Case Law Details
Ashok Manshukla Doshi Vs ITO (ITAT Hyderabad)
Can Deduction under Section 54B Be Denied If Agricultural Operations Are Carried Out Through Villagers?
The ITAT Hyderabad held that deduction under Section 54B cannot be denied merely because agricultural operations were carried out through third parties, as the law only requires that the land be used for agricultural purposes and not necessarily cultivated personally by the assessee.
In the present case, the assessee-HUF sold agricultural land and purchased another agricultural land within the prescribed period, but the deduction was disallowed on the ground that agricultural activities were not directly carried out and no supporting bills for expenses or sale of produce were furnished.
The Tribunal observed that the land was duly classified as agricultural in revenue records, agricultural income had been consistently declared and accepted in earlier years, and cultivation through villagers still qualifies as use of land for agricultural purposes.
Accordingly, the disallowance was held to be unjustified and the assessee was held entitled to deduction under Section 54B, with the addition deleted and appeal allowed in favour of the assessee.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 08.07.2025, pertaining to the assessment year 2022-23.
2. The grounds raised by the assessee read as under:
“1. The order of the Learned First Appellate Authority in not correct either on facts or in law and in both.
2. The Learned First Appellate Authority is not justified in confirming the action of assessing officer disallowing a sum of Rs. 9,72,68,001/- being the exemption claimed by the appellant under section 54B of the Income-tax Act.
3. The Learned First Appellate Authority failed to appreciate the fact that the land sold by the appellant is agricultural in nature evidenced by the relevant documents filed and the investment made is in agricultural land supported by evidences and hence the appellant’s claim for deduction u/s 54B is proper and disallowance of the same is unjustified.
4. The Learned First Appellate Authority and assessing officer failed to appreciate the fact that the assessee was in receipt of Rythu Bandhu Scheme subsidy from the State Government and the basic requirement for getting such subsidy on land is agricultural operations on the lands in question.
a) The Learned First Appellate Authority and assessing officer failed to appreciate the fact that the assessee is consistently admitting agricultural income in his returns from the very same land for several years and hence us eligible for exemption u/s 54B of the Income-tax Act.
b) The Learned First Appellate Authority and assessing officer are not justified in disregarding the certificates issued by the Government authority filed by the appellant in support of his claim that the lands sold and purchased were agricultural in nature and in fact agricultural operations were carried out thereon.
6. The Appellant prays for leave to add or amend or alter any of the grounds at the time of hearing of appeal.”
3. The brief facts of the case are that, the assessee, Shri Ashok Manshukla Doshi (HUF), has filed its original return of income for A.Y. 2022-23 on 28.07.2022 declaring total income of Rs. 20,77,890/- and agricultural income of Rs. 3,70,160/-. The case was selected for scrutiny and during the course of assessment proceedings, the A.O. noticed that, the assessee had sold agricultural lands and claimed exemption under Section 54B of the Income-tax Act, 1961, for purchase of another agricultural land. Therefore, the A.O. called upon the assessee to furnish relevant evidences, including details of agricultural land sold by the assessee, agricultural activities carried out for last three financial years, details of agricultural land purchased by the assessee and its nature, details of bills/invoices for the sale of agricultural crops and documentary evidence for incurring various agricultural expenditure. In response, the assessee submitted that, it has sold agricultural land situated at Bhulkapur Village, Shankarpally Mandal, Rangareddy District admeasuring Ac. 6-15 Guntas for a total consideration of Rs. 9,75,01,500/- and purchased agricultural lands situated at Chinna Shivnoor Village, Chegunta Mandal, Medak District for a consideration of Rs. 9,72,68,001/- and claimed exemption under Section 54B of the Income-tax Act, 1961. To support its arguments, the assessee has furnished pattadar passbooks, details of financial assistance received from Government of Telangana and also claimed that, the agricultural land owned by the assessee is consisting of mango orchids and also it has carried out agricultural operations through local villagers and earned agricultural income of Rs. 3,70,160/-. The assessee further submitted that, since it has not directly carried out agricultural operations, it has not incurred any expenditure.
