NEW DELHI AUTO FINANCE PVT. LTD.,NEW DELHI V. ACIT, CIRCLE- 18(1), NEW DELHI

ITA 1907/DEL/2018

AI Insights

The case revolves around the taxability of capital gains on land acquired by New Delhi Auto Finance Pvt. Ltd. during a land acquisition process by NOIDA. Initially, the land was intended for commercial use but was later contested as being agricultural, which would exempt it from capital gains tax under section 2(14) of the Income Tax Act, 1961. The Assessing Officer and the Commissioner of Income-tax (Appeals) had both ruled against the assessee, treating the land as a non-agricultural capital asset. However, the Tribunal, referencing a co-ordinate bench decision and various legal precedents, concluded that the land should be considered agricultural and not a capital asset, thus not subject to the capital gains tax.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 779522 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 1997-1998
• Appeal Filed On: 19-03-2018
• Other Referred Cases: CIT vs. Devki Nandan & Sons, Smt. Rama Bai Vs. CIT, Khursheed Shapoor Chennai Vs. CIT, Shankari Manuckyamma Vs. CIT, Fashtunnisa Bagum Vs. CIT, Murari Lodge vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: SANJAY KUMAR
• Keywords: Set aside; Business income; Capital asset; Cost of acquisition; Capital Gains; Search and seizure
• Section: 148; 2(14); 45(5)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: F : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER ITA No.1907/Del/2018 Assessment Year: 1997-98 New Delhi Auto Finance Pvt. Ltd., D-1004, New Friends Colony, New Delhi – 110 065. PAN: AACCN0265H Vs ACIT, Circle-18(1), New Delhi. (Appellant) (Respondent) Assessee by : Shri Sanjay Kumar, Advocate Revenue by : Ms Harpreet Kaur Hansra, Sr. DR Date of Hearing : 30.07.2025 Date of Pronouncement : 15.10.2025 ORDER PER ANUBHAV SHARMA, JM: This is an appeal preferred by the assessee against the order dated 23.08.2017 of the Commissioner of Income-tax (Appeals)-42, New Delhi (hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in Appeal No.262/14-15/CIT(A)-42 arising out of the appeal before it against the order dated 27.03.2002 passed u/s 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ITO, Ward 13(1), New Delhi (hereinafter referred to as the Ld. AO). Printed from counselvise.com ITA No.1907/Del/2018 2 2. The assessee company had not filed the return of income voluntarily and consequent to a search and seizure operation in the business premises of the assessee company and at the residence of Shri J.B. Aggarwal, Director, it was found that the assessee company had received compensation and interest on compensation from the acquisition of land during the FY 1996-97. Therefore, finding escapement of income, notice for reopening u/s 148 of the Act was issued. The assessee had claimed that no amount was received by the company in its bank account from the Land Acquisition Officer during the year under assessment. The same was said to be subjudice. The AO considered the land to be non-agricultural and after considering the dispute as to who is liable to account for this income by way of compensation, proceeded to add in the hands of the assessee company. The order was sustained by the ld.CIT(A) and ultimately reached this Tribunal and by ITA No.2128/Del/2003, order dated 11th January, 2008, the matter was remitted back to the ld.CIT(A) for deciding the matter of taxation of capital gains denovo after considering whether: (i) the land was agricultural land or not; and (ii) if not, whether the capital gains could be taxed on the basis of constructive receipt or not under the provisions of section 45(5) of the Act. The taxability of agricultural land will be decided thereafter by taking into account the fact that being a company it has to maintain the account following the mercantile system of accounting under the Companies Act. Printed from counselvise.com ITA No.1907/Del/2018 3 3. Now, by the impugned order, the ld.CIT(A) has concluded that the land is very much a capital asset as per the provisions of section 2(14) of the Act, but, with regard to the question if the capital gains should be taxed on the basis of the constructive receipt or not, the ld. CIT(A) has restored the matter to the files of ld. AO to tax the profits under the head of capital gains for the year when the assessee would receive sale proceeds on the basis of the decision of the district court. 4. Before us, the whole case of the assessee as canvassed was that the land is agricultural land in nature. In this context, the relevant findings of the ld.CIT(A) in paras 4.2 to 5.10 are reproduced below:- “4.2 I have carefully considered the facts of the case, the submissions of the appellant and the order of Hon'ble ITAT. 4.3 At the outset, the facts of the case are that the land of the assessee company was acquired by the NOIDA on 31.03.1992 and the award was passed by the Additional District Collector on 12.08.1996. However, in view of the litigation between the directors, the compensation and interest were deposited in the Revenue Deposit account in August, 1996. The AO held that the compensation, solatium and interest had accrued and arisen to the assesse company as soon as the award was made and the amount had been deposited in revenue deposit account by the Additional District Collector. The compensation and interest accrued to the assessee company on 25.10.1996 when the money was deposited in the revenue deposit account. 