The Income Tax Appellate Tribunal (ITAT), Chandigarh, has deleted a Rs 2.63-crore disallowance against a Panchkula taxpayer who sold ancestral agricultural land for Rs 8 crore and claimed capital-gains tax relief after investing in property and agricultural land.
The tribunal ruled that a shop-cum-office property in Dhakoli, Zirakpur, could not be treated as a residential house for applying the restriction under Section 54F of the Income Tax Act. It also allowed relief under Section 54B to the extent of eligible investment in agricultural land, subject to the documentary evidence and statutory conditions.
The case concerns Sushil Tiwari, who sold ancestral agricultural land through a sale deed dated September 18, 2017. He computed his capital gain at Rs 7.73 crore after accounting for the indexed cost of acquisition. Tiwari claimed a deduction of Rs 2.63 crore under Section 54F for investment in a residential property and relief under Section 54B for subsequent investment in agricultural land.
During assessment, the Assessing Officer disallowed both claims, stating that sufficient supporting evidence had not been produced. This led to an aggregate addition of Rs 6.36 crore to Tiwari’s returned income, comprising the Rs 2.63-crore Section 54F claim and a Rs 3.73-crore Section 54B claim.
The Commissioner of Income Tax (Appeals) later partly allowed the Section 54B claim by approving Rs 2.20 crore, but rejected the Section 54F claim. The dispute over Section 54F centred on SCO-7 in Dhakoli, Zirakpur. The CIT(A) treated the property as a residential house and concluded that Tiwari owned more than one residential property on the date of transfer of the original land.
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 Section 54F. The tribunal directed the Assessing Officer to verify the property’s nature and the relevant documents.
Following that verification, the Assessing Officer confirmed that SCO-7 was commercial in nature. The officer also confirmed that the other properties cited by Tiwari were agricultural properties purchased by him. The tribunal then held that a commercial property could not be treated as a residential house while deciding whether the taxpayer 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 while deleting the disallowance of Rs 2,63,71,500 under Section 54F. The relief remains subject to satisfaction of the other statutory conditions.
The tribunal also examined Tiwari’s Section 54B claim relating to agricultural land bought after the original sale. The relevant purchases included properties acquired through 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 in character.
The Revenue argued that two of the properties were located in an urban area. The ITAT held that the location of agricultural property within an urban area, without material showing that the land was not agricultural in character, was not by itself sufficient to deny Section 54B relief. It therefore allowed the deduction to the extent of eligible investment established through the purchase deeds and other documentary evidence.
The tribunal also directed that interest under Sections 234A, 234B and 234C be recalculated in line with the final income computation. It said penalty proceedings under Section 270A were premature at that stage. The Chandigarh bench, comprising Judicial Member Laliet Kumar and Accountant Member Vijay Varma, pronounced the order on September 1, 2026, and ultimately allowed Tiwari’s appeal on the Section 54B and Section 54F grounds.