February 14, 2026 : The Delhi Bench “A” of the Income Tax Appellate Tribunal (ITAT) has dismissed the Revenue’s appeal in DCIT vs. Bhupinder Singh Bhalla (ITA No. 2964/DEL/2023) for Assessment Year 2016–17, affirming the assessee’s entitlement to deduction under Section 54B of the Income-tax Act, 1961. The decision followed a reference to a Third Member, Mahavir Singh (Vice President), who resolved a difference of opinion between Vimal Kumar (Judicial Member) and Brajesh Kumar Singh (Accountant Member).

The dispute arose after the assessee sold agricultural land measuring 37 bighas 15 biswas in Village Asola, New Delhi, on 7 December 2015 for ₹100 crore. In his return, he declared total income of ₹21.63 crore and claimed deduction under Section 54B amounting to ₹78.54 crore, along with ₹50 lakh under Section 54EC. After adjusting the unutilised amount deposited in the capital gains account, which was taxed in Assessment Year 2018–19, the effective deduction under Section 54B came to ₹41.71 crore.

The case was selected for limited scrutiny on account of substantial increase in capital, large deductions under Sections 54B and allied provisions, and significant long-term capital gains. During assessment proceedings, the Assessing Officer disallowed the deduction of ₹41.71 crore on the ground that the land purchased by the assessee did not qualify as agricultural land used for agricultural purposes within the meaning of Section 54B. The disallowance was based primarily on the nominal agricultural income declared in preceding years and an Inspector’s report indicating that portions of the properties were being used as farmhouses, for ceremonies, or for commercial purposes. Photographs and field inquiries were relied upon to conclude that no substantial agricultural activity was being carried out. The amount was accordingly brought to tax under Section 45.

On appeal, the Commissioner of Income Tax (Appeals) admitted additional evidence under Rule 46A, noting that the Inspector’s report and Google images had not been confronted to the assessee during assessment proceedings. The additional material included sale deeds describing the properties as agricultural land, khasra and girdawari records reflecting cultivation, orders under Section 81 of the Delhi Land Reforms Act confirming agricultural use, tube-well sanctions, electricity bills, and RTI replies regarding the DDA Master Plan classification. After examining the material, the CIT(A) concluded that the statutory conditions under Section 54B had been satisfied. It was held that once documentary evidence established agricultural use in the relevant period and the inquiry material had not been properly put to the assessee for rebuttal, the deduction could not be denied. The disallowance was therefore deleted.

Before the Tribunal, the Accountant Member upheld the Assessing Officer’s view, reasoning that the agricultural income declared was disproportionately low compared to the size and value of the land, suggesting that the land may have been held more as an investment than for genuine agricultural use. The Judicial Member, however, disagreed and emphasized that the sale deeds, revenue records, and official orders supported agricultural classification and use, and that the additional evidence had not been effectively controverted by the Revenue. In light of this difference of opinion, the matter was referred to a Third Member.

The Third Member concurred with the Judicial Member, holding that documentary evidence such as land records and revenue orders carried significant evidentiary value and could not be disregarded merely on the basis of suspicion arising from low agricultural income. It was also observed that material gathered through inquiry must be properly confronted to the assessee during assessment proceedings. Finding the reasoning of the CIT(A) legally sustainable, the Tribunal upheld the deletion of the addition of ₹41.71 crore under Section 54B and dismissed the Revenue’s appeal.

The Tribunal further sustained the direction of the CIT(A) on the additional ground relating to correction of indexed cost of acquisition, directing the Assessing Officer to verify the records and grant consequential relief.

Counsel for the Revenue was Jitender Singh, CIT-DR, while the assessee was represented by Dr. Rakesh Gupta, Advocate. The coram comprised Vimal Kumar (Judicial Member), Brajesh Kumar Singh (Accountant Member), and Mahavir Singh (Vice President – Third Member).

Appearance

• For the Appellant (Revenue): Jitender Singh, CIT-DR
• For the Respondent (Assessee): Dr. Rakesh Gupta, Advocate

Cause Title: DCIT vs. Bhupinder Singh Bhalla
Case No.: ITA No. 2964/DEL/2023
Coram: Vimal Kumar (Judicial Member), Brajesh Kumar Singh (Accountant Member), and Mahavir Singh (Vice President – Third Member).