4. The A.O., after considering submissions of the assessee and also taking note of relevant evidences in support of claim of sale of agricultural land observed that, the assessee has failed to furnish documentary evidence regarding agricultural activities carried out on the said land. Although the assessee claims to have earned agricultural income from the past several years from the said agricultural land, but failed to file any documentary evidence to prove carrying out of agricultural activities like showing seeds, purchases of seeds, irrigation expenses, harvesting expenses, purchase of fertilizers, water, nutrients, etc. Therefore, the A.O. observed that, since the assessee has failed to prove agricultural activities, it has not satisfied the conditions for claiming exemption under Section 54B of the Act, because in order to claim exemption under Section 54B of the Act, it is necessary for the assessee to carry out agricultural operations at least two years before the date of transfer of the said agricultural land and also purchase another agricultural land within the specified limit. Further, it was also noticed that, the assessee has sold his land to M. Srinivas Reddy (Krishna Karthikeya Reddy properties) and from the above, it is noticed that, the assessee has sold the agricultural land to a person, who is in the business of real estate activities and the motive for sale is for real estate activities and not for agricultural activities. Therefore, the A.O. rejected the explanation of the assessee and disallowed the claim of exemption under Section 54B of the Act, for Rs. 9,71,16,345/- and added back to the total income.
5. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has reiterated its submissions made before the A.O. and submitted that, the assessee has sold agricultural land and also purchased agricultural land and claimed exemption under Section 54B of the Income-tax Act, 1961 after satisfying the conditions and to prove the claim of the assessee, it has furnished all the evidences, including pattadar passbook, details of agricultural activities carried out on the said land for the past several years, agricultural income declared in the return of income filed for earlier financial years, including the assessment year under consideration, financial assistance received from the State Government of Telangana. The assessee has also claimed that, the land sold by the assessee is situated about 35 Kms., from Hyderabad and therefore, it is not at all taxable under the act, being the capital receipt, however, since the assessee has carried out agricultural activities on the said land, it has claimed exemption under Section 54B of the Act, in respect of purchase of another agricultural land.
6. The Ld. CIT(A) after considering the relevant submissions of the assessee and also taking note of reasons given by the A.O. to disallow exemption claimed under Section 54B of the Act, observed that, in order to claim exemption under Section 54B of the Act, the impugned land sold by the assessee should be used for agricultural operations at least two years before the date of transfer and also the assessee needs to purchase another agricultural land on or before the specified dates. In the present case, the assessee has failed to prove carrying out of agricultural operations on the land as stipulated under Section 54B, which is evident from the relevant reasons given by the A.O. Although the assessee claims that, the land was classified as an “agricultural land” from revenue records, but mere classification of land as “agricultural land” in revenue records is not sufficient to claim exemption under Section 54B of the Income-tax Act, 1961. The decisive test is not the normal or legal classification, but the actual, continuous and demonstrable use of the land for agricultural purpose in the two years immediately preceding the date of transfer. In the present case, although the assessee has consistently claimed that, the land was used for agricultural activities and even submitted photographs of mango trees, but no corroborative documentary evidence was provided to substantiate its claim. The explanation of the assessee that, the land was given to local villagers on oral lease and hence, no formal lease agreements or records were maintained is also not acceptable in the absence of the affidavits or statements from the villagers. Further, the assessee did not provide any evidence of actual receipt of agricultural proceeds so as to support agricultural income declared in the return of income filed for the earlier assessment years. In the absence of supporting record relating to expenditure incurred for agricultural operations, such as purchase bills for seeds, fertilizers and other harvesting expenses, the claim of the assessee that, the land was used for agricultural operations two years before the date of transfer on the basis of agricultural income declared in the Return of Income cannot be accepted. Since the assessee has failed to prove the burden of proof as prescribed under Section 54B of the Act, the A.O. has rightly disallowed deduction claimed under Section 54B of the Act, in respect of purchase of agricultural lands. Therefore, the Ld. CIT(A) rejected the explanation of the assessee and sustained the additions made by the A.O.
7. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
8. The learned counsel for the assessee, Shri C. Maheshwar Reddy, C.A. for the assessee submitted that, the Ld. CIT(A) erred in sustaining additions made by the A.O. towards disallowance of deduction claimed under Section 54B of the Act, even though, the assessee has satisfied the conditions provided under Section 54B of the Act, so as to claim deduction towards reinvestment of sale consideration received from transfer of agricultural land for purchase of another agricultural land. The A.O. never disputed the fact that, the assessee has furnished all the evidences, including pattadar passbooks, which clearly show the nature of land. However, denied the claim only on the ground that, the assessee has not personally carried out agricultural operations and also failed to furnish relevant evidences of sales bills for sale of agricultural produce and bills and vouchers for agricultural expenditure incurred by the assessee, even though these evidences are relevant while considering the case of assessment of agricultural income and not for determining the nature of agricultural land. The learned counsel for the assessee further submitted that, the assessee has sold the land which was situated more than 35 Kms., from the local limits of municipality and in fact, it is not taxable at all. However, the assessee has claimed deduction under Section 54B of the Act, because the land was used for agricultural operations two years immediately preceding the sale of land, and the assessee has purchased another agricultural land and the same has been used for agricultural operations. The assessee has also explained the reasons for not furnishing the relevant details of sales bills and expenditure details and claimed that, the assessee has not directly carried out agricultural operations and the agricultural operations were carried out through local villagers and they carried out the agricultural operations by putting all expenditures and the assessee received only part of receipts and the same has been disclosed in the return of income filed for earlier assessment years. The A.O., without appreciating the relevant facts, simply disallowed the deduction only on the ground that, no evidence has been furnished to prove the carrying out of agricultural operations, even though, the land in question was ‘agricultural land’ and in fact continued to be agricultural land even today.
9. The learned counsel for the assessee, further referring to the assessment order passed by the A.O. in the case of Pankaj Manshuklal Doshi, the brother of the assessee, submitted that, the said assessee sold the very same agricultural land situated in the same survey numbers and the A.O. had accepted the claim of the assessee towards deduction claimed under Section 54B of the Act, after satisfying the fact that the land sold by the assessee was agricultural land and the assessee had purchased agricultural land within the period of two years from the date of transfer of the original asset. Although the assessee had furnished all evidences, but the A.O. and the Ld. CIT(A), without appreciating the relevant facts, simply disallowed the deduction claimed under Section 54B of the Act. Therefore, he submitted that, the addition made by the A.O. and sustained by the Ld. CIT(A) should be deleted. In this regard, he relied upon the following judicial precedents:
1. CIT Vs. Siddharth J. Desai reported in (1982) 10 Taxman 1 (Gujarat).
2. CIT Vs. Madhabhai H. Patel reported in (1994) 77 Taxman 408 (Gujarat).
3. Anil Kumar Nuwal Vs. ACIT reported in (2020) 116 com 710 (Jodhpur – Trib.).
4. Commissioner of Wealth-tax Vs. Officer-in-Charge (Court of Wards) reported in (1976) 105 ITR 133 (SC).
5. ACIT Vs. N. Raghu Varma reported in (2013) 32 com 383 (Hyderabad – Trib.).
6. Harniks Park (P.) Ltd. Vs. Income-tax Officer reported in (2014) 41 com 109 (Hyderabad – Trib.).
7. G.N. Venugopal Vs. ACIT reported in (2022) 141 taxmann.com 425 (Bangalore – Trib.).
10. The Ld. CIT-DR for the Revenue, Ms. U. Mini Chandran, supporting the order of the Ld. CIT(A), submitted that, in order to claim deduction under Section 54B of the Act, the land should be used for two years immediately preceding the date on which the transfer took place 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 operations.
