Case Law Details
Arun Agarwal Vs ITO (ITAT Jodhpur)
Income Tax Appellate Tribunal (ITAT) Jodhpur ruled in favor of the appellant, Arun Agarwal, allowing the capital gains exemption under Section 54B of the Income Tax Act, 1961. The case revolved around the sale of agricultural land, where the assessee claimed exemption by investing in new agricultural land and depositing funds in the Capital Gains Account Scheme. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had earlier disallowed the exemption, contending that only a small portion of the land was used for agriculture. However, ITAT overturned this decision, recognizing that partial agricultural use is sufficient to claim exemption under Section 54B.
The dispute primarily concerned whether the land sold by Arun Agarwal qualified as agricultural land under Section 54B. The assessee provided evidence, including reports from local revenue officials (halka Patwari and Tehsildar), showing that a portion of the land was used for growing Guar crops. Despite the AO’s claim that fruit plantation was not substantiated and only a small area was cultivated, ITAT noted that continuous and complete agricultural use is not a statutory requirement. The tribunal relied on the precedent set by the Punjab and Haryana High Court in CIT vs. Dinesh Verma (2015) 60 taxmann.com 461, which held that partial agricultural use of land in the preceding two years is sufficient to claim exemption under Section 54B.
ITAT also addressed the issue of a ₹60 lakh deposit in the Capital Gains Account Scheme, which the assessee later withdrew and declared as taxable income in the subsequent assessment year. Since the law permits such deposits as a means of securing the exemption, ITAT ruled that the assessee had complied with the provisions of Section 54B. Furthermore, the tribunal observed that the Assessing Officer had disregarded relevant evidence, including the revenue records and the agricultural income shown in previous tax filings.
In conclusion, ITAT Jodhpur directed the Assessing Officer to allow the exemption of ₹77,31,800 under Section 54B, overturning the decisions of the lower authorities. The ruling underscores that for capital gains exemption on agricultural land, absolute agricultural use is not mandatory—demonstrable partial agricultural use within two years preceding the sale is adequate.
FULL TEXT OF THE ORDER OF ITAT JODHPUR
1. ITA No. 60/Jodh/2024 is filed by Arun Agarwal (the assessee/appellant) for Assessment Year (A.Y.) 2013-14 against the appellate order passed by the National Faceless Appeal Centre (NFAC), Delhi [ the ld CIT [A] ] dated 01.2024 wherein the appeal filed by the assessee against the assessment order passed under Section (u/s.) 143(3) of the Income Tax Act, 1961 (‘the Act’) dated 28.03.2016 by the Income Tax Officer, Ward- 1(2), Bikaner (Ld. AO) was dismissed.
2. Assessee aggrieved with the same is in appeal before us raising the following grounds:
“1. The Id. CIT(A) has erred in passing the order u/s 250. The Id. CIT(A) has erred in upholding the order passed by Id. AO u/s 143(3). The order so passed is bad in law and bad on fact and is contrary to the principles of natural justice.
a. The Id. CIT(A) has erred in sustaining the disallowance of claim of exemption u/s 54B of the Act amounting to Rs. 17.31,800/-made on account of investment in new agriculture land. The disallowance so made is bad in law and bad on
b. The CIT(A) has further erred in not allowing the benefit of deduction of Rs. 60,00,000/- deposited in long term capital account. The disallowance of such deduction claimed is bad in law and bad on facts.
c. The CIT(A) has also failed to appreciate that the appellant had already paid tax on amount deposited and addition made during the year had resulted into double addition.
2. The Ld. CIT has erred in charging interest under section 234B and 234C of the Act.
3. The appellant craves liberty to add, alter, amend or vary from the above the above grounds of appeal at or before the time of hearing.”
3. The brief fact of the case shows that assessee is an individual, who filed his return of income on 09.2013 at a total income of Rs.8,14,270/-, which was selected for scrutiny and notice u/s. 143(2) of the Act was issued on 03.09.2014 which culminated into an assessment of total income of Rs.85,46,070/-passed u/s u/s. 143(3) of the Act dated 28.03.2016.
