DEPUTY COMMISSIONER OF INCOME-TAX vs. SHRI MAHESH DANABHAI PATEL, NASHIK

आदेश / ORDER

PER VIKAS AWASTHY, JM

This appeal by the Department is directed against the order of Commissioner of Income Tax (Appeal)-1, Nashik dated 21.09.2015 for the assessment year 2012-13.

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directed towards single issue i.e. assessee’s eligibility for claiming

deduction u/s. 54B of the Income Tax Act, 1961 (hereinafter referred to as

‘the Act’) in the absence of sufficient documentary evidence indicating that

the agricultural land was used for agricultural purpose by the assessee or

his parents, in the two years immediately preceding the date of transfer of

asset.

assessee had inherited share in agricultural land admeasuring 7.57

Hectors comprising in Survey Nos. 177, 178 and 188/1A situated at

Mhasrul, with Municipal limits of Nashik. The assessee was having 1/4th

share in the said land. The assessee along with other co-owners sold the

said land vide registered Sale Deed dated 15.03.2012 for total consideration

of Rs.4,80,00,000/-. The assessee earned capital gain of Rs.1,13,12,500/-

on sale of agricultural land. Against the said capital gain, the assessee

claimed deduction of Rs.28,07,885/- u/s.54 and Rs.57,12,974/- u/s.54B

of the Act. During the course of scrutiny assessment proceedings, the

Assessing Officer allowed assessee’s claim of deduction u/s. 54, but

rejected the claim of deduction u/s. 54B of the Act on the ground that

assessee has not been able to show that the land was used for agricultural

purpose in the past two years.

appeal before the Commissioner of Income Tax (Appeal). The Commissioner

of Income Tax (Appeal) vide impugned order allowed assessee’s claim of

deduction u/s.54B and reversed the findings of Assessing Officer. Now, the

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Department is in appeal before the Tribunal against the findings of

Commissioner of Income Tax (Appeal), raising following grounds of appeal:

“Q.1. On the basis of facts and circumstances of the case, the Ld. CIT(A)-1, Nashik, erred in allowing the deduction to the assessee u/s. 54B of the Income Tax Act,1961, when the assessee had not submitted any detail of any agricultural expenditure or income from agricultural, either in the assessment proceedings or in appellate proceedings. Q.2. On the basis of facts and circumstances of the case, the Ld. CIT(A)-1, Nashik, erred in allowing the deduction to the assessee u/s. 54B of the Income Tax Act,1961, when no agricultural activity was carried out on the 3 lands, continuously for a period of 2 years, prior to the date of transfer of the assets. Q.3. On the basis of facts and circumstances of the case, the Ld. CIT(A)-1, Nashik, erred in allowing the deduction to the assessee u/s. 54B of the Income Tax Act, 1961, by proclaiming 3 pieces of lands as 1 piece of land, despite the identification by Competent Authority, i.e. Revenue Authority as 3 pieces of lands. Q.4. On the basis of facts and circumstances of the case, the Ld. CIT(A)-1, Nashik, erred in allowing the deduction to the assessee u/s. 54B of the Income Tax Act,1961, by admitting additional evidence and by overlooking the procedure as per Rule 46A of the Income Tax Rules, 1962. Q.5. On the basis of facts and circumstances of the case, the Ld. CIT(A)-1, Nashik, erred in allowing the deduction to the assessee u/s. 54B of the Income Tax Act, 1961, by not considering the same piece of evidence, in the form of 7/12 extracts, to consider the 3 pieces of land as separate lands, when the information mentioned in the 7/12 extracts is accepted for the purpose of agricultural income and addition to the statement of facts. Q.6. On the basis of facts and circumstances of the case, the Ld. CIT(A)-1, Nashik, erred in allowing the deduction to the assessee u/s. 54B of the Income Tax Act,1961,when the assessee had not been able to submit even the narrative of the alleged agricultural activity done, as to whether who had carried out the cultivation, the assessee or his parents or through hired labourers as it is fact that neither the assessee nor any of the co-owners were full time agriculturist.”

had three parcels of agricultural land that were sold by assessee along with

other co-owners vide single Sale Deed dated 15.03.2012. The assessee

claimed deduction u/s.54B in respect of capital gain arising from sale of

aforesaid land. The ld. DR submitted that for claiming benefit of deduction

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u/s. 54B, it is mandatory that the land is used for agricultural purpose in

the two years immediately preceding the date on which transfer of such

land took place. And agricultural activities should have been carried out

either by the assessee or his parents. The assessee has not placed on

record any documentary evidence to show that three pieces of land in

question were used for agricultural purpose in the preceding two years.

