2020 (7) TMI 188 - AT - Income Tax

Addition u/s 56(2)(vii)(b) - Whether property acquired by the assessee was not a capital asset? - nature of immoveable property which has been purchased by the assessee - difference between the sale consideration as per the sale deeds and the stamp valuation determined by the Stamp Valuation Authority - As contended that the assessee had purchased two pieces of agriculture land during the year and the agriculture land not being a capital asset, the provisions of section 56(2)(vii)(b) are not applicable - HELD THAT - Only those immovable properties which are held as capital assets and is in nature of land or building or both are only covered u/s 56(2)(vii). We agree with the contention of the ld AR that where the term property has been defined to mean a capital asset as so specified and where an immoveable property as so specified being land, building or both is not held as an capital asset, it will not be subject to the provisions of section 56(2)(vii)(b) of the Act. In the instant case, therefore, where the agricultural land doesn t qualify as falling in the definition of capital asset, provisions of section 56(2)(vii)(b) cannot be invoked. In the instant case, whether agriculture land so acquired falls in the definition of capital asset or not, one has to refer to the provision of section 2(14) which exclude agriculture land in India subject to certain exceptions. However, there are no findings of the lower authorities in this regard. Therefore, we deem it appropriate to set-aside the matter to the file of the AO for the limited purposes of examining whether the two plots of agricultural land so acquired falls in the definition of capital asset or not. We find that the AO has not appreciated the objection of the assessee regarding adoption of DLC value as against the sale consideration. Therefore, where the assessee has objected to the stamp duty valuation, as per the provisions of section 50C(2) of the Act which are equally relevant for the purpose of provisions of section 56(2)(vii)(b)(ii) of the Act, the matter should have been referred by the Assessing Officer to the DVO for determination of fair market value. Therefore, in the instant case, where it is so determined by the Assessing officer that the agricultural land so acquired falls in the definition of capital asset, he has to refer the matter to DVO to further determine the fair market value of the two plots of agricultural land and thereafter, decide the matter afresh. Appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Applicability of Section 56(2)(vii)(b) to agricultural land.
2. Determination of whether the agricultural land qualifies as a capital asset under Section 2(14).
3. Requirement to refer the matter to the District Valuation Officer (DVO) for fair market value determination when the assessee disputes the stamp duty value.

Issue-wise Detailed Analysis:

1. Applicability of Section 56(2)(vii)(b) to Agricultural Land:

The primary issue is whether the provisions of Section 56(2)(vii)(b) of the Income Tax Act, 1961, apply to the agricultural land purchased by the assessee. The assessee argued that the agricultural land is not a capital asset and hence, should not be subjected to the provisions of Section 56(2)(vii)(b). The Revenue contended that the term "any immovable property" in Section 56(2)(vii)(b) includes agricultural land.

The Tribunal examined the provisions of Section 56(2)(vii)(b) and noted that it refers to "any immovable property." However, the term "property" is defined in Explanation (d) to Section 56(2)(vii) to mean "capital asset" of the assessee. The Tribunal agreed with the assessee's contention that only immovable properties held as capital assets are covered under Section 56(2)(vii)(b). Therefore, if the agricultural land does not qualify as a capital asset, the provisions of Section 56(2)(vii)(b) cannot be invoked.

2. Determination of Whether the Agricultural Land Qualifies as a Capital Asset Under Section 2(14):

The Tribunal emphasized the need to determine whether the agricultural land in question falls within the definition of a capital asset as per Section 2(14) of the Income Tax Act. Section 2(14) excludes agricultural land in India from the definition of a capital asset, subject to certain exceptions. The Tribunal noted that the lower authorities did not make any findings regarding whether the agricultural land qualifies as a capital asset.

The Tribunal set aside the matter to the Assessing Officer (AO) to examine whether the two plots of agricultural land acquired by the assessee fall within the definition of a capital asset. If the AO determines that the agricultural land does not qualify as a capital asset, the difference between the stamp duty value and the sale consideration cannot be taxed under Section 56(2)(vii)(b).

3. Requirement to Refer the Matter to the DVO for Fair Market Value Determination:

The assessee objected to the stamp duty value adopted by the AO and argued that the matter should have been referred to the DVO for determining the fair market value. The Tribunal noted that during the assessment proceedings, the assessee was issued a show-cause notice regarding the addition under Section 56(2)(vii). The assessee responded that the provisions of Section 56(2)(vii) should not apply as the purchase was made before the effective date.

The Tribunal found that the AO did not address the assessee's objection regarding the adoption of the stamp duty value. According to Section 50C(2), which is relevant for Section 56(2)(vii)(b)(ii), if the assessee disputes the stamp duty valuation, the AO should refer the matter to the DVO. Therefore, if the AO determines that the agricultural land qualifies as a capital asset, the AO must refer the matter to the DVO to determine the fair market value of the two plots of agricultural land and then decide the matter afresh.

Conclusion:

The Tribunal set aside the matter to the AO to determine whether the agricultural land qualifies as a capital asset. If it is determined to be a capital asset, the AO must refer the matter to the DVO for fair market value determination. The appeal was allowed for statistical purposes, and the AO was directed to provide a reasonable opportunity to the assessee before making a final decision.

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