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.

The reason for denying the Section 54F was that Tiwari appeared to own more than one residential property on the date he sold his ancestral agricultural land. The CIT(A) treated Tiwari's property in Dhakoli, where he operated a restaurant and maintained his office, as one of his residential properties, even though Tiwari claimed it was a commercial property.

Tiwari then challenged the decision before the Income Tax Appellate Tribunal (ITAT), Chandigarh, arguing that the Dhakoli property was commercial and should not be treated as a residential house for tax purposes.

For the Section 54F claim, ITAT Chandigarh directed the tax officer to physically verify the nature of the properties. It was later confirmed that Tiwari was using the space for commercial purposes only.

For the Section 54B claim, Tiwari noted that he had reinvested the gains from the sale of his ancestral agricultural land in buying another agricultural land, making him eligible for the relief. He submitted purchase deeds showing investments of ₹80 lakh on July 2, 2018, and ₹45 lakh on August 1, 2018.

Physical verification, conducted at the ITAT Chandigarh's direction, confirmed both the purchases and the agricultural nature of the properties. The tax department, however, objected that the properties were located in an urban area.

The ITAT rejected this objection, holding that an urban location by itself was not sufficient to deny Section 54B relief. The tribunal ultimately ruled substantially in Tiwari's favour on both issues on September 1, 2026.

"The grounds relating to sections 54B and 54F are allowed and the corresponding disallowances sustained b y the learned CIT(A) are deleted to the extent indicated above," the ruling read.