The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the income tax exemption under Section 54B even when the land was cultivated only for a few days during the relevant years.
The two-member bench of S.S. Vishwanethra Ravi (Judicial Member) and Inturi Rama Rao (Accountant Member) has observed that part of the land could not be used for agricultural purposes but grass was grown owing to the conditions of drought. It does not disentitle the assessee as the land was held for agricultural purposes only.
The appellant/assessee is an individual engaged in the business of purchasing and selling lands. On March 31, 2015, the appellant filed a return of income for the fiscal year 2014-15, declaring total income and agricultural income. The assessment was completed by the Assessing Officer and passed under Section 143(3) at a total income of Rs.78,02,540. While doing so, the Assessing Officer made an addition disallowing the claim for deduction of the amount under section 54B.
During the previous year relevant to the present assessment year, the appellant had sold the agricultural land, which was purchased by the appellant along with seven others and was sold on 13.04.2013 and offered capital gains after claiming deduction under section 54B. The assessing officer denied the claim primarily for two reasons. Firstly, the land was not used for agricultural purposes in the two years immediately preceding the sale. Secondly, the only part of the land that was cultivated.
The AO rejected the contention of the appellant that it was necessary that the land should be used for agricultural purposes for the whole of the two years and found that the entire land was used for agricultural activity as the assessee had grown fodder grass on the part of the land. Being aggrieved by the addition, an appeal was filed before the CIT(A), who by the order confirmed the findings of the Assessing Officer.
The conditions prescribed to claim the benefit of exemption under the provisions of section 54B are that the agricultural land be sold as a capital asset and used by the assessee during the period of two years immediately preceding the date of transfer for agricultural purposes. The AO had denied the exemption under section 54B on the grounds that the agricultural land sold was not used for agricultural purposes for two years preceding the date of sale as it was held only for a period of 22 months and some parts of the land were used for growing grass.
The ITAT stated that the reasoning of lower authorities cannot be appreciated and that the findings of lower authorities are reversed.
Case Title: Mr. Mohammad Rafiq Ahemadsaheb Kokani Versus The Income Tax Officer
Citation: ITA No.168/PUN/2019
Counsel For Appellant: Sanket Milind Joshi
Counsel For Respondent: Arvind Desai