PRAVINSINH BHAWANSINH VAGHELA,GANDHINAGAR vs. THE INCOME TAX OFFICER,WARD-3,, GANDHINAGAR

5. In the result, the appeal was partly allowed, with relief granted in respect of deductions under sections 54B and 54F and deletion of the addition on account of alleged gifts, while the Assessing Officer’s action regarding adoption of cost of acquisition as on 01.04.1981 was confirmed.

6. Before us, the Counsel for the assessee submitted that with respect to Ground No. 1, the Counsel submitted that the learned CIT(A) erred in confirming the addition of ₹66,77,877/- by adopting an incorrect Pravinsinh Bhawansinh Vaghela vs. ITO Asst.Year –2012-13 - 5– and unreasonably low fair market value of the land as on 01.04.1981. The Counsel submitted that the Assessing Officer as well as the CIT(A) mechanically adopted the rate of ₹5 per sq. meter without properly appreciating the valuation reports, comparable instances and surrounding development of the area. It was argued that valuation as on 01.04.1981 is a matter of estimation and cannot be determined in a rigid or arbitrary manner, particularly when the land was situated in the fast-developing area near Gandhinagar. It was further contended that once the authorities themselves differed between ₹3 per sq. meter and ₹5 per sq. meter, the valuation becomes subjective and the benefit of doubt ought to have been given to the assessee. Accordingly, it was prayed that the addition sustained on account of recomputation of long-term capital gain be deleted. With respect to Ground No. 2, the Counsel submitted that the learned CIT(A), though correctly holding that the original asset transferred by the assessee was agricultural land and that the assessee was eligible for deduction under section 54B in principle, gravely erred in restricting the deduction to ₹80,62,820/- instead of allowing the full claim of ₹3,05,16,220/-. It was submitted that the assessee had purchased two agricultural land parcels at village Sorna, Kapadvanj, and the total cost of acquisition, including stamp duty, registration charges, vakil fees, land levelling and fencing expenses, aggregated to ₹3,05,16,220/-, which was duly claimed as deduction under section 54B of the Act. Attention was drawn to the directions of the CIT(A) calling for a remand report and issuance of summons to the sellers, pursuant to which the Assessing Officer, in the remand report, categorically accepted that payments were Pravinsinh Bhawansinh Vaghela vs. ITO Asst.Year –2012-13 - 6– made through banking channels as well as in cash out of known sources. The only objection of the Assessing Officer was that such evidences were not furnished during the original assessment proceedings, which, according to the Counsel, loses significance once a remand report is called for and evidences are examined. The Counsel further submitted that Statute does not restrict the deduction to the amount stated in the sale deed, especially when the actual cost incurred by the assessee is duly proved by documentary evidence. The Counsel submitted that section 54B of the Act is a beneficial provision aimed at encouraging reinvestment in agricultural land and, therefore, deserves liberal interpretation. Reliance was placed on various judicial precedents to support the proposition that deduction under section 54B of the Act cannot be curtailed merely on technical or procedural grounds when actual investment is not disputed. Lastly, with regard to land levelling and fencing expenses, the Counsel submitted that expenses aggregating to ₹27,54,400/- were essentially incurred as part of acquisition of the agricultural lands and not as post-acquisition improvement. It was pointed out that these expenses were specifically explained by the assessee in his statement recorded on oath and were never disputed by the Assessing Officer or the CIT(A). No further queries were raised by the Assessing Officer on this issue, which clearly indicates acceptance of the factum of incurring such expenses. It was argued that the CIT(A) erred in treating these expenses as improvement cost and denying deduction under section 54B of the Act. In view of the above submissions, the Counsel prayed that the addition sustained on account of long-term capital gain be deleted and the deduction Pravinsinh Bhawansinh Vaghela vs. ITO Asst.Year –2012-13 - 7– under section 54B be allowed in full, including land levelling and fencing expenses, and the appeal of the assessee be allowed accordingly.

10. Coming to the issue of deduction under section 54B of the Act, we observe that the learned CIT(Appeals) has categorically held that the Pravinsinh Bhawansinh Vaghela vs. ITO Asst.Year –2012-13 - 8– original asset transferred by the assessee was agricultural land and that the assessee was eligible for deduction under section 54B of the Act in principle. However, the learned CIT(Appeals) restricted the deduction to ₹80,62,820/- by considering only the consideration mentioned in the registered sale deeds along with stamp duty and registration charges, as against the assessee’s claim of ₹3,05,16,220/-. The assessee has contended that the entire amount represents the actual cost of acquisition of the new agricultural lands and that the factum of payment of ₹3,05,16,220/- stands accepted in the remand report. At the same time, we find that the learned CIT(Appeals) has given a reasoned finding while restricting the deduction by interpreting the expression “purchase” occurring in section 54B of the Act and by placing reliance on the registered documents. In the facts of the present case and in view of the findings concurrently recorded by the Assessing Officer and the learned CIT(Appeals), we do not find merit in the assessee’s contention that the learned CIT(Appeals) gravely erred in restricting the deduction to ₹80,62,820/- instead of allowing the full claim of ₹3,05,16,220/-. Accordingly, the ground raised by the assessee challenging the restriction of deduction under section 54B to ₹80,62,820/- is decided against the assessee. This view is supported by the principle that exemption provisions, though beneficial, must be applied strictly in accordance with the statutory conditions.

11. However, with regard to the specific ground relating to land levelling and fencing expenses amounting to ₹27,54,400/-, we concur with the submissions of the learned Counsel for the assessee. It is evident from Pravinsinh Bhawansinh Vaghela vs. ITO Asst.Year –2012-13 - 9– the record that these expenses were incurred to make the agricultural lands fit for cultivation and were explained by the assessee in his statement recorded on oath. No adverse finding disputing the genuineness or incurrence of these expenses has been recorded either by the Assessing Officer or by the learned CIT(Appeals). Such expenses, being intrinsically connected with acquisition of agricultural land, form part of the cost of acquisition for the purposes of section 54B. The Jaipur Bench of the Tribunal in Prathur Tal v. ITO (2019) 100 taxmann.com 51 (Jaipur-Trib.) has held that expenditure incurred on levelling and fencing of agricultural land is to be considered as part of cost of acquisition eligible for deduction under section 54B of the Act. Respectfully following the said decision, this ground is allowed in favour of the assessee.

Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 18/12/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,