2022 (3) TMI 1074 - AT - Income Tax

Deduction u/s 54B - Claim denied on the ground that the first condition of the said provision is not fulfilled i.e. the assessee was not carrying on any agricultural activities on the said land two years immediately preceding the date of transfer of the said land - HELD THAT - In terms of getting benefit u/s 54B of the Act, case of the assessee before us is on a better footing even compared to the decision of RAJENDRA BASTIMAL CHORDIYA 2019 (7) TMI 924 - ITAT PUNE . We also find that in the narration by the ld. CIT(A), he has denied deduction u/s 54B of the Act on some imaginary ground that the land was sold by the assessee to a developer and ultimately the land would be used for non-agricultural purposes. This is not at all a subject matter for consideration while deciding the issue for giving benefit u/s 54B - A.O has disputed only one condition of sec. 54B of the Act while denying deduction to the assessee that the land was not used for agricultural purposes, two years prior to the sale transaction and we have already examined this requirement has been fulfilled in the case of the assessee. Beyond this, nothing else is required to get the deduction u/s 54B of the Act when the second condition is not at all disputed by the Department. Even in the case of CIT Vs. Smt. Savita Rani 2002 (5) TMI 6 - PUNJAB AND HARYANA HIGH COURT has categorically held that the exemption u/s 54B is available to the seller of a capital asset being land, however, the said land against which the benefit is sought must have been used by the assessee for agricultural purposes for the two years immediately preceding the date of sale. Having satisfied this condition, we are of the considered view that the assessee is entitled to the deduction u/s 54B of the Act and accordingly we reverse the finding of the ld. CIT(A) and allow Ground No. 1 of the assessee. Capital gain computation - disallowing deduction towards indexed cost of improvement u/s 55 of the Act while computing the long term capital gain on sale of agricultural land - HELD THAT - We are of the considered view that the ld. A.O should verify and re-adjudicate it as per law. Accordingly, the order of the ld. CIT(A) is set aside on this issue and the said issue is restored to the file of the ld. A.O. Needless to mention, the ld. A.O must comply with the principles of natural justice and provide reasonable opportunity of hearing to the assessee. Ground No. 2 is accordingly, allowed for statistical purposes.

Summary

Issues Involved:
1. Deduction under section 54B of the Income-tax Act, 1961.
2. Deduction towards indexed cost of improvement under section 55 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deduction under section 54B of the Income-tax Act, 1961:

The primary issue revolved around the denial of deduction under section 54B of the Income-tax Act, 1961. The assessee claimed a deduction of ?82,38,174/- against long-term capital gains on the sale of agricultural land. The Assessing Officer (A.O.) denied this deduction, arguing that the assessee had not carried out agricultural operations on the land for the two years preceding the date of transfer, as required by section 54B. The A.O. based his conclusion on the verification of the sale and purchase deed of the land and the 7/12 extracts, which indicated that the land was barren and no agricultural activities had been conducted since the financial year 2008-09.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, adding that the land was sold to a developer, which suggested that the purchaser had no intention of using it for agricultural purposes. However, the Tribunal found that this reasoning was irrelevant for the determination of the deduction under section 54B.

The Tribunal examined the 7/12 extracts and found that the land had been used for agricultural purposes, including the growth of 350 teak trees, jackfruit trees, and other vegetation from the financial year 2006-07 to 2011-12. The Tribunal cited the Supreme Court's decision in CIT v. Raja Benoy Kumar Sahas Roy, which clarified that agricultural produce includes trees and other vegetation grown on the land. The Tribunal concluded that the assessee had fulfilled the conditions of section 54B, as the land was used for agricultural purposes in the two years immediately preceding the date of transfer. Consequently, the Tribunal reversed the CIT(A)'s decision and allowed the deduction under section 54B.

2. Deduction towards indexed cost of improvement under section 55 of the Income-tax Act, 1961:

The second issue concerned the deduction of ?7,31,847/- towards the indexed cost of improvement claimed under section 55 while computing long-term capital gains. The A.O. disallowed this deduction, stating that no details were provided for verification of the expenditure. The assessee contended that a confirmation letter from the contractor regarding the improvement cost was sent to the A.O. by post, but it was received after the assessment order was passed.

The Tribunal noted that the CIT(A) had not adjudicated on this issue. The Tribunal found that the assessee had provided a detailed break-up of the improvement costs, which included land measurement costs, Najarana costs, and other improvement costs after indexation. Given the circumstances, the Tribunal deemed it appropriate to remand the issue back to the A.O. for verification of the confirmation letter and re-adjudication as per law. The A.O. was directed to comply with the principles of natural justice and provide a reasonable opportunity of hearing to the assessee.

Conclusion:

The appeal was partly allowed for statistical purposes. The Tribunal allowed the deduction under section 54B, reversing the CIT(A)'s decision, and remanded the issue of the indexed cost of improvement back to the A.O. for further verification and re-adjudication.