The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has held that purchase made out of advance made out of sale of agricultural property would be deductible under Section 54B of the Income Tax Act 1961.
During the course of assessment, the AO observed that the assessee, Dharmendra J Patel had sold two agricultural lands, one on 20-03- 2017 for a sum and another on 10-08-2016. The assessee claimed long-term capital gains on the aforesaid two agricultural lands after taking benefit of indexation, the assessee claimed deduction under section 54B of the Act on purchase of agricultural land situated on 21-10-2016.
As per section 54B of the Act the deduction on long-term capital gains from sale of agricultural land was allowable if the long-term capital gains were invested by the assessee in any of the land for being used for agricultural purposes within 2 years after the date of transfer of original land.
Therefore, while the AO allowed deduction under section 54B in respect of land sold by the assessee on 10-08-2016 since the assessee had purchased the new agricultural land on 21-10-2016 i.e. within 2 years from sale of agricultural land. However, the AO disallowed the claim of deduction under section 54B in respect of the agricultural land sold by the assessee on 20-03-2017 on the ground that the new agricultural land was purchased by the assessee on 21-10-2016 i.e. prior to the date of sale of agricultural land on 20-03-2017.
Trupti Patel, on behalf of the revenue submitted that relief could not be afforded to the assessee in the instant set of facts in view of the plain and express language of section 54B of the Act.
The Division Bench of Annapurna Gupta, (Accountant Member) and Siddhartha Nautiyal, (Judicial Member) allowed the appeal holding that the assessee should be allowed the benefit of deduction under section 54B of the Act since the purchase in the new property had been made out of advances received towards sale of agricultural properties held by the assessee.
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