2023 (5) TMI 839 - AT - Income Tax

Disallowance of exemption u/s 54B - Whether assessee has failed to establish with documentary evidences that the agricultural activities have been carried out by him at least for a period of two years immediately preceding the dates of transfer? - CIT-A deleted the addition - HELD THAT - We find that the assessee right from the beginning has claimed deduction u/s 54B - AO instead of examining the claim of Section 54B in right perspective, started investigation as that the assessee is not eligible for exemption of capital gain. The investigation of AO was not on right track. Assessee is eligible for claiming exemption of Section 54B irrespective of fact whether the land sold by individual assessee falls in rural area or in urban area. The conditions for claiming eligibility are that the land must have been used for agricultural purpose immediately for two years from the date of transfer for the agricultural purpose and the land acquired on investing such sale proceed should be used for agriculture purpose. We find that the AO has not questioned the nature of land purchased by assessee. To prove the claim of Section 54B, the assessee has shown agricultural income in three preceeding assessment years and return of income for three preceeding assessment years were filed the assessee also furnished the details recorded in Form 8 and 7/12 extract. Besides that, the assessee also furnished the evidence of sale of cotton, vegetables to APMC and Amish Oil Mills. AO while rejecting the claim of assessee u/s 54B, referred the decision of Hon'ble Jurisdictional High Court in CIT Vs. Siddhartha J. Desai 1981 (9) TMI 48 - GUJARAT HIGH COURT but AO failed to appreciate the decision in correct perspective as the fact of said decision are more favorable to the assessee. the nature of land was also converted from agriculture to non-agriculture purpose just before transfer of land and the same was considered as a transfer of agriculture land as far as seller is concerned. Those facts exactly similar to the facts of the present case. Thus, we find that the ld. CIT(A) on appreciation of such evidence, allowed the deduction under Section 54B of the Act. We find that finding of ld. CIT(A) is based on appreciation of evidence. Invoking provisions of Section 50C of the Act by the AO - assessee vehemently submitted that the assessee sold agricultural land and the value of consideration was more than the Jantri value applicable for agricultural land, the Jantri value applied by Stamp Valuation Authority for collection of stamp from purchaser by applying the rate of non-agricultural land. We find that on such issue, the Assessing Officer has not brought any adverse evidence against the assessee. AO has not examined the purchaser, thus, we find merit in the submission of ld. AR of the assessee that the assessee is not liable to be taxed by invoking provisions of Section 50C of the Act in absence of any supporting evidence. We direct the AO to compute the capital gain on the basis of sale consideration shown on the sale deed dated 10.07.2013. Assessee appeal allowed.

Summary

Issues Involved:

1. Disallowance under Section 54B of the Income Tax Act.
2. Invocation of provisions of Section 50C of the Income Tax Act.
3. Condonation of delay in filing the cross appeal by the assessee.

Summary:

1. Disallowance under Section 54B of the Income Tax Act:

The Revenue challenged the CIT(A)'s decision to allow the assessee's deduction under Section 54B of the Income Tax Act, which pertains to capital gains on the transfer of agricultural land. The Assessing Officer (AO) disallowed the deduction, arguing that the land was non-agricultural at the time of sale and that the assessee failed to provide sufficient evidence of agricultural activities for the two years preceding the transfer. However, the CIT(A) found that the assessee had shown regular agricultural income in previous years and had invested the sale proceeds in purchasing new agricultural land, fulfilling the conditions of Section 54B. The Tribunal upheld the CIT(A)'s decision, noting that the AO's investigation was not on the right track and that the assessee met the requirements for the deduction.

2. Invocation of provisions of Section 50C of the Income Tax Act:

The assessee contested the AO's application of Section 50C, which deals with the valuation of capital assets based on stamp duty valuation. The AO had added the difference between the sale consideration and the stamp duty valuation to the assessee's income. The CIT(A) did not provide a specific finding on this issue. The Tribunal found merit in the assessee's argument that the land was sold as agricultural land and that the stamp duty was calculated based on non-agricultural rates, which was not justified. The Tribunal directed the AO to compute the capital gain based on the sale consideration shown in the sale deed, thus allowing the assessee's appeal on this ground.

3. Condonation of delay in filing the cross appeal by the assessee:

The assessee filed the cross appeal with a delay of 21 days, explaining that the delay was due to initially pursuing a rectification application under Section 154 before the CIT(A) based on legal advice. The Tribunal found that the delay was neither intentional nor deliberate and condoned it, allowing the appeal to be heard on its merits.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, affirming the CIT(A)'s decision to grant the deduction under Section 54B and directing the AO to compute the capital gain based on the actual sale consideration without invoking Section 50C. The delay in filing the cross appeal by the assessee was condoned.