In the present case, although the assessee has filed various evidences to prove the nature of land being ‘agricultural land’, but failed to prove carrying out agricultural operations at least two years immediately preceding the date of transfer, which is a pre-condition for allowing deduction claimed under Section 54B of the Act. The assessee has also failed to prove that, the land is being used for carrying out agricultural operations. Mere furnishing of ITRs filed for the earlier financial years indicating agricultural income does not prove carrying out agricultural operations. In the absence of relevant details, the A.O. has rightly treated the gain received from transfer of land as taxable and the Ld. CIT(A) after considering the relevant facts has rightly sustained the addition made by the A.O. Therefore, she submitted that the addition made by the A.O. should be sustained.
11. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant case laws referred to by the learned counsel for the assessee in support of his contentions. There is no dispute with regard to the fact that, the assessee has sold agricultural land situated at Bhulkapur Village, Shankarpally Mandal, Rangareddy District and also purchased agricultural land situated at Chinna Shivnoor Village, Chegunta Mandal, Medak District and claimed deduction under Section 54B of the Income-tax Act, 1961. It is also not in dispute that the assessee has furnished relevant evidences, including pattadar passbook, details of Dharani Portal of Government of Telangana, receipt of Rythu Bandhu amount from Government of Telangana and proved that, the impugned land sold by the assessee was an ‘agricultural land’ as per the revenue records. In fact, the A.O. never disputed the fact that the land sold by the assessee is classified as ‘agricultural land’ as per the revenue records, however, disallowed deduction claimed under Section 54B of the Income-tax Act, 1961 only on the ground that, the land sold by the assessee was not used for agricultural purpose in the two years immediately preceding the date on which the transfer took place and therefore, the gain received from transfer of said land cannot be claimed under Section 54B of the Act, for purchase of another agricultural land being used for agricultural purpose. Therefore, it is necessary for us to decide the issue in light of the above facts and also on various arguments of the learned counsel for the assessee.
12. There is no dispute with regard to the fact that the land sold by the assessee for the year under consideration is classified as ‘agricultural land’, which is evident from the relevant pattadar passbook submitted by the assessee, the details of registration of transfer of lands in Dharani Portal, which is exclusively used for registration of agricultural lands in the State of Telangana, details of receipt from Government of Telangana State under Rythu Bandhu scheme, which is provided to agriculturists in the form of financial assistance, ITR filed for earlier financial years and impugned assessment years indicating agricultural income, which clearly shows that the land sold by the assessee is agricultural lands. In fact, the assessee filed further evidences to prove that, the land sold by the assessee is situated beyond 8 Kms., from the limits of local municipality and it is not taxable at all. Although the above point is not relevant to decide the issue on hand, but fact remains that going by the evidences filed by the assessee, there is no dispute with regard to the fact that the land sold by the assessee is classified as ‘agricultural lands’ as per revenue records and other evidences furnished by the assessee.
13. Having said so, let us come back whether the assessee has satisfied the conditions provided under Section 54B of the Act, so as to claim deduction towards capital gain derived from transfer of agricultural lands. The provisions of section 54B of the Act, deals with exemption from capital gain on transfer of agricultural land, provided capital gain is used for purchasing another agricultural lands. As per Section 54B of the Act, in order to claim deduction towards any gain received from transfer of capital asset being Agricultural land, which, in the two years immediately preceding the date on which the transfer took place was being used by the assessee being an individual or his parent or a Hindu Undivided Family, for agricultural purpose and the assessee within a period of two years after that date has purchased any other land for being used for agricultural purpose, 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 allowed as deduction in total. In other words, for claiming deduction under Section 54B of the Act, the land sold by the assessee should be used for agricultural purposes in the two years immediately preceding the date of transfer. The case of the A.O. was that, the land sold by the assessee was not used for agricultural purpose and the A.O. reached the above conclusion on the basis of evidences filed by the assessee and the arguments made during the course of assessment proceedings where the assessee claims that it had not directly carried out agricultural operations in the land and instead carried out agricultural operations through local villagers and used the land for agricultural purpose. According to the A.O., the evidence filed by the assessee does not prove carrying out agricultural operations in the land. The A.O. disbelieved the claim of the assessee on the ground that, no evidence of any kind of bills or vouchers for sale of agricultural produce or bills and vouchers for purchase of expenses or implements has been furnished by the assessee.
