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Income Tax Appellate Tribunal, ‘A’ BENCH, PUNE
IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, PUNE SHRI PARTHA SARATHI CHAUDHURY, JM AND DR. DIPAK P. RIPOTE, AM ITA No. 2462/PUN/2016 Assessment Year : 2012-13
Chhaya Vilas Dengale E-7/69 Arera Colony, SVI Colony Road, SBI Colony, Bhopal (M.P) – 462 0216 AFCPD1200L Appellant Vs. The I.T.O. Ward 1(5), Nasik Respondent Appellant by : Shri Sanket M. Joshi Respondent by : Shri S.P. Walimbe
Date of Hearing : 11-03-2022 Date of Pronouncement : 21-03-2022
ORDER PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the assessee emanates from the order of the ld. Commissioner of Income Tax (Appeals)-1, Nasik dated 11-08-2016 for the Assessment Year 2012-13 as per the following revised grounds of appeal on record.
“1. The ld. CIT(A) erred in not allowing the deduction u/s 54B of Rs. 82,38,174/- against long term capital gains on sale of agricultural land at Gat N. 55/1B, Chunchale, Dist. Nasik by holding that the assessee had not carried out agricultural operations on the said land for the two years preceding the date of transfer of the said land without appreciating that the said disallowance was not justified in law and on the facts of the case. 2. The ld. CIT(A) erred in not allowing the deduction of Rs. 7,31,847/- towards indexed cost of improvement claimed u/s 55 while computing the long term capital gains on sale of agricultural land at Gat No. 55/1B, Chunchale, Dist. Nashik without appreciating that the said disallowance was not justified in law and on the facts of the case.”
The brief facts in this case are that the assessee an individual is deriving income from long term capital gain. The assessee filed a return of income declaring total income of Rs. 12,36,594/- on 19-3-2015. The case was selected for scrutiny under CASS. The ld. A.O scrutinised the return of income and
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made an addition of Rs. 90,27,008/- on account of long term capital gain and assessed the income of the assessee at Rs. 1,02,63,600/-. In the revised Ground No. 1, the assessee is aggrieved by the decision of the ld. CIT(A) in not allowing deduction u/s 54B of the Income-tax Act, 1961 (hereinafter referred to as “the Act” for short) against long term capital gain on sale of agricultural land at Gat No. 55/1B at Chunchale Taluka, Dist. Nasik. The relevant provision of section 54B of the Act which deals with capital gain on transfer of land used for agricultural purposes not to be charged in certain cases is mentioned as follows for ready reference.
“54B[(1)] Subject to the provisions of sub-section (2), where the capital gain arise] 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 for agricultural purposes 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 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 capital gain is greater than the cost of land so purchased, 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 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 u/s 45m 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 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 u/s 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 sec. 139] in an account in any such bank or institution as may be specified on, 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 u/s 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.”
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That, as per the aforesaid provision twin conditions have to be fulfilled in order to get the deduction; (i) 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 for agricultural purposes; (ii) the assessee within a period of two years after that date purchased any other land for being used for agricultural purposes. In the case of the assessee, the ld. A.O is not disputing the fulfilment of the second condition. The ld. A.O has denied deduction u/s 54B of the Act to the assessee only on the ground that the first condition of the said provision is not fulfilled i.e. the assessee was not carrying on any agricultural activities on the said land two years immediately preceding the date of transfer of the said land. At para 9 onwards, the ld. A.O observed that on verification of the sale and purchase deed of land and 7/12 extracts, it was found that the assessee has not carried out any agricultural operations since Financial year 2008-09 for the period of four years prior to the date of sale. The ld. A.O further mentions that as per 7/12 extracts the land is barren (Tayar padit) means not cultivated. He has also annexed 7/12 extracts which forms part of the assessment order and observed that no agricultural operations were carried out by the assessee on the said land immediately preceding four years from the date of transfer and therefore, the provisions of sec. 54B of the Act were not fulfilled. At para 12, the ld. A.O further observed that as per 7/12 extracts no crops were grown by the assessee. The assessee has also not submitted any evidences to show that there was any agricultural activity resulting into income. However, the assessee has shown agricultural income at Rs. 28,900/-. With these observations, the ld. A.O denied deduction u/s 54B of the Act and made the addition.
The ld. CIT(A) while adjudicating this issue instead of considering the pre-requisite requirement for deduction u/s 54B vis-à-vis the facts of the
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assessee‟s case went on to opine that the very fact the land was sold to a developer it reflects that the purchaser had no intention of doing any agricultural activities on the land purchased. This is never the requirement of allowability of deduction u/s 54B of the Act. However, the ld. CIT(A) in his order placed reliance on various decisions and as per the reasoning appearing therein upheld the addition made by the ld. A.O refusing the claim of deduction u/s 54B of the Act to the assessee.
