ITAT Surat Deletes Rs. 44,50,255 Capital Gains Addition: Agricultural Land Located 8.2 km from Surat Municipal Corporation Held Outside Definition of Capital Asset

Case Overview

Case Name: Malini Satish Parekh Vs ITO (ITAT Surat)
Appeal Number: ITA No. 900/SRT/2024
Date of Order: 01/10/2026
Assessment Year: 2013-14
TaxCorp Citation: 2026 taxguru.in 14689

The Surat Bench of the Income Tax Appellate Tribunal rendered a significant ruling by deleting an addition of ₹44,50,255 made under the head "Capital Gains," holding that the agricultural land in question was situated beyond the prescribed municipal limits and therefore did not qualify as a "capital asset" under the Income Tax Act, 1961. A particularly notable aspect of this decision is that the Revenue's own findings in the assessments of co-owners of the identical property directly supported the assessee's position — a contradiction the Tribunal found impossible to overlook.

Background: The Property and the Transaction

The subject matter of the dispute was agricultural land bearing Block No. 78-B, Village Kosmada, Taluka Kamrej, District Surat, which was transferred through a registered sale deed executed on 8 February 2013.

The stated sale consideration recorded in the deed was ₹3,30,00,000, while the stamp duty valuation determined by the State Stamp Duty Valuation Authorities stood at ₹7,12,04,081. The assessee was one of sixteen co-owners named in the registered sale deed.

Since no return of income was filed by the assessee for Assessment Year 2013-14, the case was reopened under Section 147 of the Income Tax Act, 1961, and a notice was issued under Section 148.

Assessment Proceedings: How the Addition Was Made

During the course of assessment proceedings, the Assessing Officer (AO) provided several opportunities to the assessee to respond. However, the assessee neither filed a return of income nor furnished any explanation that the AO considered satisfactory.

Taking note of the fact that the stamp duty value under Section 50C exceeded the stated sale consideration, the AO attributed one-sixteenth of the stamp duty value — amounting to ₹44,50,255 — to the assessee and treated this as taxable capital gains. The assessment was completed under Section 144 read with Section 147 of the Act.

The AO's position rested on two planks:

  • The land was a capital asset within the meaning of Section 2(14) of the Act, being situated within eight kilometres of Surat Municipal Corporation.
  • Since the stamp duty value exceeded the actual consideration, Section 50C was squarely applicable.

First Appeal: CIT(A) Upholds the Addition

The assessee challenged the assessment order before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The CIT(A) dismissed the appeal and confirmed the addition of ₹44,50,255, without giving adequate weight to the documentary evidence that had been placed on record.

Grounds Raised Before the Tribunal

Before the ITAT, the assessee raised multiple grounds of appeal, which may be summarised as follows:

  1. The CIT(A) erred in confirming the order under Section 144 read with Section 147 without adequate verification of facts available in co-owners' cases and on the Government of Gujarat's official website.

  2. The order was passed without proper service of notices upon the appellant.

  3. The agricultural land was situated 8.2 km from the then local limits of Surat Municipal Corporation and therefore fell outside the definition of "capital asset" under Section 2(14)(iii)(b) of the Act.

  4. The village of Kosmada had a population of 1,650 as per the 2011 Census, and accordingly the land was not a capital asset under Section 2(14)(iii)(a) of the Act.