CHANDIGARH: A Panchkula taxpayer who sold his ancestral agricultural land for Rs 8 crore and claimed capital gains tax deductions after reinvesting the proceeds has won a tax dispute before the Income Tax Appellate Tribunal (ITAT), Chandigarh.The tribunal deleted a Rs 2.63-crore disallowance under Section 54F after finding that a property in Dhakoli, Zirakpur, was commercial and not residential, while also allowing Section 54B relief to the extent of eligible investment in agricultural land.The case concerns Sushil Tiwari, who sold ancestral agricultural land for Rs 8 crore through a sale deed dated September 18, 2017. He computed his capital gain at Rs 7.73 crore after reducing the indexed cost of acquisition and claimed deductions under Sections 54F and 54B of the Income Tax Act.Tiwari claimed Rs 2.63 crore under Section 54F for investment in a residential property and deduction under Section 54B for investment in agricultural land.During assessment, however, the Assessing Officer held that sufficient supporting evidence had not been furnished and disallowed the claims. This resulted in an aggregate addition of Rs 6.36 crore to his returned income, including Rs 2.63 crore under Section 54F and Rs 3.73 crore under Section 54B.Tiwari challenged the assessment before the Commissioner of Income Tax (Appeals). The CIT(A) partly allowed his Section 54B claim, approving Rs 2.20 crore, but rejected the Section 54F claim of Rs 2.63 crore.The Section 54F dispute centred on SCO-7, Dhakoli, Zirakpur. The CIT(A) had treated the property as a residential house and concluded that Tiwari owned more than one residential house on the date of transfer of the original agricultural land. On that basis, the Section 54F exemption was denied.Tiwari argued before the ITAT that SCO-7 was a shop-cum-office and commercial property and therefore could not be counted as a residential house for applying the restriction under Section 54F.The ITAT directed the Assessing Officer to verify the relevant documents and factual position. Following the verification, the AO confirmed that SCO-7, Dhakoli, Zirakpur, was commercial in nature. The AO also confirmed that the other properties relied upon by Tiwari were agricultural properties purchased by him.The tribunal held that once SCO-7 was established to be commercial, it could not be treated as a residential house for deciding whether Tiwari owned more than one residential property.“Once the said property is found to be commercial in nature, it cannot be taken into account as a residential house,” the tribunal said, deleting the Rs 2,63,71,500 disallowance under Section 54F. The claim was allowed subject to satisfaction of the remaining statutory conditions.The tribunal then considered the Section 54B claim relating to agricultural land purchased after the sale of the original property. Tiwari relied on purchase deeds dated July 2, 2018, for Rs 80 lakh and August 1, 2018, for Rs 45 lakh. The factual verification confirmed that the properties were agricultural properties purchased by him.The Revenue pointed out that two of the properties were situated in an urban area. The ITAT, however, held that the location of agricultural property in an urban area, in the absence of material establishing that it was not agricultural in character, could not by itself be sufficient to deny the Section 54B benefit.The tribunal accordingly held that Tiwari was entitled to Section 54B deduction to the extent of the eligible investment established by the purchase deeds and other documentary evidence, including the two purchases of Rs 80 lakh and Rs 45 lakh.The ITAT also directed that interest under Sections 234A, 234B and 234C be modified in accordance with the final computation of income. It said the penalty proceedings under Section 270A were premature at this stage.The Chandigarh bench, comprising Judicial Member Laliet Kumar and Accountant Member Vijay Varma, pronounced the order on September 1, 2026. It allowed the grounds relating to Sections 54B and 54F and ultimately allowed Tiwari’s appeal.
