Assessment Remanded to Re-examine Capital Gains Documents Pertaining to Sold Immovable Properties

ORDER

Ratnesh Nandan Sahay, Accountant Member. – This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-4, Surat [In short, ‘the ld. CIT(A)’] dated 16/09/2025 for the assessment year (AY) 2011-12, wherein the assessee has raised following grounds of appeal:

“1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in reopening assessment u/s. 147 by issuing notice u/s. 148 of the I.T. Act, 1961.

2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in making addition of Rs. 30,00,000/- u/s 69 of the I.T Act as Long Term Capital Gain.

3. It is therefore prayed that the above additions made by the assessing officer and confirmed by the learned CIT(A) may please be deleted.

4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”

2. Facts of the case, in brief, are that original return of income under Section 139(1) of the Income Tax Act, 1961 (in short, the Act) was filed for the A.Y. 2011-12 on 08/02/2012 declaring total income at ^ 4,90,690/-. The case was processed under Section 143(1) of the Act. Subsequently, the Assessing Officer received information that the assessee jointly with three other persons viz. Shri Brijeshbhai Parshottambhai, Smt. Manjulaben Khodidas and Smt. Jignaben Parshottambhai have sold an immovable property which was registered with Sub-Registrar office, Athwa, Surat for a value of ^ 80.00 lacs on 24/09/2010. However, the capital gains accrued on this transfer of capital assets has not been disclosed by the assessee in its return of income. The case, therefore, was reopened under Section 147 of the Act after recording the reasons and after obtaining the necessary approval from the competent authority. Notice under Section 148 of the Act was issued on 29/03/2018 and duly served on the assessee. In response thereto, nobody attended nor furnished any submission.

The assessee was provided another opportunity of being heard under Section 129 of the Act vide letter dated 05/07/2018. However, the assessee did not avail this opportunity. Another notice under Section 142(1) of the Act was issued to the assessee to file the return of income in response to the notice issued under Section 148 of the Act, which was again not complied till the finalization of the assessment on 05/12/2018. However, the assessee did file a letter dated 06/09/2018 that the copy of reasons recorded for the reopening of assessment may be made available to the assessee which was provided to him by the Assessing Officer vide his letter dated 06/09/2018. Even after providing the reasons, the assessee never filed return of income in response to notice under Section 148 of the Act nor submitted any details before the Assessing Officer so that he could complete the assessment proceedings. The assessee also did not comply with the penalty notice under Section 271(1)(b) of the Act. The Assessing Officer has mentioned in the assessment order that the assessee filed certain details on the last date of finalization of the assessment order in which it was stated that the payments made to the assessee from the purchasers have also not been honoured by the bank and the assessee has filed a civil suit against the purchasers. However, details of that proceedings were not provided to the Assessing Officer. The Assessing Officer during the assessment proceedings also found on the basis of the information received by the Assessing Officer of Shri Brijesh Kumar Ukani that during the F.Y. 2010-11 that Shri Brijesh Kumar Ukani has not only sold one property but in fact he has also sold three properties, all are of equal amount and the date of sale is also the same. In the instant case, the property was sold for a consideration of ^ 80.00 lacs by the assessee jointly with three other persons including Shri Brijesh Kumar Ukani. This fact has also been confirmed by the Assessing Officer from the ITS details of the assessee where sale of three immovable properties all having equal sales consideration of ^ 80.00 lacs each has been sold by the assessee in which the assessee was a co-owner. The Assessing Officer, therefore, worked out the capital gain and added a sum of ^ 30.00 lacs under Section 69 of the Act.

3. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the ld. CIT(A), who vide the impugned order dated 16/09/2025, dismissed the appeal of the assessee and confirmed the addition made by the Assessing Officer on the ground that the assessee has failed to furnish any proof or evidence to substantiate the entire transactions made in the sales and purchase of said properties.

4. Further aggrieved by the order of the ld. CIT(A), the assessee is in appeal before this Tribunal.

5. During the appellate proceedings before us, the assessee has filed written submission as under:

“1. The assessee, Shri Dharmesh Ukani, is engaged in textile business and filed his return of income for A.Y. 2011-12 declaring total income of Rs. 4,90,690/-.

