2015 (2) TMI 572 - AT - Income Tax

Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases - whether CIT(A) erred in allowing the deduction U/S 54B without considering the basic condition of the said section the assessee should have used the land for agricultural purpose for a period of two years? - Held that - We set aside the order of CIT(A) as, in our opinion, the provisions of Sec. 54B mandates that the land must have been in the two years immediately preceding the date on which the transfer took place used by the Assessee or his parent for agricultural purpose. This section nowhere talks that the land must be used for agricultural purpose at any time in the preceding two years from the date when the transfer took place. We, accordingly, set aside the order of CIT(A) and restore the order of the AO and direct the AO not to allow the exemption to the Assessee u/s 54B. - Decided in favour of revenue.

Issues Involved:
- Appeal against deletion of addition of Capital Gains
- Allowance of set off claimed by the assessee
- Allowance of deduction U/S 54B without considering basic conditions
- Failure to prove new land used for agricultural purpose
- Non-production of material evidence to establish agricultural activities

Analysis:

1. Appeal against Deletion of Addition of Capital Gains:
The appeals filed by the Revenue were against the orders of CIT(A) for A.Y 2007-08. The main issue was the deletion of the addition of Capital Gains amounting to Rs. 1,15,15,490. The Revenue contended that the CIT(A) erred in allowing the exemption claimed by the assessee under section 54B of the Income Tax Act. The AO disallowed the exemption as the land sold by the assessee was not used for agricultural purposes for the required period. However, the CIT(A) allowed the deduction based on the evidence provided by the assessee, including land revenue records and photographs, showing agricultural activities carried out. The Tribunal analyzed the provisions of section 54B and concluded that the land must have been continuously used for agriculture by the assessee or his parent in the two years immediately preceding the sale to avail the exemption. As the land was sold within a year of purchase, the Tribunal held that the assessee did not meet this condition, leading to the disallowance of the exemption.

2. Allowance of Set Off Claimed by the Assessee:
The Revenue also challenged the allowance of set off claimed by the assessee. The CIT(A) had allowed the set off under section 54B after considering the evidence presented by the assessee, which included proof of agricultural activities conducted on the land. The Tribunal, however, emphasized that the key requirement for availing the exemption under section 54B is the continuous use of the land for agriculture in the two years preceding the sale. Since the land was sold within a year of purchase, the Tribunal held that the conditions for the set off were not met. Therefore, the order of the CIT(A) allowing the set off was set aside, and the AO was directed not to grant the exemption under section 54B.

3. Failure to Prove New Land Used for Agricultural Purpose:
Another issue raised was the failure of the assessee to prove that the new land purchased had been used for agricultural purposes. The Revenue argued that the assessee did not provide sufficient evidence such as crops grown, purchase bills of fertilizers and seeds, or labor payment vouchers to establish agricultural activities on the land. The Tribunal noted that while the assessee had presented some evidence like land revenue records and photographs, the crucial requirement of continuous agricultural use in the two years prior to the sale was not met. Therefore, the Tribunal upheld the AO's decision and directed not to allow the exemption under section 54B.

4. Non-Production of Material Evidence to Establish Agricultural Activities:
The final issue related to the non-production of material evidence by the assessee to establish agricultural activities on the land. The Revenue contended that the assessee failed to provide essential documents like purchase bills of fertilizers, seeds, and labor payments to prove agricultural operations on the land. The Tribunal acknowledged the evidence submitted by the assessee, including land revenue records and photographs, but reiterated that the continuous agricultural use requirement was not fulfilled. Consequently, the Tribunal upheld the AO's decision and ruled against allowing the exemption under section 54B.

In conclusion, the Tribunal allowed the appeals filed by the Revenue, setting aside the CIT(A)'s order and directing the AO not to grant the exemption under section 54B due to the failure to meet the statutory conditions, particularly the continuous agricultural use requirement in the two years preceding the sale of the land.

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