4.4 The assessee claimed that it was following cash system of accounting and therefore, since the amount was not received, it could not be taxed in the hands of the assesse company till the matter was finally decided by the district Judge on the reference made by the Additional District Collector. This argument did not find favour with the AO. AO held that the taxability of interest is not governed by the method of accounting followed by the assesse, which has to be taxed on accrual basis as held by Hon'ble Delhi High Court in the case of CIT vs. DevkiNandan& Sons, 125 ITR 225. Such was also the decision of Hon'ble Supreme court in the case of Smt. Rama Printed from counselvise.com ITA No.1907/Del/2018 4 Bai Vs. CIT; KhursheedShapoor Chennai Vs. CIT; Shankari Manuckyamma Vs. CIT and FashtunnisaBagum Vs. CIT, 181 ITR 400. 4.5 Therefore, it was held that interest from 01.04.1996 to 12.08.1996 (date of award) at Rs. 6,59,805/- was taxable in the assessment of this year, while the rest of the amount of interest was taxable in the assessment of the block period (01.07,1984 to 20.03.1996). It was also held that the assesse was engaged in the business of purchase and sale of land since 1982. The finding was given in the assessment of the block period that the assesse was a trader in land. Therefore, the compensation accruing to the assesse was on revenue account. Since the details of cost of acquisition were not furnished, the profit on acquisition of land was worked out at Rs. 1,15,33,922/- and the same was brought to tax as the income of this year. Thus, the total income of the assesse was worked out at Rs. 1,22,29,727/-. 4.6 The Ld. CIT(A) agreed with the AO that the interest income accrued from day-to-day and therefore, it cannot be taxed on receipt basis. In his appellate order, the Ld. CIT(A) pointed out that on perusal of various case laws, the intention of the appellant was of prime importance in determining the nature of investment made by the assesse. Ld. CIT(A) held that  since it was admitted that the land had been purchased for commercial exploitation, therefore, the land was held as stock-in- trade.  any income on sale of stock in trade has to be assessed as business income.  Income in this case has accrued to the assessee company irrespective of its receipt due to dispute among the directors 4.7 Thus, the Ld. CIT(A) held that the income on sale of land held as stock in trade was liable to be taxed in the instant assessment year as business income. 4.8 The assessee filed an appeal before Hon'ble ITAT claiming that the purpose of developing the land into farm houses was frustrated due to failure in getting permission from NOIDA and therefore, the agricultural land initially held as stock- in-trade did not continue to be so and became investments in the hands of the assesse, Further, the assessee claimed that since the land was agricultural land, it was not a capital asset u/s 2(14) of the Act. In view of the aforesaid claim of the assessee, the Hon'ble ITAT set aside the matter to CIT(A). The relevant extracts of the ITAT order are as under: \"The facts as ascertained from the record and the submissions made before us are that the assessee purchased agricultural land for developing it to construct farm houses. Therefore, initially the land was intended to be held Printed from counselvise.com ITA No.1907/Del/2018 5 as stock-in-trade. However, the farm houses could be developed and constructed only after permission from the NOIDA, which was not granted. In view of the lack of such permission, the initial intention to develop the land into farm houses was frustrated. Thus, the land could not have been held thereafter for the avowed purpose. In such a circumstance, it will be difficult to hold that the land continued to be stock-in-trade. Accordingly, it is held that the asset was held on capital account. The issue whether gains of acquisition of agricultural land were taxable or not has not been discussed by lower authorities. Therefore, capital gains arising on acquisition of land, if charge able to tax, will have to be taxed under the head \"capital gains\" under the provisions of section 45(5)\" 4,9 It flows from the decision of Hon'ble ITAT that  The land cannot considered to be stock-in-trade in the given situation.  The asset was held on capital account.  Therefore, capital gains arising on acquisition of land, if chargeable to tax, will have to be taxed under the head \"capital gains\" under the provisions of section 45(5).  The issue whether gains of acquisition of agricultural land were taxable or not has not been discussed by lower authorities. 5. Whether the land was agriculture land or not? 5.1 On perusal of the assessment order dated 27.03.2002, it is seen that the land in question comprised of the following Khasra Nos in village ChhalleraBangar (Distt. GautamBuddh Nagar, U.P): Sl. No. Name of Village Khasra No. 1 ChhalleraBangar 762 2 -do- 942,957,926 3 -do- 696,869,979,894 4 -do- 932,950 5 -do- 805 to 809, 835,846,872,873,914,928 6 -do- 927 7 -do- 908,912,913,916,919,921,924,930,941,943,951,95 2,956,960,962,970 5.2 These lands were acquired by the Additional District Collector while declaring award in respect of this land on 12.08.1996. 5.3 It may be relevant to refer to Section 2(14) of the Income Tax Act which defines \"capital asset\" as property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- Printed from counselvise.com ITA No.1907/Del/2018 6 “………. (iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may; having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;]\". 