The Income Tax Appellate Tribunal, Ahmedabad Bench, in Clayking Minerals LLP v. Income Tax Officer (ITA No. 82/Ahd/2025), examined the applicability of Section 56(2)(x) of the Income Tax Act, 1961, to the purchase of rural agricultural land and the obligation of the Assessing Officer to refer valuation disputes to the Departmental Valuation Officer (DVO).

The assessee had purchased land for a consideration of ₹42,72,000, whereas the stamp duty value was determined at ₹1,15,62,880. The Assessing Officer invoked Section 56(2)(x) and treated the differential amount of ₹72,90,880 as income from other sources, holding that the land was purchased with an intention to convert it to non-agricultural use and therefore constituted a capital asset. Reliance was placed on the Supreme Court decision in Sarifabibi Ibrahim v. CIT (204 ITR 631), emphasizing that the nature of land depends on actual use and intention.

The assessee contended that the land was agricultural at the time of purchase and that conversion to non-agricultural use was subsequent. It was further argued that despite specific objections raised against the stamp duty valuation, the Assessing Officer failed to make a reference to the DVO, rendering the addition unsustainable in law. Reliance was placed on Sunil Kumar Agarwal v. CIT (372 ITR 83), wherein it was held that the Assessing Officer, acting in a quasi-judicial capacity, is duty-bound to provide the assessee an opportunity for DVO valuation where stamp duty value is disputed.

The Tribunal, after examining Section 56(2)(x), observed that the provision uses the expression “any immovable property” and does not exclude agricultural land. It held that while rural agricultural land is excluded from the definition of “capital asset” under Section 2(14) for the purpose of capital gains in the hands of the seller, Section 56(2)(x) operates independently and applies from the perspective of the purchaser.

However, the Tribunal emphasized that the third proviso to Section 56(2)(x), read with Section 50C(2), mandates reference to the DVO where the assessee disputes the stamp duty valuation. Placing reliance on judicial precedents including Dilip Manibhai Prajapati v. ITO (164 taxmann.com 224), the Tribunal held that failure to refer the matter to the DVO vitiates the addition.

Accordingly, the Tribunal set aside the orders of the lower authorities on this limited issue and remanded the matter to the Assessing Officer with a direction to refer the valuation to the DVO. The appeal was allowed for statistical purposes.

Source- https://itat.gov.in/public/files/upload/1748324043-3kVBXv-1-TO.pdf

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