Income Derived From Sale Of Agricultural Land Is Not A Capital Asset: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that income derived from the sale of agricultural land is not a capital asset.The bench of Saktijit Dey (Judicial Member) and M. Balaganesh (Accountant Member) has observed that income tax is not payable on the income derived from the sale of agricultural land.A search and seizure operation was conducted in the case of the assessee. Following the search and seizure operation, proceedings under Section 153A of the Income Tax Act were initiated against the assessee.In response to notices, the assessee filed his return of income, declaring income of Rs. 54,93,260 for the assessment year 2013–14 and Rs. 79,20,750 for the assessment year 2014–15.Subsequently, the assessee filed revised returns of income for both the assessment years under dispute by enhancing the sale consideration received on the sale of land for Rs. 1,36,20,000 and Rs. 3,18,31,000 for the assessment years 2013–14 and 2014–15, respectively. In the course of assessment proceedings, the Assessing Officer, referring to a statement recorded from the assessee and a 2004 valuation report, called upon him to explain why the on-money received in cash on the sale of land should not be treated as his undisclosed income.The assessee submitted that the valuation report found at the time of the search and seizure operation, showing the value of land in 2004 at a higher rate, cannot be relied upon as the valuation report was obtained for the purpose of obtaining a bank loan. It cannot be considered to represent the fair market value of the land.The assessee submitted that the lands sold are in the nature of agricultural land located at Surajpur, Uttar Pradesh, situated beyond 8 kilometers from the limits of Nagar Panchayat, Dadri, and that the population of the area is below the limit of 10 lacs. The land sold was not in the nature of a capital asset as defined under Section 2(14). Since the land sold, being agricultural land, is not in the nature of a capital asset, even assuming that the assessee received on-money on the sale of land, income will also be exempt from taxation as it will have the character of agricultural income. The Assessing Officer, however, was not convinced by the submissions of the assessee and proceeded to tax the additional consideration received on the sale of land as undisclosed income of the assessee and bring it to tax.The department contended that when there is 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. Since the on-money received is undisclosed income, it has to be taxed differently.The issue raised was with regard to the taxability of the amount received by the assessee towards the sale of agricultural land, whether as declared sale consideration or on-money.The ITAT has held that the Assessing Officer has not controverted the nature and character of the land sold. Once the nature and character of the land sold are established as agricultural land, it is not to be treated as a capital asset. Any income arising out of the sale of agricultural land, whether by way of declared sale consideration or on account of on-money, would have the character of exempt income, as the source of both the declared sale consideration and the on-money received is the same.Case Title: ACIT Versus Kamlesh Kumar RathiCase No.: ITA Nos. 822 & 823/Del/2018Date: 16.05.2023Counsel For Appellant: J.S. MinhasCounsel For Respondent: Rakesh GuptaClick Here To Read The Order

Income Derived From Sale Of Agricultural Land Is Not A Capital Asset: ITAT

Mariya Paliwala

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