2022 (12) TMI 114 - AT - Income Tax

Denying exemption u/s. 54B - compensation derived from the Government of Maharashtra of compulsory acquisition as non-taxable offered the capital gains - AO opined that land belong to the assessee is barren land as per 7/12 extract and the finding of CIT(A) that the said land is within 8 K.M. from the Municipal area of Jalna falling u/s. 2(14)(iii)(b) of the Act - HELD THAT - In the present case the assessee shown capital gain and claimed deduction u/s. 54B of the Act in my opinion is a wrong claim denial of the same for violation of provisions u/s. 54B of the Act is misconceived. As noted earlier the assessee fulfilled all the conditions contemplated in clause (i) to (iv) of sub-section (37) of section 10 of the Act but however ignorant of the same as entitled to claim compensation derived from the Government of Maharashtra of compulsory acquisition as non-taxable offered the capital gains to tax by claiming deduction u/s. 54B of the Act. As held by the Hon ble High Court of Bombay 2008 (12) TMI 88 - BOMBAY HIGH COURT that the authorities under the Act are required to assist the assessee in the assessment proceedings by giving effect on the correct position of law even if the assessee makes wrong claim. Therefore the compensation derived from the Government of Maharashtra on the compulsory acquisition of assessee s land the assessee is entitled to claim the same as exempted u/s. 10(37) of the Act. Thus the order of CIT(A) in confirming the view of AO in denying the deduction u/s. 54B of the Act is not justified and the addition made thereon is deleted. Thus the grounds raised by the assessee are allowed.

Summary

Issues:
Challenge to denial of exemption u/s. 54B of the Act and disallowance of improvement cost.

Analysis:
The appeal was against the CIT(A)'s order for the assessment year 2009-10. The AO treated the land as non-agricultural and denied exemption u/s. 54B as the assessee did not utilize the capital gain amount for a new asset. The CIT(A) upheld this view. However, the ITAT Pune found no evidence supporting the AO's claim that the land was non-agricultural. The AO failed to verify the land's status independently. The ITAT noted that barren land could become fertile with irrigation. The compensation for land acquisition was non-taxable, but the denial of exemption u/s. 54B was solely due to the lack of deposits in capital gains accounts.

The ITAT reviewed evidence provided by the CA, showing the land was under cultivation. The ITAT also considered the High Court decision emphasizing assisting taxpayers to ensure correct tax collection. The ITAT found the land qualified for exemption u/s. 10(37) as agricultural land within specified urban limits. Affidavits confirmed agricultural activity on the land, justifying its classification as barren due to irrigation issues. The ITAT held the assessee entitled to claim exemption u/s. 10(37) due to fulfilling all conditions.

Referring to the High Court decision, the ITAT emphasized assisting taxpayers in assessment proceedings. Despite the wrong claim u/s. 54B, the ITAT ruled in favor of the assessee, allowing the compensation as exempt u/s. 10(37). The ITAT overturned the CIT(A)'s decision, deeming the denial of deduction u/s. 54B unjustified. Consequently, the ITAT allowed the assessee's appeal, ruling in their favor.

In conclusion, the ITAT Pune allowed the appeal, emphasizing the entitlement to exemption u/s. 10(37) for the compensation derived from the compulsory acquisition of the land. The ITAT's detailed analysis highlighted the importance of assisting taxpayers and ensuring correct tax assessments, ultimately leading to a favorable judgment for the assessee.