Section 54B exemption allowed for two agricultural land purchases without mandatory sale deed completion

ITAT Jodhpur allowed assessee's claim for exemption under section 54B for purchase of two agricultural lands from different sellers. The tribunal held that completion of sale deed is not mandatory for claiming exemption, and payment transactions were adequately proved through seller confirmations and source verification. Regarding indexed cost of acquisition for ancestral land sold (purchased pre-1981), the tribunal upheld CIT(A)'s decision allowing fair market value of Rs. 2,74,000 as on 01.04.1981 instead of AO's arbitrary valuation of Rs. 1,54,000, as revenue failed to provide supporting evidence for their lower valuation.

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Issues Involved:

1. Whether the CIT(A) was justified in allowing the benefit of Section 54B to the assessee for two properties purchased.
2. Whether the CIT(A) was justified in allowing the indexed cost of acquisition claimed by the assessee.

Issue-wise Detailed Analysis:

1. Benefit of Section 54B:

The primary issue was whether the CIT(A) was justified in allowing the benefit of Section 54B of the Income Tax Act to the assessee. The Revenue challenged the CIT(A)'s decision on the grounds that the agreements for the purchase of two properties were doubtful, the sale deeds were not registered, and there were discrepancies in the cash flow statements.

- Property at Chak 14 AS(A), Vijaynagar: The AO disallowed the exemption under Section 54B, arguing that the sale deed was not registered, and the land was still in the seller's name. The AO also noted that the agreement was not signed by the purchaser, and the payment of Rs. 80,00,000/- in cash was not substantiated. The CIT(A), however, found that the assessee had invested the sale consideration in purchasing agricultural land and that the intention to transfer ownership was evident despite the lack of registration. The CIT(A) relied on judicial precedents that emphasize the intention of the parties over formal registration for claiming exemptions under Section 54B.

- Property at 1 DJM, Command Area, Vijaynagar: The AO noted discrepancies between the amount mentioned in the agreement and the sale deed and found the agreement to be fictitious. The CIT(A) countered this by stating that the assessee had indeed invested Rs. 2,22,75,000/- as per the sale agreement, and the seller did not deny receiving this amount. The CIT(A) emphasized that the lack of registration did not negate the transfer of ownership for the purpose of Section 54B, as the assessee took possession and used the land for agricultural purposes.

The CIT(A) concluded that the AO's denial of the exemption was not justified, as the assessee had met the conditions of Section 54B by reinvesting in agricultural land. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had produced evidence of payment and possession, and the sellers had confirmed the transactions.

2. Indexed Cost of Acquisition:

The second issue was whether the CIT(A) was justified in allowing the indexed cost of acquisition claimed by the assessee. The AO had allowed an indexed cost of Rs. 13,15,488/- based on a fair market value (FMV) of Rs. 1,54,000/- as on 01-04-1981, whereas the assessee claimed an indexed cost of Rs. 23,34,480/- based on an FMV of Rs. 2,74,000/-.

The CIT(A) found that the AO had not provided any basis or evidence for the FMV of Rs. 1,54,000/-. In contrast, the assessee had substantiated the FMV of Rs. 2,74,000/- with information from the Stamp authority and local property dealers. The CIT(A) directed the AO to accept the assessee's claim, as it appeared more reasonable and was supported by evidence.

The Tribunal agreed with the CIT(A), noting that the AO had not justified the lower FMV and had not given the assessee an opportunity to explain. The Tribunal found no infirmity in the CIT(A)'s decision to allow the indexed cost of acquisition as claimed by the assessee.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the benefit of Section 54B and the indexed cost of acquisition claimed by the assessee. The Tribunal emphasized the importance of intention and possession over formal registration in property transactions for the purpose of claiming exemptions under Section 54B.

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