Income from Sale of Agricultural land is not Capital Asset u/s  2(14)(iii) of IT  Act, not Taxable: ITAT [Read Order]

The  Delhi bench of the Income Tax Appellate Tribunal (ITAT) ruled that the income derived from sale of agricultural land is not capital asset under section  2(14)(iii) of Income Tax  Act,1961 . Hence not taxable.

Assessee Kamlesh Kumar Rathi, was a resident individual. A search and seizure operation under Section 132 of the Income-Tax Act was conducted against the assessee.

Consequent to the search and seizure operations, proceedings under Section 153A of the Income Tax Act was initiated against the assessee. The Asessee filed his return of income for assessment year 2013-14 and assessment year 2014-15.

Thereafter, the assessee filed revised returns of income for both the assessment years under dispute, by enhancing the sale consideration received on sale of land for for the assessment years 2013-14 and  2014-15.

The Assessing Officer noted that the assessee did  not treated  on - money received in cash on sale of land as undisclosed income.

Further, the Assessing Officer sought  explanation regarding the sale of land to assessee. The officer was not convinced by the submissions of assessee and proceeded to imposed tax on the additional consideration received on sale of land as undisclosed income of the assessee.

Aggrieved by the act of the officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] who held that capital gain derived from sale of land is fully exempted from the taxation.

It was also held that the is agricultural land sold is not capital asset Section 2(14)(iii) of the Income Tax Act.

Aggrieved by the order, the revenue filed an appeal before the tribunal.

 J.S. Minhas, counsel for the revenue submitted that in a statement recorded under Section 132(4) of  the Income Tax Act, the assessee has also accepted receipt of on-money. When there is a clear evidence on record to indicate that the declared sale consideration is much below the fair market value, the fact that the assessee has received on-money is proved.

Rakesh Gupta, the counsel for the assessee submitted that once the land sold, being an agricultural land, does not come within the purview of capital assets as defined under Section 2(14)(iii) of the Income Tax Act.

Moreover, any income arising out of sale of such land – whether as declared sale consideration or alleged on-money, would partake the same character, hence, would be exempted from taxation.

The tribunal observed that there is no observation of the AO regarding the nature and character of land sold.

The only reason on which AO has added back the sale consideration as undisclosed income of the assessee is because the assessee has not disclosed the sale proceeds of the land sold in the original return of income.

In the revised return of income filed in pursuance to the notice issued under Section 153A of the Income Tax Act, the assessee has offered the amount received from sale of land.

Thus,  the two member of Saktijit Dey, (Judicial Member) and M. Balaganesh, (Accountant Member) held that “The Assessing Officer has not controverted the nature and character of land sold. Once, nature and character of land sold is established as agricultural land not to be treated as capital asset u/s. 2(14)(iii) of the Act, any income arising out of sale of such land – whether by way of declared sale consideration or on account of on-money, would partake the character of exempt income”. The bench dismissed the appeal filed by the revenue.

To Read the full text of the Order CLICK HERE

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