2025 (3) TMI 523 - AT - Income Tax

Denial of deductions u/s 54B - assessee failed to prove that land sold by him was used by him for agriculture activities for a period of two years immediately preceeding the date of transfer - CIT(A) allowed claim - HELD THAT - Copy of Khasra Girdawari for the period Samvat 2074 to 2077 pertaining to Village Todi Ramijipura Luniyawas Jagatpura Jaipur has been made available to us in the course of arguments. As per entry at Sr. No. 145 land in an area of 0.69 hectares belonged to Chiranji Lal and his brother Chote Lal Khatedars to the extent of half share each and they had sown Bajra crop in Samvat 2075 2076 and 2077. Above said entry in the Khasra Girdawari lends corroboration to the claim of the assessee that the land sown by him was under agriculture activities during the relevant period of two years prior to the date of transaction of sale thereof. The department did not bring on record anything to the contrary to the entries recorded in the Khasra Girdawari. Thus CIT(A) was justified in allowing the claim of the assessee as regards the deductions claimed u/s 54B on the basis of agricultural activities done on the said land. Appeal of assessee allowed.

ISSUES PRESENTED and CONSIDERED

The primary legal issue considered in this judgment was whether the assessee was entitled to claim a deduction under Section 54B of the Income Tax Act for the capital gain arising from the transfer of land purportedly used for agricultural purposes. The core question was whether the land sold by the assessee was used for agricultural activities for two years immediately preceding the date of transfer, as required under Section 54B.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 54B of the Income Tax Act provides for exemption of capital gains tax on the transfer of agricultural land if certain conditions are met. Specifically, the land must have been used for agricultural purposes by the assessee or a parent for two years immediately preceding the date of transfer. The assessee must also purchase another agricultural land within two years of the transfer.

The court referenced the precedent set in Smt. Sarifabibi Mohmed Ibrahim v. CIT, which outlined criteria for determining whether land is agricultural, including its classification in revenue records and actual usage.

Court's Interpretation and Reasoning

The Tribunal's analysis focused on whether the land in question was used for agricultural purposes. The CIT(A) had concluded that the land was indeed agricultural based on the sale deed and the Khasra Girdawari report, which indicated cultivation of Bajra crop. The Tribunal upheld this view, noting that the land was classified as agricultural in revenue records and there was no evidence of non-agricultural use.

Key Evidence and Findings

The key evidence included the sale deed classifying the land as agricultural and the Khasra Girdawari report, which documented agricultural activity over the relevant period. The assessee also provided vouchers and other documentation supporting the claim of agricultural use.

The Assessing Officer had argued that the presence of a residential building and a school on the land indicated non-agricultural use. However, the CIT(A) found that these factors did not preclude agricultural use, especially given the lack of contrary evidence from the department.

Application of Law to Facts

The Tribunal applied the provisions of Section 54B to the facts, determining that the land met the criteria for agricultural use. The presence of a residential building did not alter the classification, and the agricultural activities documented in the Khasra Girdawari were sufficient to meet the statutory requirements.

Treatment of Competing Arguments

The department argued that the land was not used for agriculture due to the residential structure and lack of evidence of agricultural activity. The Tribunal dismissed these arguments, emphasizing the documentary evidence provided by the assessee and the absence of any substantial evidence to the contrary from the department.

Conclusions

The Tribunal concluded that the CIT(A) was correct in allowing the deduction under Section 54B, as the land was used for agricultural purposes in the two years preceding its sale. The appeal by the department was dismissed.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

The Tribunal noted: "The submissions of the appellant have also been perused. The primary document i.e. the sale deed dated 18.08.2020 quite unambiguously classifies the land sold (the capital asset in question) as 'Agricultural Land'."

Core Principles Established

The judgment reinforced the principle that the classification of land in revenue records and documented agricultural activities are crucial in determining eligibility for Section 54B deductions. The presence of structures on the land does not necessarily negate its agricultural status.

Final Determinations on Each Issue

The Tribunal determined that the land sold by the assessee was used for agricultural purposes, thus qualifying for the deduction under Section 54B. The appeal by the department was dismissed, and the CIT(A)'s decision was upheld.

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