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2021 (5) TMI 320 - AT - Income Tax


Issues Involved:
1. Classification of agricultural land as a capital asset.
2. Disallowance of deduction under Section 54B of the Income Tax Act.

Detailed Analysis:

Issue 1: Classification of Agricultural Land as a Capital Asset

The primary issue was whether the agricultural land sold by the assessee should be classified as a capital asset under Section 2(14) of the Income Tax Act. The assessee argued that the land, located outside the Surat Municipal Corporation (SMC) limits and used exclusively for agricultural purposes, should not be treated as a capital asset. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, citing that the land was within 8 kilometers of the SMC limits, thus qualifying it as a capital asset under Section 2(14).

The Tribunal noted that the AO had treated the land as agricultural in the case of the assessee's mother, a co-owner, and allowed deductions under Section 54B. The Tribunal emphasized consistency, noting that if the land was treated as agricultural for one co-owner, it should be treated similarly for the other. Additionally, the Tribunal highlighted that the population of village Navagam was less than 10,000, failing one of the conditions under Section 2(14), thus not qualifying as a capital asset. Consequently, the Tribunal directed the AO to treat the land as agricultural.

Issue 2: Disallowance of Deduction under Section 54B

The second issue concerned the disallowance of the assessee's claim for deduction under Section 54B, related to the reinvestment in new agricultural land. The AO partially allowed the deduction, disallowing amounts paid in cash due to lack of verifiable evidence. The CIT(A) upheld this decision.

The Tribunal, however, found that the assessee had made actual investments in new agricultural land, supported by affidavits and other evidence. The Tribunal held that the assessee fulfilled the conditions under Section 54B, which allows for deductions on capital gains from the sale of agricultural land if the proceeds are reinvested in new agricultural land. The Tribunal directed the AO to allow the full deduction under Section 54B.

Conclusion:

The Tribunal ruled in favor of the assessee on both issues. It directed that the land be treated as agricultural, not a capital asset, and allowed the full deduction under Section 54B for the reinvestment in new agricultural land. Both appeals filed by the assessees were allowed.

 

 

 

 

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