ITAT Chennai: Verification of Rural Agricultural Land Status Essential Before Taxing Capital Gains

Overview of the Tribunal’s Decision

The Income Tax Appellate Tribunal, Chennai Bench, in the case of Nellore Venkateswara Reddy Vs CIT, emphasised that when an assessee claims that the land sold is rural agricultural land falling outside the ambit of a “capital asset” under section 2(14) of the Income Tax Act 1961, the claim cannot be brushed aside without proper factual verification. The Tribunal also held that a marginal delay of 59 days in filing an appeal, supported by a reasonable explanation, ought ordinarily to be condoned, especially where the assessment is completed ex parte and large additions are made.

The matter was ultimately remanded to the Assessing Officer (AO) with specific directions to verify the nature and location of the land, as well as the source of funds for the subsequent residential property purchase, and to pass a fresh speaking order after granting a fair opportunity of hearing to the assessee.

Factual Background

Status of the Assessee and Transactions in Question

  • The assessee, Nellore Venkateswara Reddy, is an agriculturist cultivating land in Buchireddy Palem Mandal, Kalayakagollu Village Farm, Andhra Pradesh.
  • For Assessment Year (AY) 2020-21, the assessee did not file any return of income.
  • Information available with the Income Tax Department indicated:
    • Sale of agricultural land on 08.07.2019 through a registered deed for a consideration of ₹45,44,000.
    • Purchase of an immovable residential property for ₹54,00,000 during the same period.

On the basis of this information, the AO initiated reassessment proceedings under section 147 and framed the assessment ex parte under section 144 r.w.s. 144B of the Income Tax Act 1961.

Ex Parte Assessment and Additions Made

As there was no response from the assessee to the statutory notices issued during reassessment:

  • The AO completed the assessment ex parte on 16.01.2025.
  • The following additions were made:
    • Short-term capital gains of ₹45,44,000 on account of the sale of the property.
    • Addition of ₹57,77,000 on account of investments relating to the immovable property (treated as unexplained investment).

First Appeal and Refusal to Condoned Delay

Appeal Before CIT(A)

  • The assessee filed an appeal before the CIT(A) (National Faceless Appeal Centre) on 16.04.2025.
  • This appeal was filed 59 days beyond the prescribed time limit.
  • Along with Form No. 35, the assessee submitted a detailed petition seeking condonation of delay, explaining the circumstances which led to the late filing and requesting adjudication on merits.

Order of CIT(A)

  • The CIT(A) declined to condone the delay of 59 days.
  • Without examining the merits of the assessee’s claims, the CIT(A) simply upheld the assessment order dated 16.01.2025.
  • As a result, none of the substantive issues raised by the assessee were considered at the first appellate stage.

Arguments Before the ITAT

Contentions of the Assessee

Before the Tribunal, the assessee, through the Authorised Representative, raised the following principal arguments:

  1. Nature of Land – Rural Agricultural Land Not a Capital Asset

    • The land sold was claimed to be agricultural land located in a rural area.
    • It was argued that such land does not fall within the definition of “capital asset” under section 2(14) of the Income Tax Act 1961.
    • Consequently, no liability to capital gains tax could arise on its transfer, and the AO erred in treating the sale consideration of ₹45,44,000 as short-term capital gains.