Man sells agricultural land for ₹8 cr, claims tax relief after reinvesting proceeds; gets notice;
ITAT rules in favour
Oct 4, 2026
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.
Section 54F and Section 54B explained
Section 54F and Section 54B of the Income-tax Act, 1961, provide capital gains tax exemptions when profits from selling specific assets are reinvested into designated new properties. Here's how each works:
► Section 54F: Exempts long-term capital gains from non-residential assets (like gold, land or shares) by reinvesting in a residential house.
► Section 54B: Exempts capital gains from agricultural land by reinvesting in new agricultural land.
Taxpayer files an appeal; wins partial relief
Aggrieved by the tax officer's decision, Tiwari filed an appeal before the Commissioner of Income Tax (Appeals). The independent appellate authority granted him partial relief by allowing the Section 54B exemption but denied his claim for the Section 54F LTCG tax exemption.
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.
Why ITAT ultimately rule in Tiwari's favour?
Apart from the question of whether his office and restaurant could be treated as a residential property for income tax purposes, the tribunal also had to decide whether land bought in an urban area could still qualify as agricultural land for claiming the Section 54B exemption.
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.
[Mint]