Therefore, the Assessing Officer rightly rejected assessee’s claim of

deduction u/s. 54B of the Act. The assessee never filed any return of

income prior to the sale of land indicating income from agricultural

activities. The assessee could not place on record any documentary

evidence indicating purchase of seed, manure etc or invoice indicating sale

of crop in the market. The assessee could not furnish any evidence either

before the Assessing Officer or before the Commissioner of Income Tax

(Appeal) to substantiate that agricultural activities were, in fact, carried out

on the land in question.

5.1 The ld. DR further submitted that assessee had furnished copies of

7/12 extracts and the same are at pages 26 to 31 of the paper book. A

perusal of 7/12 extracts placed on record would show that small part of

land comprising in Survey No. 178 was cultivated during the financial year

2009-10 and part of land comprising in Survey No. 177 and 188/1A was

cultivated during the financial year 2010-11. It is an admitted case of

assessee that land comprising in Survey No. 178 was never under

cultivation in financial year 2010-11 and land comprising in Survey No.

177 & 188/1A was not used for agricultural purpose during financial year

2009-10. Thus, three parcels of land were never under cultivation

immediately in preceding two years. Even when the said three parts of

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lands were used for agricultural purpose, only small chunk of the land was

under cultivation.

5.2 The ld. DR contended that Commissioner of Income Tax(Appeal) has

erred in granting relief to the assessee on the premise that three parcels of

land are contiguous and part cultivation of such contiguous land is suffice

to satisfy the conditions laid down u/s. 54B of the Act. The ld. DR asserted

that contiguous land does not mean if one Survey No is cultivated; the

condition set out in section 54B to use the land for agricultural purpose in

the immediately two preceding years would be satisfied.

5.3 The ld. DR referring to the observation of Commissioner of Income

Tax(Appeal) in para 4.4 submitted that assessee had furnished fresh

evidence in the form of ‘pictographic representation’ before Commissioner

of Income Tax (Appeal) which would show that land comprising in different

Survey Nos are contiguous pieces of land. The Commissioner of Income Tax

(Appeal) while considering fresh evidence did not call for remand report

from the Assessing Officer. Thus, there is violation of provisions of Rule

46A of the Income Tax Rules, 1962.

5.4 The ld. DR further reiterating the submissions made in Statement of

Facts prayed for reversing the findings of Commissioner of Income Tax

(Appeal) and restoring the disallowance on deduction u/s. 54B made by the

Assessing Officer.

vehemently defended the findings of Commissioner of Income Tax (Appeal)

and prayed for dismissing the appeal of Revenue. The ld. AR submitted that

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the land in question comprising in Survey No.177, 178 and 188/1A was

purchased by the father of assessee in the year 1976 vide registered Sale

Deed dated 14.02.1976 which is at page 154 to 159 of the paper book. The

assessee inherited 1/4th share in aforesaid agricultural land. The entire

land was sold by the assessee and other co-owners vide Sale Deed dated

15.03.2012. The ‘pictographic representation’ mentioned by Commissioner

of Income Tax (Appeal) in his order refers to the outlay of land at page 121

of the paper book. The said plan is part of Sale Deed dated 15.03.2012 and

the same was furnished before the Assessing Officer. No new evidence was

furnished before Commissioner of Income Tax (Appeal) in the form of

photographs or any other ‘pictographic representation’. Thus, there is no

violation of Rule 46A of the Income Tax Rules, 1962 as alleged by the

Department. The ld. AR submitted that Commissioner of Income Tax

(Appeal) has referred to ‘pictographic representation’ to indicate that Survey

No. 178, 177 and 188/1A are contiguous land. Merely for the reason that

land is comprising in three Survey Nos., in actual would not divide the land

in three pieces unless there is physical division or break in the land. The

ld. AR contended that as per provision of section 54B, the land should be

used for agricultural purpose in the immediately two preceding years prior

to the date of transfer. The law does not require that entire land should be

used for cultivation purpose or the land should be used for agricultural

purpose throughout the years. Even if part of the land is used for

agricultural purpose by assessee for the part of the year, assessee is eligible

for claiming deduction u/s. 54B of the Act.

6.1 The ld. AR further submitted that Hon'ble Supreme Court of India in

the case of Sarifabibi Mohmed Ibrahim Vs Commissioner of Income-Tax

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reported as 204 ITR 631 has laid down certain tests to identify whether the

land was used for agricultural purpose or not. If those tests are applied in

the case of assessee, it would be evidently clear that land of assessee was,

indeed, used for agricultural purposes. The ld. AR referring to 7/12 extract

at page 26 to 31 of the paper book submitted that part of land comprising

in Survey No. 178 was used for cultivating groundnut in financial year

2009-10. The assessee had cultivated groundnut on 40R land. In the land

comprising in Survey No.188/1A, groundnut was cultivated on 40R and

brinjal was grown on 40R in financial year 2010-11. In the land comprising

in Survey No. 177, groundnut was grown on 1H in financial year 2010-11.

