2024 (9) TMI 267 - AT - Income Tax

Addition invoking provisions of section 56(2)(x) - difference in the stamp duty value and actual purchase consideration of immovable property purchased by the assessee - assessee s share in the impugned property was 47.5% - assessee argued as had purchased an agricultural land whose stamp duty valuation was far less than the consideration for which land was purchased - HELD THAT - The assessee has consistently stated to the authorities below that the stamp duty valuation of the land purchased by him by treating it as non-agricultural land for residential use purpose was not acceptable for the reason that the assessee had purchased agricultural land. He had pointed out this fact of the land purchased being agricultural from the sale deed of the property clearly referring to the land purchased as agricultural land and also mentioning the fact that land be used for agriculture purposes after sale. As contended that the approval for its non-agriculture use had been taken from the Collector, as a matter of convenience only so that the assessee could easily use it for non-agriculture purpose, if required, but the land had been purchased as agriculture land and for agriculture purpose only; That therefore, the stamp duty valuation of the land as non-agricultural residential use was always disputed. These facts were brought out before us through the relevant sale deed, and through the contentions made to the authorities below, and which have not been disputed/controverted by the ld.DR also. Therefore, it is evident that the assessee had disputed the stamp duty valuation of the land. In terms of provisions of section 56(2)(x) read with section 50C(2) of the Act, therefore, there is no doubt that the AO ought to have referred the valuation of the property to the AO. We find merit in this contention of assessee. No material difference between the purchase consideration of the property and its fair market value - Since on a valid reference made to the DVO for the valuation of the fair market value of the impugned property/land in terms of provisions of law in this regard, the FMV has been found to be in excess of approximately of Rs.20 lakhs only, i.e within 10% range of the purchase consideration of Rs.2.01 crores, there is no material difference between the FMV of the property and the purchase consideration for which it was purchased. DVO has found the FMV of the land to be far less than its stamp duty value being Rs.2.23 Crs as opposed to its stamp duty value of Rs.3.32 crs, there is no case with the Revenue for considering the stamp duty value of the land for computing the addition to be made to the income of the assessee in terms of section 56(2)(x) of the Act. At the most, the FMV could be taken for the purpose of determining the excess between the FMV and the purchase consideration, but since the difference is only to the tune of Rs.20 lakhs, which is approximately 10% of the purchase consideration of the property of Rs.2 .01 Crs, it is not a material difference. Therefore, there is no occasion for making any addition in the hands of the assessee for receiving immovable property for consideration which is less than its stamp duty value/FMV for the above reasons. We direct the AO to delete the addition made in the hands of the assessee under section 56(2)(x) - Assessee appeal allowed.

Summary

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.