BHANUDAS VITTHAL MHASURKAR,PUNE vs. THE INCOME TAX OFFICER, WARD-2(5), PUNE, PUNE

Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 04.08.2016 declaring total income of Rs.19,57,760/-. The return was duly processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). Subsequently, the case was selected for scrutiny as per the scrutiny selection norms for the reason “Large deduction claimed u/s 54B, 54C, 54D, 54G, 54GA – whether deduction from capital gains has been claimed correctly”. Accordingly, statutory notice u/s 143(2) and 142(1) of the Act were issued and served on the assessee, in response to which the AR of the assessee filed the requisite details from time to time.

During the course of assessment proceedings the Assessing Officer noted that the assessee has sold agricultural land for a consideration of Rs.1,80,00,000/- and has claimed deduction u/s 54B of the Act. From the verification of the Sale Agreement, he noted that the land sold was barren land on which no agricultural activity is carried out. He further noted that the agricultural land was transferred on 31.12.2015 whereas the new agricultural land was purchased on 08.10.2015 and 20.07.2016. According to the Assessing Officer, as per the provisions of section 54B of the Act, only agricultural land purchased after the date of transfer is allowed as deduction. He, therefore, asked the assessee to explain as to why the exemption claimed u/s 54B of the Act should not be disallowed and added to the total income of the assessee.

In response to the query raised by the Assessing Officer it was submitted that the land sold by the assessee is agricultural land as per Zone Certificate from land revenue department. It was further submitted that the first payment received was on 03.06.2015 which is to be considered as the date of relinquishment of rights u/s 53A of the Transfer of Property Act, 1882. Further, public notice was already served by the purchaser on 11.05.2015 as mentioned in page No.23 of sale agreement. It was submitted that the sale consideration was used for the purpose of acquisition of agricultural land u/s 54B of the Act on 08.10.2015. Therefore, the relevant date for the purpose of investment u/s 54B of the Act is date of first installment received on 03.06.2015, therefore, the assessee is eligible to claim deduction u/s 54B of the Act. The assessee further submitted that the claim of deduction u/s 54F also is satisfied since the assessee has purchased one residential house within a period of one year before the date of transfer or within a period of 2 years after the date of transfer. The assessee has purchased a flat at Bhugaon dated 01.12.2015 vide registration No.4566/2015 for a consideration of Rs.12,72,200/- within 1 year before the date of transfer of agricultural land. Accordingly, the assessee submitted that the claims of deduction u/s 54B and 54F of the Act are justified.

However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. So far as the claim of the assessee that the land sold was agricultural land for which the Zone Certificate has been filed is concerned, he noted that as per the provisions of section 54B, the agricultural land sold by the assessee should be used for agricultural purposes immediately for preceding two years. However, in the present case, the assessee failed to produce any cogent documentary evidence stating that the land was used for agricultural purposes, no proof of cultivation was provided by the assessee despite giving sufficient opportunities. The 7/12 extract attached with the sale deed shows that there was grass on land which reveals that there was no agricultural activity (cultivation) carried out by the assessee in the immediately preceding years. Therefore, the assessee has not used the land for agricultural purposes for the preceding two years and therefore, is not eligible for exemption u/s 54B of the Act.

Without prejudice to the above, the Assessing Officer further noted that the assessee executed the transfer deed on 31.12.2015 whereas the new agricultural land was purchased on 08.10.2015. Thus, the land was purchased before the transfer of the land and thus, the assessee has violated the provisions of section 54B of the Act. According to the Assessing Officer, the transfer was effected on 31.12.2015 whereas the land was purchased much prior to the transferred date. The assessee failed to produce any documentary evidence with regard to the date of possession of land given on or before 03.06.2015. He, therefore, held that the transfer will be considered as on 31.12.2015. In view of the above, the Assessing Officer rejected the claim of deduction u/s 54B of the Act.

In appeal, the Ld. CIT(A) / NFAC confirmed the action of the Assessing Officer. While doing so, he noted that the assessee all along has avoided filing of any verifiable evidence of agricultural activities. According to him, any agricultural income must have its share of cost on account of seeds / saplings, electricity, fertilizers, labour, etc. No such details were produced either before the Assessing Officer or before him. He further noted that as per the sale deed executed by the assessee and his family members, it was noted that the land was sold to M/s. Lohia Jain Realty which was situated at Mukaiwadi, Taluka Mulshi, Dist. Pune within the limits of Panchayat Samiti and Jilha Parishad Pune also within the limits of the Sub-Registration Mulshi, District Pune. He noted that Mulshi is a taluka in Maval subdivision of Pune district with semi-urban population of 171,006 people according to the 2011 Census. Considering the fact that the sale of land had taken place on 31.12.2015, it is certain that the population of the locality must have increased substantially by that time. Therefore, the impugned land does not fall within the parameters of agricultural land as defined u/s 2(14)(iii). According to him, the location of a land solely can never be the final indicator of the land use. Further, as per the provisions of section 54B of the Act, the land must be used for agricultural purposes in the two years immediately preceding the date on which the transfer took place.

