ITAT Chennai: Agricultural Land Satisfying Population and Distance Criteria Under Section 2(14)(iii) Constitutes a Capital Asset — Unaccounted Cash Addition Restricted to Admitted Sum of ₹84.60 Lakh
Case Reference
Narayanan Sundaramahalingam Rajkumar Vs ACIT (ITAT Chennai)
Assessment Year: 2015-16
Sections Involved: Section 2(14)(iii), Section 132, Section 132(4), Section 132(4A), Section 153C, Section 143(2), Section 142(1), Section 56(2)(vii)(a) of the Income Tax Act, 1961
Background and Overview
The Income Tax Appellate Tribunal, Chennai Bench, delivered a significant ruling in the above-captioned matter, partly allowing the assessee's appeal against the order passed by the Commissioner of Income Tax (Appeals). The case revolved around three principal controversies: first, whether agricultural land situated near a municipality could be excluded from the definition of "capital asset"; second, whether unaccounted cash consideration allegedly received over and above the registered sale price could be added in full to the total income; and third, whether the indexed cost of development claimed by the assessee deserved allowance in the absence of complete documentary support.
The Tribunal held that once agricultural land satisfies the prescribed population and aerial distance thresholds under Section 2(14)(iii)(b) of the Income Tax Act, 1961, it ceases to enjoy the exclusion available to rural agricultural land and must be treated as a capital asset — irrespective of how it is classified in revenue records or whether actual agricultural operations are conducted thereon. On the question of cash consideration, the Tribunal partially overturned the Revenue's position and restricted the addition to ₹84.60 lakh, being the amount unequivocally admitted by the assessee during assessment proceedings, while directing deletion of the balance addition of ₹3,87,75,000 for want of independent corroborative evidence. The Tribunal further directed the Assessing Officer to allow 70% of the indexed cost claimed, sustaining a 30% disallowance on an estimated basis.
Material Facts of the Case
The assessee is an individual who carries on business as the sole proprietor of M/s. Guru Builders, a firm engaged in construction and development of residential flats. For Assessment Year 2015-16, his original return of income was filed on 30.09.2015 declaring a total income of Rs. 70,41,740/-.
Search and Seizure Operations
A search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted on 27.11.2019 in the cases of entities belonging to the group of M/s. Asvini Fisheries Pvt. Ltd. ("AFPL"). In the course of that search, the Investigation Wing identified certain land acquisition transactions carried out by M/s. Prathishri Properties Pvt. Ltd., a group concern of AFPL. These transactions revealed that the assessee had sold land situated at Madambakkam Village, Tambaram Taluk, during Financial Year 2014-15 to M/s. Prathishri Properties Pvt. Ltd., and that substantial cash consideration had allegedly been paid to the assessee over and above the registered sale price. As a consequence, the residential premises of the assessee were also subjected to a search under Section 132 of the Act.
In the course of the search and subsequent investigation, several documents, loose sheets, and property-related records were discovered and seized. The Revenue's case was that these materials demonstrated payment of significant unaccounted cash consideration beyond what was reflected in the registered conveyance documents.
Details of the Land Transaction
The assessee had transferred approximately 1.41 acres of land at Madambakkam Village, evidenced by a registered Sale Deed bearing Document No. 1357/2015 dated 09.02.2015. The land comprised Survey Nos. 77/2, 88/1B, 86/2B2 and 92/1, and was sold for a registered consideration of Rs. 1,26,90,000/-, which was also adopted as the market value for registration purposes.
Statement of Shri K. Sreejith
The Revenue placed heavy reliance on the statement recorded under Section 132(4) from Shri K. Sreejith, Managing Director of M/s. Lotus Castle Pvt. Ltd. (LCPL), a company that acted as land aggregator for M/s. Prathishri Properties Pvt. Ltd. During the search conducted at Lotus Group premises on 29.01.2019, Shri K. Sreejith stated that cash amounting to Rs. 4,72,35,000/- had been paid to the assessee over and above the registered consideration. He affirmed that the agreed acquisition rate was Rs. 4,25,000/- per cent and that a large portion of the agreed price was discharged in cash.
Assessee's Statement During Search
When the assessee was confronted with this information at the time of search at his own premises on 27.11.2019, he acknowledged in his statement recorded under Section 132(4) that the Madambakkam land belonged to him and had been sold to M/s. Prathishri Properties Pvt. Ltd. He confirmed receiving Rs. 1,26,90,000/- through demand drafts as per the registered deed and further admitted receipt of approximately Rs. 4.72 crores in cash, taking the total to approximately Rs. 5.99 crores. The assessee further admitted that the cash component had not been recorded in his books of account and had not been offered to tax in any year, and that it represented his undisclosed income pertaining to Financial Year 2014-15.