Loading judgment…
Facts
The assessee claimed a deduction under section 54B for investment in agricultural land. The Assessing Officer (AO) and Commissioner (Appeals) denied the deduction, holding that the land sold was a capital asset and not an agricultural land used for agricultural purposes by the assessee or parents for two preceding years.
Held
The Tribunal held that the lower authorities erred in denying the deduction solely on the basis that the land sold was a capital asset and not an agricultural land. The key requirement is that the land must have been used for agricultural purposes for the preceding two years, not necessarily that it was classified as agricultural land.
Key Issues
Whether the land sold qualifies for deduction under section 54B if it was used for agricultural purposes, even if it is considered a capital asset and not strictly agricultural land.
Sections Cited
54B, 250, 143(3), 133(6), 45, 139, 2(14)(iii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYASHRI SANDEEP SINGH KARHAIL
Date of Hearing – 21/04/2025 Date of Order – 22/04/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The assessee has filed the present appeal against the impugned order dated 30.09.2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the Assessment Year 2008-09.
In this appeal, the assessee has raised the following grounds:
“1. The learned Commissioner of Income Tax (Appeals), NFAC, erred in passing an order u/s 250 confirming the additions made by the Learned Assessing Officer without giving an adequate opportunity of being heard. 2. The learned Commissioner of Income Tax (Appeals), NFAC, erred in not granting the exemption of section 54B without appreciating that, the agricultural land was used by the watchmen/workers/caretakers for conducting agricultural activity for themselves as well as for the appellant.”
The sole issue that arises for our consideration in the present appeal pertains to the denial of the deduction claimed under section 54B of the Act.
The brief facts of the case are that the assessee is an individual and for the year under consideration filed his return of income, declaring total income of Rs.44,70,648/-. The return filed by the assessee was selected for scrutiny under CASS, and assessment under section 143(3) of the Act was completed on 29.12.2010, determining the taxable income of Rs.5,64,66,560/-. In the appeal before the learned CIT(A), the assessee raised an additional claim of deduction under section 54B of the Act. The learned CIT(A) held that during the assessment proceedings, the issue was limited to the treatment of agricultural land as a capital asset, and the question of claiming exemption under section 54B of the Act was not contested. The learned CIT(A), on the basis that no agricultural activity was carried out by the assessee himself or his parents on the plot of land sold by him, denied the deduction claimed under section 54B of the Act. In further appeal, the Co-ordinate Bench of the Tribunal restored the issue to the file of the Assessing Officer with a direction to verify the relevant documents and submissions made by the assessee.
During the assessment proceedings pursuant to the directions of the Co-ordinate Bench of the Tribunal, the assessee was asked to explain the basic conditions to be satisfied to claim the benefit of section 54B of the Act. Further, in view of the fact that the assessee has suo motu offered to tax the capital gains arising from the transfer of the plot of land claimed to be used for agricultural purpose, the assessee was asked to show cause as to why the deduction claimed under section 54B of the Act be not denied. The Assessing Officer vide order dated 29.03.2023 passed under section 143(3) r.w. section 254 of the Act, after considering the submissions of the assessee, rejected the claim of the assessee regarding agricultural activity being done on the land on the basis of the certificate dated 13.12.2010 issued by the Talati in response to the notice issued under section 133(6) of the Act, wherein it is mentioned that the said land is situated within 3 kms from the local limits of the Lonavala Municipal Council. Accordingly, on the basis that the land sold by the assessee was not an agricultural land and the assessee has not contested the treatment of the land sold to be a capital asset, the AO denied the deduction claimed under section 54B of the Act and computed a Long-Term Capital Gains of Rs.4,33,88,870/-.
