ET OnlineMan sold two agricultural land and earned Rs 8.75 crore capital gains, files no ITR and paid no tax, Income Tax Dept sent notice, he wins case in ITAT Ahmedabad (AI generated representative image)
In FY 2015-16, between April 1, 2015 and March 31, 2016, Mr Pandor from Bharuch, Gujarat sold two pieces of agricultural lands and made around Rs 8.75 crore in long term capital gains (LTCG). However, he did not file his income tax return (ITR). As a result, the income tax officer, acting on his own information, re-opened his file under Section 147 and sent Mr Pandor a tax notice.
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In response, Pandor filed an ITR declaring his total income as Rs 6.88 lakh. But he didn’t report any capital gains from the sale of the land. He argued before the income tax officer that the land sold by him was agricultural land and did not and didn’t meet the defination of a capital asset as per Section 2(14).
However, the income tax officer disagreed with his arguments and added Rs 8.75 crore as LTCG income in his assessment. This made Pandor redponsible for paying income tax on this amount. Feeling aggrieved, Mr Pandor appealed to the Commissioner of Appeals (CIT A), who subsequently removed the addition of the LTCG income.
CIT (A) noted that the income tax officer added this Rs 8.75 crore LTCG to Mr Pandor’s income based on the assumption that the lands he sold were capital assets and that the buyer intended to use the land for industrial purposes. However, the land revenue record indicated that these lands were agricultural.
CIT (A) further observed that the lands were located two to three kilometers away from the nearest Municipality i.e.Ankleshwar INA, which has a population of 24,789 as per the last 2011 census. Therefore, the lands fell outside the definition of capital asset under the provisions of Section 2(14)(iii)(b)(1).
So, CIT (A) said that though the lands were agricultural at the time of the sale in FY2015-16, it was only in FY 2020-21 that the collector had issued a certificate for using it for industrial purposes on the basis of an application moved by the buyer.
CIT (A) pointed out that if the land was converted for industrial use by the purchaser after 5-6 years of the sale-deed, it cannot be said to be a capital asset or non-agricultural land at the time of its sale by Mr Pandor and thus ruled in his favour. The Income Tax Department was unhappywith this order and filed an appeal in Income Tax Appellate Tribunal (ITAT Ahmedabad).
Mihir Tanna, associate director, S.K Patodia LLP says: “Sale of agriculture land is not subject to tax. However, if the said land is converted into non agriculture land (NA received) before sale, sale is taxable transfer subject to tax. Fair market value on date of conversion is considered as cost but holding period starts from date of actual acquisition (to decide whether sale of land is short term or long term).”
ITAT Ahmedabad analysis and discussion
ITAT Ahmedabad gave this judgement (ITA No.1667/Ahd/2025) on March 9, 2026. ITAT Ahmedabad said that the tax department has not raised any ground relating to the location of the land and it being an agricultural land by nature. The only ground raised by the tax department is that the land has been converted and used by the purchaser for industrial purposes.
ITAT Ahmedabad said that they note that the issue is squarely covered by the decision of the Gujarat High Court in the case of CIT vs. Rajshibhai Meramanbhai Odedra (2014) 42 Taxmann.com 497 (Guj.), wherein, the Gujarat High Court has held that merely because the agricultural land was sold in favour of non-agriculturist in breach of law prevailing in the state, said land would not lose its character as agricultural land and hence could not be treated as capital asset.
ITAT Ahmedabad said that a Coordinate Surat Bench of the Tribunal in the case of Bhadrabala Dhimantrai Joshi vs. ACIT in ITA No.126/SRT/2025 vide order dated 26/09/2025 has in identical facts and circumstances has held that since the land was neither converted nor developed for non-agricultural purposes prior to its sale, hence the same would not lose its character as an agricultural land and would not fall in the definition of capital asset.
Thus ITAT Ahmedabad, in light of this legal position, dismissed the tax department’s appeal.
ITAT Ahmedabad said that since they have already looked into the issue based on merits while adjudicating the appeal of the tax department, at this stage, they are not inclined to discuss the legal grounds at this point, as those have become more of an academic matter. The legal grounds raised by the assessee (Mr Pandor) are still available, allowing him the liberty to bring them up again at the right time or level, if need be.
The order was pronounced in the Open Court on 09/03/2026.
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