BHANUBHAI MANILAL PATEL,AHMEDABAD V. THE ACIT/DCIT, CIRCLE-3(1)(1) (PREVIOUSLY DCIT, CIRCLE-7(2)), AHMEDABAD

ITA 1840/AHD/2024

AI Insights

The case involves Bhanubhai Manilal Patel, who appealed against the order of the CIT(A) which upheld the disallowance of a deduction of Rs. 2,74,00,000 under section 54B of the Income Tax Act. The deduction was claimed on the sale of agricultural land, which the assessee argued was used for agricultural purposes, qualifying for exemption under section 54B. The Assessing Officer and CIT(A) rejected the claim based on insufficient proof of agricultural use and the timing of land purchases relative to the sale. The Tribunal found that the CIT(A) did not adequately address the assessee's evidence and arguments, leading to the decision to remand the case for a thorough re-examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 771834 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT
• Assessee Lawyers: S UDHIR M EHTA
• Keywords: Fair market value; Salary income; Cost of acquisition; Onus to prove; Principle of natural justice; Source of fund
• Section: 54B; 54F

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE DR. BRR KUMAR, VICE PRESIDENT & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.1840/Ahd/2024 (Assessment Year: 2017-18) Bhanubhai Manilal Patel, 30, Abhishek Society, Nr. India Colony, Bopal, Ahmedabad-380058 Vs. Deputy Commissioner of Income Tax, Circle-3(1)(1), Ahmedabad (previously DCIT, Circle-7(2), Ahmedabad) [PAN No.ASCPP6270H] (Appellant) .. (Respondent) Appellant by : Shri Sudhir Mehta, Advocate Respondent by: Shri Abhijit, Sr. DR Date of Hearing 12.08.2025 Date of Pronouncement 25.08.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 28.08.2024 passed for A.Y. 2017-18. 2. The assessee has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in upholding the disallowance of deduction of Rs. 2,74,00,000/- u/s 54B of the Income Tax Act on account of purchase of land stating that the land sold is not proved to hae been actually used for agricultural activities in the preceding two years and the new land was purchased prior to the sale of the agricultural land. 2. The Appellant prays that the deduction of Rs. 2,74,00,000/- u/s 54B of the Income Tax Act should be allowed on fats as well as on law. 3. The appellant craves leave to add, alter and/or to amend any of the grounds stated.” Printed from counselvise.com ITA No. 1840/Ahd/2024 Bhanubhai Manilal Patel vs. DCIT Asst. Year –2017-18 - 2– 3. The brief facts of the case are that during the course of assessment proceedings, the assessing officer rejected the assessee’s claim for exemption under section 54B of the Act on multiple grounds. The assessee had claimed exemption under section 54B of the Income Tax Act (Act), on the ground that the original asset which was sold by the assessee was an agricultural land used for agricultural purposes for two years preceding the sale. However, the Assessing Officer noted that though the assessee submitted that the land was agricultural in nature and that agricultural activities had been carried out (as per old revenue records, photographs showing trees and boundaries, and lack of land conversion), however, the AO was of the view that none of the evidence provided by the assessee conclusively proved that the land was used by the assessee for agricultural purposes. The Assessing Officer noted that the entries in 7/12 and 8A revenue records only classify land and do not certify usage, especially since post-digitization, these records do not support field verification. The AO also pointed out that the photograph in the sale deed did not show any crop cultivation and showed, only some scattered trees, which were possibly from adjoining land. Further, the assessee’s argument about purchasing new agricultural land in the same village was dismissed by the Assessing Officer since that land was converted to non-agricultural in 2019 and does not prove past usage of the original land. The Assessing Officer observed that the assessee failed to submit records of agricultural produce, expenses, or any certification from the relevant Talati for the preceding years. The AO also highlighted that the assessee himself admitted that the land was not used for agriculture in FY 2016-17 and BISAG satellite data confirmed non-agricultural use. Further, the AO found that the assessee purchased new land on 12/01/2017, i.e., before the sale of the original land on 22/02/2017, which violates the conditions of section 54B that require purchase within two years after the sale. Accordingly, the Printed from counselvise.com ITA No. 1840/Ahd/2024 Bhanubhai Manilal Patel vs. DCIT Asst. Year –2017-18 - 3– Assessing Officer disallowed the claim of exemption of Rs. 2,25,00,000/- under section 54B of the Act. Regarding the cost of acquisition, the Assessing Officer noted that the assessee had initially declared cost of acquisition as Rs. 2,75,000/- (indexed to Rs. 30,93,750), but later the assessee revised it to Rs. 6,93,288/- based on a valuer’s report. Since there was a discrepancy, the Assessing Officer referred the case to the DVO, who held the fair market value of the land as on 1/4/1981 to be Rs. 10,41,000, with assessee’s share at Rs. 4,81,463. Based on this and after allowing exemption under section 54F of the Act of Rs. 11,43,116, the AO recomputed the long-term capital gain at Rs. 2,70,53,751. Penalty proceedings under section 270A(1) for underreporting of income were also initiated. 