The classification of land as agricultural is determined by its use and revenue records, and deductions under Section 54EC must correspond to actual capital gains realized.

JUDGMENT :

S.S.SUNDAR, J.

(1)The above Tax Case Appeal is directed against the order dated 01.06.2011 passed by the Income Tax Appellate Tribunal, 'A' Bench, Chennai in ITA.No.1452/Mds/2009 in respect of the Assessment Year 2006-07.

(2)Brief facts that are necessary for the disposal of this appeal are as follows:-

(a)The respondent herein [hereinafter referred to as 'assessee'] is an individual and has been carrying on business in real estate. The assessee therefore, earns income from business, long and short term capital gains and from other sources. The assessee filed Return of Income for Rs.3,20,12,651/- for the AY 2006-07. The assessment was completed under Section 143[3] of the Income Tax Act, 1961, on a total income of Rs.4,25,24,315/-.

(b)It is admitted that the assessee had sold lands at Egathur and Navalur Villages for a sum of Rs.45,70,00,000/- on 10.10.2005 to a third party. Stating that the lands sold by the assessee were agricultural lands at the time of sale, the assessee claimed exemption for the entire consideration from the levy of tax. Similarly, the assessee has invested a sum of Rs.10 Crores in NABARAD Bonds to claim exemption under Section 54EC of the Act. The Assessing Officer accepted the case of the assessee that the lands sold by the assessee in Egathur and Navalur Villages are agricultural lands. Similarly, the assessee's investment in NABARD bonds was also reduced from total income in favour of the assessee. Challenging the order of the Assessing Officer, the Department preferred a revision before the Commissioner of Income Tax, Chennai-6. The Commissioner of Income Tax held that the land which is capable of being used as 'other purpose', need not be an agricultural property. Relying upon a Government Order issued in 2004, the Commissioner held that the land is urbanizable in the year under consideration. Stating that the land has been sold to construct a township, the Commissioner disallowed deduction by holding that the land cannot be treated as agricultural land.

(c)The Commissioner then considered the issue whether the claim of deduction under Section 54EC of the Act to the extent of Rs.10 Crores by making investment in NABARD Bonds is permissible. The assessee declared long term capital gains at Rs.12,12,08,410/- under the following heads:-

(d)Since investment in NABARD bonds to the tune of Rs.10 Crores was made by the assessee on 26.11.2005, the Commissioner found that the second property which was sold by the assessee on 13.02.2006, cannot be considered for deduction by claiming exemption under Section 54EC of the Act. Therefore, the Commissioner held that the Assessing Officer has allowed excess deduction under Section 54EC of the Act to the assessee to the tune of Rs.1,44,45,833/-. Hence, the Commissioner set aside the order of the Assessing Officer by holding that the capital gain is attracted in respect of the whole consideration for the entire lands at Egathur and Navalur Villages to the tune of Rs.45,70,00,000/- and the assessee is entitled to get deduction of a sum of Rs.8,55,54,168/- under Section 54EC of the Act. Aggrieved by the same, the assessee preferred an appeal before the Income Tax Appellate Tribunal [hereinafter referred to as 'Tribunal']. The Tribunal, by the order impugned in this Tax Case Appeal, allowed the appeal and set aside the order passed by the Commissioner of Income Tax in the revision under Section 263 of the Act.

(e)The Tribunal justified the findings of the Assessing Officer in its order, which according to the Tribunal, is based on supporting evidence produced by the assessee to establish the agricultural nature of the land in Egathur and Nav