2. The case was reopened under section 147 on the basis of information that the assessee, along with three co-owners, had executed three sale deeds dated 22.04.2010 for a total consideration of Rs. 2,40,00,000/- (Rs. 80,00,000/- for each property). The assessee’s share in the said properties was 1/4th, aggregating to Rs. 60,00,000/-, which, according to the Assessing Officer, was liable for capital gains but was not offered to tax.

3. The AO gave the copy of reasons for re-opening 6.9.2018 and assessee vide letter dated 30.11.2018 raised objection against reopening as well as submitted on merits that the lands in question, being Block No. 333. Revenue Survey No. 556 (Paiki), situated at Choriyasi, Moje Bhatpore, Surat, is a rural agricultural land and hence are excluded from the definition of capital asset u/s 10(14) and hence exempted from tax. As per the sale deed itself, the lands are classified as agricultural in nature. There is no material brought on record by the Assessing Officer to dispute the agricultural character of the land. At the time of passing of the assessment order, the land was situated beyond 8 kms outside the municipal limits and the assessee gave a reasoned explanation along with map during the course of assessment proceedings but the Assessing Officer did not rebut the same and proceeded to pass the assessment order.

4. The assessee also submitted that only small part of sale consideration was actually realized and the remaining cheques issued by the purchasers towards the alleged sale consideration were dishonoured. The assessee/co-owners had also initiated legal suit for cheque bounce case and in order to request for cancellation of sale deed. These material facts were duly brought on record before the Assessing Officer during the course of assessment proceedings but no cognizance of the same was made.

5. In the course of appellate proceedings before Honourable Tribunal, it is submitted at the outset that the reopening is bad in law as there is no “reason to believe that income has escaped assessment. The assessee filed objections to reopening u/s 148, however, no order disposing of such objections was passed by the Assessing Officer before completing assessment. Due to serious medical condition (Brain Tuberculosis), the assessee could not comply with initial notices but subsequently filed a detailed reply dated 30.11.2018 along with supporting evidences, which were not properly considered.

6. The assessee had filed objections to the reopening, and it is a settled position that the Assessing Officer is mandatorily required to dispose of such objections by passing a speaking order before proceeding with assessment and failure to do so vitiates the reassessment proceedings in view of decision of Champalal Omprakash v. Income-tax Officer  (Kolkata – Trib.) dated 15.01.2024

7. The assessee further submits that neither full consideration was received nor possession of property was transferred, hence, no completed transfer took place and no capital gains would arise. The addition under section 69 is also not sustainable as the case does not involve any unexplained investment. The Assessing Officer, without making inquiry from purchasers, made an addition of Rs. 30,00,000/- treating it as long-term capital gain and invoked section 69 of the Act on a presumptive basis.

8. There is one major dimension of arguments which has not been considered by the Assessing officer. The lands are situated in Bhatpore and during Financial Year 2010-11 relevant to A.Y. 2011-12, Bhatpore village was not included within the limits of Surat Municipal Corporation (SMC). The inclusion of Bhatpore within SMC limits took place only in the year 2020 vide Govt. Notification No. KV/46 of 2020/SMN902019/9933/p dated 18.06.2020. Therefore, at the relevant point of time, the land was situated outside municipal limits.

9. Even assuming proximity to municipal limits, the land was situated beyond the prescribed distance of 8 kilometres from municipal limits. As per the decision of High Court of Delhi in case of Commissioner of Income Tax v. Vijay Singh Kadan [2015]  (Delhi) dated 14.09.2015, the distance has to be measured from the actual location of agricultural land in question to outer limit of municipality by road and not from outer limit of the village in which land was located.

10. The assessee submits that the impugned land is situated well beyond the prescribed limit of 8 kilometres from the nearest municipal limits. The distance from the nearest points of Surat Municipal Corporation, namely Pal and Bhesan, to the land located at Bhatpore is approximately 10 kilometres and 14 kilometres respectively. These distances have been substantiated by way of Google Maps taking the approx land coordinate as per assessee as 21.145456,72.718935. and copies of which are placed at Page 100-101 of the Paper Book. The assessee also submitted the maps vide letter dated 30.11.2018 but the Assessing Officer has not rebutted the same while passing the assessment order.

