Pranav B Prem

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a significant ruling impacting the use of rural agricultural land transactions as a conduit for laundering unaccounted cash. The bench comprising Dr. B.R.R. Kumar (Vice President) and Siddhartha Nautiyal (Judicial Member) held that the difference between the purchase price declared in a sale deed and the stamp duty value of the land can be taxed as “income from other sources” under Section 56(2)(x) of the Income Tax Act, even if the land is rural agricultural land.

Also Read: NCLAT: Orders Passed by NCLT President on Listed Transfer Applications Are Judicial, Appealable Under Companies Act

The case arose from an assessment of Clayking Minerals LLP for the Assessment Year 2018-19. The assessee had purchased land in Kundal, Mahesana, for ₹42.72 lakh, whereas the stamp duty valuation authority valued it at ₹1.15 crore. The Assessing Officer concluded that the difference of ₹72.90 lakh was taxable under Section 56(2)(x).

The assessee argued that the land was agricultural at the time of purchase on 21 September 2017, which meant it was not a “capital asset” under Section 2(14) and, therefore, fell outside the ambit of Section 56(2)(x). It contended that the conversion of the land to non-agricultural use, permitted by the Collector on 23 October 2017, occurred after purchase and that the nature of the land at the time of acquisition was decisive.

The Assessing Officer, however, noted that the assessee’s early application for non-agricultural use indicated an intention from the outset to use the land for industrial purposes. Relying on the Supreme Court’s ruling in Sarifabibi Mohmed Ibrahim v. CIT (204 ITR 631), he held that classification in revenue records was not conclusive; actual use and intention were relevant. As the land was purchased with a clear plan to convert it, it qualified as a capital asset for the purposes of Section 56(2)(x).

The Commissioner of Income Tax (Appeals) upheld the assessment, relying on the Collector’s certificate that the land was purchased for bona fide industrial purposes.

Before the Tribunal, the assessee raised two main contentions: first, that the land’s agricultural nature at purchase excluded it from Section 56(2)(x); second, that the Assessing Officer erred in failing to refer the matter to the Departmental Valuation Officer (DVO) despite the assessee’s written requests disputing the stamp duty valuation. Citing Sunil Kumar Agarwal v. CIT (372 ITR 83) and ITAT Ahmedabad’s ruling in Amarshiv Construction Pvt. Ltd., counsel argued that a DVO reference was mandatory when valuation was contested.

The Tribunal examined the statutory language and observed that while rural agricultural land is excluded from the definition of “capital asset” in Section 2(14)—making its sale exempt from capital gains tax—Section 56(2)(x) refers broadly to “any immovable property” without excluding agricultural land. In the absence of such exclusion, the provision covered rural agricultural land for the purposes of taxing undervalued purchases.

Quoting from its reasoning, the Bench stated:  “Going by the plain words of Section 56(2)(x) of the Act, which uses the term ‘immovable property’, agricultural land cannot be taken out of its purview.” However, the Tribunal found merit in the procedural grievance regarding valuation. Referring to its own decision in Dilip Manibhai Prajapati v. ITO, it held that when an assessee disputes the stamp duty valuation, the Assessing Officer is required to refer the matter to the DVO. Failure to do so, despite specific written requests, warranted setting aside the assessment on that aspect.

Also Read: ITAT Chennai: Salary Earned in China by Chinese Tax Resident Not Taxable in India Despite Credit to Indian Account

The Tribunal remanded the matter to the Assessing Officer with directions to refer the valuation to the DVO. While affirming that rural agricultural land falls within the ambit of Section 56(2)(x), the ruling ensures that disputed valuations must follow the statutory process. The decision effectively signals that long-used practices of undervaluing farmland purchases to convert unaccounted cash will now attract tax scrutiny.

Appearance

Counsel For Appellant: Hem Chhajed, AR

Counsel For Respondent: Kalpesh Rupavatia, Sr. DR

Cause Title: Clayking Minerals LLP V. ITO

Case No: I.T.A. No.82/Ahd/2025

Coram: Dr. B.R.R. Kumar [Vice President], Siddhartha Nautiyal [Judicial Member]