SMT HAFIZ SHAIKH,DEWAS vs. THE ITO WARD-1, DEWAS

This appeal by the assessee is directed against the order dated 26.12.2022 of Ld. Commissioner of Income Tax (Appeals) (in short Ld. CIT(A), National Faceless Appeal Centre, Delhi for Assessment Year 2017- 18. The assessee has raised following grounds of appeal:

1.That the Hon. CTT (A) has grossly erred in law, in confirming an addition of Rs.15475988/- by disallowing exemption u's 54B of the Act claimed from the Long term Capital Gain arising from deeming provision u/s 45(3) of the Act: 1.1. By holding that the land in reference has not been shown as used for agricultural purpose and that nothing has been brought on record to show that the land was being cultivated prior to its sale, being completely on a wrong set of facts and in gross contradiction with the Assessment order where no such observation has been made.

Hafiz Shaikh Page 2 of 6 1.2. By overlooking and not considering the entire documents, records furnished during the course of the Assessment proceedings that sufficiently prove that the land in reference was cultivated from last many years prior to its sale 1.3. By not issuing a show-cause to the Appellant and providing a reasonable opportunity of being heard when in the impugned order addition was being confirmed on a different interpectation and reasoning than the original Assessment Order 14. By not disposing the grounds so raised by the Appellant judiciously by way of a speaking order and by not commenting/ observing anything about the righteousness of the availability of exemption u's section 54, 548, 54D, 54, 54EA, 54EB, 54F, 54G and 54H of the Act against LTCG under subsection (3) of section 45 2. The assessee craves to add/alter any of the grounds of appeal on or before the date of hearing

2. The solitary issue arises in this appeal of the assessee is whether the ld. CIT(A) is justified in upholding denial of claim of deduction u/s 54B of the Act in respect of the capital gain arising from transfer of land by the assessee to the partnership firm. The assessee is a partner of partnership firm M/s Dewas Life Style. The assessee filed his return of income for the year under consideration on 31.03.2018 declaring total income of Rs.4,01,630/- and agricultural income of Rs.2,10,405/-. During the scrutiny assessment, the AO noted that the assessee has transferred a capital asset to the partnership firm and claimed deduction u/s 54B of the Act. The AO denied the claim of deduction on the ground that since the transfer in the case falls in ambit of section 45(3) of the Act and therefore, the claim of exemption/deduction u/s 54B is not allowable. The assessee challenged the action of the AO before the Ld. CIT(A). The Ld. CIT(A) has confirmed the disallowance of deduction u/s 54B of the Act on the ground that the assessee has not satisfied the condition provided u/s 54B as land in question was no more agricultural land.

Hafiz Shaikh Page 3 of 6 the capital asset is transferred to the partnership firm. She has further contended that ld. CIT(A) has confirmed the disallowance on the ground that the land transferred to partnership firm was not agricultural land without issuing any show cause notice to the assessee or giving any opportunity to assessee on this point before passing the impugned order. She has submitted that the assessee has been earning agricultural income from the agricultural operations from the land in question which is not disputed by the AO. Therefore, the nature of agricultural land cannot be disputed. The assessee has purchased another agricultural land within the prescribed period as per Section 54B of the Act. The details of which produced before the Ld. AO but the AO has made the disallowance without disputing the fact of purchase of agricultural land by the assessee.

“(4) In compliance to the above final show-cause notice u/s 142(1) dated 06/12/2019, Shri Sunil Kataria attended and filed written reply on 16/12/2019, which examined and placed on record. The such reply of the assessee considered but not acceptable, looking to the provision of section 45(3), as there is no provision for exemption u/s 54B as provided in section 45(1) as Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. Hence, in view above provision, assessee have wrongly claimed exemption u/s 54B of Rs.1,54,75,988/- from long term capital gain u/s 45(3) of Rs. 1,54,75,988/-, which is liable to be disallowed. The assessee declared long term capital gain u/s 45(3) on transfer of capital assets in the firm as capital, which is deemed long term capital gain without receiving any consideration. The Page 3 of 6 Hafiz Shaikh Page 4 of 6 assessee has claimed exemption u/s 54B of Rs.1,54,75,988/- on such deemed long term capital gain, wherein no sale consideration has been received by the assessee. Therefore the investment of Rs.1,54,75,988/- for claim of exemption u/s 54B out of deemed long term capital gain u/s 45(3) of Rs.1,54,75,988/- is not at all possible. Looking to the facts of the case, the claim of the assessee for exemption u/s 54B is totally wrong. Therefore, in view of the above, wrong claim of exemption u/s 54B of Rs. 1,54,75,988/- is hereby disallowed and accordingly added to the total income of the assessee for the F.Y. 2016-17 relevant to A.Y. 2017-18. I am satisfied that assessee under reporting income as per provision of section 270A of the Income Tax Act, 1961. Therefore, on this initiate penalty proceedings u/s 270A is being initiated separately.

“7. I have considered the facts of the case, written submission of the appellant and the order of AO. In the instant case, the land under reference has not been shown as used for agricultural purposes. There is nothing to show that the land was being cultivated prior to its sale. The only evidence furnished by the assessee in this regard was copy of return of income for A.Y. 2015-16 & 2016-17, in which total income included the income from Agricultural operations.

8. Further, the income of past two years from agricultural activities were not justified by way of producing the documents of nature of the land, the crops cultivated on the land, evidences of labour work, labour payment, bill of agricultural purchases and proof of other agricultural activities. There is no mention of the crops grown on the land and the activities undertaken by the assessee for cultivation of crops on the land. This shows that there was no cultivation of crop/agricultural activity on the land owned by the assessee in the past two years preceding the date of sale. Bills were never produced either before the Assessing Officer or during the appellate proceedings. The assessee has failed to prove that the land was agricultural land and he had cultivated crops in the land. There is a Hafiz Shaikh Page 5 of 6 difference in the meaning of agricultural land and land put to agricultural use for the purpose of exemption u/s 54B.

Hafiz Shaikh Page 6 of 6 or ground proposed by the CIT(A) for making disallowance. This is a clear case of violation of principle of natural justice while making the disallowance of claim. Accordingly in the facts and circumstances of the case and in the interest of justice, we set aside the impugned order of the Ld. CIT(A) and the matter is remanded to the record of the AO for fresh adjudication after verification and examination of the relevant facts on the point whether the assessee has satisfied the conditions as provided u/s 54B of the Act or not. Needless to say assessee be given an appropriate opportunity of hearing before passing the fresh order.

Order pronounced in the open court on 29 .05.2023.