Exemption under Section 54B requires proof of active agricultural

Exemption under Section 54B requires proof of active agricultural use, not just revenue record classification.

Issue

Whether an assessee is entitled to a capital gains exemption under Section 54B when the revenue records (7/12 extracts) classify the property as agricultural land, but the assessee fails to provide independent corroborative evidence showing active agricultural operations on the land during the two years preceding its transfer.

Facts

The Claim: For the Assessment Year 2016-17, the assessee claimed a tax exemption under Section 54B of the Income-tax Act, 1961, against capital gains realized from the sale of three separate parcels of land.
Initial Investigation: To verify if the lands were actively used for agricultural purposes, the Assessing Officer (AO) issued a statutory notice under Section 133(6) to the local Tehsildar.
Adverse Revenue Records: The Tehsildar furnished the official 7/12 extracts of the lands, which explicitly stated that no agricultural activities had been carried out on those properties during the relevant years. Based on this, the AO disallowed the Section 54B exemption.
Revised Certificates Offered: During the first appeal, the assessee produced a fresh set of revised 7/12 extracts that showed active cultivation. These revised extracts were issued following a subsequent corrective order by the Tehsildar.
Remand Report Findings: The AO evaluated the new documents in a remand proceeding and discovered that the Tehsildar’s revised order was based primarily on a self-attested affidavit filed by the assessee, rather than independent state verification.
Lack of Corroboration: The AO noted a total absence of objective, third-party proof—such as agricultural produce sales bills or crop expense receipts—to support the revised entries. Consequently, the Commissioner of Income-tax (Appeals) upheld the disallowance.

Decision

Active Use Mandated by Statute: The Court/Tribunal held that for the purpose of granting an exemption under Section 54B, it is not enough for a piece of land to be merely classified as “agricultural” in local government records. The absolute prerequisite is that the land must have been actively used for agricultural purposes by the assessee or their parents.
Revenue Certificates are Not Conclusive Proof: A revised 7/12 extract or a Tehsildar’s certificate can, at best, raise a initial presumption of agricultural activity. It cannot be accepted as conclusive legal proof without corroborating physical evidence.
Absence of Cogent Evidence Fatal: Because the assessee failed to provide supporting commercial documents—such as sale bills of agricultural produce, purchase invoices for seeds and fertilizers, or labor payment logs—the presumption of cultivation was successfully rebutted by the revenue.
Lower Court Orders Confirmed: The concurrent findings of the AO and the CIT(A) denying the deduction under Section 54B were found to be legally flawless, and the appeal was decided entirely in favour of the revenue.

Key Takeaways

Substance Over Classification: The actual, physical deployment of the land for farming operations dictates Section 54B eligibility. A purely formal “agricultural” status in land revenue registers will not suffice if the land sits barren.
Affidavits Require Corroboration: Self-serving affidavits or local government certificates obtained purely on the basis of an assessee’s own statements hold minimal evidentiary weight in tax proceedings if they lack transactional verification.
Maintain a Robust Paper Trail: Taxpayers intending to claim agricultural exemptions must maintain verifiable accounting backups of their operations, including seed purchase bills, fertilizer invoices, utility logs, and crop sale receipts.

IN THE ITAT NAGPUR BENCH

Gajarsingh Mangusingh Rathod

Income Tax Officer^*

Pawan Singh, Judicial Member
and KHETTRA MOHAN ROY, Accountant Member

IT Appeal No. 16 (NAG.) OF 2025
[Assessment year 2016-17]

MAY 12, 2026

Umang Agrawal, CA for the Appellant. Surjit Kumar Saha, Sr. DR for the Respondent.

ORDER

Khettra Mohan Roy, Accountant Member. – This appeal filed by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi, (for short, “CIT(A)”), dated 11/11/2024 passed under section 250 of the Income Tax Act, 1961 (for short, “Act”) which is emanating from the assessment order dated 27.12.2018 passed u/s. 143(3) of the Act by the ITO, Ward-3, Yavatmal for the Assessment Year 2016-17.

2. The assessee has raised the following grounds of appeal:

That on the facts and circumstances of the case, the Appellate Order passed by Honble Commissioner of Income Tax Appeal, NFAC is bad in law and therefore deserves to be quashed.

That on the facts and circumstances of the case, Ld. CIT (A) has erred in relying solely on the findings of Assessing Officer in the remand report without appreciating the merits of the case for adjudicating the appeal of the assessee.

