Benefit of Sec. 54B Couldn’t be Denied if Same was Allowed by AO to Co-owner: ITAT

Case Details: Bhikhabhai Rajabhai Dhameliya v. PCIT - [2023] 151 taxmann.com 493 (Surat-Trib.)

Judiciary and Counsel Details

• • Pawan Singh, Judicial Member & Dr. A.l. Saini, Accountant Member
  • Sapnesh R. Sheth, C.A. for the Appellant.
  • Ashok B. Koli, CIT-DR for the Respondent.

Facts of the Case

Assessee-individual sold agricultural land during the relevant assessment year and filed the return of income by claiming exemption under section 54B. Subsequently, the Principal Commissioner (PCIT) exercised its jurisdictional power under section 263. It was observed that the land sold was non-agricultural since said land was converted from agricultural to non-agricultural by the then-owner.

Assessee contended that the then owner had applied for conversion of only that part of land sold to another entity, and the remaining part not applied for conversion was purchased by the assessee and other co-owners. Unsatisfied with the explanation, it was concluded that the Assessing Officer (AO) had erred in not disallowing the deduction under section 54B.

Aggrieved by the order, the assessee preferred an appeal to the Surat Tribunal.

ITAT Held

The Tribunal held that from the sale deed, it is clear that the then-owner, along with other lands he owned, applied for seeking permission for non-agriculture usage of certain areas. It means that prior to seeking permission for non-agriculture usage, these lands were used for agricultural purposes.

Further, concerning one of the co-owners, the order issued by the PCIT under section 263 had an appeal effect. AO recognized this appeal effect through an order passed under section 143(3) in conjunction with section 263. In this order, the AO granted a deduction under section 54B.

Therefore, when the Department accepted the claim of deduction under section 54B, in the case of one co-owner, then in that situation, the other co-owners of the same land should not be treated differently. Hence, other co-owners should also be allowed deduction under section 54B.

List of Cases Referred to

• • CIT v. Siddharth J. Desai [1982] 10 Taxman 1/[1983] 139 ITR 628 (Guj.) (para 19)
  • Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) (para 20).