Exemption u/s 54B available even if part of land is in cultivation, there is no requirement that entire land should be in cultivation for claiming benefit.
Merely because of admission to disallowance, assessee can not be denied the benefit to which he is eligible
ABCAUS Case Law Citation:
ABCAUS 3012 (2019) (06) ITAT
Important Case Laws Cited/relied upon by the parties:
DCIT Vs. Shri Mahesh Danabhai Patel
The appellant assessee had sold agricultural land and had shown long term capital gains of his share. The assessee had invested the capital gains for purchase of another agricultural land and accordingly had claimed exemption u/s 54B of the Income Tax Act, 1961 (the Act) Act.
During the scrutiny assessment, the assessee was asked to produce extract of land for sale of land and justify the claim of exemption u/s 54B of the Act.
On perusing 7/12 extract and the confirmation of Talathi of Titoli, the Assessing Officer (AO) noticed that rice was grown only on a small piece of land and the balance land was non agricultural land. The AO noted that no documentary evidence for carrying out any agricultural activities on the aforesaid land was brought on record.
AO further noted that the Authorised Representative of the assessee agreed for proportionate disallowance.
AO accordingly worked out the investments being not allowable u/s 54B of the Act and disallowed the same.
Aggrieved by the order of AO, assessee carried the matter before CIT(A), who upheld the order of AO by noting the fact that the Authorised Representative of the assessee had agreed for proportionate disallowance at the time of assessment proceedings and therefore he could not revert back.
Aggrieved by the order of CIT(A), assessee was in appeal before the Tribunal.
The assessee contended that the provisions of Section 54B of the Act mandates that the land should be used for agricultural purpose in the immediately two preceding years prior to the date of transfer. The law does not require that entire land should be used for cultivation purpose or the land should be used for agriculture purpose throughout the years.
He submitted that even if a part of the land is used for agricultural purpose by the assessee then assessee is eligible for claim of deduction u/s 54B of the Act.
The Tribunal observed that the Co-ordinate Bench of the Tribunal had held that provisions of Section 54B of the Act does not specify that the entire land should be used for cultivation for claiming benefit u/s 54B of the Act. It was held that if any part of the land is under cultivation for two years immediately two preceding years prior to the date of transfer, it would be sufficient to claim benefit u/s 54B of the Act.
The Tribunal opined that since the issue on merits was covered in assessee’s favour then merely because of admission of disallowance, the assessee could not be denied the benefit to which he was eligible.
The Tribunal directed the AO to allow the deduction u/s 54B.