ITAT Ahmedabad grants Section 54B tax exemption on sale of urban agricultural land, deleting ₹1.45 crore disallowance.

June 17, 2026 : In a significant ruling on the scope of tax exemption available for agricultural land transactions, the Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that an assessee was entitled to claim deduction under Section 54B of the Income Tax Act even in respect of agricultural land situated within eight kilometres of a municipal area. The Tribunal set aside the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals), granting substantial relief to Ahmedabad resident Ashvinkumar Joitaram Patel for the Assessment Year 2016-17.

The dispute arose after the taxpayer sold agricultural land located within eight kilometres of the Ahmedabad municipal limits and claimed exemption under Section 54B of the Income Tax Act on the capital gains earned from the transaction. Section 54B provides relief from capital gains tax where agricultural land used for agricultural purposes is sold and the proceeds are invested in the purchase of another agricultural land within the prescribed period. However, the Assessing Officer rejected the claim and treated the exemption as inadmissible. The Commissioner of Income Tax (Appeals) subsequently upheld the disallowance, prompting the taxpayer to approach the Tribunal.

Before the Tribunal, the assessee argued that the land sold was genuinely used for agricultural activities and that all statutory conditions prescribed under Section 54B had been fulfilled. The taxpayer also relied heavily on a remand report dated February 27, 2020, in which the Assessing Officer had examined additional evidence submitted during appellate proceedings.

The remand proceedings revealed that the assessee had produced an affidavit from an agriculturist, Prahladji Shakraji Thakore, who was cultivating the land and sharing a portion of the crop proceeds with the owner. The assessee also furnished bills and invoices relating to the purchase of seeds, fertilizers, pesticides and urea covering multiple financial years. After examining these records, the Assessing Officer acknowledged in the remand report that agricultural and farming activities had in fact been carried out on the land immediately before its transfer. The report further noted that after selling the property, the assessee had purchased another agricultural land worth approximately ₹1.59 crore and claimed deduction of ₹1.45 crore under Section 54B.

The Tribunal carefully examined the assessment records, the appellate order, the remand report and the supporting documents placed on record. It found that the Assessing Officer, after conducting due verification under Rule 46A of the Income Tax Rules, had already accepted the authenticity of the evidence and recorded a clear finding that the conditions for Section 54B relief stood satisfied. According to the Bench, once such findings were recorded after proper verification, the appellate authority could not disregard them without bringing any contrary material on record.

Explaining its reasoning, the Tribunal observed that the remand report itself supported the taxpayer’s claim and there was no evidence available to discredit those conclusions. The Bench stated, “Once the Assessing Officer, after due verification and through proper channel, accepted the additional evidences and recorded a categorical finding that the land was used for agricultural purposes and that the conditions prescribed under section 54B of the Act stood fulfilled, the learned CIT(A) was not justified in disregarding such findings without bringing any contrary material on record.”

The Tribunal also noted the assessee’s argument that the case had originally been selected for limited scrutiny and that the issue of exemption under Section 54B was not among the reasons for scrutiny selection. However, since the Tribunal found in favour of the taxpayer on merits, it considered the legal challenge relating to the scope of limited scrutiny to be academic and did not adjudicate that issue further.

A key aspect of the ruling is its practical interpretation of Section 54B. The decision reinforces that the decisive factor is whether the land was actually used for agricultural purposes and whether the proceeds were reinvested in agricultural land as required by law. The Tribunal effectively rejected the reasoning that the mere location of agricultural land within eight kilometres of a municipality automatically disentitles an assessee from claiming the benefit of Section 54B.

Concluding that the taxpayer had successfully established agricultural use of the land and compliance with all statutory requirements, the Tribunal directed deletion of the disallowance of ₹1.45 crore. The appeal was accordingly allowed in favour of the assessee.

The ruling is likely to be relevant for taxpayers involved in the sale of agricultural land located in urban or semi-urban areas. It underscores the importance of documentary evidence such as cultivation records, affidavits, agricultural input invoices and subsequent investment in agricultural land when claiming exemption under Section 54B of the Income Tax Act. The judgment also highlights that findings recorded in remand proceedings cannot be ignored without substantial contrary evidence.

Case Reference: Ashvinkumar Joitaram Patel v. Income Tax Officer, Ward 3(3)(1), Ahmedabad