Mr Tiwari from sold his family’s ancestral agricultural land in the village for Rs 8 crore on September 18, 2017 and purchased two more properties in Chhat and Sanoli village and claimed Section 54B and Section 54F long term capital gains (LTCG) tax exemption. However, Mr Tiwari also owned a restaurant in Dhakoli where his office is also situated.






In his income tax return (ITR) Tiwari showed his LTCG at Rs 7.73 crore (after deducting some expenses) and claimed Rs 2.64 crore tax exemption under Section 54F (residential property) and Section 54B (agricultural property). However, during assessment, the Assessing Officer (AO) considered the supporting documents insufficient and disallowed Rs 2.64 crore under Section 54F and Rs 3.73 crore under Section 54B, resulting in an aggregate addition of approximately Rs 6.36 crore.






Feeling aggrieved, Tiwari filed an appeal before the commissioner of appeals (CIT A). The CIT(A) granted partial relief under section 54B but denied the section 54F LTCG tax exemption. The principal reason for denying section 54F was that Tiwari appeared to own more than one residential house on the date he sold the original asset.



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In reaching this conclusion, the CIT(A) counted Dhakoli, Zirakpur as one of Tiwari’s residential properties. However, this Dhakoli property was a commercial property i.e. his restaurant and office. Thus Tiwari filed an appeal before Income Tax Appellate Tribunal (ITAT) Chandigarh.




This Dhakoli, Zirakpur property became the central issue before the ITAT. The main questions were whether a commercial property owned by Tiwari could count as a residential house for restricting the section 54F LTCG tax exemption and whether agricultural land purchased in an urban area could qualify for section 54B relief.




Ultimately, ITAT Chandigarh decided both issues substantially in Tiwari’s favour. Thus on September 1, 2026 Tiwari won the case. Chartered Accountant Parikshit Aggarwal, and CA Hrithik Singla represented him before ITAT Chandigarh.



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How to pay no tax on selling agricultural land?


Section 54B of the Income-tax Act (ITA), 1961 gives you full tax exemption from long-term capital gains tax if you sell a agricultural land which has been used for agricultural purposes for at least 2 years immediately preceding the sale, and the long term capital gains were reinvested in another agricultural land within two years from the date of sale.




So this Section 54B income tax exemption is available to the extent of the investment made in the new agricultural land. If the new land is sold within three years, the income tax exemption granted earlier is effectively withdrawn by reducing the cost of acquisition.




With effect from April 1, 2026, the Income-tax Act, 2025 has come into force, and the corresponding provision is now contained in Section 83 of Income Tax Act, 2025.



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Why did Tiwari win the case in ITAT Chandigarh?


Chartered Accountant Suresh Surana said to ET Wealth Online that ITAT Chandigarh decided to physically examine the properties. So ITAT Chandigarh ordered the Income Tax Assessing Officer (AO) to physically and factually verify the properties.




The AO verified the properties and wrote a remand report, which confirmed that Dhakoli, Zirakpur property was situated in a commercial area and had been used for commercial purposes.




Once this factual position became clear, the ITAT Chandigarh held that the property could not count as a “residential house” merely for determining the Tiwari's eligibility under section 54F.




For those who don’t know under Section 54F you can claim tax exemption from long-term capital gains where the gains arose from selling of any long-term capital asset other than a residential house property, provided you invest the net consideration in the purchase or construction of a residential house in India. However, for claiming Section 54F LTCG tax exemption, you can’t own more than one residential house.




The key word is residential. Tiwari owned a commercial property (Zirakpur)




Surana says: “The restriction under section 54F concerns ownership of residential houses, not every type of immovable property owned by a taxpayer.”




Thus Tiwari won as the Income Tax Department's own verification established that the Dhakoli, Zirakpur property was commercial, the factual basis on which the CIT(A) had denied the exemption no longer survived.




The ITAT Chandigarh consequently deleted the Rs 2.64 crore disallowance under Section 54F, subject to satisfaction of the other statutory conditions.



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Tiwari wins Section 54B agricultural land issue also


Section 54B gives you an income tax exemption on selling agricultural land and reinvesting the gains to buy another agricultural land. Now Tiwari claims that he did just that. To support his claim, Tiwari had submitted purchase deeds showing investments of Rs 80 lakh on July 2, 2018 and Rs 45 lakh on August 1, 2018 in agricultural properties.




The physical verification carried out at the ITAT Chandigarh's direction confirmed both the purchases and the agricultural character of the said properties.




However, the Income Tax Department raised a concern because two properties were situated in an urban area.




The ITAT Chandigarh however, did not accept it and said that location in an urban area, by itself, as a sufficient reason to deny relief.




ITAT Chandigarh observed that the documentary and factual verification established the properties as agricultural. In the absence of evidence showing otherwise, their urban location did not change their agricultural character for the purpose of the claim before it.




ITAT Chandigarh therefore allowed the Section 54B deduction to the extent of the eligible investment supported by the purchase deeds and other evidence.




According to Surana , Tiwari won because the actual facts did not support the grounds on which the exemptions had been denied.




Surana says: “The Dhakoli, Zirakpur property turned out to be commercial, while the properties relevant to Section 54B were verified as agricultural.”




Surana says that this ITAT Chandigarh ruling reinforces that capital gains exemptions should depend on the true nature of the property and supporting evidence, rather than merely its description in the return, its location or an assumption about its use.




The ITAT Chandigarh therefore allowed Tiwari’s appeal and deleted the relevant disallowances to the extent specified in its order.



Can we get tax exemption on urban agricultural land also?


Merely because an agricultural land is in an urban area does not, by itself, make it ineligible for Section 54B income tax exemption, what matters is whether the land purchased after selling this agricultural land is an agricultural land and whether it satisfies the other conditions of Section 54B.






In this case, Tiwari reinvested part of the capital gains in agricultural properties. The Income Tax Department’s factual verification confirmed that the properties were agricultural, but they still questioned the exemption because two of them were situated in an urban area.




The Chandigarh ITAT rejected this objection and held that urban location alone does not change the agricultural character of the land. In the absence of evidence showing that the properties were not agricultural, Section 54B relief could not be denied merely because of their location.




Surana says: “However, the ruling should not be read to mean that every purchase of urban land qualifies for Section 54B.”




According to Surana, the taxpayer must prove that the land purchased is agricultural in character and satisfy the remaining statutory requirements. In Tiwari’s case, the purchase deeds and subsequent factual verification supported the agricultural nature of the properties, which was critical to his success.