Court rules on capital gains tax exemption for ancestral agricultural land sale

The court directed the Assessing Officer to verify if the ancestral agricultural land sold was not a capital asset. If proven, no capital gains would be chargeable. The deduction u/s 54B for purchasing new agricultural land was denied for the second purchase due to failure in proving the source of funds within the specified time limit. The appeal was partly allowed for statistical purposes, with the decision announced on October 9, 2018.

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Issues:
1. Whether the impugned ancestral agricultural land sold is a capital assetRs.
2. Was the denial of deduction/exemption u/s 54B justified for the purchase of new agricultural landRs.

Analysis:

1. The appeal concerned the assessment year 2008-09 and disputed the order of the Commissioner of Income Tax (Appeals) regarding the addition of capital gains from the sale of ancestral agricultural land. The appellant contended that the land was not a capital asset as per Section 2(14) of the Income Tax Act, as it fell outside the municipal limits. The issue was referred back to the Assessing Officer for verification, with directions for the appellant to provide necessary documentation to prove the land was not a capital asset. If verified, no capital gain would be chargeable.

2. The second issue related to the deduction u/s 54B of the Act claimed by the assessee for purchasing new agricultural land. The appellant had purchased land in two parts, and the Assessing Officer allowed the exemption for the first purchase but denied it for the second, as it was beyond the two-year limit from the date of the original asset's transfer. The appellant failed to prove the source of funds for the second purchase and provided an affidavit after assessment proceedings, leading to the dismissal of the claim. This decision was contingent on the outcome of the first issue. The appeal was partly allowed for statistical purposes, with the decision pronounced on October 9, 2018.

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