Agricultural Land Status Retained Despite Temporary Non-Use, Rules ITAT

The assessee, M/s. Raghav Township Pvt. Ltd., a company engaged in township development, filed its return for AY 201-17 declaring a loss while claiming exemption on long-term capital gains arising from the sale of land, treating it as agricultural land. The Assessing Officer rejected the claim on the grounds that no agricultural activity was carried out during the relevant year, the land was described as dry land, and the company’s primary objective was township development.

The assessee contended that the land was agricultural in nature, classified as ‘punja/tharisu land’ in revenue records, and agricultural operations had been regularly carried out in earlier years with corresponding agricultural income disclosed in returns. It explained that agricultural activity was temporarily discontinued as it was attempting to obtain approvals for township development, which ultimately failed, leading to sale of the land. However, both the AO and CIT(A) held that the land was not agricultural and taxed the gains as LTCG.

Issue Raised: Whether land can be treated as agricultural land for tax exemption purposes when no agricultural operations were carried out in the immediate years preceding its sale.

Tribunal Held: The Tribunal ruled in favour of the assessee and held that the land sold was agricultural land, and consequently, the LTCG arising from its sale was exempt. It was observed that the lower authorities erred in concluding that no agricultural activity was carried out in earlier years, as the assessee had consistently declared agricultural income from AY 2008–09 to AY 2014–15, supported by returns and financial statements.

The Tribunal further noted that revenue records (Adangal) classified the land as agricultural (‘punja land’), and even the Departmental Valuation Officer’s report confirmed that the land was suitable for cultivation with fertile soil. It held that temporary non-use of land for agriculture for two years due to business considerations (seeking township approvals) does not alter the fundamental character of the land. Therefore, it concluded that the land retained its agricultural nature at the time of sale, and the exemption claimed by the assessee was valid.

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