4. On appeal before the learned CIT(A), this disallowance was confirmed and, therefore, appeal before us.
5. Therefore, the solitary issue involved in this appeal is the capital gain exemption disallowed u/s. 54B of 77,31,800/-.
6. The brief facts of the case shows that the assessee derives income from house property business, long term capital gain and income from other sources. He has sold agricultural land for Rs.80,00,000/- on 09.04.2012 measuring 7 khasra, 3.62 hectare agricultural land to Mr. Ramlal Daftari and others. The stamp duty value of the above property was determined at Rs.90,44,750/-. This land was purchased by the assessee in the year 1996-97 for 4,20,000/-. In the return of income assessee taking the provisions of Section 50C of the Act into consideration computed the Long Term Capital Gain on sale of agricultural land by considering the deemed sales consideration of Rs.90,44,750/- and reduced it by the index cost of acquisition amount of Rs.11,73,246/- resultant Long Term Capital Gain of Rs.78,71,504/-.
7. According to the assessee, capital gain arose on sale of agricultural land, assessee purchased another agricultural land for a consideration of Rs.15,00,000/- on 11.09.2012. This was stated to be agricultural land and, therefore, exemption u/s.54B of the Act was claimed. The assessee also deposited a sum of 60,00,000/-in Capital Gain Account Scheme by placingsix deposits of Rs.10,00,000/- each on 11.08.2012 for unutilized sums. Therefore, the assessee claimed that on sale of agricultural land, the capital gain arising thereon has been partly utilized by purchase of an agricultural land and partly by depositing the same before the due date for furnishing of the return of income u/s. 54B(2) of the Act. Therefore, out of the total Capital Gain of Rs.78,71,504/-, the assessee claimed deduction u/s. 54B of the Act of Rs.77,31,800/-.
8. Subsequently, as assessee could not utilized sum of Rs 60 lakhs for purchase of agricultural land, in A.Y. 2014-15, the assessee offered 60,00,000/-, which was deposited u/s. 54B(2) of the Act withdrawing the same on 12.09.2013 and offering the same amount to tax under the head Long Term Capital Gain. Thus, the Long Term Capital Gain claimed by the assessee on deposit of Rs.60,00,000/- for A.Y. 2013-14 comprising of total deduction of Rs.77,31,800/- was offered for taxation for A.Y. 2014-15 resulting into the exemption of balance sum of Rs.17,31,800/-. The assessee submitted that the land sold by the assessee for Rs.80,00,000/- was agricultural land. To support its case, assessee submitted that agricultural land was partly used for the purpose of growing Guar crop on the basis of report of Tehsildar, Bikaner, dated 14.09.2015 obtained by the learned Assessing Officer. As the land was used for growing Guarcrop, the claim of the assessee was that he has sold agricultural land. To support further, the assessee referred to the sale deed wherein it was specifically mentioned that the impugned land sold is agricultural land and further the report of Patwari also shows that there is an agricultural cultivation of Guarcrop. The Guar crop cultivation was for Samvat Year 2067 and 2068 the F.Y. 2010-11 and 2011-12. As per the girdawari of halka Patwari clearly shows that 0.80 hectares of the land for Samvat Year 2067 and .20 hectors of the land for Samvat Year 2068 is used for agricultural purposes. The assessee also submitted that on the balance land the assessee has made fruit plantation of Anar by submitting the copies of the bill of plants etc. However, it was submitted that due to adverse whether fruit plantation was not successful. The assessee submitted the various years detail of agricultural produced on the above land and assessee has shown agricultural land. The assessee also substantiated that there is tube wellexistingon the above land for cultivation of agricultural crops. Based on the above facts, the assessee claimed deduction u/s. 54B of the Act.