At the time of hearing before us, the ld. A.R demonstrated through the English translation copy of the relevant portion of 7/12 extracts regarding agricultural land at gat No. 55/1B, Chunchale village, Dist. Nasik and submitted that from Financial year 1998-99 on the said land there were five Mango Trees, one Tamarind Tree and one Well and this position continued till Financial year 2005-06 relevant to A.Y. 2006-07. The 7/12 extracts mentions that the land was Tayarpadit i.e. ready for cultivation) and there was one house, 350 Saagwan (Teak) trees, 5 Fanas (Jackfruit) Trees, two Coconut trees and one Borewell. This position continued till Financial year 2010-11 relevant to A.Y. 2011-12. That, thereafter on 12-5-2011, the assessee had entered into an agreement for sale with the purchaser and after that the assessee had obtained permission from the Forest Department dated 1-6-2011 and had cut various trees that were growing on the land which were in F.Y. 2011-12 relevant to the present assessment year i.e. 2012-13. Therefore, as evident from 7/12 extracts it clearly mentions that there were 350 Saagwan (Teak) trees including Jackfruit trees that were grown on the agricultural land. Therefore, the observation of the ld. A.O that as per 7/12 extracts of the said land no agricultural operations were carried out since F.Y. 2008-09 i.e. for the period of four years prior to the date of sale is incorrect observation of fact. These 7/12 extracts were placed before the ld. A.O. It is evident that the assessee planted teak trees, jackfruit trees coconut true on the said land in the F.Y. 2006-07. That 350 teak wood
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trees were grown on the land, therefore, most part of the land was acquired by teak wood from the said F.Y. 2006-07 onwards. This 7/12 extracts was duly attested by the concerned Talathi of Chunchale village which itself speaks that there were 350 Saagwan (Teak) trees, five Jackfruit trees, two coconut trees standing on the said land during the year F.Y. 2006-07 to 2011-12. It was further contended by the assessee that he had to spend human skill labour from time to time to keep the trees alive. The ld. A.R also submitted that though a small portion of the land was Tayar Padit, however, the assessee raised products i.e. vegetables from that portion and sold the same from which the assessee had derived agricultural income and the same was shown in the return filed for A.Y. 2012-13. It was also contended by the ld. A.R. that ld. A.O has never, in his assessment order, disputed that there were trees grown on the said agricultural land as per 7/12 extracts. The ld. A.O has also not given any comments whether for or against on the fact that these trees were growing from A.Y. 2006-07 to 2011-12. That, after all 7/12 extracts were issued from the Govt. authority and they were attested by the concerned Talathi of the village where the land was situated. The assessee further relied on the decision of Hon‟ble Supreme Court in the case of C.I.T. Vs. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC) wherein it was observed as follows:
“8.1 In considering the connotation of the term agriculture” we have so far thought of cultivation of land in the wider sense as comprising within its scope the basic as well as the subsequent operations described above, regardless of the nature of the products raised on the land. These products may be grain or vegetables or fruits which are necessary for the sustenance of human beings including plantations and groves, or grass or pasture for consumption of beasts or articles of luxury such as betal, coffee, tea, spices tobacco etc. or commercial crops like cotton, flax, jute, hemp, indigo etc. All these are products raised from the land and the term “agriculture” cannot be confined merely to the production of grain and food products for human beings and beasts s was sought to be done by Bhashyam Ayyangar, J., in Murugesa Chetti Vs. Chinnathambi Gounden & Ors (1901) ILR 24 Mad. 421 or Sadasiva Ayyar, J., in Raja of Venkatgari Vs. Ayyappa Reddi (1913) ILR 38 Mad. 738, but it must be understood as comprising all the products of the land which have some utility either for consumption or for trade and commerce and would also include forest products such as timber, sal and piyasal trees, casuarina plantations, tendu leaves, horra nuts etc.” 6. In this decision of the Hon‟ble Supreme Court, it was analysed that whatever crops are produced on the land through agriculture, it would include
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all products including growing vegetables, fruits, trees, etc. All these are products raised from the land and are within the term “agriculture” which cannot be confined only to production of growing food products for human being and beast and it must be understood as comprising all products of land which has some utility for consumption or trade and commerce and would include also forest products such as timber, sal and piyasal trees, etc. From this decision, it is clear that agricultural produce on a land includes plantation and growing of trees also.
