Claim to deduction u/s 54B raised first time in appellate proceedings was allowable

ITO Vs Raja Vikram (ITAT Raipur)

Conclusion: Where assessee did not raised claim for deduction under section 54B while filing the returns of income filed u/s 139(1) and u/s 148 but in appellate proceedings raised the same then such claim was allowable.

Held: During the course of assessment proceedings, it was observed by AO that assessee had both in his Original return of income filed u/s 139(1); as well as that filed in compliance to Notice u/s 148 claimed that the income arising from the transfer of his ¹/₂ share in agricultural land at Village: Dharampura was not exigible to tax under the Act. However, AO did not find favor with the aforesaid claim of assessee. AO holding a conviction that the agricultural land in question did not fall within the meaning of “agricultural land” as contemplated in Sec. 2(14)(iii), thus, rejected the aforesaid claim of exemption so raised by assessee. On finding his claim of exemption scuttled, assessee who prior to the sale of the agricultural land in question had purchased certain new agricultural lands i.e on 06.10.2006 for Rs. 1,44,050/- and on 20.11.2006 for Rs. 2,87,531/-, thus, in the course of the assessment proceedings raised a claim for deduction as regards such investments aggregating to Rs. 4,31,581/- u/s 54B. However,  AO was not persuaded to subscribe to the aforesaid claim of deduction so raised by assessee before him. Observing that assessee had not raised the aforesaid claim for deduction u/s. 54B either in his Original return of income filed u/s. 139(1) of the Act; or by filing a revised return of income u/s 139(4) or by moving a rectification application u/s 154; or in the return of income filed in compliance to Notice u/s 148, AO was of the view that the same could not be raised on the basis of a simpliciter claim in the course of the assessment proceedings. Backed by his aforesaid conviction AO refused to entertain the assessee’s claim for deduction u/s. 54B and vide his order passed u/s. 148/143(3) of the Act, dated 28.01.2013 assessed his income at Rs. 9,40,853/-. It was held that assessee at the time of filing of his returns of income u/s. 139(1) and u/s 148 had remained under a bonafide belief that as the agricultural land in question i.e at Village Dharampura was situated beyond the municipal limits, and thus not a ^„capital asset‟, therefore, the gain on transfer of the same was not exigible to tax under the Act. Accordingly, assessee had no occasion to have raised in his aforesaid returns of income filed u/s 139(1) and u/s 148 a claim for deduction u/s 54B w.r.t the investment that was made by him towards purchase of new agricultural lands. In fact, it was only after the aforesaid claim of the assessee for exemption of the gain on transfer of the agricultural land in question was scuttled by the AO for the reason that the agricultural land in question was situated within the municipal limits, and thus, was a capital asset, that assessee on account of such changed circumstances had raised the aforesaid claim for deduction u/s 54B. Insofar the declining of the assessee‟s claim for deduction u/s 54B by the AO was concerned, the same was raised by the assessee on the basis of a simpliciter claim in the course of the assessment proceedings and not by filing of a revised return of income, therefore, no fault could be attributed to the AO for refusing to entertain the said claim of deduction of the assessee.  Accordingly, there was no infirmity in the order of the CIT(Appeals) who had entertained the assessee’s claim for deduction u/s. 54B of the Act and directed AO to allow the same.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The present appeal filed by the revenue is directed against the order passed by the CIT(Appeals), Raipur, dated 25.08.2014, which in turn arises from the order passed by the A.O under Sec. 148/143(3) of the Income-tax Act, 1961 ( in short ^„the Act‟) dated 28.01.2013 for assessment year 2007-08. Also, the assessee is before us as a cross-objector. Before us the revenue has assailed the impugned order on the following solitary effective ground of appeal:

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