Whether capital Gain exemption admissible under section 54B if entire land sold was not cultivable but only part of the land was cultivable?

Short Overview : For claiming benefit under section 54B it is not necessary that the entire land should be used for cultivation. Therefore, even if any part of land is under cultivation for two years immediately preceding the date of transfer, it would be sufficient to claim exemption under section 54B. Merely because of admission of proportionate disallowance, the assessee could not be denied the benefit to which he was eligible.

Assessee had invested the capital gains for purchase of another agricultural land and claimed exemption under section 54B. AO alleged that only part of land was used for agriculture purpose. Hence, AO made disallowance of proportionate exemption under section 54B.Revenue further alleged that as assessee had admitted for the proportionate disallowance, now he could not take a different stand.

it is held that Section 54B does not specify that the entire land should be used for cultivation. So, if any part of the land is under cultivation for two years immediately preceding the date of transfer, it would be sufficient to claim exemption under section 54B. Merely because of admission of proportionate disallowance, the assessee could not be denied the benefit to which he was eligible.

Decision: In assessee’s favour.

Followed: Dy. CIT v. Mahesh Danabhai Patel (ITA No. 1534/PUN/2015 Order, dated 31-1-2018)

IN THE ITAT, PUNE BENCH

SUSHMA CHOWLA, J.M. & ANIL CHATURVEDI, A.M.

Rajendra Bastimal Chordiya v. ITO

ITA No. 1295/PUN/2017

7 June, 2019

Assessee by: P.S. Shingte.

Revenue by: N. Ashok Babu.

Anil Chaturvedi, A.M.

This appeal filed by the assessee is emanating out of the order of Commissioner (Appeals)-1, Nashik dated 1-3-2017 for the assessment year 2013-14.

2. The relevant facts as culled out from the material on record are as under :–

Assessee is an individual having income from business. Assessee electronically filed his return of income for assessment year 2013-14 on 25-2-2014 declaring total income at Rs. 2,76,967. The case was selected for scrutiny and thereafter, assessment was framed under section 143(3) of the Act vide Order, dated 8-12-2015 and the total income was determined at Rs. 13,01,560. Aggrieved by the order of assessing officer, assessee carried the matter before learned Commissioner (Appeals) who vide Order, dated 1-3-2017 (in Appeal No. Nsk/CIT(A)-1/588/2015-16) dismissed the appeal of the assessee. Aggrieved by the order of learned Commissioner (Appeals), assessee is now in appeal before us and has raised the following grounds :–

“1. On the basis of the facts and in the circumstances of the case, the learned Commissioner (Appeals) erred in confirming disallowance of proportionate exemption of Rs. 10,24,588 claimed under section 54B of the Income Tax Act without appreciating the fact that agricultural land which was sold was used for agriculture purposes in two years immediately preceding the date of its transfer. The Appellant prays that disallowance made of Rs. 10,24,588 may please be deleted.

2. Without prejudice to Ground No. 1 and on the basis of the facts and in the circumstances of the case, the learned Commissioner (Appeals) erred in confirming the disallowance without appreciating the fact that observations in assessment order that Authorised Representative of the appellant was confronted and he agreed for the disallowance, are wrong and contrary to the facts on records. No opportunity of being heard was given to appellant by the learned assessing officer. The Appellant prays that disallowance made of Rs. 10,24,588 may please be deleted.”

3. Both the grounds being inter-connected are considered together.

4. During the course of assessment proceedings, assessing officer noticed that assessee had sold agricultural land at Gut No. 247 at Titoli for Rs. 50 lakhs (assessee’s share being 1/3rd amounting to Rs. 16,66,667).

Assessee had shown long-term capital gains of Rs. 12,64,923 being his share. It was stated that assessee had invested the capital gains for purchase of another agricultural land and accordingly had claimed exemption under section 54B of the Act. The assessee was asked to produce 7/12 extract of land for sale of land and justify the claim of exemption under section 54B of the Act. On perusing 7/12 extract and the confirmation of Talathi of Titoli, assessing officer noticed that out of the total area of 1 hectare 12R, rice was grown only on 0.20 R piece of land and the balance land of 0.81R was non agricultural land. Assessing officer noted that no documentary evidence for carrying out any agricultural activities on the aforesaid land was brought on record. assessing officer further noted that the Authorised Representative of the assessee agreed for proportionate disallowance.