The ld. A.R. also referring to the findings of the ld. CIT(A) denying deduction u/s 54B of the Act submitted that there are various wrong observations of facts made by the first appellate authority. At para 5.17 of the CIT(A)‟s order, he writes that the assessee has not declared any agricultural income nor any evidence has been produced by the assessee either before the ld. A.O or before the ld. CITA(A). However, the fact is that for A.Y. 2012-13 in the return of income, the assessee has declared agricultural income of Rs. 28,900/- which not only finds place in the assessment order but also before us as the assessee has given copies of the return filed in the paper book, the relevant pages being 12 and 17. Further, at para 5.18 the ld. CIT(A) in his order observes that as per the self-declaration of the ld. A.R major portion of the land is fallow and in some portion sal trees etc. is planted. That also as per 7/12 extracts clearly depicts that major portion of the land is barren. On the contrary, we have observed that as per 7/12 extracts clearly it is mentioned that the land is ready for cultivation and on the land, there are 350 Saagwan (Teak) trees growing along with other trees right from F.Y. 2006-07 to 2011-12. The ld. A.R also submitted before us that they have never made such a statement before the ld. CIT(A) as alleged and in proof thereof, the ld. A.R brought to our notice a letter (page 56 of the paper book) dated 8-9-2016 to the ld. CIT(A) wherein the assessee denies clearly of saying anything as what the ld. CIT(A)
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has alleged in his order. The assessee in this clarification letter clearly mentions that “I had never stated during the course of appellate proceedings that major portion of the subject land is fallow and in some portion sal trees are planted. However, on the contrary, I stated in written submissions that most part of the said land was acquired by teak woods i.e. sag trees from the years 2006-07 to 2011-12 and some portion of land was tayar padit means ready for cultivation and in support of my say I enclosed photo copy of 7/12 extracts”. Therefore, both on examination of 7/12 extracts and a clarificatory letter brought on record by the assessee clearly shows that the ld. CIT(A) has given a wrong finding of fact at para 5.18 of his order.
The ld. A.R also placed reliance on the decision of Co-ordinate Bench of Ahmedabad Tribunal in IT(SS) A No. 121/Ahd/2017, 120/Ahd/2017, 150/Ahd/2017 and 151/Ahd/2027 dated 6-1-2021 and submitted that as per the requirement of sec. 54B of the Act there is no need that the land which is sold has to be an agricultural land. It is only that it has to be a land as a capital asset where the assessee has conducted the agricultural activities at least for the last two preceding years from the date of actual transfer of the said land. Nothing more is required. We also find that the decisions relied on by the ld. CIT(A) in his order pertains to sec. 2(14) of the Act, which is in the context of agricultural land in terms of capital asset, whereas the present issue before us is with regard to allowing of deduction u/s 54B of the Act. In this case of the assessee, regarding pre-requisite of sec. 54B of the Act, the Department is not disputing the second part i.e. the assessee, within a period of two years after the date of transfer has purchased another land for being used for agricultural purposes. The ld. A.O has made the addition only on the ground that the first requirement of section 54B of the Act i.e. the assessee has not conducted any agricultural activities two years prior to the sale transaction of the land. We have examined 7/12 extracts vis-à-vis the judgment of Hon‟ble Supreme Court (supra) and find that the agricultural produce includes the trees grown on the
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land which has some value for the assessee. In this case, 350 teak trees were grown on the land which has a substantial commercial value and from F.Y. 2006-07 to 2011-12, these plantations were there on the land along with other trees grown. Therefore, the assertion of the ld. A.O that no agricultural activities were conducted four years prior to the sale of the land is not a correct finding of fact. Further, we have also examined that in the CIT(A)‟s order at para 5.17 and 5.18 he has asserted wrong facts while denying deduction u/s 54B of the Act to the assessee. The claim of the Department that major portion of the land was barren is absolutely incorrect since major portion was occupied by teak wood plantation as is evident again from the 7/12 extracts.
The Pune Bench of the Tribunal in the case of Rajendra Bastimal Chordiya in ITA No. 1295/PUN/2017 for A.Y. 2013-14 dated 7-6-2019 has considered another decision of the same Co-ordinate Bench in the case of DCIT Vs. Shri Mahesh Danabhai Patil in ITA No. 1534/PUN/2015 dated 31-01- 2018 and observed that in order to claim benefit u/s 54B of the Act it is not necessary that the entire land should be cultivated. If any part of the land is under cultivation for two years immediately prior to the date of transfer of land, it is sufficient to claim the benefit u/s 54B of the Act. Reverting to the facts of the present case, as per 7/12 extracts there is no doubt that the land was used for agricultural purposes in the last two years prior to the date of transfer of the said land and in the major part of the said land there was cultivation plantations and growing of teak wood trees. This is definitely in terms with the definition of “agriculture” as held by the Hon‟ble Supreme Court (supra). That also the assessee has grown vegetables etc. which she had sold, earned income and had shown it in her return of income for A.Y. 2012-13. Therefore, in terms of getting benefit u/s 54B of the Act, case of the assessee before us is on a better footing even compared to the decision of the Co-ordinate Pune Bench (supra) hereinabove referred. We also find that in the narration by the ld.