11. It is pertinent to note that, for the year under consideration, the statutory requirement under section 2(14) is that the land should not be situated within 8 kilometres of the municipal limits. Since the impugned land is located beyond such threshold distance, it clearly falls outside the notified urban periphery and qualifies as rural land. The aforesaid factual position was specifically brought to the notice of the Assessing Officer, however, no further enquiry or contrary material has been brought on record by him to dispute the same.

12. Reliance is placed on the decision of Hyderabad ITAT in case of Shaik Afsar Hussain v. Income Tax Officer, Ward- 1, Kurnool dated 11.02.2026 in ITA No.1293/Hyd/2024 wherein it was held that –

“On perusal of the assessment order as well as the order of the Ld. CIT(A), we find that neither of the lower authorities has undertaken a proper factual examination as to whether the land in question falls within the exception clause of section 2(14), i.e., whether it is situated beyond the prescribed distance from the limits of a municipality or cantonment board having regard to the population criteria as on the date of transfer. The assessee’s claim that Joharapuram Village was included in Kurnool (Urban) Mandal only with effect from 29.03.2018 on the basis of G.O.MS. No. 144 dated 29.03.2018, and the Revenue’s contention that the land falls within the municipal limits based on notifications issued by the Municipal Administration and Urban Development Department, Govemment of Andhra Pradesh, clearly require detailed factual verification. In our considered view, determination of whether the impugned land is a capital asset or not within the meaning of section 2(14) of the Act involves verification of the exact location of the land, the distance of the land from the nearest municipal limits as on the date of sale, the applicability of the relevant notifications in force during the year under consideration and the nature and use of the land at the relevant point of time. Since these aspects have not been properly examined by the lower authorities, we are of the considered view that the issue requires fresh adjudication. Accordingly, in the interest of justice, we set aside the orders of the Ld. CIT(A) and the Ld. AO on this issue and restore the matter to the file of the Ld. AO for de novo examination. The Ld. AO shall verify, in accordance with law, whether the land in question constitutes a capital asset under section 2(14) of the Act and thereafter decide the issue afresh after affording adequate opportunity of being heard to the assessee.”

13. In view of the above facts, the land qualifies as rural agricultural land within the meaning of section 2(14) and, therefore, does not constitute a “capital asset”. Consequently, any alleged transfer thereof does not attract capital gains tax under section 45 of the Act. It is, therefore, respectfully prayed that the addition made by the Assessing Officer be deleted.

14. Alternatively, the Hon’ble Tribunal may kindly be pleased to set aside the matter to the file of the Assessing Officer with a specific direction to verify the exact location and distance of the land from the municipal limits as on the date of sale deed, and upon such verification, to delete the said addition.”

The assessee has also filed paper book containing various documents such as proof of cheques dishonoured by bank, Proof of Law suit filed, proof of legal notice issued to purchaser, Sales

Deed of land at Survey No. 566, block no. 333, Paiki, Sub-district-Choryasi Moje Bhatpore, District-Surat-5765, Sales Deed of land at Survey No. 566, block no. 333, paiki, Sub-district- Choryasi Moje Bhatpore, District-Surat-5766, Sales Deed of land at Survey No. 566, block no. 333, Paiki, Sub-district- Choryasi Moje Bhatpore, District-Surat-5767, Details of City limit extension and Google Maps depicting distance from Surat municipal limits to the location of Land 21.145456,72.718935.

6. On the other hand, the ld. Sr.DR vehemently supported the orders of the lower authorities.

7. We have carefully considered the entire facts of the case and the written submissions made the assessee stated as above, we think it proper in the interest of justice to restore the matter back to the file of the Assessing Officer to re-examine the issue in the light of the submission made by the assessee and documents produced through paper book after affording a reasonable opportunity of being heard to the assessee. The assessee is also directed to cooperate with the set aside proceedings before the Assessing Officer by providing all necessary documents/evidences required for the purpose of arriving at the correct income.

8. In the result, this appeal of the assessee is allowed for statistical purposes.