Man sells agricultural land for ₹8 cr, claims tax relief after reinvesting proceeds; gets notice; ITAT rules in favour

A taxpayer who sold his ancestral land for ₹8 crore, faced tax issues when his claimed exemptions under Sections 54B and 54F were disallowed. Here's why he ultimately won the case.

A Panchkula-based man sold his family’s ancestral agricultural land for ₹8 crore on September 18, 2017, and claimed long-term capital gains tax exemption under Section 54B and Section 54F. He claimed the relief after reinvesting part of the sale proceeds in two properties in Chhat and Sanoli villages in Punjab.

The case concerns Sushil Tiwari, who reported LTCG of ₹7.73 crore in his income tax return (ITR) after deducting some expenses. He also claimed tax exemptions of ₹2.64 crore under Section 54F and ₹3.73 crore under Section 54B, amounting to a total exemption claim of approximately ₹6.36 crore.

However, the income tax assessing officer (AO) found the supporting documents insufficient and disallowed both the exemptions, increasing Tiwari’s taxable income and consequently his tax liability.

Section 54F and Section 54B explained

Section 54F and Section 54B of the Income-tax Act, 1961, provide capital gains tax exemptions when profits from selling specific assets are reinvested into designated new properties. Here's how each works:

• Section 54F: Exempts long-term capital gains from non-residential assets (like gold, land or shares) by reinvesting in a residential house.
• Section 54B: Exempts capital gains from agricultural land by reinvesting in new agricultural land.

Taxpayer files an appeal; wins partial relief

Aggrieved by the tax officer's decision, Tiwari filed an appeal before the Commissioner of Income Tax (Appeals). The independent appellate authority granted him partial relief by allowing the Section 54B exemption but denied his claim for the Section 54F LTCG tax exemption.