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CIT(A), he has denied deduction u/s 54B of the Act on some imaginary ground that the land was sold by the assessee to a developer and ultimately the land would be used for non-agricultural purposes. In our considered view, this is not at all a subject matter for consideration while deciding the issue for giving benefit u/s 54B of the Act. The ld. A.O has disputed only one condition of sec. 54B of the Act while denying deduction to the assessee that the land was not used for agricultural purposes, two years prior to the sale transaction and we have already examined this requirement has been fulfilled in the case of the assessee. Beyond this, nothing else is required to get the deduction u/s 54B of the Act when the second condition is not at all disputed by the Department. Even the Hon‟ble Punjab and Haryana High Court in the case of CIT Vs. Smt. Savita Rani (2004) 270 ITR 40 (P&H) has categorically held that the exemption u/s 54B is available to the seller of a capital asset being land, however, the said land against which the benefit is sought must have been used by the assessee for agricultural purposes for the two years immediately preceding the date of sale. Having satisfied this condition, we are of the considered view that the assessee is entitled to the deduction u/s 54B of the Act and accordingly we reverse the finding of the ld. CIT(A) and allow Ground No. 1 of the assessee.
In Ground No. 2 of the revised ground, the assessee is aggrieved with the action of the ld. CIT(A) in not allowing deduction of Rs. 7,31,847/- towards indexed cost of improvement u/s 55 of the Act while computing the long term capital gain on sale of agricultural land at Gat No. 55/1B, Chunchale, Dist. Nasik. The ld. A.O has dealt with this issue at para 16 where he states that the assessee has claimed cost of improvement at Rs. 7,31,847/- which includes land levelling, compound, fencing, etc. Since no details have been filed for verification of the said expenditure, he has disallowed the same. The ld. A.R at the time of hearing mentioned at the outset that this issue was not adjudicated upon by the ld. CIT(A). Demonstrating the position, the ld. A.R brought to our
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notice page 14 of the paper book wherein at the column “cost of improvement after indexation”, it has been taken at Rs. 84,83,834/- and the break-up of the same has been furnished in the statement of facts which is part of Form No. 35 and therein the land measurement cost was Rs. 56,987/-, cost of Najarana Rs. 76,95,000/- and other improvement cost after indexation Rs. 7,31,847/-. Totalling these amounts would be Rs. 84,83,834/- and it is only the other improvement cost after indexation of Rs. 7,31,847/- which has been disallowed. The ld. A.R further submitted that as regards this cost, a confirmation letter was filed before the ld. A.O. from the contractor and this was sent to the ld. A.O by Post which he received after the assessment order was passed. In such a scenario, the ld. A.R fairly prayed before us that this issue may be remanded to the file of the ld. A.O for his verification as regards the confirmation letter vis-à- vis the cost incurred and re-adjudicate the issue as per law. The ld. D.R conceded to the prayer of the assessee .
Having heard the parties on this issue and in the interest of justice, we are of the considered view that the ld. A.O should verify and re-adjudicate it as per law. Accordingly, the order of the ld. CIT(A) is set aside on this issue and the said issue is restored to the file of the ld. A.O. Needless to mention, the ld. A.O must comply with the principles of natural justice and provide reasonable opportunity of hearing to the assessee. Ground No. 2 is accordingly, allowed for statistical purposes.
In the combined result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on this 21st day of March 2022
Sd/- sd/- (DR. DIPAK P. RIPOTE) (PARTHA SARATHI CHAUDHURY) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated, the 21st March 2022 Ankam
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Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The Pr. CIT 1 Nasik 4. The CIT(A)-1 Nasik 5. D.R. ITAT „A‟ Bench 5. Guard File BY ORDER,
Sr. Private Secretary ITAT, Pune.
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Date 1 Draft dictated on 11-03-2022 Sr.PS 2 Draft placed before author 14-03-2022 Sr.PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr. Sr.PS PS/PS 6 Kept for pronouncement on 21-03-2022 Sr.PS 7 Date of uploading of order 22-03-2022 Sr.PS 8 File sent to Bench Clerk 23-03-2022 Sr.PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order