2025 (8) TMI 1440 - AT - Income Tax

Appeal allowed for statistical purposes; deduction under Section 54B remanded due to procedural lapses and unexamined evidence

Bhanubhai Manilal Patel Versus Deputy Commissioner of Income Tax, Circle-3 (1) (1), Ahmedabad (previously DCIT, Circle-7 (2), Ahmedabad)

Bhanubhai Manilal Patel Versus Deputy Commissioner of Income Tax, Circle-3 (1) (1), Ahmedabad (previously DCIT, Circle-7 (2), Ahmedabad) - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the claim for exemption under section 54B (capital gain on transfer of agricultural land reinvested in new agricultural land) was rightly disallowed for failure to prove that the sold land was used for agricultural purposes in the two years immediately preceding the transfer. 2. Whether the claim for exemption under section 54B was defeated because one of the replacement agricultural land parcels was purchased prior to the sale of the original agricultural land, thereby failing the statutory requirement that the new land be purchased within two years after the date of transfer. 3. Whether the documentary and factual material submitted by the assessee (7/12 and 8A extracts, revenue receipts, bank payment evidence, agricultural expense bills, ledgers, photographs and other records) sufficed to discharge the burden of proof that the original land was used for agricultural purposes. 4. Whether reliance by revenue authorities on BISAG/satellite data and on photographs in the sale deed was a legally sound basis to conclude non-agricultural use of the sold land. 5. Whether the first appellate order being ex-parte and not affording adequate opportunity to the assessee to present evidence required remand for de novo adjudication in the interests of natural justice. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 54B: legal framework Legal framework: Section 54B exempts capital gain arising from transfer of agricultural land used by the assessee (or predecessor) for agricultural purposes in the two years immediately preceding transfer, provided new agricultural land is purchased within two years after the date of transfer. Precedent treatment: No specific judicial precedents were invoked by the Tribunal in the judgment under review; the Tribunal adjudicated on statutory conditions and evidence on record. Interpretation and reasoning: The statutory condition that the transferred land must have been used for agricultural purposes in the two years prior to transfer is mandatory and lies at the core of entitlement to exemption. The assessing officer rejected the claim on the ground that revenue records (7/12, 8A) and photographs did not conclusively show cultivation, the assessee admitted non-use in FY 2016-17, and satellite data (BISAG) indicated non-agricultural use. The assessee relied on a set of documents (revenue extracts, receipts, bank records, cooperative society loan confirmation treating him as farmer, prior returns showing agricultural income, bills, photographs) asserting agricultural use. The Tribunal noted that the CIT(A) had not adequately examined these factual contentions, as the CIT(A) order was ex-parte and repetitive without detailed evaluation of the documentary evidence submitted before the Tribunal. Ratio vs. Obiter: Ratio - the requirement that entitlement under s.54B depends on proof of agricultural use for the two preceding years and such proof must be properly considered by the fact-finder. Obiter - observations on the relative probative weight of specific documents (e.g., whether scattered trees in a photograph conclusively show non-cultivation) are ancillary. Conclusions: The Tribunal did not decide on the merits of whether the land was used for agriculture; rather it concluded that the assessee raised substantial factual contentions supported by documentary evidence which were not duly examined by the first appellate authority, necessitating reconsideration. Issue 2 - Temporal requirement for purchase of new land under section 54B Legal framework: Section 54B requires purchase of new agricultural land within two years after the date of transfer of the original land; the timing of purchase(s) is a statutory condition. Precedent treatment: No precedent was cited; the Tribunal applied statutory text. Interpretation and reasoning: The Assessing Officer and CIT(A) found one of the replacement properties was purchased on 12/01/2017, prior to the sale on 22/02/2017, and thus concluded the statutory condition was not satisfied. The assessee argued that a second parcel was purchased after the sale (30/08/2017) and that combined purchases fulfilled the reinvestment requirement. The Tribunal observed these factual disputes (dates and sufficiency of reinvestment) were not adequately assessed by the CIT(A) due to procedural shortcomings. Ratio vs. Obiter: Ratio - the timing requirement is a condition precedent and disputed factual compliance must be adjudicated on complete