2022 (7) TMI 1607 - AT - Income Tax

Assessee's Section 54B Deduction Restored After Remand Report Confirmed Sale, Reinvestment and Subsequent Agricultural Use

ITAT, Pune (AT) allowed the assessee's deduction under s.54B, overturning the AO and CIT(A) disallowance. The Tribunal found the AO's remand report had ... Deduction u/s 54B - CIT(A) has rejected the assessee’s impugned deduction claim for the sole reason that his reinvestment made in Wagholil land had not proved to have been made in purchasing agricultural land - HELD THAT:- This is in light of the fact that the Assessing Officer’s remand report filed before the CIT(A) had cleared all objections regarding the assessee’s land sold at Bavdhan. It has further come on record that although the CIT(A) accepts the assessee to have carried out agricultural activities on the land purchased in later years in light of form 7/12, he has however affirmed the assessment findings that the reinvestment in land was not agricultural at the time of purchase. We find no substance in Revenue’s argument supporting the impugned disallowance for the foregoing reason(s). We deem it proper to reproduce the relevant reinvestment clause in section 54B of the Act that “the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes”. It is thus clear that the legislature has nowhere incorporated that the lands re-purchased in section 54B deduction claim have to be agricultural on the date of re-investment as is sought to be projected at the Revenue’s behest. We thus adopt stricter interpretation of Dilip Kumar & Co. [2018 (7) TMI 1826 - SUPREME COURT (LB)] to hold that both the learned lower authorities have erred in law and on facts in disallowing the assessee’s section 54B deduction claim. The same stands deleted. ISSUES PRESENTED AND CONSIDERED 1. Whether deduction under section 54B of the Income-tax Act is maintainable where the proceeds of sale of agricultural land are reinvested in land that was categorized as non-agricultural ('pad land'/barren) in land records at the time of purchase but was subsequently used for agricultural purposes. 2. Whether an admission allegedly made by the assessee's authorised representative (A.R.) before the Assessing Officer, to the effect that the transferred land was non-agricultural, can be relied upon where no affidavit or order-sheet noting of such admission is on record and the A.R. denies having made that admission. 3. Whether, on the facts, reliance on 7/12 extracts (land-record entries) is determinative of entitlement to section 54B relief and whether those entries must be treated consistently across transferred and reinvested lands. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 54B when reinvested land was not recorded as agricultural at time of purchase Legal framework: Section 54B provides exemption for capital gain arising from transfer of agricultural land where the assessee, within two years from the date of transfer, purchases any other land 'for being used for agricultural purposes'. The statutory text requires purchase of land for being used for agriculture within the prescribed time. Precedent treatment: The Tribunal adopted and applied the principle in Commissioner v. Dilip Kumar & Co. (2018) (as referred in the judgment) that calls for a stricter textual interpretation of the reinvestment clause of section 54B, indicating that the statute requires purchase of land to be for use as agricultural land rather than mandating that the land must be categorically agricultural on the date of purchase. Interpretation and reasoning: The Tribunal parsed the statutory phrase 'purchased any other land for being used for agricultural purposes' and concluded that the legislature did not stipulate that the acquired land must already be recorded as agricultural at the time of acquisition. The statutory requirement is prospective and purposive - that the land be purchased with the object of being used for agricultural purposes within the statutory period. Therefore subsequent conversion/use for agriculture satisfies the statutory condition even if land-records at the time of purchase classified the parcel as barren or 'pad land'. The Tribunal observed that the lower authorities erred in imposing an additional precondition (agricultural character on date of purchase) not found in the statute. Ratio vs. Obiter: The holding that section 54B exemption is available where the land is purchased to be used for agricultural purposes within two years, irrespective of its recorded agricultural character at the time of purchase, is the ratio of the decision. Reliance on the cited precedent (Dilip Kumar) to support this textual/strict interpretation is integral to the ratio. Conclusion: The Tribunal allowed the section 54B deduction, holding that disallowance based solely on the reinvested land's non-agricultural classification at the time of purchase was incorrect in law and on facts; the disallowance was deleted. Issue 2 - Reliance on alleged admission by A.R. when no record of such admission exists Legal framework: Administrative and adjudicatory findings based on admissions require record support (affidavit, order-sheet notation or contemporaneous record) to be reliable and admissible as binding admissions. Precedent treatment: The Tribunal treated the absence of documentary support for the alleged admission as fatal to the Assessing Officer's use of that purported admission as a basis for disallowance. Interpretation and reasoning: The Assessing Officer's remand report asserted an A.R. admission that the transferred land was non-agricultural. The Tribunal found that no such admission was available on record by way of affidavit or order-sheet entry and that the A.R. affirmatively denied making the admission via affidavit. Consequently, the inference drawn by the AO from the alleged admission was deemed incorrect and the affidavit filed by the A.R. denying such admission was admitted on merits. The Tribunal therefore rejected the AO's reliance on an unsubstantiated admission. Ratio vs. Obiter: The determination that an alleged A.R. admission unsupported by contemporaneous record cannot be treated as a basis for adverse findings is part of the operative reasoning and functions as ratio in the context of the case's facts. Conclusion: The AO's reliance on the alleged A.R. admission was incorrect; the denial affidavit was accepted and the admission was not treated as establishing the nature of the transferred land. Issue 3 - Weight and consistency of 7/12 land-record extracts in determining nature of transferred and reinvested land Legal framework: Land records (7/12 extracts) are relevant documentary evidence to establish the recorded nature/use of land parcels; they are not necessarily conclusive of statutory entitlement where the statute requires purchase 'for being used' rather than purchase that is demonstrably already agricultural. Precedent treatment: The Tribunal accepted that 7/12 extracts are significant evidence of the recorded character of parcels but held that such entries must be interpreted in light of statutory language and the requisite purpose for which land was purchased under section 54B. Interpretation and reasoning: The Assessing Officer relied on 7/12 extracts showing the transferred Bavdhan land marked as 'fruit garden' (supporting agricultural use pre-transfer) and the reinvested Wagholi land marked as 'pad land' (barren) to deny exemption. The Tribunal accepted that the 7/12 entries reflect recorded character - and that the appellant did not dispute the entries - but emphasized that subsequent agricultural activity on the Wagholi land (and the stated purpose of purchase) satisfies the statutory requirement. The Tribunal found it inconsistent to accept the 7/12 extract for the transferred land but reject its application to the reinvested land to the effect of imposing an additional precondition not found in the statute. Ratio vs. Obiter: The view that 7/12 extracts are important but not decisive where statute requires purchase for use (and not an antecedent classification) is a key part of the Tribunal's reasoning and operates as ratio on the fact pattern. Conclusion: The mere classification of reinvested land as 'pad land' in 7/12 extracts did not negate entitlement to section 54B relief where the purchase was made for use in agriculture and subsequent agricultural activities were demonstrated; therefore reliance solely on 7/12 to deny the exemption was not sustained. Ancillary procedural point - Condonation of delay Legal framework and reasoning: Delay in filing was condoned due to COVID-19 pandemic mitigating circumstances. Conclusion: Delay of 70 days in filing the appeal was condoned in view of the pandemic period.