Assessee wins appeal as section 56(2)(x) addition deleted when stamp duty valuation disputed without DVO reference

ITAT Ahmedabad allowed assessee's appeal against addition under section 56(2)(x) for difference between stamp duty value and purchase consideration of immovable property. Assessee held 47.5% share and purchased agricultural land but stamp duty valuation treated it as non-agricultural residential land. ITAT held that since assessee disputed stamp duty valuation, AO should have referred matter to DVO under section 50C(2). DVO found fair market value at Rs.2.23 crores against stamp duty value of Rs.3.32 crores, with only Rs.20 lakhs difference from purchase consideration of Rs.2.01 crores (approximately 10%), which was not material. Addition deleted.

---

---

Issues Involved:

1. Invocation of provisions of section 56(2)(x) of the Income Tax Act, 1961.
2. Determination of the fair market value (FMV) of the purchased property.
3. Requirement for reference to the District Valuation Officer (DVO).

Issue-wise Detailed Analysis:

1. Invocation of Provisions of Section 56(2)(x):

The primary issue in this case is the invocation of section 56(2)(x) of the Income Tax Act, which pertains to the addition made to the assessee's income due to the difference between the purchase consideration of an immovable property and its stamp duty value. The assessee purchased land with two other co-owners, with a share of 47.5%, for Rs. 2.01 crores. The stamp duty value of the land was Rs. 3,32,64,000/-, leading to a difference of Rs. 1,31,64,000/-. The Revenue authorities taxed this difference in the hands of the purchasers, resulting in an addition of Rs. 65,54,400/- to the assessee's income under section 56(2)(x). The assessee contended that the land purchased was agricultural, with a stamp duty valuation of Rs. 55,07,040/-, and therefore, section 56(2)(x) should not be invoked.

2. Determination of Fair Market Value (FMV):

The assessee argued that the stamp duty valuation of Rs. 3,32,64,000/- was for non-agricultural land, while the purchased land was agricultural. The conversion of land usage to non-agriculture was approved on 15.2.2017, after the initial agreement to purchase (banakhat) on 31.8.2016 and before the sale deed on 3.5.2017. The assessee maintained that the land's character remained agricultural, supported by the sale deed and conditions in the Collector's approval. The jurisdictional High Court's judgment in Kishorbhai Harjibhai Patel vs. Income Tax Officer was cited, stating that land does not cease to be agricultural merely due to conversion permission. The assessee also pointed out that the DVO, during the assessment of a co-purchaser, found the FMV to be Rs. 2,25,46,000/-, close to the purchase price of Rs. 2.01 crores.

3. Requirement for Reference to DVO:

The assessee contended that the AO should have referred the valuation to the DVO under section 50C(2) read with section 56(2)(x), as the stamp duty valuation was disputed. The Revenue argued that this contention was raised for the first time before the Tribunal. The Tribunal found merit in the assessee's contention, noting that the AO must refer the valuation to the DVO when the stamp duty value is disputed. The Tribunal observed that the assessee consistently disputed the stamp duty valuation, and the AO should have referred the matter to the DVO. The Tribunal also noted that the DVO's valuation in the co-purchaser's case showed no material difference between the FMV and the purchase consideration.

Conclusion:

The Tribunal concluded that the AO should have referred the valuation to the DVO, and since the DVO's valuation was close to the purchase consideration, there was no material difference warranting an addition under section 56(2)(x). The Tribunal directed the AO to delete the addition of Rs. 62,52,900/- made to the assessee's income. Other arguments regarding the land's agricultural status were not addressed, as the primary issue was resolved in the assessee's favor. The appeal was allowed, and the order was pronounced on 28th June 2024 in Ahmedabad.

---