Thus, one part or the other of the land was always under cultivation. The

ld. AR further referred to 7/12 extract to indicate that land was under self

cultivation of assessee.

6.2 The ld. AR pointed that the Assessing Officer erred in observing that

only a miniscule part of land was under cultivation. The Commissioner of

Income Tax (Appeal) in para 4.3 of his order has rightly mentioned that the

total area of land is 7 H 44R out of which 40 R in financial year 2009-10,

was under cultivation and 1H 80R was under cultivation in financial year

2010-11. The assessee had explained that due to scarcity of water,

assessee could not cultivate the entire land.

6.3 As regards disclosure of agricultural income in return of income is

concerned, agricultural produce was primarily used for self consumption.

Agricultural income was less than Rs.5000/- and therefore, assessee had

not disclosed the same in the return of income. The Commissioner of

Income Tax (Appeal) has appreciated this fact in the right perspective and

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granted relief to the assessee. The assessee has filed copy of 7/12 extract to

indicate that land was under cultivation. The 7/12 extracts filed by

assessee have not been rejected by the Assessing Officer nor any suspicion

has been raised over its authenticity. The assessee has discharged his

onus. No contrary evidence has been placed on record by the Assessing

Officer to show that no agricultural activities were carried out by assessee

in the past two years on the land.

6.4 The ld. AR referred to the observation of Assessing Officer in para

3.3.4 wherein, the Assessing Officer has observed that the inquiries made

u/s.133(6) indicate that there was no intent of the purchaser of land to do

any agricultural activity. The ld. AR submitted that as per provision of

section 42 of the Maharastra Land Revenue Code, agricultural land cannot

be sold to non-agriculturist without obtaining change of land use

permission from Competent Authority. A perusal of Sale Deed dated

15.03.2012 placed on record would show that assessee has sold

agricultural land to the purchaser for agricultural purpose. It is not the

case of Department that assessee has converted the land from agriculture

to non agriculture before sale of land.

6.5. The ld. AR to further support his submissions placed reliance on the

following decisions:

1) CIT Vs. Smt. Debbie Alemao reported as 196 Taxman 230 (Bombay) 2) ITO Vs. Shri Mahesh Ahire in ITA No.346/PUN/2013 decided on 14.07.2017 3) Haresh V. Milani Vs. JCIT reported as 114 ITD 428 (Pune) 4) CIT Vs. Minguel Chandra Pais reported as 149 Taxman 131 (Bombay)

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5) Gopal C. Sharma Vs. CIT reported as 72 Taxman 353 (Bombay)

sides and have perused the orders of Authorities below. The solitary issue

raised in the present appeal by the Department is assessee’s eligibility for

claiming deduction u/s. 54B of the Act. As per contention of the Revenue,

assessee is not eligible for claiming benefit of deduction u/s. 54B, as

statutory condition qua use of land for agricultural purpose in the two

years preceding the date of sale is not satisfied.

would be necessary to first refer to the provision of section 54B of the Act.

The relevant extract of the section is reproduced herein below:

“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 or his parent or Hindu undivided family] for agricultural purposes [(hereinafter 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 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 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 transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain]”

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A perusal of the above provisions of section 54B show that to be

eligible for claiming benefit of deduction u/s. 54B of the Act, following

conditions should be satisfied:

i. The agricultural land is transferred by any individual or HUF.

ii. The agricultural land has been used by the individual or his parents or HUF for agricultural purpose during two years immediately preceding the date of transfer.

iii. The assessee had purchased another agricultural land (rural or urban) within a period of two years after the date of transfer of the original agricultural land to be used for agricultural purpose.

iv. If the amount of Capital Gain is not utilized by the assessee for the purchase of another agricultural land before the date of furnishing return of income u/s.139 of the Act, the same should have been deposited before furnishing such return in a notified Capital Scheme account with bank.

In so far as conditions given in clause (i), (iii) and (iv) are concerned,

there is no dispute in the present case. The assessee has satisfied these

conditions. The only dispute is whether agricultural activities carried out

by the assessee on the part of land, would be sufficient to comply with the

conditions as mentioned at Serial No. (ii).

comprising in three Survey Nos. i.e.177,178 and 188/1A. The land

comprising in Survey No. 178 was used for agricultural purpose during

financial year 2009-10 and the land comprising in 177 and 188/1A was

cultivated during financial year 2010-11. The contention of the Revenue is

that since the land comprising in Survey No. 178 was not cultivated in

financial year 2010-11 and the land comprising in Survey No. 177 and

11 ITA No. 1534/PUN/2015 A.Y. 2012-13

188/1A was not cultivated in financial year 2009-10, the mandatory

condition set out in section 54B i.e. the land should be used for

agricultural purpose in the two years immediately the date of transfer of

asset is not satisfied.

is contiguous land as is evident from the site plan at page 121 of the paper

book. This fact has been endorsed by the Commissioner of Income Tax

(Appeal), as well. The expression used in the section 54B is “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

individual or parent or HUF for agricultural purpose.” The section does not

specify that the entire land should be used for cultivation or all Survey Nos.

should be under cultivation to qualify for claiming benefit of deduction u/s.