That on the facts and circumstances of the case, the Learned CIT (A) ought to have allowed the claim of 54B of Rs. 1,43,77,547/- and delete the addition made by the Ld. Assessing Officer.

That on the facts and circumstances of the case, the Learned CIT (A) has disallowed the appeal of the appellant merely on suspicion and surmises.

Any other grounds that may be taken at the time of hearing of the case. “

3. Brief facts of the case are that assessee, an individual, filed his return of income for A.Y. 2016-17 on 27.07.2016 declaring total income of Rs.8,42,420/-. The case was selected for limited scrutiny under CASS and accordingly statutory notices under sections 143(2) and 142(1) of the Act were issued and duly served upon the assessee. During the course of assessment proceedings, Ld.Assessing Officer (AO) observed that assessee had claimed exemption under section 54B of the Act in respect of capital gains amounting to Rs.1,43,77,547/-. In response to the queries raised, the assessee furnished copies of sale deeds and purchase deeds relating to three agricultural lands. For the purpose of verifying whether agricultural activities were actually carried out on the lands sold, the Ld. AO issued notice under section 133(6) of the Act to the Tehsildar, Patur, District Akola calling for copies of 7/12 extracts for the relevant year as well as for the two preceding years. In response, the Tehsildar furnished the 7/12 extracts and reported that no agricultural activities had been carried out on the said lands during F.Ys. 2011-12, 2012-13 and 2013-14. Based on the said report, the Ld. AO issued a show-cause notice to the assessee requiring him to explain as to why the exemption claimed under section 54B should not be disallowed. However, the explanation furnished by the assessee was not found satisfactory by the Ld. AO. Accordingly, relying upon the documentary evidence received from the Tehsildar, the Ld. AO disallowed the claim of exemption under section 54B amounting to Rs.1,43,77,547/- and added the same to the total income of the assessee.

4. Aggrieved by the assessment order, assessee preferred an appeal before the Ld.CIT(A). During the appellate proceedings, assessee furnished revised 7/12 extracts relating to the land sold. Since the said documents constituted additional evidence, the Ld.CIT(A) forwarded the same to the Ld.AO for verification and called for a remand report. In the remand report dated 04.11.2024, the Ld.AO observed that the order passed by the Tehsildar, Patur dated 26.03.2019 was primarily based on the affidavit filed by the assessee. The Ld.AO further pointed out that two different reports pertaining to the same land had been issued within a short span of time, whereas the earlier report of the Tehsildar’s office was based on the report submitted by the Patwari. According to the Ld.AO, these circumstances indicated certain irregularities in the reports issued by the Tehsildar’s office. The Ld.AO further stated that apart from the Tehsildar’s report, the assessee had not furnished any independent documentary evidence to establish that agricultural activities were actually carried out on the land. It was also observed that the assessee failed to produce any sale bills or supporting documents evidencing sale of agricultural produce either through the APMC market or in the open market. The Ld.CIT(A) forwarded the remand report to the assessee for comments and rebuttal. However, despite being afforded sufficient opportunity, the assessee failed to file any reply or submissions in response to the remand report. Accordingly, the Ld.CIT(A) observed that assessee had failed to produce even a single sale bill in respect of the agricultural produce allegedly grown on the land and held that the additional evidence furnished by the assessee lacked credibility and substance. Consequently, Ld.CIT(A) upheld the action of the Ld.AO in disallowing the claim of exemption under section 54B of the Act.

5. Dissatisfied with the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. Learned counsel for the assessee submitted that the exemption claimed under section 54B of the Act was denied by the Ld. AO solely on the basis of the earlier land revenue records which reflected that the land was not under cultivation during the relevant period. He submitted that subsequently the Tehsildar, Patur, vide order dated 26.03.2019, rectified the mistake in the revenue records and issued revised 7/12 extracts, which clearly show that the land in question was under cultivation and agricultural activities were carried out thereon. He further submitted that the revised 7/12 extracts were issued by the competent revenue authority in exercise of its statutory powers and therefore the same could not be disregarded merely on suspicion or conjectures. He submitted that once the competent authority had corrected the revenue records, the corrected entries ought to have been given due evidentiary value. Learned counsel also submitted that the assessee had been consistently disclosing agricultural income in the returns of income filed over the years and such agricultural income had never been doubted or disputed either by the Ld.AO or by the Ld.CIT(A). He further argued that the authorities below erred in rejecting the claim merely because the assessee could not produce sale bills relating to agricultural produce, particularly when the revenue records themselves reflected agricultural cultivation. In support of his contentions, learned counsel placed reliance on the decision of the Coordinate Bench of Pune Tribunal in the case of Asstt. CIT v. Govardhan S. Pawar [2017] 167 ITD 511 (Pune – Trib.). Accordingly, learned counsel prayed that exemption claimed under section 54B of the Act be allowed and the addition sustained by the Ld.CIT(A) be deleted.

