Shortest Road Distance Measurement to Ascertain Agricultural Land Sale: ITAT drops Addition by Rs 73.3 Lakhs [Read Order]

The Surat Bench of Income Tax Appellate Tribunal (ITAT), has reduced the tax amount by dropping an addition by Rs. 73.3 Lakhs, in a dispute regarding the sale of Agricultural land whereby the Road Distance Measurement Method was preferred over Aerial Method for the Assessment year 2012-13.

The Assessee, Kanchanben Maheshbhai Patel, filed an appeal against an order dated 01.03.2024, issued by the Commissioner of Income Tax (Appeals) [CIT(A)] passed under section 250 of the Income Tax Act, 1961, for the assessment year 2012-13.

The assessee, along with her four co-owners, sold a plot of land during the subject assessment year, with the land being situated at, Moje: Gam Kosmadi, Tal: Kamrej, Block No. 210. While the Sale Deed valued the property at Rs.1,18,70,000/- but, the Stamp Valuation Authority (SVA) adopted fair market value (FMV) at Rs.4,06,63,235/-, creating a significant gap that caught income tax department’s attention as she did not file her income tax return for the particular assessment year.

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In view of this information received, the Assessing Officer (AO) re-opened the case under section 147 of the Income Tax Act, 1961 and issued a notice under section 148 of the Income Tax Act, 1961, on 30.03.2019. Subsequently, the assessee filed the return of income on 06.05.2019, declaring total income of Rs.1,62,947/- and agricultural income of Rs.90,000/-.

Furthermore, the Assessing Officer (AO) made three major additions, firstly, the Long-Term Capital Gains (LTCG) at Rs.21,64,895/- was determined by the AO, treating Land as Capital Asset and using Google Maps to measure distance on aerial method with the land being within 8 Kilometres of Surat city’s Municipal Limits.

Secondly, under section 50C of the Income Tax act, 1961, an addition of Rs.57,58,180/- was made which was the difference between fair market value (FMV) for levying stamp duty and the actual sale consideration.

Thirdly, the AO also added Rs.12,89,500/- being the cash deposit in the bank account during the year under section 68 of the Income Tax Act 1961. As a result, the total income was determined at Rs.93,75,520/- against returned income of Rs.1,62,947/-.

Aggrieved by such additions, the assessee appealed to CIT(A) but CIT(A) upheld all the mentioned additions made by AO. Hence, the CIT(A) dismissed all the grounds raised by the appellant.

Aggrieved by the order of CIT(A), the assessee filed an appeal before the Tribunal. During the proceedings, P. M. Jagasheth, the Authorised Representative (AR) of the Assessee, submitted a paper-book, which includes distance certificate and Circular No.17 of 2015 dated 06.10.2015 and it was clear that the said Circular is applicable and agricultural land is to be measured having regard to the shortest road distance and not by aerial distance.

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In response, Mukesh Jain, Senior Departmental Representative (Sr. DR), of the Revenue, submitted that assessee is a non-filler. The distance measured by the CIT(A) was only 6.5 kilometres; hence, the land was a capital asset under Section 2(14) of the Act. He further submitted that assessee has not been able to explain the cash deposit of Rs.12,89,500/- with proper and credible evidence.

After hearing and considering the submissions made by both the parties and reviewing the available material on records, the two-member bench consisted of Pawan Singh, Judicial Member and Bijayananda Pruseth, Accountant Member stated that as per CBDT Circular No. 17/2015 dated 06.10.2015, the distance of Agricultural Land from municipal limits should be measured by shortest Road Distance Measurement. Consquently, the additions made under Long Term Capital Gains (LTCG) and section 50C of the Income Tax Act, 1961 were deducted.

Furthermore, the Tribunal acknowledged the assessee's opening cash balance of Rs. 12,01,000/- and agricultural income of Rs. 90,000/-. Where the assessee was not able to provide adequate supporting evidence, the Tribunal partly allowed this ground directing towards pragmatic approach that is to restrict the addition to Rs.8,89,500/- and treating Rs.4,00,000/- as explained.

The Tribunal deemed the ground regarding penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 since only initiation had occurred. Therefore, the ground is pre-mature and does not require adjudication.

Thus, the Tribunal, partly allowed the appeal to the assessee by deleting LTCG and section 50C of the Income Tax Act, 1961 and reinforced an important principle that CBDT Circulars must be followed and Road Distance Measurement is the correct Distance Measurement Method over Aerial Method to the individuals who face similar disputes over Distance Measurements.

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