2024 (11) TMI 1023 - AT - Income Tax

Denial of deduction u/s 54B - land sold was barren land on which no agricultural activity is carried out - According to the AO as per the provisions of section 54B only agricultural land purchased after the date of transfer is allowed as deduction - HELD THAT - The assessee has purchased the new agricultural land before the land in question was sold, the investment in the land was also made jointly i.e. in the name of the assessee as well as Mr. Santosh Vitthal Mhsurkar and the assessee did not offer any clarification to indicate his share in the said investment, if any. It is the submission of assessee that he was running a dairy firm and the land sold was used for growing grass and therefore, it was an agricultural activity. It is also his submission that in the case of one of the co-owners i.e. Mr. Santosh Vitthal Mhsurkar, the AO in the order passed u/s 144/147, dated 13.03.2024 for assessment year 2016-17 has accepted the land as agricultural land, therefore, the assessee being a party to the same sale deed for the same land, the AO cannot take a different view. It is also his submission that the various documents filed before the Assessing Officer as well as the Ld. CIT(A) / NFAC evidencing the sale of milk to dairy, cattle food, farm pesticides and medicines, details of crop revenue, etc. were completely ignored by the lower authorities. We find some force in the above arguments of assessee. A perusal of the assessment order of Mr. Santosh Vitthal Mhsurkar/coowner shows that the AO has accepted the land sold as ancestral agricultural land and is not a capital asset as per section 2(14) of the Income Tax Act, 1961. This order was passed by the Assessing Officer after the order passed by the Ld. CIT(A) / NFAC and this was accepted as an additional evidence. In the instant case, the assessee is the consenting party No.2 to the sale of the said land and the same sale deed. We further find that the various documents filed by the assessee in the paper book were not considered by the Ld. CIT(A) / NFAC. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:

1. Eligibility for deduction under Section 54B of the Income Tax Act.
2. Classification of land as agricultural land under Section 2(14)(iii) of the Income Tax Act.
3. Timing and conditions of land purchase for claiming exemption under Section 54B.
4. Consideration of additional evidence and documentation submitted by the assessee.

Detailed Analysis:

1. Eligibility for Deduction under Section 54B:

The primary issue in this case was whether the assessee was entitled to claim a deduction under Section 54B of the Income Tax Act for the sale of agricultural land. The Assessing Officer (AO) rejected the claim on two grounds: first, the assessee failed to provide sufficient evidence of agricultural activity on the land for the two years preceding its sale, as required by Section 54B. The AO noted that the land was barren and lacked proof of cultivation. Second, the AO contended that the new agricultural land was purchased before the sale of the original land, which contravened Section 54B's stipulation that the new land must be purchased after the sale of the original land.

2. Classification of Land as Agricultural Land:

The assessee argued that the land sold was agricultural, supported by a Zone Certificate. However, the AO and the CIT(A)/NFAC concluded that the land did not qualify as agricultural under Section 2(14)(iii) due to its location within a semi-urban area and the absence of evidence of agricultural use. The CIT(A)/NFAC emphasized that the land was sold to a real estate developer, further suggesting its non-agricultural nature.

3. Timing and Conditions of Land Purchase:

The timing of the land purchase was a critical factor. The AO and the CIT(A)/NFAC both highlighted that the new agricultural land was purchased before the sale of the original land, violating Section 54B requirements. The assessee contended that the sale agreement's first installment date should be considered the transfer date, thus justifying the timing of the new land purchase. However, this argument was not accepted by the lower authorities.

4. Consideration of Additional Evidence and Documentation:

The assessee submitted various documents, including evidence of agricultural activities and sale deeds, which were allegedly ignored by the AO and CIT(A)/NFAC. The Tribunal found merit in the assessee's argument that similar claims by co-owners of the land were accepted in other assessments, suggesting inconsistency in the treatment of the same land. The Tribunal noted that additional evidence, such as the assessment order of a co-owner, supported the claim that the land was agricultural.

Conclusion:

The Tribunal found procedural lapses in the consideration of evidence and the application of legal principles by the lower authorities. It observed that the AO had accepted similar claims for a co-owner, indicating potential oversight in the assessee's case. Consequently, the Tribunal decided to remand the case back to the AO for a fresh assessment, emphasizing the need for a thorough review of all submitted evidence and adherence to legal standards. The appeal was allowed for statistical purposes, and the Tribunal directed the AO to provide the assessee with an opportunity to present their case comprehensively.