Agricultural land sale qualifies for section 54B deduction despite advance payment timing issues

ITAT Raipur allowed assessee's deduction u/s 54B for LTCG on agricultural land sale. Despite revenue's objection that new land was purchased after receiving sale advances, tribunal held that timing of actual investment payments relative to advance receipts was irrelevant, following CBDT Circular 359 and judicial precedents. Tribunal found non-notarized documents were irregular but not false, and banking channel evidence supported genuineness. Regarding addition u/s 68 for secured loans, tribunal dismissed revenue's challenge but remanded matter to AO for verification of loan repayment details as new facts required examination.

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Issues Involved:

1. Deletion of addition on account of deduction claimed under Section 54B.
2. Deletion of addition under Section 68 regarding unsecured loans.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Deduction Claimed under Section 54B:

The primary issue revolves around whether the CIT(A) was justified in deleting the addition of Rs. 91,80,111/- claimed under Section 54B of the Income Tax Act. The assessee had sold agricultural land and claimed a deduction under Section 54B for purchasing new agricultural land. The AO disallowed the deduction on the grounds that the new land was purchased before the sale of the old land, contrary to the provisions of Section 54B, which require the purchase to be made after the sale.

The CIT(A) observed that the land at Sejbahar was sold on 30/03/2015, and the sale consideration was received on various dates from 02/09/2014 to 15/09/2016. The assessee had taken loans to purchase the new land and repaid these loans from the sale proceeds. The CIT(A) referred to the Mumbai Tribunal's decision in the case of Inshar Singh Chawada vs. DCIT and the Bombay High Court's decision in CIT vs. Dr. P.S. Pasricha, which allowed deductions under similar circumstances.

The Tribunal upheld the CIT(A)'s decision, noting that the advances received from the sale of the old land were used to purchase the new land. The Tribunal also referred to CBDT Circular No. 359, which clarified that investments made from earnest money or advances received before the date of transfer qualify for exemption under Section 54B. Consequently, the Tribunal dismissed the revenue's grounds on this issue.

2. Deletion of Addition under Section 68 Regarding Unsecured Loans:

The second issue pertains to the addition of Rs. 1,25,21,000/- under Section 68, which the AO treated as unexplained credits. The AO doubted the genuineness and creditworthiness of the unsecured loans received by the assessee, despite the assessee providing confirmations, ITR acknowledgments, and bank statements.

The CIT(A) deleted the addition, noting that the AO did not make any inquiries to disprove the documents provided by the assessee. The CIT(A) cited the Delhi High Court's decision in Russian Technology Centre Pvt. Ltd., which held that the AO should have inquired into the veracity of the documents if not convinced. The CIT(A) also referred to the Bombay High Court's decision in Orient Trading Company Ltd. vs. CIT and the Chhattisgarh High Court's decision in Pawan Kumar Agrawal vs. ITO, which stated that the onus to prove the creditworthiness of third parties lies with the department if the assessee has provided sufficient documentation.

The Tribunal agreed with the CIT(A) but remanded the matter back to the AO for verification of the repayment of the loans, as new facts regarding the repayment were presented during the appeal. The Tribunal instructed the AO to verify the correctness and veracity of the repayment details provided by the assessee.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 54B, affirming that the assessee had appropriately claimed the deduction. For the addition under Section 68, the Tribunal remanded the matter back to the AO for limited verification of the repayment details, thereby partly allowing the revenue's appeal for statistical purposes.

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