Assessing officer accordingly worked out the investments at Rs. 10,24,588 being not allowable under section 54B of the Act and disallowed the same. Aggrieved by the order of assessing officer, assessee carried the matter before learned Commissioner (Appeals), who upheld the order of assessing officer by noting the fact that the Authorised Representative of the assessee had agreed for proportionate disallowance at the time of assessment proceedings and therefore he cannot revert back. She thus upheld the order of assessing officer. Aggrieved by the order of learned Commissioner (Appeals), assessee is now before us.

5. Before us, learned Authorised Representative reiterated the submission made before assessing officer and learned Commissioner (Appeals) and submitted that neither the Authorised Representative of the assessee was confronted nor his Authorised Representative agreed for proportionate disallowance. He further submitted that assessing officer did not grant opportunity of being heard before making disallowance of proportionate exemption under section 54B of the Act and thereby violated the principles of natural justice. In support of his aforesaid contentions, he pointed to copy of submissions made before learned Commissioner (Appeals) and which are placed at Page 3 of the Paper Book. On the merits, he pointed to the map of the land which is placed at Page No. 39 of the Paper Book. From the aforesaid map, he pointed that the land is one but having different survey numbers. He thereafter pointed to the copy of 7/12 extracts which are placed at Page Nos. 37 and 39 of the Paper Book and pointed to the crop which are grown in the aforesaid land. He thereafter submitted that the provisions of section 54B of the Act mandates that the land should be used for agricultural purpose in the immediately two preceding years prior to the date of transfer. The law does not require that entire land should be used for cultivation purpose or the land should be used for agriculture purpose throughout the years. He submitted that even if a part of the land is used for agricultural purpose by the assessee then assessee is eligible for claim of deduction under section 54B of the Act and in support of his aforesaid contention, he placed reliance on the decision of Pune Tribunal in the case of DCIT v. Mahesh Danabhai Patel, (ITA No. 1534/PUN/2015 Order, dated 31-1-2018). He therefore submitted that the assessing officer was not justified in denying the claim of deduction. Learned Departmental Representative on the other hand, supported the order of assessing officer and learned Commissioner (Appeals). He further submitted that as the authorised representative of the assessee admitted before assessing officer for the proportionate disallowance, the assessee now cannot take a different stand. He thus supported the order of lower authorities.

6. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to the denial of claim of deduction under section 54B of the Act for the reason that the land was not cultivable. We find that the reason for denying the claim of deduction under section 54B of the Act was for the reason that out of the total area of 1 hectare 12R, agricultural activities were carried out on a portion of the land and there was no evidence of crop grown on the balance portion of the land. Before us, it is assessee’s submission that the entire land is one land and the fact that crop was grown in portion of land is not disputed. We find that the Co-ordinate Bench of the Tribunal in the case of Mahesh Danabhai Patel (supra) has held that provisions of section 54B of the Act does not specify that the entire land should be used for cultivation for claiming benefit under section 54B of the Act. It held that if any part of the land is under cultivation for two years immediately two preceding years prior to the date of transfer, it would be sufficient to claim benefit under section 54B of the Act. Before us, Revenue has not placed any contrary binding decision in its support nor has placed any material on record to demonstrate that the aforesaid decision in the case of DCIT v. Mahesh Danabhai Patel (supra) has been set aside or stayed by the higher Judicial Authorities. We find that assessing officer has noted that Authorised Representative of the assessee agreed for disallowance and therefore the assessing officer proceeded with proportionate disallowance. On the other hand, it is assessee’s contention that the statement of assessing officer of the Authorised Representative having agreed for disallowance is factually incorrect. In the present case, we are of the view that since the issue on merits is covered in assessee’s favour by the decision of Pune ITAT, cited hereinabove, then merely because of admission of disallowance, the assessee cannot be denied the benefit to which he is eligible. We therefore following the decision of Co-ordinate Bench of the Tribunal in the case of Mahesh Danabhai Patel (supra) are of the view that the assessing officer was not justified in denying the claim of deduction under section 54B of the Act and we therefore direct the assessing officer to deduct the claim. Thus, the grounds of assessee are allowed.

7. In the result, the appeal of assessee is allowed.