ITAT Surat remands dispute on rural agricultural land and capital gains to Assessing Officer

1. Background of the dispute

The Income Tax Appellate Tribunal, Surat Bench, in the case of Dharmeshkumar Parsottambhai Ukani Vs ACIT (ITAT Surat), dealt with an appeal concerning alleged long-term capital gains on sale of land situated at Bhatpore, Surat, for AY 2011-12.

The assessee had filed a return of income under Section 139(1) of the Income Tax Act, 1961 on 08 February 2012, declaring a total income of ₹4,90,690. This return was initially processed under Section 143(1) without any scrutiny.

Subsequently, the Assessing Officer (AO) received third-party information that the assessee, along with three co-owners, had sold immovable property for ₹80,00,000, registered with the Sub-Registrar, Athwa, Surat. On the basis of this information, the AO formed a belief that capital gains arising from the transfer were not disclosed and initiated reassessment proceedings under Section 147, issuing notice under Section 148 on 29 March 2018.

The reassessment culminated in an addition of ₹30,00,000 under Section 69, which was affirmed by the Commissioner of Income Tax (Appeals)-4, Surat [CIT(A)] by order dated 16 September 2025. The assessee carried the matter in further appeal before the ITAT Surat.

The Tribunal, however, did not deliver a conclusive finding on the nature of the land or on the merits of the reassessment. Instead, it restored the matter to the AO for a fresh examination with specific directions, and allowed the appeal for statistical purposes by an order pronounced on 27 July 2026 under Rule 34 of the Income Tax (Appellate Tribunal) Rules, 1963.

2. Key facts recorded in the assessment and appellate proceedings

2.1 Original return and reopening

  • The assessee filed the original return for AY 2011-12 on 08/02/2012, disclosing income of ₹4,90,690 under Section 139(1).

  • The return was processed under Section 143(1) with no scrutiny assessment at that stage.

  • Later, the AO received information that the assessee, jointly with:

    • Shri Brijeshbhai Parshottambhai
    • Smt. Manjulaben Khodidas
    • Smt. Jignaben Parshottambhai

    had sold an immovable property for ₹80,00,000 on 24/09/2010, registered at the Sub-Registrar’s office, Athwa, Surat.

  • The AO held that capital gains arising from this transfer were not reflected in the return and reopened the assessment under Section 147, after recording reasons and obtaining approval from the competent authority.

  • Notice under Section 148 was issued on 29/03/2018 and served on the assessee.

2.2 Non-compliance and limited submissions before AO

  • Initially, the assessee did not respond to the notice under Section 148 and did not appear or file submissions.

  • The AO issued a further communication under Section 129 dated 05/07/2018 and a notice under Section 142(1) requiring filing of return in response to the Section 148 notice. These remained uncomplied with up to finalization of assessment on 05/12/2018.

  • On the assessee’s request dated 06/09/2018, the AO supplied the recorded reasons for reopening by letter of the same date.

  • According to the assessment order, even after receiving reasons, the assessee neither filed a return in response to Section 148 nor furnished substantive details during the reassessment process, and also failed to respond to a penalty notice under Section 271(1)(b).

  • The AO noted that on the last date of assessment proceedings, the assessee filed limited details, asserting that:

    • The cheques issued by the purchasers were dishonoured; and
    • A civil suit had been filed against the purchasers.

    However, no supporting records of such legal proceedings were furnished.

2.3 AO’s analysis of property transactions and addition under Section 69

  • Based on information in the case of Shri Brijesh Kumar Ukani, the AO observed that during FY 2010-11, not one but three properties had been sold, each for ₹80,00,000 and on the same date.

  • From the ITS (Information Technology System) data, the AO gathered that:

    • Three immovable properties, each with sale consideration of ₹80,00,000, were sold; and
    • The assessee was a co-owner in each of these properties.

  • On this basis, the AO computed capital gains and made an addition of ₹30,00,000 in the hands of the assessee, invoking Section 69 and treating it as long-term capital gain.

2.4 Order of CIT(A)

  • The assessee challenged the reassessment and the addition before the CIT(A).

  • By order dated 16/09/2025, the CIT(A):

    • Upheld the reopening under Section 147; and
    • Confirmed the addition of ₹30,00,000 under Section 69.

  • The CIT(A) observed that the assessee failed to furnish documentary evidence supporting:

    • The nature of the land as rural agricultural land;
    • The details of sale and purchase transactions; and
    • The assessee’s assertions regarding non-receipt of sale consideration and related litigation.

3. Grounds raised before ITAT Surat

In the appeal before the Tribunal, the assessee raised grounds challenging:

  1. The validity of reopening under Section 147 by issue of notice under Section 148.
  2. The addition of ₹30,00,000 under Section 69 as long-term capital gains.
  3. The assessee also sought liberty to add, modify, or delete any grounds.

4. Assessee’s submissions before the Tribunal