Taxability of Agricultural Land Purchased Below Stamp Duty Value u/s 56(2)(x): ITAT Directs Fresh Valuation by DVO

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) addressed the taxability of agricultural land purchased below stamp duty value under section 56(2)(x) of Income Tax Act,1961 and directed the Assessing Officer(AO) to refer the matter to the Departmental Valuation Officer (DVO) for fresh valuation.

Clayking Minerals LLP, appellant-assessee, filed its return on 30.08.2018, declaring a loss of Rs. 1,24,010 for the Assessment Year 2018-19. The case was picked for limited scrutiny to verify whether the property purchased was undervalued compared to the stamp duty valuation, attracting section 56(2)(x) of the Act.

During assessment, it was noted that the assessee purchased land for Rs. 42,72,000, while the stamp duty value was Rs. 1,15,62,880. The assessee submitted that the land, located at Ghanshyam Nagar Sosa, Kundal, Mahesana, was agricultural at the time of purchase on 21.09.2017 and was later converted to non-agricultural use on 23.10.2017. The registration took place on 26.03.2018.

The assessee argued that since the land was agricultural at the time of purchase, it was not a capital asset under section 2(14), and therefore section 56(2)(x) did not apply.

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However, the AO held that the land was bought with the clear intention of converting it to non-agricultural use, as shown by the early application for conversion. Relying on the Supreme Court ruling in Sarifabibi Mohmed Ibrahim (204 ITR 631), the officer noted that actual use and intention mattered more than revenue records. Since the land was not used for agricultural purposes, it was treated as a capital asset, and the difference of Rs. 72,90,880 was taxed as income from other sources under section 56(2)(x).

The Commissioner of IncomeTax(Appeals)[CIT(A)] dismissed the appeal and upheld the addition of Rs. 72,90,880. The assessee claimed the land was agricultural at the time of purchase and not a capital asset, referring to several court rulings, including one from the Gujarat High Court.

However, the CIT(A) pointed out that the Collector’s certificate clearly stated the land was bought for industrial use and permission for non-agricultural use was already granted. Based on this, the CIT(A) held that the land was not agricultural and the case laws cited by the assessee did not apply.

The two member bench comprising Dr.BRR Kumar (Vice President) and Siddhartha Nautiyal (Judicial Member) heard both sides and examined the records. It noted that Section 56(2)(x) covers cases where any person receives immovable property for inadequate or no consideration. The section does not exclude agricultural land, and since the term “immovable property” is not defined in the Act, it must be understood in its general sense, which includes agricultural land.

The appellate tribunal clarified that while rural agricultural land is not treated as a capital asset for the seller under Section 2(14), this exemption does not apply to the buyer under Section 56(2)(x). So, the difference between the stamp duty value and purchase price may still be taxed in the buyer’s hands.

However, the tribunal referred to an earlier decision in Dilip Manibhai Prajapati, where no addition was made since the difference between the purchase price and the fair market value (as determined by the DVO) was within 10%.

In this case, since the assessee disputed the stamp duty valuation, the bench directed the AO to refer the matter to the DVO for valuation and remanded the issue for fresh consideration. Therefore, the appeal was allowed for statistical purposes.

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