Relying on the decisions of the Bangalore Bench of the Tribunal in the case of Smt. G. Vijay Padma (2020) 119 taxmann.com 441 (Bangalore – Trib.), Jairam G Kimmane (2020) 119 taxmann.com 99 (Bangalore – Trib.), the decision of the Hon‟ble Madras High Court in the case of GRK Reddy & Sons (HUF) (2021) 123 taxmann.com 291 (Mad) and the decision of the Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim (1993) 70 Taxman 301 (SC) and various other decisions, he held that the land appears to be a commercial deal of a land, for which there was no evidence of use for any agricultural purposes by the owners immediately prior to its selling and the land was sold for construction of commercial properties by realtors M/s. Lohia Jain Realty. Even otherwise also, he noted that the assessee has purchased the agricultural land jointly with one Mr. Santosh Vitthal Mhsurkar and no clarification was offered to indicate the share of the assessee‟s investment. Therefore, on this count also, the assessee had made erroneous claim. He accordingly, upheld the action of the Assessing Officer in denying the claim of deduction u/s 54B of the Act.

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:

The Ld. Counsel for the assessee at the outset strongly challenged the order of the Ld. CIT(A) / NFAC in denying the claim of deduction u/s 54B of the Act. He submitted that the assessee was running a dairy firm and the land sold was used for growing grass. Further, the distance of the land in question is around 21 kilometers from Mulshi. Referring to the paper book containing 380 pages, the Ld. Counsel for the assessee drew the attention of the Bench to the same and submitted that the various documents furnished before the Assessing Officer and the Ld. CIT(A) / NFAC were completely ignored by them. Referring to the assessment order of Santosh Vitthal Masurakar dated 13.03.2024 for assessment year 2016-17, he submitted that the Assessing Officer in the order passd u/s 147 r.w.s. 144 of the Act has accepted the claim of the assessee that the land sold is an ancestral agricultural land located at Mauje Mukaiwadi, Taluka Mulshi, Dist. Pune for a total consideration of Rs.11,78,00,000/-, out of which Shri Santosh Vittal Masurakar is confirming party No.3 of (1) as mentioned in page 15 of sale deed and have received his share amount of Rs.67,00,000/- by way of cheque. Referring to the copy of sale deed placed at pages 137 to 188 of the paper book, he submitted that the assessee is also one of the sellers of the said property who along with other family members have sold the entire property to Lohia Jain Realty. When all other co-owners have claimed the same as agricultural land and the Assessing Officer in one of the case has accepted the same and passed order u/s 144/147 of the Act, it is not understood as to how the land of the assessee can be considered as agricultural land. So far as the decisions relied on by the Ld. CIT(A) / NFAC are concerned, he submitted that those decisions are not applicable to the facts of the present case and are distinguishable.

The Ld. DR on the other hand heavily relied on the orders of the Ld. CIT(A)/NFAC. He however submitted that he has no objection if the matter is restored to the file of the Assessing Officer for verification of the details which were filed before him but not considered. He also relied on the decision of the Pune Bench of the Tribunal in the case of Abhijit Subhash Gaikwad vs. DCIT (2015) 44 CCH 777 (Pune-Trib.).

