2012 (4) TMI 399 - AT - Income Tax

Claim of exemption u/s 54B and expenditure incurred towards improvement of land - Sale of 1.81 acre of land by Assessee and his co-owners assessee out of his 1/3rd share in the sale consideration purchased another piece of agricultural land - claim disallowed - Held that - It is essential that for claiming the benefit of exemption of section 54B, capital asset sold should have been used either by the assessee or his parents for agricultural purposes in the two years immediately preceding the date on which the transfer took place - detailed enquiry ascertain by AO and the land revenue authorities categorically statement that as per revenue records no crop was cultivated/agricultural activity undertaken on the land owned by the assessee - no concrete evidence has been brought on record by the assessee to controvert the finding of facts recorded by the lower authorities - production of statements of neighbours of the assessee are vague and sketchy - the assessee has miserably failed to prove that the land in question was agricultural land and he had cultivated crops in the land against assessee.

Summary

Issues:
Claim of exemption under section 54B of the Income Tax Act, 1961 for investment in agricultural land and disallowance of expenditure incurred towards land improvement.

Analysis:
The appellant, claiming to be the owner of agricultural land, filed a return of income for the assessment year 2008-09, which was scrutinized under section 143(3). The appellant and co-owners sold 1.81 acres of land, with the appellant having a 1/3rd share. The appellant purchased another piece of agricultural land from the sale proceeds and sought exemption under section 54B. The Assessing Officer disallowed the claim under section 54B and also disallowed the expenditure incurred towards land improvement during 1982-83. The Commissioner of Income Tax (Appeals) upheld the disallowances due to lack of evidence of agricultural operations. The appellant contended that he is an agriculturist and the land is agricultural, challenging the disallowances. The Departmental Representative argued that no agricultural activities were conducted on the land, supported by revenue records and statements from village authorities.

The provisions of section 54B(1) require that the capital asset sold should have been used for agricultural purposes in the two years preceding the transfer, and the assessee should purchase another land for agricultural purposes within two years. The appellant failed to satisfy the first condition as no concrete evidence of agricultural activities was presented. Statements from neighbors were vague and inconclusive, not superior to revenue records showing no cultivation on the land. Bills produced later were deemed unreliable as an afterthought. The appellant's claim for deduction on land improvement lacked documentary evidence. The Tribunal found no infirmity in the Commissioner's order and dismissed the appeal, upholding the disallowances. The appellant's failure to prove agricultural use of the land led to the rejection of the exemption claim and expenditure deduction, as per the provisions of section 54B.

In conclusion, the Tribunal upheld the disallowance of the exemption claim under section 54B and the expenditure deduction due to the appellant's inability to provide substantial evidence of agricultural activities on the land, as required by the Income Tax Act. The appeal was dismissed, affirming the Commissioner's decision.