The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the disallowance of deduction claimed under section 54B of the Act in the absence of any material being submitted by the assessee to substantiate its claim. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee claimed deduction under section 54B of the Act on the basis that he has invested Rs.56,23,190/- in agricultural land out of the sale proceeds of agricultural land. As is evident from the record, in the first round of proceedings, the assessee raised this plea before the learned CIT(A) for the first time and since the learned CIT(A) while rejecting the claim of the assessee did not consider the documents submitted by the assessee, the Co-ordinate Bench of the Tribunal restored the issue to the file of the Assessing Officer for consideration afresh with a direction to verify the relevant documents and submissions made by the assessee. We find that in the second round of assessment proceedings, pursuant to the directions of the Tribunal, the Assessing Officer disagreed with the submissions of the assessee on the basis that since the land sold was not contested to be a capital asset, therefore, the deduction under section 54B of the Act is not available to the assessee, as the same is only allowable in the case of sale of agricultural land and re-investment of the same in the agricultural land. The learned CIT(A), vide impugned order, also upheld the findings of the AO on the basis that the assessee has failed to substantiate its claim that the land sold was agricultural land.
During the hearing, the learned Authorized Representative (“learned AR”) did not dispute the fact that the land sold was a capital asset, as the Talati vide its certificate dated 13.12.2010 certified the land to be within 3 kms from the local limit of the Lonavala Municipal Council. However, the learned AR submitted that in order to claim the deduction under section 54B of the Act, it is not relevant whether the land sold was an agricultural land, but what the section requires is that the land must have been used by the assessee or his parents for agricultural purpose two years immediately preceding the date on which the transfer took place. The learned AR by referring to the 7/12 extract, forming part of the paper book from pages 23- 28, submitted that the impugned land was used for agricultural purposes. Accordingly, the learned AR submitted that the lower authorities erred in denying the deduction claimed by the assessee under section 54B of the Act merely on the basis that the land sold by the assessee was a capital asset.
On the contrary, the learned Departmental Representative submitted that 7/12 extracts relied upon by the assessee pertain to the subsequent years and not to the immediately preceding two years. Thus, it was submitted that the details provided therein do not substantiate the claim of the assessee for deduction under section 54B of the Act.
Before proceeding further, it is relevant to note the provisions of section 54B of the Act, which reads as follows: -
“54B. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee being an individual or his parent, or a Hindu undivided family for agricultural purposes (herein-after referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,— (i) if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its trans-fer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain.
(2) The amount of the capital gain which is not utilised by the assessee for the purchase of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase of the new asset within the period specified in sub- section (1), then,— (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of two years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.”
From the plain reading of the provisions of section 54B of the Act, we find that the same provides for deduction in case of transfer of a capital asset, being land which, in the two years immediately preceding the date of transfer, was used by the assessee or his parent for agricultural purposes. Thus, what is relevant for claiming deduction under section 54B of the Act is a transfer of a capital asset being a land which was used for agricultural purposes and not transfer of an agricultural land as there may be a case where the land may be used for the agricultural purpose, however, the same being covered under one of the clauses of section 2(14)(iii) of the Act be considered as a capital asset. Therefore, from the careful perusal of the provisions of section 54B of the Act, we do not find any merits in the findings of the lower authorities that since the land sold by the assessee was a capital asset and not an agricultural land, therefore, the deduction under section 54B of the Act is not available to the assessee.
From the perusal of the record, we find that the lower authorities have not examined the 7/12 extract as relied upon by the learned AR before us to substantiate the claim that the land sold was used for agricultural purposes. We further find from the orders passed by the lower authorities that there is no such reference by the assessee to these documents. Since the necessary documentary evidence for complete adjudication of this issue was not examined by the lower authorities even in the second round of proceedings, we have no option but to again restore this issue to the file of the Jurisdictional Assessing Officer for de novo adjudication with a direction to the assessee to furnish documents to substantiate the fulfilment of the conditions for claim of deduction under section 54B of the Act. Needless to mention, no order shall be passed without affording the reasonable and adequate opportunity of hearing to the assessee. With the above directions, the impugned order is set aside, and the grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 22/04/2025