The Ld. Counsel for the assessee in his rejoinder submitted that the decision of the Pune Bench of the Tribunal in the case of Abhijit Subhash Gaikwad vs. DCIT (supra) is not applicable to the facts of the present case. Referring to para 23 of the order, he submitted that the assessee before the Assessing Officer had furnished the copy of 7/12 extract, according to which, the land was Jirayat fallow land i.e. the land being not capable of any cultivation. Referring to para 28 of the order of the Tribunal, he drew the attention of the Bench to the findings of the Ld. CIT(A) / NFAC, according to which, the Talati has certified that the land records in his office have been tampered with to show crops grown from 2006-07 onwards. However, in the present case, neither the land was Jirayat fallow land nor the assessee tampered with the documents in the office of the Talati. Therefore, the said decision is not applicable to the facts of the present case. He accordingly submitted that the land in question being an agricultural land, no addition is called for and since the assessee has invested the sale proceeds in buying another agricultural land within a period of two years from the date of sale, the deduction u/s 54B of the Act should be allowed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case rejected the claim of deduction u/s 54B of the Act on the ground that the assessee could not explain to his satisfaction regarding the land in question as agricultural land as no evidence to support the claim of agricultural activity was produced before him. Further, the assessee has purchased the new agricultural land before sale of the land in question, therefore, he has violated the provisions of section 54B of the Act, according which, the assessee is required to purchase the land within a period of two years from the date of transfer. However, in the instant case, the assessee has purchased the land before the sale registration of the land in question. Therefore, the assessee is not eligible to claim deduction u/s 54B of the Act. We find the Ld. CIT(A) / NFAC confirmed the action of the Assessing Officer on the ground that the assessee all along has avoided filing of any verifiable evidence of agricultural activities. Further, the land that was sold to Lohia Jain Realty was situated at Mukaiwadi, Taluka Mulshi, Dist. Pune within the limits of Panchayat Samiti and Jilha Parishad Pune. According to the Ld. CIT(A) / NFAC, Mulshi Taluka is in subdivision of Pune district with semi-urban population of 171,006 people according to the 2011 Census which would have gone substantially by that time. Therefore, the land in question does not fall within the parameters of agricultural land as defined u/s 2(14)(iii). Further, the assessee has purchased the new agricultural land before the land in question was sold, the investment in the land was also made jointly i.e. in the name of the assessee as well as Mr. Santosh Vitthal Mhsurkar and the assessee did not offer any clarification to indicate his share in the said investment, if any. It is the submission of the Ld. Counsel for the assessee that he was running a dairy firm and the land sold was used for growing grass and therefore, it was an agricultural activity. It is also his submission that in the case of one of the co-owners i.e. Mr. Santosh Vitthal Mhsurkar, the Assessing Officer in the order passed u/s 144/147, dated 13.03.2024 for assessment year 2016-17 has accepted the land as agricultural land, therefore, the assessee being a party to the same sale deed for the same land, the Assessing Officer cannot take a different view. It is also his submission that the various documents filed before the Assessing Officer as well as the Ld. CIT(A) / NFAC evidencing the sale of milk to dairy, cattle food, farm pesticides and medicines, details of crop revenue, etc. were completely ignored by the lower authorities.

We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of the assessment order of Mr. Santosh Vitthal Mhsurkar, copy of which is placed at pages 429 to 433 of the paper book, shows that the Assessing Officer has accepted the land sold as ancestral agricultural land and is not a capital asset as per section 2(14) of the Income Tax Act, 1961. The relevant observation of the Assessing Officer in para 5 of the assessment order reads as under: “5. Sale consideration of Immovable property for consideration of Rs.67,00,000/-: On verification of information available with this office, and Sale deed document No.456/2016 dt. 29.01.2016, it is seen that Shri. Vithal Dagdu Masurkar (Father of assessee) & others has sold their Ancestral Agricultural Land located at Mauje Mukaiwadi Taluka Mulshi, Dist Pune to Lohia Jain Realty, Bhandarkar Road, Pune for total sale consideration of Rs.11,78,00,000/-. The assessee Shri. Santosh Vittal Masurakar is confirming party no.3 of (1) as mentioned on Pg. 15 of sale deed and have received his share amount of Rs.67,00,000/- by way of cheque. Further, the assessee has furnished zone certificate from PMRDA where it is ascertained that the land is agricultural land and 30 mts is affected by the road in this proposal. The assessee has also submitted Google Maps extract to prove that Village Mukaiwadi is 9.9 Kms away from nearest municipal limit. In view of the above assessee's claim that the land sold is ancestral land and is not a capital asset as per section 2(14) of Income Tax Act, is accepted and hence, no addition is made.”

This order was passed by the Assessing Officer after the order passed by the Ld. CIT(A) / NFAC and this was accepted as an additional evidence. In the instant case, the assessee is the consenting party No.2 to the sale of the said land and the same sale deed. We further find that the various documents filed by the assessee in the paper book, especially from page 337 to 380, were not considered by the Ld. CIT(A) / NFAC. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. The assessee is also hereby directed to appear before the Assessing Officer on the appointed date and file the requisite details without seeking any adjournment under any pretext, failing which the Assessing Officer is at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes.