Section 54 of the Income Tax Act, 1961 — Capital gains — Exemption — The reason stated by the Assessing Officer that the purchaser is the builder and therefore, the land is not an agricultural land, cannot be a reason which is in consonance with the requirement made under Section 54B. Therefore, it is for the AO to consider and decide the matter afresh.[2019] 52 ITCD 107 (MAD)
Facts: Assessee purchased an agricultural lands bearing Survey No.123/3A, 123/4, measuring 0.62 cents and 0.53 cents respectively in No.17, Thulangum Thandalam Village, Kancheepuram Taluk through registered sale deed dated 19.06.2011. The petitioner also purchased adjoining agricultural land measuring an extent of 65 cents in Survey No.123/1 by way of sale deed dated 27.06.2011. The assessee had been carrying on agricultural activities by growing paddy in the said land. Since the income was meager, the assessee did not report agricultural income in his Income Tax returns. The assessee sold the above lands on 24.09.2014 to a third party purchaser and reinvested the sale proceeds in the purchase of lands bearing Survey Nos.2558/1, 2558/2 and 2558/3 at Genguvarpatti Village, Periyakulam Taluk. The assessee filed his return for the Assessment Year 2015-16 claiming deduction of Rs. 1,73,04,900/- under Section 54B . The second respondent issued a proceedings dated 11.12.2017 holding that sufficient proof was not produced by the petitioner to prove that agricultural activities were being carried on and that the land was agricultural land. Based on the said proceedings, the third respondent passed an order holding that the petitioner is not entitled for deduction under Section 54B , on the allegation that the land was sold not as an agricultural land as the buyer is a developer. Challenging the said order, the petitioner filed a revision before the first respondent under Section 264 of the said Act. The first respondent rejected the revision by holding that the petitioner had not produced any proof that the sold land was used for agricultural purpose for two years prior to the same. The petitioner filed copy of chitta and adangal before the authorities clearly showing that the petitioner had harvested crops in the said land. However, the same were not considered by both authorities and therefore, the present writ petition is filed.
Held, that  perusal of Section 54B indicates that the assessee has to satisfy that the lands were being used by him for agricultural purposes in the two years immediately preceeding the date on which the transfer took place and that within a period of two years after that due date, purchased any other land for being used for agricultural purposes Therefore, the requirement is in two part. Firstly, the assessee has to satisfy that two years prior to the sale, he was using the land for agricultural purposes. Secondly, he has to satisfy that within a period of two years from the date of the sale, he has purchased any other land for being used for agricultural purposes. In this case, it is stated that after the sale, the petitioner has purchased agricultural lands within two years. However, the dispute in this case is not with regard to the second condition. On the other hand, the dispute is that the petitioner did not use the land for agricultural purposes two years immediately preceding the date on which the sale took place. Though, the Revisional Authority while rejecting the revision under Section 264, has stated so, perusal of the order passed by the Assessing Officer would show that he was carried over by the fact that the land was sold to a person, who is a developer and therefore, the petitioner is not entitled to benefit under Section 54B. Apart from saying so, the Assessing Officer has given a finding that the assessee could not show that there has been an agricultural activity. The first respondent has also reiterated the very same contention. On the other hand, it is stated by the petitioner that he has produced chitta, adangal etc., for the relevant period in support of his contention that the subject matter land were used for agricultural purposes two years immediately preceding the date on which the transfer took place. Therefore, this Court is of the view that the factual aspects raised in this writ petition, need to be considered once again by the first respondent and to decide the matter as to whether the petitioner has satisfied the requirement contemplated under Section 54B, while seeking deduction. Certainly, the reason stated by the Assessing Officer that the purchaser is the builder and therefore, the land is not an agricultural land, cannot be a reason which is in consonance with the requirement made under Section 54B of the said Act. Therefore, it is for the first respondent to consider and decide the matter afresh.  Accordingly, this writ petition is allowed and the order passed by the first respondent is set aside.