BHANUBHAI MANILAL PATEL,AHMEDABAD vs. THE ACIT/DCIT, CIRCLE-3(1)(1) (PREVIOUSLY DCIT, CIRCLE-7(2)), AHMEDABAD

In appeal before us CIT(Appeals), he noted that the only addition made by the Assessing Officer was in respect of the deduction of Rs. 2,74,00,000/- claimed under section 54B of the Act. The assessee was employed with Anand Enterprise and was drawing salary income during the relevant year. The assessee had sold agricultural land (Block No. 764, Khata No. 268) for Rs. 8,00,00,000/- on 22/02/2017, out of which his share was Rs. 3,70,00,000/-. The assessee had purchased agricultural land (Block No. 667/A) for Rs. 2,25,00,000/- on 12/01/2017 and another parcel of land (Survey No. 1873) for Rs. 49,00,000/- on 30/08/2017. Accordingly, the assessee had claimed a deduction of Rs. 2,74,00,000/- under section 54B of the Act in his return for the impugned assessment year. In support of this claim, the assessee had submitted copies of the sale deed and land holding records during the appellate proceedings. However, the CIT(A) observed that the arguments made by the assessee were largely repetitive and failed to substantiate that the land sold was actually used for agricultural purposes in the two years immediately preceding the sale, which Bhanubhai Manilal Patel vs. DCIT Asst. Year –2017-18 - 4– is a mandatory condition under section 54B of the Act. Further, CIT(Appeals) noted that the assessee also did not satisfy the condition that the new agricultural land must be purchased after the sale of the original land, as one of the properties was purchased prior to the sale. Therefore, since the assessee failed to discharge the burden of proof on both counts, the CIT(A) held that there was no merit in the submissions of the assessee and upheld the disallowance made by the Assessing Officer. Consequently, CIT(Appeals) held that the deduction of Rs. 2,74,00,000/- claimed under section 54B of the Act was rightly disallowed by the Assessing Officer and the appeal of the assessee was dismissed.

Before us, the assessee contended that CIT(Appeals) erred in upholding the disallowance of the deduction of ₹2,74,00,000/- claimed under section 54B of the Act since all the conditions laid down under section 54B of the Act were duly fulfilled and that the rejection was based on an incorrect interpretation of facts and law. As per section 54B, capital gain arising from the transfer of agricultural land used by the assessee (or his parent) for agricultural purposes in the two years immediately preceding the date of transfer is exempt if the assessee purchases new agricultural land within two years after the date of such transfer. In this case, the assessee, along with nine co-owners, sold inherited agricultural land (Block No. 764, Khata No. 268) on 22/02/2017 for ₹8,00,00,000/-, of which assessee’s share was ₹3,70,00,000/-. To claim exemption, the assessee submitted that he had purchased two agricultural lands: one prior to the sale, on 12/01/2017 (Block No. 677A, for ₹4,50,00,000/-, with a 50% share of ₹2,25,00,000/-), and another after the sale, on 30/08/2017 (Survey No. 1873, for ₹49,00,000/-), thus a sum of ₹2,74,00,000/-, was claimed as deduction under section 54B of the Act. Payment details from the State Bank of India account were submitted in support. The ld. counsel for the assessee submitted that that Bhanubhai Manilal Patel vs. DCIT Asst. Year –2017-18 - 5– the source of funds for purchase of land was from the same bank account in which sale proceeds were credited. Further, the assessee submitted multiple documents to show that the land sold was indeed used for agricultural purposes, including 7/12 extracts, land ledger (8A), land revenue payment receipts, loan confirmation from the cooperative society (Sakari Mandali) where the assessee was treated as a farmer, past income tax returns showing agricultural income, and bills for agricultural expenses. The ld. counsel for the assessee also submitted photographs of the land showing trees and boundaries showing agricultural land. The ld. counsel for the assessee submitted that that the satellite images relied upon by the Assessing Officer (sourced from BISAG) were not conclusive, as they only pertained to Survey No. 603, whereas the land sold by the assessee was part of Survey Nos. 603/2 and 603/3. Thus, it was contended that reliance on images of unrelated survey land by the Assessing Officer was not correct. The assessee also argued that merely because part of the new land was purchased before the date of transfer should not disqualify the claim entirely, particularly when a second parcel was purchased after the sale, and both were used for agriculture.

In response, Ld. DR placed reliance on the observations made by the Assessing Officer and CIT(Appeals) in their respective orders.

We have heard the rival contentions and perused the material on record. In the present case, the assessee has challenged the disallowance of deduction of ₹2,74,00,000/- claimed under section 54B of the Act, which was upheld by the CIT(A). The perusal of the appellate order passed by CIT(Appeals) shows that the order passed by the CIT(A) was ex-parte and that the assessee did not get adequate opportunity to present his case on merits before the first appellate authority. The submissions made before us and the material filed in the form of written submissions, in our considered view indicate that the assessee has raised substantial factual contentions supported by documentary evidence which were not duly examined by the CIT(A) at the appellate stage. Considering the totality of the facts and circumstances of the case, and in the interest of natural justice, we are of the considered view that the matter requires reconsideration by the CIT(A). Accordingly, we restore the matter to the file of the CIT(A) with a direction to re-adjudicate the appeal de novo after affording adequate opportunity to the assessee to present his case, both on facts and in law.

In the result, the appeal is allowed for statistical purposes. This Order pronounced in Open Court on 25/08/2025