Section 54B exemption depends on actual agricultural use, with contemporaneous records outweighing later unsupported material.

Section 54B relief turned on whether the land was used for agricultural purposes in the two years before transfer. On the totality of circumstances, the Tribunal found the contemporaneous sale deed and revenue record described the land as unirrigated and padti, no credible contemporaneous evidence of cultivation was produced, and later patwari or SDM material did not override the earlier record. The exemption was therefore denied and the capital gains addition sustained. On the returned agricultural income, the matter was not properly reconciled with the remaining land holdings and possible alternative treatment, so it was remitted to the Assessing Officer for fresh adjudication after hearing the assessee.

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Issues: (i) Whether the assessee was entitled to exemption under section 54B of the Income-tax Act, 1961 on the gain arising from sale of the land; (ii) whether the treatment of the returned agricultural income as nil required to be sustained or restored for fresh consideration.

Issue (i): Whether the assessee was entitled to exemption under section 54B of the Income-tax Act, 1961 on the gain arising from sale of the land.

Analysis: The entitlement to section 54B relief depended on whether the land had been used for agricultural purposes in the two years immediately preceding the transfer. The Tribunal held that this was essentially a factual inquiry to be decided on the totality of circumstances, and that revenue entries were not conclusive. On the material on record, the land was described in the sale deed and revenue record as unirrigated, padti and without agricultural indicators; it was agreed to be sold to a builder for real estate development long before the transfer; no credible contemporaneous evidence of agricultural activity on the land was produced; and the later patwari report and SDM order did not displace the contemporaneous official record. The Tribunal therefore concluded that the land was not shown to have been used for agricultural purposes in the relevant period.

Conclusion: The assessee was not entitled to exemption under section 54B, and the capital gains addition was sustained.

Issue (ii): Whether the treatment of the returned agricultural income as nil required to be sustained or restored for fresh consideration.

Analysis: The Tribunal noted that the assessee owned substantial remaining agricultural land and that the returned agricultural income could relate to that balance land. It also found that the assessment order and the appellate order did not properly reconcile the returned income with the alternative heads under which it could be assessed if not agricultural income. Since this aspect was connected with the appeal and required a clear factual determination, the Tribunal considered it appropriate to send the issue back to the Assessing Officer for a fresh decision after hearing the assessee.

Conclusion: The issue of agricultural income was restored to the Assessing Officer for fresh adjudication.

Final Conclusion: The exemption claim failed, the capital gains addition was upheld, and the question of agricultural income was remitted for fresh determination, resulting in partial relief to the Revenue.

Ratio Decidendi: Whether land qualifies for section 54B relief is a question of fact to be decided on the cumulative effect of all surrounding circumstances, and contemporaneous official records and surrounding conduct may outweigh later unsupported revenue-revision material.

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