14. We have given our thoughtful consideration to the facts and in our considered view, once the land held by the assessee is classified as ‘agricultural land’, then the next question that needs to be considered is whether the land was used for agricultural purpose or not. If the land is used for agricultural purpose, then the capital gain arising from transfer of the said land is eligible for deduction under Section 54B of the Act, in case the assessee purchased any other land being used for agricultural purposes within the specified limit.
The actual carrying out of agricultural operations does not mean that the assessee itself shall carry out agricultural operations on its own, and it means, the assessee has used the land for agricultural operations either himself or through third parties. In the present case, the assessee claims to have used the land for agricultural purpose and also put up mango orchards for which the assessee has furnished relevant photographs and the A.O. has also discussed the above issue in the assessment order. The assessee further claimed that, it had carried out agricultural operations through local villagers and they have cultivated the land by using all necessary resources, and therefore, the assessee does not have any evidence for sale bills of agricultural produce and bills and vouchers for various expenditures incurred for carrying out agricultural operations. Once the assessee claims that, the land was cultivated through local villagers and it has only received consideration from the actual cultivators of land, in our considered view, it is as good as the assessee has used the land for agricultural purpose in the two years immediately proceeding the date on which the transfer took place. This fact is further strengthened by the return of income filed by the assessee for earlier assessment years, where the assessee has disclosed agricultural income from AY 2019-20 to AY 2021-22. Further, the department has accepted ITR filed for earlier years, where the assessee disclosed agricultural income from very same lands. We further note that, Shri. Pankaj Manshuklal Doshi, the brother of the assessee, sold the very same agricultural land situated in the same survey numbers and the A.O. had accepted the claim of the assessee towards deduction claimed under Section 54B of the Act, after satisfying the fact that the land sold by the assessee was agricultural land and the assessee had purchased agricultural land within the period of two years from the date of transfer of the original asset. The assessee and his brothers carried out agricultural operations in the above land through local villagers and also sold lands to one buyer, who is in to real estate business. Since the AO of the brother of assessee accepted the claim, in our considered view, there is no reason for the AO to disallow claim of exemption u/s 54B without any change in facts. Therefore, in our considered view, the land sold by the assessee for the year under consideration is an ‘agricultural land’ and was used for agricultural purpose in the two years immediately preceding the date of transfer, and the assessee has also purchased another land being used for agricultural purpose and therefore, entitled for deduction under Section 54B of the Act. Therefore, in our considered view, the A.O. ought not to have disallowed deduction claimed under Section 54B of the Act as held by the Hon’ble High Court of Gujarat in the case of CIT Vs. Siddharth J. Desai (supra) and CIT Vs. Madhabhai H. Patel (supra). A similar view has been taken by ITAT, Hyderabad Benches in the case of ACIT Vs. N. Raghu Varma (supra), wherein it has been clearly held that, when the assessee was unable to cultivate the land due to its vagarious nature and non-availability of resources, exemption under Section 54B of the Act, could not be denied.
15. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the assessee has rightly claimed deduction under Section 54B of the Act, towards capital gains derived from transfer of land used for agricultural purpose upon purchase of another land being used for agricultural purpose. The A.O., without appreciating the relevant facts, simply disallowed the deduction claimed by the assessee. The Ld. CIT(A), without appreciating the relevant facts, upheld the additions made by the A.O. Thus, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the additions made towards disallowance of deduction claimed under Section 54B of the Income-tax Act, 1961.
16. In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 25th March, 2026.
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