5,4 In this regard, a Setter dated 14.01.2016 was sent to Additional CIT, Range- 18, New Delhi to get the enquiries done through the concerned AO to ascertain whether at the time of the award given by the Addl. D.M., the above mentioned lands were in the nature of 'agricultural land' or not, as per the Income Tax Act. The report in this regard, was received vide letter dated 04.07.2016 from the office of DCIT, Circle-18(1) wherein it was mentioned that \"the Inspector has reported that as the matter is more than 12 years old and the concerned authorities have not preserved the relevant documents and have weeded out the same. As such, no useful information could be gathered by the Inspector at this stage.\" The inspector report dated 18.02.2016 in this regard is as under: \"In this regard, it is submitted that as per your direction I visited on 12.02.2016 to Noida Development Authority & Tehsil office of Dadri situated in Distt Gautam Budh Nagar. All the Khasra Nos. mentioned in remand report was situated in Tehsil Dadri. ShriCharan Singh Registrar Kanungo (Mobile No. 09411863989) and Shri Staya Parkash, Patwari (Mobile No. 09871270956) is posted in Tehsil office and they informed that once an award has been given for any land, the relevant documents are kept in sale custody for 12 years from the date of acquisition and after 12 years the relevant documents were duly disposed off. As the land was acquired on 12.08.1996, hence the documents were disposed off in 1999. Therefore, no useful information was available with the concerned authorities.\" 5.5 The appellant submitted that Ld. CIT (Appeals) had decided in favour of the one of the directors namely Shri R.K.Aggarwal in the matter of taxation of capital gain on the compulsory acquisition of agricultural lands situated in the villages in Aurangabad Kbadar and Challera Bangar at NOIDA Disstt Gautam Budh Nagar in U.P. by holding that these lands as agricultural lands which are not capital asset u/s 2(14) of the Act. The appellant highlighted that the location of the land acquired by the Government in case of the assesse company is also the same as that the director. The appellant has submitted copy of the report from M/s B.K. Chauhan & Associates, Govt, approved valuer & architect. Ld. CIT(A) in Printed from counselvise.com ITA No.1907/Del/2018 7 the case of Sh. R.K. Aggarwal relied, on the aforesaid report of Govt, approved valuer & architect. As per the report, the agriculture land owned by the assessee in village chbalera and Naurangabad does not fall within the limits of land required for urbanization in form of notification no. S.O. 77(x), Feb 1973. It is certified by the architect that the aforesaid land is not covered (i) Within 8 km. from the Corporation limits of DMC along Delhi Faridabad Road upto a distance of 2 km. on either side of that road. (ii) Within 8 km. from Corporation limits of DMC along the Delhi Shahdara Mohan Nagar, Ghaziabad Road upto a distance of 3 km. on either side that road. (iii) Within 8 km. from the Corporation limits of DMC along the Kondli Dadri road upto a distance of 2 km. on either side of that road. 5.6 It is important to note that NOIDA came into administrative existence on 17th April 1976. It may be relevant to refer to the NOIDA Master Plan 2001 wherein it is categorically mentioned that the village Chhalera and Naurangabad Bangar were part of 36 villages notified under notification no. 4157-Bha-U-18-(aa), Lucknow, Dated 17.04.1976. This highlights that the village Chhalera and Naurangabad Bangar are part of NOIDA since its inception in 1976. The relevant extracts of NOIDA Master Plan 2001 are reproduced as under: Printed from counselvise.com ITA No.1907/Del/2018 8 5.7 In view of the above, the agricultural land in question held by the assessee company gets covered under the provisions of Section 2(14)(iii)(a) which provides that any agricultural land shall be capital assets if it is situated in any area within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year. There is no need to refer to the provision of Section 2(14)(iii)(b) because the land in question gets covered by Section 2(14(iii)(a). 5.8 It is important to note that NOIDA very well fits into the definition of municipality because the income tax act clearly mentions that the municipality may be known by any name. Further, the Income Tax Act notification bearing no. (So 9447) [File No. 164/3/87-ITAT] dated 06.01.1994 does mention NOIDA as one of the municipality/cantonment board falling in UP State in column 3 of the schedule. Therefore, the land in question is a capital asset as per Section 2(14(iii)(a). 5.9 Further, even if the physical distance of the aforesaid agricultural land from municipal limits of Delhi are examined, it is found based on the \"google maps\" the road distance from Kalindi kunj to chhalera is only 4.7 km and the road distance from Mayur vihar phase-1 to chhalera is 7.5 km. The fact that Kalindi kunj was part of municipality of Delhi in 1992 gets confirmed from MCD website. The google map images in this regard are attached herewith for ready reference. (……….the google map images intentionally left out…). 