated as 'Capital Asset' and charging the capital gains arising there from to tax by invoking provisions of Section 50C.”

The facts as submitted to the Assessing Officer u/s.147 proceedings are as under:

The Assessing Officer did not accept the assessee's explanation that the land sold is "agricultural" and hence not falling within the definition of 'Capital Asset' in terms of Section 2(14) of the Income Tax Act for the following reasons and referred the matter to the Dispute Resolution Panel by passing a Draft Order u/s.144C dt. 30/03/2022:

Proceedings before the DRP: (i) The assessee again re-iterated the above facts before the DRP, Bengaluru in Form 35A. (ii) After perusing the assessee's objections and the relevant documents, the Hon'ble Members of the DRP during the hearing on 15.09.2022 directed the assessee to furnish a certificate with regard to the distance between the land sold and the Kanchipuram Municipality. (iii) The said certificate called for was obtained from the VAO, Aryaperumbakkarm Village and furnished to them along with its free English Translation on 26.09.2022. This clearly confirms that it was 10 Kms. away from Kanchipuram Municipality - which excluded it from the definition of Capital Asset u/s.2(14) of the Income Tax Act, 1961. On receiving the DRP's mail dtd. 10/11/2022 regarding the non furnishing of the certificate called for, the assessee sent the same again on 10/11/2022. (iv) On 16/11/2022 the Hon'ble Members of the DRP-2, Bengaluru, issued directions confirming the additions viz. Rs.29,83,722/- (Long Term Capital Gains) made by the AO by observing: "Having considered the submission of the assessee, we are of the opinion that the land sold under contention

Aggrieved by the action of the AO the assessee preferred an appeal before the Ld.CIT(A), Chennai-16 and the Ld.CIT(A) was pleased to confirm the same in his order dated 31/01/2024 by holding as under: “4. After perusal of the order by Hon’ble DRP consequent to which the Assessing Officer passed order u/s. 147 r.w.s. 144C(3) dated 16.12.2022 for AY 2015- 16, the appellant is advised to approach the Hon’ble ITAT on the above matter, as I neither have power nor jurisdiction to decide on a final assessment order passed by the Assessing Officer consequent to Hon’ble DRP directions.”

As per the grounds and written submissions of the assessee, the DRP has erred in not appreciating the fact that land is situated beyond 10 Kms from the Kanchipuram Municipality, which has been certified by the VAO, Aryaperumbakkam Village on 26/09/2022 and thereby the land sold does not form part of the Capital asset as defined in Section 2(14) of the Act. The DRP while rejecting the claim of the assessee has stated that there was an absence of agricultural activities and confirmed that the assessee’s land was classified as agricultural land in the land records of state and that was not sufficient to consider the same as agricultural land. Apart from that, the assessee has been paying the land tax (kisti) on the subjected land and the Patta is showing the same as agricultural land. The decision of the AO / DRP in considering the sale of agricultural land by the assessee as sale of Capital asset as per Section 2(14) of the Act, liable to tax under the head capital gain is against the law and has :-8-: ITA. No:849/Chny/2024 prayed for setting aside the same by allowing the appeal of the assessee.

Per contra the Ld.DR asserted the action of the AO / DRP and relied on the orders of the AO / DRP.

We have gone through the records and perused the orders of the lower authorities. The assessee is a non- resident individual has filed his return of income for the A.Y.2016-17. However, the case was re- opened by the AO for the reason that the sale of immovable property during the relevant A.Y. had not been disclosed in the return of income under the head capital gain and brought to tax by rejecting the claim of the assessee for considering the sale of immovable property as agricultural land. The sale deed was registered at SRO, Joint 2, Kanchipuram for sale of immovable property of 0.77 Acres of land on 25/02/2015 for a sale consideration of Rs.30,80,000/-. The assessee has claimed that, he has sold an agricultural land during the A.Y.2016-17, which was situated beyond 10 Kms. from the Municipality of :-9-: ITA. No:849/Chny/2024 Kanchipuram and hence the same had not been shown in the return of income, as it was exempt from Income Tax.

We note that the assessee has been paying the tax to the local revenue office as agricultural land and also furnished the certificate issued by the VAO, Aryaperumbakkam Village on 26/09/2022 to prove that the land is situated beyond 10 Kms. from the Municipality of Kanchipuram to exclude from the definition of Capital asset as per Section 2(14) of the Act, which was submitted before the DRP. Further, the assessee had furnished the land details available as per the records of the Revenue authorities has been shown as wet land for the purpose of valuation for registration of immovable property by the Land Registrars. We also note that, merely the Tahasildar has left blank the columns of crops grown / cultivated, cannot derive the conclusion by assuming that the immovable property is a capital asset. Therefore, considering the facts and circumstances of the case, we are of considered view that the AO / DRP has erred