2022 (7) TMI 636 - AT - Income Tax

Deduction u/s 54B - Claim denied as agricultural land sold was not used for agricultural purpose for two years preceding the date of sale as the same was held only for a period of 22 months and some part of the land was used for growing grass - HELD THAT - The Co-ordinate bench of the Tribunal in the case of Majid Khan Nisar Khan 2017 (11) TMI 1129 - ITAT PUNE and Ramesh Narhari Jakhadi 1992 (2) TMI 178 - ITAT PUNE held that the reference to the term two years has been interpreted to mean that not during the whole period of two years, even if the land is used for some days in the earlier year, it would be sufficient for compliance of the provisions of section 54B of the Act. Similarly, the fact that part of the land could not be used for agricultural purpose but grass was grown owing to the conditions of drought does not disentitle the assessee as the land was held for agricultural purposes only. In the light of these decisions, we hold that the reasoning of lower authorities cannot be appreciated. Accordingly, the findings of lower authorities are reversed. Appeal of assessee allowed.

Summary

Issues:
- Exemption under section 54B of the Income Tax Act for the sale of agricultural land.
- Interpretation of the term "two years" in the context of agricultural land usage.
- Disallowance of deduction under section 54B by the Assessing Officer.
- Appeal against the order of the Commissioner of Income Tax (Appeals).

Analysis:
The appeals were filed by related assessees against orders of the Commissioner of Income Tax (Appeals) for the assessment year 2014-15. The Assessing Officer disallowed the claim for deduction under section 54B of the Income Tax Act, leading to the appeals. The primary reasons for disallowance were that the agricultural land sold was not used for agricultural purposes for two years preceding the sale and only a part of the land was cultivated during that period. The appellant contended that the land need not be a long-term capital asset for claiming the exemption under section 54B and that the land being used for agricultural purposes for any period during the two years suffices. The appellant also argued that adverse conditions like drought led to the cultivation of grass instead of crops on part of the land.

The issue at hand was the interpretation of the term "two years" in the context of agricultural land usage for claiming exemption under section 54B. The Tribunal referred to previous decisions where it was held that the land being used for agricultural purposes for any duration during the two years is sufficient for compliance with the provision. Additionally, adverse conditions like drought leading to the cultivation of grass instead of regular crops do not disqualify the land from being considered as used for agricultural purposes. Based on these interpretations, the Tribunal reversed the findings of the lower authorities and allowed the appeals filed by the assessee.

The Tribunal found that the reasoning of the lower authorities, including the Assessing Officer and the Commissioner of Income Tax (Appeals), was not in line with the interpretations provided by previous decisions. As the issues and facts in both appeals were similar, the decision rendered in one appeal was applied mutatis mutandis to the other. Consequently, both appeals were allowed, and the disallowance of the deduction under section 54B was overturned in favor of the assessee. The order was pronounced in the open court on 13th July 2022.