5.10 Since the geographical distance of the village land from outer municipal limits of Delhi is within 8 kms, therefore, the land in question is very much a capital asset as per the provisions of section 2(14) of I.T. Act.” 5. Though ld. DR has supported the findings of ld. CIT(A) however, we are of considered view that where land is subject to compulsory acquisition then the most vital piece of evidence to draw conclusion about nature of land is the award passed by acquisition authority. If that information is not available then assesse has to be benefitted. Printed from counselvise.com ITA No.1907/Del/2018 9 6. At the same time we find that in ITA 4259/Del/98 for AY 1994-95 vide order dated 31.5.2006, while dealing with a case of land falling under NOIDA authority, a co-ordinate bench has held as follows;- “3. In the grounds of appeal the Department, has challenged the order of learned CIT(A) in not treating the land situated in Noida as an asset and in holding that Noida did not come under the purview of Municipalities Act and therefore the land situated in Noida was not a capital asset within the meaning of Section 2(14)(iii)(a) of the IT. Act. 4. The ld. DRDR placed reliance on the order of learned AO and submitted that although Noida Authority is not a declared municipality but it has all the attributes of Municipalities so far as development and planning of the area is concerned. According to her Noida is a legally incorporated autonomous body, constituted for the planned urban and industrial development and therefore it is a body, similar to municipality. She also made reference to the provisions contained u/s 2(14)(iii)(a) of the Act and submitted that if a society or body or authority is known by a different name then also it is to be treated as municipality if it has all the attributes and features of a municipality. 5. On going through the order of learned CIT(A) it is found that he has considered all the arguments raised before me by the learned DR. He has also made reference to several authorities on this issue. It may be pointed out that the learned DR has not been able to cite any authority or any order of ITAT or of Hon’ble High Court in favour of the Revenue. 6. In the instant case the assessee’s objection before the AO was that Noida was not covered within the meaning, of Municipality and, on the sale of agricultural land covered within the area of Noida the capital gain is. not leviable because such land cannot be treated to be an asset within the meaning of section 2(14)(iii)(a). Before the learned CIT(A), while challenging the order of AO, the assesses had placed reliance on the ratio of decision of Hon’ble Kerala High Court in the case of CIT Vs. Murari Lodge (1991) 97 CTR (Ker) 72. In that case it was held that municipalities contemplated u/s 2(14)(iii)(a) must be one which satisfies the requirement of the Kerala Municipalities Act. The assessee had also filed report of government approved valuer in support of the contention that the agricultural land was not covered within 8 kms. From the corporation limits, of DMC. It appears that Department did not controvert this report. The learned CIT(A) has accepted the contention of the assessee and has deleted the addition made on account of capital gain by observing as under: Printed from counselvise.com ITA No.1907/Del/2018 10 “I have carefully considered the arguments and the documents/ evidence filed in support of their contention by the counsel. I have also considered the decisions of case laws quoted by the AR in support of its contention that appellant’s case is not covered by definition of capital asset as per section 2(14). It is clear that there is clear cut distinction between Municipal Corp., Municipality and Cantonment Board, on the one hand and Gram Panchayat on the other. It is also clear that section 2(14) excludes from its purview the definition of capital assets, lands, which are situated outside municipal limits and these lands situated in village do not fall within the municipality, even if their population is more than 10000. The land in dispute is not covered by an enactment governing the affairs of of Municipality for the state of UP which is known as UP Municipalities Act but under UP Industrial Area Dev. Act, 1976. Hence Noida cannot be called a Municipal Corpn. Or similar authority under different name under the Municipal Corpn. Act. Thus the impugned land of the appellant cannot be treated as capital asset under section 2(14) of the I.T. Act and as such no capital gain arise on its acquisition by the UP Govt. Accordingly the addition made on account of capital gain on sale of agriculture land is deleted. The assessee gets a relief of Rs.1,25,977/-.” 7. As pointed out earlier, the learned DR has not been able to cite any authority in support of the grounds of appeal She could not refer to any decision in which agricultural land situated in Noida has been treated to be a capital or within the meaning of section 2(14)(iii)(a) of the IT. Act. I am, therefore, fully convinced with the view of learned CIT(A) and uphold his order. Accordingly, grounds taken by the Revenue in this appeal stand rejected.” 7. Thus relying the decision of co-ordinate bench we are of considered view that ld. CIT(A) has concluded the land to be capital asset on basis of inchoate evidences and erroneous assumptions. The grounds deserves to be sustained. The appeal is allowed. Order pronounced in the open court on 15.10.2025. Sd/- Sd/- (AMITABH SHUKLA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 15th October, 2025. Printed from counselvise.com ITA No.1907/Del/2018 11 dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi Printed from counselvise.com "