4. In appeal before us CIT(Appeals), he noted that the only addition made by the Assessing Officer was in respect of the deduction of Rs. 2,74,00,000/- claimed under section 54B of the Act. The assessee was employed with Anand Enterprise and was drawing salary income during the relevant year. The assessee had sold agricultural land (Block No. 764, Khata No. 268) for Rs. 8,00,00,000/- on 22/02/2017, out of which his share was Rs. 3,70,00,000/-. The assessee had purchased agricultural land (Block No. 667/A) for Rs. 2,25,00,000/- on 12/01/2017 and another parcel of land (Survey No. 1873) for Rs. 49,00,000/- on 30/08/2017. Accordingly, the assessee had claimed a deduction of Rs. 2,74,00,000/- under section 54B of the Act in his return for the impugned assessment year. In support of this claim, the assessee had submitted copies of the sale deed and land holding records during the appellate proceedings. However, the CIT(A) observed that the arguments made by the assessee were largely repetitive and failed to substantiate that the land sold was actually used for agricultural purposes in the two years immediately preceding the sale, which Printed from counselvise.com ITA No. 1840/Ahd/2024 Bhanubhai Manilal Patel vs. DCIT Asst. Year –2017-18 - 4– is a mandatory condition under section 54B of the Act. Further, CIT(Appeals) noted that the assessee also did not satisfy the condition that the new agricultural land must be purchased after the sale of the original land, as one of the properties was purchased prior to the sale. Therefore, since the assessee failed to discharge the burden of proof on both counts, the CIT(A) held that there was no merit in the submissions of the assessee and upheld the disallowance made by the Assessing Officer. Consequently, CIT(Appeals) held that the deduction of Rs. 2,74,00,000/- claimed under section 54B of the Act was rightly disallowed by the Assessing Officer and the appeal of the assessee was dismissed. 5. Before us, the assessee contended that CIT(Appeals) erred in upholding the disallowance of the deduction of ₹2,74,00,000/- claimed under section 54B of the Act since all the conditions laid down under section 54B of the Act were duly fulfilled and that the rejection was based on an incorrect interpretation of facts and law. As per section 54B, capital gain arising from the transfer of agricultural land used by the assessee (or his parent) for agricultural purposes in the two years immediately preceding the date of transfer is exempt if the assessee purchases new agricultural land within two years after the date of such transfer. In this case, the assessee, along with nine co-owners, sold inherited agricultural land (Block No. 764, Khata No. 268) on 22/02/2017 for ₹8,00,00,000/-, of which assessee’s share was ₹3,70,00,000/-. To claim exemption, the assessee submitted that he had purchased two agricultural lands: one prior to the sale, on 12/01/2017 (Block No. 677A, for ₹4,50,00,000/-, with a 50% share of ₹2,25,00,000/-), and another after the sale, on 30/08/2017 (Survey No. 1873, for ₹49,00,000/-), thus a sum of ₹2,74,00,000/-, was claimed as deduction under section 54B of the Act. Payment details from the State Bank of India account were submitted in support. The ld. counsel for the assessee submitted that that Printed from counselvise.com ITA No. 1840/Ahd/2024 Bhanubhai Manilal Patel vs. DCIT Asst. Year –2017-18 - 5– the source of funds for purchase of land was from the same bank account in which sale proceeds were credited. Further, the assessee submitted multiple documents to show that the land sold was indeed used for agricultural purposes, including 7/12 extracts, land ledger (8A), land revenue payment receipts, loan confirmation from the cooperative society (Sakari Mandali) where the assessee was treated as a farmer, past income tax returns showing agricultural income, and bills for agricultural expenses. The ld. counsel for the assessee also submitted photographs of the land showing trees and boundaries showing agricultural land. The ld. counsel for the assessee submitted that that the satellite images relied upon by the Assessing Officer (sourced from BISAG) were not conclusive, as they only pertained to Survey No. 603, whereas the land sold by the assessee was part of Survey Nos. 603/2 and 603/3. Thus, it was contended that reliance on images of unrelated survey land by the Assessing Officer was not correct. The assessee also argued that merely because part of the new land was purchased before the date of transfer should not disqualify the claim entirely, particularly when a second parcel was purchased after the sale, and both were used for agriculture. 6. In response, Ld. DR placed reliance on the observations made by the Assessing Officer and CIT(Appeals) in their respective orders. 7. We have heard the rival contentions and perused the material on record. In the present case, the assessee has challenged the disallowance of deduction of ₹2,74,00,000/- claimed under section 54B of the Act, which was upheld by the CIT(A). The perusal of the appellate order passed by CIT(Appeals) shows that the order passed by the CIT(A) was ex-parte and that the assessee did not get adequate opportunity to present his case on merits before the first appellate authority. The submissions made before us and the material filed in the form of Printed from counselvise.com ITA No. 1840/Ahd/2024 Bhanubhai Manilal Patel vs. DCIT Asst. Year –2017-18 - 6– written submissions, in our considered view indicate that the assessee has raised substantial factual contentions supported by documentary evidence which were not duly examined by the CIT(A) at the appellate stage. Considering the totality of the facts and circumstances of the case, and in the interest of natural justice, we are of the considered view that the matter requires reconsideration by the CIT(A). Accordingly, we restore the matter to the file of the CIT(A) with a direction to re-adjudicate the appeal de novo after affording adequate opportunity to the assessee to present his case, both on facts and in law. 8. In the result, the appeal is allowed for statistical purposes. This Order pronounced in Open Court on 25/08/2025 Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 25/08/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 21.08.2025(Dictated on dragon software) 2. Date on which the typed draft is placed before the Dictating Member 21.08.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 22.08.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 25.08.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 25.08.2025 7. Date on which the file goes to the Bench Clerk 25.08.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… Printed from counselvise.com "