Actual agricultural user is not a mandatory condition to qualify for the 'agricultural land' exclusion under Section 2(14)(iii). The determination depends on objective geographical distance criteria and a cumulative evaluation of the land's character, as the legislature consciously omitted a usage requirement in this specific exclusionary clause.

आदेश / O R D E R

PER AMIT SHUKLA (J.M):

The aforesaid appeal has been filed by the assessee against the impugned order dated 13.11.2025 passed by the learned Additional Commissioner of Income Tax (Appeals), Bengaluru, arising out of the reassessment order passed under section 143(3) read with section 147 of the Income-tax Act, 1961 for the assessment year 2012-13. The assessee is mainly aggrieved by the action of the Assessing Officer in treating the land sold by the assessee as “capital asset” within the meaning of section 2(14) of the Act and consequently bringing the alleged gains arising from transfer thereof to tax under the head “Capital Gains”, which action has been affirmed by the learned CIT(A).

The brief facts borne out from the records are that the assessee, namely Sohanlal Sewaram Jaggi (HUF), along with co-owners, had transferred land situated at Village Wada Bolhai, Taluka Haveli, District Pune, forming part of Gat No.831/2. During the course of reassessment proceedings initiated under section 147, the Assessing Officer examined the nature and character of the said land and formed an opinion that the same was liable to capital gains tax. According to the Assessing Officer, though the assessee had relied upon 7/12 extracts and revenue records showing the land as agricultural land, however, mere classification in revenue records was not conclusive and actual user of the land was equally important. The Assessing Officer observed that no substantial agricultural income had been reflected in the return of income and no documentary evidence such as sale of agricultural produce, cultivation expenses, irrigation expenditure, labour payments or crop sale receipts had been produced. On this basis, the Assessing Officer inferred that no genuine agricultural operations were being carried out on the land.

The Assessing Officer further observed that the land possessed substantial commercial potential considering its proximity to Pune city and according to him the transaction itself indicated commercial exploitation rather than agricultural use. He referred to certain judicial precedents wherein courts had observed that mere classification in revenue records would not be determinative if surrounding circumstances indicated otherwise. The Assessing Officer therefore held that the assessee had failed to discharge the burden of proving that the land retained agricultural character and accordingly treated the same as “capital asset” within the meaning of section 2(14) of the Act. Consequently, long-term capital gain amounting to Rs.49,04,000/- was brought to tax.

Before the learned CIT(A), the assessee vehemently challenged the action of the Assessing Officer and submitted that the authorities below had fundamentally misconstrued the scope and interpretation of section 2(14)(iii). It was submitted that the impugned land was situated approximately 17 to 18 kilometers away from the municipal limits of Pune and therefore beyond the notified urban limits contemplated under section 2(14)(iii). It was further submitted that the land consistently remained agricultural land in official revenue records including 7/12 extracts; no permission for non-agricultural conversion had ever been obtained either by the assessee or purchaser; the land fell within “No Development Zone”; surrounding areas continued to remain rural and agricultural; and even the purchaser continued agricultural activities after purchase.

The assessee further relied upon contemporaneous survey records and 7/12 extracts recording cultivation of Bajra crop and other agricultural produce on the land. A detailed affidavit was also filed by Shri Sohanlal Sewaram Jaggi explaining that due to advanced age and practical difficulties, the co-owners themselves were unable to physically supervise cultivation operations and therefore local caretakers attended the agricultural activities and retained the negligible produce against maintenance expenses. It was specifically contended tha