Receipt from Compulsory Acquisition of Agricultural Land is not Taxable: ITAT [Read Order]

While hearing the case of Ketan Moolchand Shah, Raipur bench of Income Tax Appellate Tribunal (ITAT) proclaimed in its recent order that capital gain arising out of sale of agricultural land under compulsory acquisition is entitled for tax exemption under the Income Tax Act.

Assessee in the instant case is an individual derived income by way of remuneration, interest, dividend and agricultural land. He filed his return of income for the relevant assessment year and declared his total income of Rs.46,62,847.

During the course of assessment proceedings, the Assessing Officer (AO) observed that during the financial year the assessee had sold 10.75 hectares of land for a consideration of Rs. 1,47,81,250 and received additional compensation and disclosed long term capital gains of Rs.1,37,13,854 on sale of agricultural land and claimed exemption under section 2(14) of the Income Tax Act 1961. Further the AO noticed that the same income was escaped from the assessment, accordingly he issued notice under section 148 of the Act and made addition of the same.

On appeal, CIT(A) also upheld the order passed by the AO and confirmed the addition made by him. Aggrieved by the order of the authority assessee approached the Tribunal on further appeal.

Before the division bench, the counsel for the assessee advocate R.B.Doshi submitted that the land in question sold on compulsory acquisition by the assessee is agricultural land and the assessee is eligible for exemption under section 2(14) of the Income Tax Act. He further argued that prior to the sale of agricultural land, the assessee deriving income from agricultural activity along with other incomes in the earlier assessment years and disclosed in the Return of income also, whereas the AO wrongly treated the land as capital asset for the purpose of denying the claim of the assessee for exemption.

While analyzing the facts and circumstances of the case, the Tribunal bench comprising of Judicial Member Pavan Kumar Gadale and Accountant Member N.S.Saini held that “the land in question is treated as agricultural land and the capital gains arising out of sale of agricultural land is entitled for exemption under section 2(14) of the Income Tax Act”.

The Tribunal bench further observed that “explanations of the AO regarding the said land are not convincing, whereas counsel for the assessee has demonstrated supporting documents and certificates for the purpose of acquiring the property and sale of the property also”. While allowing the appeal filed by the assessee, the bench directed the AO to delete the addition made by him.