6. On the contrary, Ld. Departmental Representative (DR) supported the orders of authorities below. He further submitted that the remand report was duly forwarded by the Ld. CIT(A) to the assessee for rebuttal and comments. However, despite sufficient opportunity being granted, the assessee failed to file any reply or explanation controverting the findings recorded by the Ld.AO in the remand proceedings. Therefore, Ld. CIT(A) was fully justified in holding that the additional evidence furnished by the assessee lacks credibility and substance and consequently confirming the addition made by the Ld.AO. Therefore, Ld.DR prayed that the order passed by the Ld.CIT(A) be upheld and the appeal of the assessee be dismissed.

7. We have heard rival submissions and perused the material available on record. The sole issue involved in the present appeal relates to denial of exemption claimed by the assessee under section 54B of the Act amounting to Rs.1,43,77,547/-. We observe that during the course of assessment proceedings, the Ld. AO denied the claim of exemption under section 54B of the Act mainly on the basis of the report received from the Tehsildar, Patur stating that no agricultural activities were carried out on the land during the relevant period. Subsequently, during the appellate proceedings, the assessee furnished revised 7/12 extracts issued pursuant to the order of the Tehsildar dated 26.03.2019, wherein the earlier entries were corrected and the lands were shown as agricultural lands under cultivation. Since the said documents constituted additional evidence, the learned CIT(A) called for a remand report from the learned AO. We further observe that in the remand report, the Ld.AO raised doubts regarding the correctness of the revised 7/12 extracts and pointed out certain alleged irregularities in the reports issued by the Tehsildar’s office. The Ld.AO also observed that the assessee had failed to furnish supporting evidence such as sale bills of agricultural produce. The said remand report was forwarded by the learned CIT(A) to the assessee for rebuttal. However, the assessee failed to furnish any response or supporting submissions before the Ld. CIT(A). It is pertinent to note that not an iota of evidence whatsoever was brought on record during the course of adjudication to establish that the land in question was actually used for agricultural purposes by the assessee during the two years immediately preceding the date of transfer. For the purposes of section 54B of the Act, it is not mandatory that the land should merely be classified as agricultural land; rather, the essential requirement is that the land must have been actively used for agricultural purposes. The certificate relied upon by the learned counsel for the assessee may, at best, raise a presumption regarding agricultural use of the land, but the same cannot be treated as conclusive proof sans any corroborative evidence such as sale bills of agricultural produce, purchase invoices of seeds and fertilizers, labour payment records, or any other supporting material evidencing actual agricultural operations. In the absence of any cogent evidence demonstrating active agricultural use of the land as envisaged u/s. 54B, mere classification of the land as agricultural in the revenue records would not suffice to bring the case within the ambit of section 54B of the Act. In this regard, reliance is rightly placed on the decision in Abhijit Subhash Gaikwad v. Dy. CIT 70 SOT 429 (Pune – Trib.), wherein it was held that exemption under section 54B would not be available where the land, though recorded as agricultural land, was not actually used for agricultural purposes. The learned counsel for the assessee has miserably failed to point out any clinching evidence demonstrating active agricultural use of the land as contemplated under section 54B of the Act. Therefore, the concurrent findings of both the lower authorities denying deduction under section 54B are found to be flawless and do not warrant any interference. The reliance placed by the learned counsel for the assessee on the decision in Govardhan S. Pawar (supra) is misplaced and clearly distinguishable on facts. In the said case, there existed sufficient material and surrounding circumstances evidencing actual agricultural operations carried out on the land prior to its transfer, which persuaded the Coordinate Bench to grant relief under section 54B of the Act. However, the factual matrix of the present case stands on an entirely different footing and hence reliance on the judgment fails to break the ice. Consequently, the appeal filed by the assessee stands dismissed. In sequitur, denial of claim u/s. 54B for Rs. 1,43,77,547/- is upheld.

8. In the result, appeal of the assessee is dismissed.