54B of the Act. The Survey Nos. allotted to the lands are relevant for Land

Revenue records and for identification of the land. For the purpose of

considering benefit of deduction u/s. 54B of the Act, the division of land in

various Survey nos. is not of relevance except for identification of land. As

long as the land is contiguous piece, it may comprise in different Survey

nos., if any part of the land is under cultivation in the two years

immediately preceding the date of transfer, it would be sufficient for

claiming benefit of deduction u/s. 54B of the Act.

cultivating the entire land. As per contentions of the assessee, the entire

land could not be brought under cultivation due to water shortage and crop

securities concern. Therefore, agricultural activities were carried out on

12 ITA No. 1534/PUN/2015 A.Y. 2012-13

different portion of land on rotation basis. We observe that the reason given

by assessee for cultivating only part of land remained un-rebutted. The

benefit of deduction u/s. 54B cannot be denied to the assessee if he is

unable to use entire land for agricultural purpose for the reasons beyond

his control.

The Hyderabad Bench of Tribunal in the case of ACIT Vs. N. Raghu

Verma reported as 142 ITD 421 (Hyd.) exemption u/s. 54B was held to be

exigible on sale of land where the assessee was unable to use entire land

for agricultural purpose due to vagaries of nature and non availability of

resources. Similar view was taken by Chennai Bench of Tribunal in the

case of M.A. Alagappan Vs. Income Tax Officer reported as 29 ITD 69(Mad.),

wherein, assessee had cultivated part of his land and no further cultivation

was possible because of lack of water. The Tribunal held that the assessee

cannot be denied relief because he was actually unable to put the land to use due to vagaries of nature and non-availability of resources.

Thus, in view of the facts of the case and the decision discussed

above, we do not find any infirmity in the order of Commissioner of Income

Tax (Appeal) in allowing benefit of deduction u/s. 54B to the assessee.

Rule 46A of the Income Tax Rules, 1962. The contention of the ld. DR is

that assessee had filed additional evidence in the form of ‘pictographic

representation’ before the First Appellate Authority and the same was not

referred to Assessing Officer for his comment. The ld. AR has stated at Bar

that the ‘pictographic representation’ of land mentioned by Commissioner

13 ITA No. 1534/PUN/2015 A.Y. 2012-13

of Income Tax (Appeal) in para 4.4 of his order refers to site map at page

121 of the paper book. The said site map is part of Sale Deed dated

15.03.2012 and the same was furnished before the Assessing Officer. The

assessee had not furnished any new documentary evidence in the form of

photographs or any other ‘pictographic representation’ before

Commissioner of Income Tax (Appeal).

A perusal of observation made by Commissioner of Income Tax

(Appeal) with regard to ‘pictographic representation’ of land indicate that

reference was made to the said site plan to indicate that the different

Survey Nos. are contiguous pieces of land. This fact is evident from the site

map which is at page 121 of the paper book. The ld. DR has not

controverted that the said site plan at page 121 of the paper book was

furnished before the Assessing Officer. Thus, objection raised by the

Department alleging violation of Rule 46A is without any substance.

return of income has not disclosed agricultural income, it has been

contented that agricultural produce from the land was mainly used for self

consumption and as the income from sale of agricultural produce was less

than Rs. 5000/-, therefore, the same was not reflected in the return of

income. A perusal of 7/12 extract shows that during financial year 2009-

10, out of total land admeasuring 7H 44R, only 40R was under cultivation

and in financial year 2010-11, only 1H 80R was cultivated. The assessee

had cultivated groundnut and brinjal on the land. The assessee is having

1/4th share in total undivided land. We find merit in the submission of

assessee. The income from agricultural activities may not be substantial so

14 ITA No. 1534/PUN/2015 A.Y. 2012-13

as to be considered for the rate purpose under the provision of the Act. The Hon'ble Bombay High Court in the case of CIT Vs. Smt. Debbie Alemao (supra) has held that if an agricultural operation does not result in generation of surplus, it cannot be a ground to say that the land was not used for the agricultural purpose.

Thus, in view of the above, we do not find any infirmity in the order of Commissioner of Income Tax (Appeal) and accordingly, the same is upheld and appeal of Revenue is dismissed being devoid of any merit.

Order pronounced on Wednesday, the 31st day of January, 2018. Sd/- Sd/- (अ�नल चतुव�द� /ANIL CHATURVEDI) (�वकास अव�थी /Vikas Awasthy) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 31st January, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeal)-1, Nashik. 4. The Pr. CIT-1, Nashik. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.