9. The learned Assessing Officer examined the claim of the assessee and stated that very small area of the above land are cultivated as agricultural land for A.Ys. 2011-12 and 2012-13 which is based on the report of halka Patwari dated 14.09.2015 called for by the learned Assessing Further, the Tehsildar Revenue, Bikaner, on 09.10.2011 was asked to explain whether the assessee has undertaken any fruit plantation which was informed by letter dated 16.10.2016 that no fruit plantation was made on the same land. Even the bills of purchase of Anar plants were found to be issued by unregistered dealer out of state. Therefore, the assessee was questioned why deduction u/s.54B of the Act should not be allowed.
10. The assessee reiterated the facts stated above and claimed that the land was used for agricultural purposes in the above two assessment years. Assessee further referred to A.Y. 2011-12 return of income wherein the agricultural income of 14,000/- were shown. Therefore, it was submitted that the land was used for agricultural production as per the report of halka Patwari clearly shows that the deduction is available u/s. 54B of the Act.
11. The learned Assessing Officer found the explanation of the assessee untenable and stated that only certain portion of the land had Gwar plantation and during the current year assessee has not shown any agricultural income, therefore, the claim of the assessee is not
12. The assessee also preferred an application u/s.144A of the Act, wherein the assessee did not get any relief.
13. Thus, the learned Assessing Officer disallowed the exemption claimed u/s.54B of the Act of Rs.77,31,800/-.
14. On appeal before the learned CIT(A) for the reasons given by the Assessing Officer, the order of the Assessing Officer was upheld. Therefore, the assessee is in appeal before us.
15. Ground no1 was not pressed, ground no 3 was consequential and hence were dismissed.
16. Only Ground no 2 was pressed. The learned Authorized Representative (AR) submitted paper book containing 62 pages wherein he submitted that the assessee has sold an agricultural land, assessee has made partly investment in agricultural land and partial amount is deposited in terms of provisions of Section 54B(2) of the Act. To show that the land sold is used for agricultural purposes, the assessee has produced that in earlier years Guarcrops have arisen and also shown the income from agricultural operation in the earlier assessment The assessee has also shown fruit plantation bill, which could not result into agricultural produce due to adverse weather. Obtaining the Anar plantation bill from unregistered dealer cannot go against the assessee because assessee has purchased plants of Anar which could not have any sales tax impact. Further, without examining the persons from whom the Anar plants are purchased the learned Assessing Officer has disbelieved it. Even the report of halka Patwari obtained by ld. AO clearly shows that the land was used for agricultural purposes and according to the provisions of Section 54B of the Act it is not necessary that every inch of the land should be used for agricultural purposes and then only deduction u/s. 54B of the Act can be allowed. He therefore submitted that the claim of the assessee is disallowed by the lower authorities by discarding evidence produced by the assessee without any verification. Even the enquiry made by the Assessing Officer proved that the assessee has undertaken agricultural activities for past two years. The return of the assessee for earlier years also shows that agricultural income shown by the assessee is accepted by the Revenue. The report of the Patwari regarding fruit plantation may be correct because of the unsuccessfulattempt of fruit plantation, it could not be grown. But it is accepted fact that part of the land is used for agricultural purposes. He submitted that Rs.17,31,800/- was used out of above Capital Gain for the purpose of purchase of another agricultural land which is not in dispute. The amount of Rs.60,00,000/- invested in Capital Gain Account Scheme was offered for taxation in the subsequent year which has already been taxed by the Revenue. Thus, the claim of the assessee deserves to be allowed.
17. The learned Departmental Representative (D.R.)vehemently supported the orders of the learned lower authorities and stated that the agricultural activities on the land are not proved by the assessee but only in miniscule part the agricultural activities are stated to be carried out. Thus, if the land has not been used for agricultural activities for last two years, the claim of the assessee has been correctly disallowed. He submitted that when Section 54B of the Act itself does not apply to the assessee the claim of deposit in capital gain account scheme or purchase of another agricultural is also not applicable.
18. We have carefully considered the rival contention and have perused the orders of the learned lower authorities. The solitary issue in this appeal is whether assessee is entitled to deduction u/s. 54B of the Act.
