Shailendra Kumar Sogani Vs DCIT (ITAT Indore)
Section 54B Relief Allowed for Land Purchased Before Sale Deed Using Earlier Sale Receipts
Background of the Case
The assessee, an individual operating a petrol pump, challenged additions of ₹15,22,500 arising from denial of Section 54B deduction and ₹3,74,521 concerning alleged understatement of commission income.
He had filed his return on 29 September 2012, declaring total income of ₹28,24,060. The original scrutiny assessment, completed on 20 March 2015, accepted the returned income.
The Assessing Officer subsequently reopened the assessment through a notice under Section 148 dated 30 March 2017. The reassessment resulted in total income of ₹47,21,080.
The CIT(A) confirmed the additions, leading to the present appeal.
Reopening Challenge Rejected
The assessee argued that the relevant documents had already been furnished during the original scrutiny assessment and that reopening amounted to a change of opinion.
The Tribunal, however, found that the original assessment order merely recorded receipt of documents concerning the property transactions and petrol-pump business. It did not demonstrate examination or formation of an opinion on the specific issues subsequently raised.
The Tribunal therefore rejected the change-of-opinion objection and upheld reopening.
It nevertheless examined both additions independently on merits and granted substantive relief.
Agricultural Land Sold Under an Earlier Agreement
The assessee and his family members sold ancestral agricultural land for ₹6 crore. Under a family settlement, the assessee’s share of consideration was ₹30 lakh, which the Assessing Officer ultimately accepted.
The final sale deed was executed on 31 March 2012.
Before that date, the assessee had purchased replacement agricultural lands jointly with family members through two deeds dated 1 March 2012 and another dated 25 March 2012. His claimed share of investment was ₹15,22,500.
The Assessing Officer denied Section 54B relief because the replacement purchases preceded execution of the final sale deed.
Consideration and Possession Preceded the Replacement Purchases
The Tribunal examined the agreement to sell dated 20 December 2010, which provided for payment of consideration in instalments.
It found that the sellers had received ₹3.75 crore by 30 December 2011, well before the replacement purchases in March 2012.
The agreement also contemplated delivery of proportionate possession corresponding to the instalments received.
The Tribunal accepted that the family had received substantial consideration and parted with proportionate possession before execution of the final sale deed. It further found that the replacement purchases were funded from the consideration received under the earlier agreement.
Accordingly, restricting the enquiry to the date of registration overlooked the substance and sequence of the transactions.
Section 2(47) and Earlier Decisions Applied
The Tribunal relied on the Supreme Court’s decision in Sanjeev Lal v. CIT, concerning the significance of rights created and extinguished under an agreement to sell when examining “transfer” under Section 2(47).
It also followed Pitambar Lal v. ITO, ITA No. 173/Ind/2023, dated 12 December 2023. That decision supported Section 54B relief where replacement agricultural land was purchased using consideration received against the transfer, although the purchase preceded the final transfer documentation.
The Department argued that the agreement was unregistered and lacked evidentiary value.
The Tribunal rejected that objection on the facts, noting that the agreement had not been alleged to be bogus, fictitious or a sham.
The Section 54B disallowance of ₹15,22,500 was consequently deleted.
Petrol-Pump Commission Addition
The second dispute concerned commission from the sale of petrol and diesel.
The assessee had accounted for gross commission of ₹24,27,853. Based on information obtained from Indian Oil Corporation, the Assessing Officer computed commission at ₹28,02,374 and added the difference of ₹3,74,521.
The assessee relied on bank records, Form 26AS and the accounting presentation to dispute that computation.
He explained that the gross amount was reflected through separate components in the trading and profit and loss account, including an amount described as evaporation loss.
Form 26AS Supports the Recorded Commission
The Tribunal accepted the assessee’s demonstration from Form 26AS that the payment by Indian Oil Corporation was ₹24,27,853, rather than ₹28,02,374 as computed by the Assessing Officer.
It also examined the accounting breakup supporting the gross commission already recognised.
Finding the Department’s computation erroneous, the Tribunal deleted the commission addition of ₹3,74,521.
Both substantive additions were thus deleted, and the appeal was allowed, notwithstanding rejection of the reopening challenge.
Author’s Comments
The Section 54B ruling turns on earlier receipt of consideration, proportionate delivery of possession and the connection between those receipts and the replacement purchases. It should not be presented as an unrestricted rule allowing every agricultural land purchase made before sale.
The Tribunal also accepted the unregistered agreement as evidence on these facts; it did not comprehensively determine every registration-related question under Section 2(47).
On commission, the relief arose from the finding that the higher departmental computation was incorrect. The decision does not establish that Form 26AS alone invariably determines taxable income or overrides the applicable accounting method.
Cases Discussed
- CIT v. Usha International Ltd., (2012) 25 taxmann.com 200 (Delhi) (FB) — change of opinion.
- Sanjeev Lal v. CIT, Civil Appeal Nos. 5899–5900 of 2014, Supreme Court, 1 July 2014 — rights arising from agreement to sell.
- Pitambar Lal v. ITO, ITA No. 173/Ind/2023, ITAT Indore, 12 December 2023 — Section 54B and earlier replacement investment.