evidence. Obiter - theoretical commentary on whether partial prior purchase can be cured by later acquisition is not resolved on merits. Conclusions: The Tribunal did not resolve the temporal/legal question on merits; it held that the question requires fresh adjudication by the CIT(A) on the full record after affording opportunity to the assessee to prove compliance. Issue 3 - Adequacy and probative value of the assessee's documentary evidence Legal framework: Burden of proof lies on the assessee to establish conditions for exemption; documentary evidence and oral explanation must be examined by the fact-finder. Precedent treatment: Not addressed by citation; general evidentiary principles applied. Interpretation and reasoning: The assessee produced multiple documents (revenue extracts, land revenue receipts, bank payment traces, cooperative loan confirmation, past returns showing agricultural income, bills for agricultural expenses, photographs). The Assessing Officer discounted those on grounds that 7/12 and 8A entries are classificatory, photographs did not show active cropping, no certification from Talati, and satellite data contradicted agricultural use. The Tribunal highlighted that the first appellate order did not adequately consider the submitted material - an ex-parte order prevented proper evaluation of the probative value of such documents. Consequently, evaluation of whether those documents discharge the burden of proof cannot be made without fresh consideration. Ratio vs. Obiter: Ratio - the fact-finder must give opportunity and evaluate the probative value of the evidence before denying statutory exemption; failure to do so warrants remand. Obiter - specific weight assigned to individual documents in this record remains to be determined on remand. Conclusions: The case is remitted so the appellate authority can evaluate the evidence afresh and determine whether the assessee has satisfied the burden of proof for s.54B relief. Issue 4 - Use of BISAG/satellite data and photographic evidence by revenue authorities Legal framework: Administrative/investigative tools (satellite imagery, photographs) can be relevant evidence but must relate to the exact survey/parcel and be reliably linked to the property under dispute. Precedent treatment: No precedent cited; general principles of relevance and accuracy applied. Interpretation and reasoning: The Assessing Officer relied on BISAG satellite data and photographs to infer non-agricultural use, but the assessee contested that the satellite images used pertained to a different survey number and therefore were not conclusive. The Tribunal noted that the appellate authority did not meaningfully address this challenge to the relevance/accuracy of the satellite evidence because the appeal was decided ex-parte, thereby warranting fresh consideration where probative value and linkage of such evidence to the exact parcels must be tested. Ratio vs. Obiter: Ratio - evidence based on satellite imagery must be specifically tied to the relevant survey numbers and disputed points must be adjudicated with opportunity to the party affected. Obiter - technical assessment of the specific BISAG imagery remains to be performed on remand. Conclusions: The Tribunal required re-examination of the satellite/photographic evidence on remand, ensuring the assessee is heard on challenges to their relevance and accuracy. Issue 5 - Procedural fairness and remand for de novo adjudication Legal framework: Principles of natural justice require that an appellant be afforded adequate opportunity to present evidence and arguments before an appellate authority; an ex-parte order without such opportunity undermines adjudicative validity. Precedent treatment: The Tribunal applied settled principles of procedural fairness; no specific judicial authorities were cited. Interpretation and reasoning: The Tribunal found the CIT(A)'s order was ex-parte and did not afford adequate opportunity to the assessee to present or have the appellate authority evaluate the documentary and factual material the assessee had produced. Given the contested factual matrix (use of land, timing of replacement land purchases, probative value of satellite imagery), the Tribunal held that substantial factual issues remained unresolved and that natural justice required de novo reconsideration by the CIT(A) after giving the assessee adequate opportunity to be heard on both facts and law. Ratio vs. Obiter: Ratio - when an appellate order is rendered ex-parte and material factual disputes exist, remand for de novo adjudication after affording opportunity to the appellant is warranted. Obiter - none material beyond that procedural conclusion. Conclusions: The Tribunal restored the appeal to the CIT(A) for de novo adjudication, directing the appellate authority to afford the assessee adequate opportunity to present evidence and submissions; the appeal was allowed for statistical purposes.