19. According to the provisions of Section 54B of the Act if the assessee earns any long term capital gain from the transfer of agricultural land which is used for agricultural purposes in immediately preceding two years and purchases, within a period of two years from the date of the transfer and new agricultural land to be used for that purpose, then to the extent of cost of new agricultural land the capital gain is not chargeable to tax. It further provides that if the Capital Gain earned cannot be utilized prior to the due date of filing of the return of income, same can be deposited in capital gain scheme and the return of income if accompanied by the proof, Capital Gain shall not be charged to tax to that extent. If subsequently it is found that the amount so deposited is not used for the purposes of acquisition of new agricultural land, then the amount would be charged to tax in the hands of the assessee as long term capital gain in which the period of two years expire.
20. In this case, it is not in dispute that the assessee has acquired a new agricultural land for Rs.17,38,700/- and also deposited 60.00 lacs with the Capital Gain Account Scheme.
21. The dispute here is whether the land sold by the assessee on which capital gain arose is an agricultural land or not. To support the claim of the assessee that is agricultural land, the assessee has produced the report of patwari that assessee has grown Guarcrop for immediately two years preceding the date of transfer. The assessee has also stated that he tried to grow the fruit plantation by showing the purchase of plants. The learned Assessing Officer asked for a report from halka Patwari to show whether the land was used for agricultural activities or not. The halka Patwari stated that part of the land is used for agricultural activities. With respect to the fruit plantation, the report of Tehsildar shows that no such fruit plantation was made. It is not even the claim of the assessee that assessee has done fruit plantation and sold such fruits. The claim of the assessee is that it tried to cultivate fruit plantation but could not generate the income because of the adverse Merely planation bills are from unregistered suppliers, without examination cannot be disregarded. It is undisputed that in the earlier years, the assessee has shown agricultural income. On careful perusal of the provisions of Section 54B of the Act it is apparent that if a capital asset is sold by the assessee which is used for agricultural purposes, in the two years immediately preceding the date on which the transfer took place, therefore, assessee must have used the land for agricultural purposes in the two years immediately preceding the date of transfer. For the purposes of Section 54B of the Act, it is not necessary that the whole of the land should be continuously used for agricultural purposes for full two years immediately preceding the date of transfer. It would be sufficient if in the two years, the land is to be used for agricultural purposes. The plain language of Section 54B of the Act does not support the view that the land should be used for two years continuously and wholly. We draw support from the decision of the Hon’ble Punjab and Haryana High Court in the case of CIT vs. Dinesh Verma (2015) 60 taxmann.com 461. Undisputedly the assessee has shown agricultural income for earlier years which is demonstrated that for A.Y. 2011-12 the agricultural income of Rs.14,000/- is shown. It is not the case of the Revenue that the land being sold by the assessee was not agricultural land or was being used for any other purposes but assessee claims it to be agricultural land. The grievance of the revenue is that part of the land is used for agricultural purposes but assessee claims deduction u/s 54 B of the Act on whole of the land. It is fact that whole parcel of the land was an integrated asset. Even the independent report called for by the learned Assessing Officer from halka Patwari also supports that assessee carried on the activities of agricultural land by growing Gwar crop. This independent enquiry made by the Assessing Officer clinches the issue in favour of the assessee. In view of this, we find that the capital gain earned by the assessee is chargeable to tax on sale of agricultural land and consequent exemption u/s. 54B of the Act cannot be denied. The assessee purchased agricultural land out of the Capital Gain and further depositeda sum of Rs.60.00 lacs in Capital Gain Scheme, which was on withdrawal offered for taxation. Assessee has produced the copies of the return which is not disputed .
22. In view of the above facts, reversing the orders of the ld. lower authorities, we direct the learned Assessing Officer to grant deduction u/s. 54B of the Act to the assessee of Rs.77,31,800/-. Accordingly, ground no 2 of the appeal is allowed.
23. In the result, the appeal of the assessee is partly allowed.
(Order pronounced in the open court on 23/09/2024).
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