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2025 (2) TMI 487 - AT - Income TaxDisallowance of claim of exemption u/s 54B - investment in new agriculture land - HELD THAT - Undisputedly the assessee has shown agricultural income for earlier years which is demonstrated that for A.Y. 2011-12 the agricultural income of Rs. 14, 000/- is shown. It is not the case of the Revenue that the land being sold by the assessee was not agricultural land or was being used for any other purposes but assessee claims it to be agricultural land. The grievance of the revenue is that part of the land is used for agricultural purposes but assessee claims deduction u/s 54B of the Act on whole of the land. It is fact that whole parcel of the land was an integrated asset. Even the independent report called for by the AO from halka Patwari also supports that assessee carried on the activities of agricultural land by growing Gwar crop. This independent enquiry made by the AO clinches the issue in favour of the assessee. Capital gain earned by the assessee is chargeable to tax on sale of agricultural land and consequent exemption u/s. 54B cannot be denied. Assessee purchased agricultural land out of the Capital Gain and further deposited a sum of Rs. 60.00 lacs in Capital Gain Scheme which was on withdrawal offered for taxation. Assessee has produced the copies of the return which is not disputed .
ISSUES PRESENTED and CONSIDERED
The core legal issue considered in this judgment is whether the assessee is entitled to a deduction under Section 54B of the Income Tax Act, 1961, concerning the capital gains arising from the sale of agricultural land. The specific questions include:
ISSUE-WISE DETAILED ANALYSIS 1. Relevant Legal Framework and Precedents Section 54B of the Income Tax Act allows an exemption from capital gains tax if the capital gain arises from the transfer of agricultural land used for agricultural purposes in the two years immediately preceding the transfer. The exemption applies if the assessee purchases new agricultural land within two years of the transfer or deposits the unutilized capital gain in a Capital Gain Account Scheme. The Court referenced the decision of the Punjab and Haryana High Court in CIT vs. Dinesh Verma, which clarified that the land need not be used continuously and wholly for agricultural purposes for two years to qualify for the exemption under Section 54B. 2. Court's Interpretation and Reasoning The Court examined whether the land sold by the assessee was used for agricultural purposes. The assessee provided evidence of agricultural activities, including the cultivation of Guar crops and attempts at fruit plantation. The Court noted that the Assessing Officer's independent inquiry from the halka Patwari confirmed agricultural use of the land. The Court emphasized that Section 54B does not require continuous or complete agricultural use of the land for two years. It is sufficient if the land was used for agricultural purposes during the two-year period. 3. Key Evidence and Findings The assessee presented several pieces of evidence, including:
The Assessing Officer's report corroborated the assessee's claim that part of the land was used for agricultural purposes. 4. Application of Law to Facts The Court applied Section 54B, acknowledging that the assessee had demonstrated the agricultural use of the land in the two years preceding the sale. The Court found that the assessee's partial use of the land for agricultural purposes sufficed for the exemption under Section 54B. The Court also recognized the assessee's compliance with the requirement to invest in new agricultural land and deposit in the Capital Gain Account Scheme, further supporting the claim for deduction. 5. Treatment of Competing Arguments The Department argued that only a small portion of the land was used for agriculture, and thus, the exemption should not apply. The Court rejected this argument, citing the broader interpretation of Section 54B, which does not mandate complete and continuous agricultural use. The Court also dismissed the Department's concerns about the unregistered dealer's bills for plant purchases, noting that such procedural issues should not negate the substantive agricultural use of the land. 6. Conclusions The Court concluded that the assessee met the requirements for a deduction under Section 54B. The agricultural use of the land, even if partial, qualified the assessee for the exemption, and the investments in new agricultural land and the Capital Gain Account Scheme were valid. SIGNIFICANT HOLDINGS The Court held that the assessee is entitled to the deduction under Section 54B of the Income Tax Act. The Court's reasoning emphasized that the requirement for agricultural use does not necessitate continuous or complete use of the entire land parcel for two years. Core Principles Established
Final Determinations on Each Issue
The appeal was partly allowed, with the Court directing the Assessing Officer to grant the deduction as claimed by the assessee.
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