2025 (5) TMI 1953 - AT - Income Tax

Addition made u/s 56(2)(x)- purchase of rural agricultural land - Difference between the purchase consideration and the stamp duty value - action of AO in not considering request of reference to the DVO - HELD THAT - Going by the general definition immovable property would in our view include any rural agricultural land in absence of any specific exclusion in section 56(2)(x) of the Act. Notably section 56(2)(x) of the Act does not use the word capital asset . The sale of rural agricultural land is exempt in the hands of the seller since the word capital asset has been specifically defined to exclude agricultural land in rural areas under section 2 clause 14. Thus sale of rural agricultural land shall not give rise to any capital gains in the hands of the seller as it is not considered as a capital asset itself. From the point of view of the purchaser of immovable property as stated above section 56(2)(x) mentions any immovable property which going by the plain words of the Statute does not specifically exclude agricultural land . As going by the plain words of the section 56(2)(x) of the Act which uses the term immovable property agricultural land cannot be taken out of the purview of section 56(2)(x) of the Act. There is merit in the contention of the assessee that where the stamp duty value of the property is disputed the AO has to make a reference to the DVO for the purpose or valuing the same. We hereby refer the matter to the file of the Assessing Officer with a direction to refer the matter to DVO as requested by the assesse. Appeal of the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether the addition made under section 56(2)(x) of the Income Tax Act on account of the difference between the purchase price and stamp duty value of the agricultural land is sustainable.

- Whether agricultural land qualifies as "immovable property" under section 56(2)(x) of the Act and thus falls within the scope of this provision.

- Whether the Assessing Officer erred in not referring the valuation dispute to the Departmental Valuation Officer (DVO) despite the assessee's specific request.

- The applicability and interpretation of the intention and actual use of land in determining whether the land is a capital asset for the purpose of section 56(2)(x).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 56(2)(x) to Agricultural Land

Relevant Legal Framework and Precedents: Section 56(2)(x) levies tax on the excess of stamp duty value over the consideration paid for immovable property. The term "immovable property" is not defined in the Act, necessitating interpretation in its ordinary meaning. Section 2(14) defines "capital asset" and excludes agricultural land in rural areas from being a capital asset, which is relevant for capital gains tax but not explicitly for section 56(2)(x).

Precedents such as Sarif Abibi Ibrahim (204 ITR 631) were relied upon by the Assessing Officer, emphasizing that agricultural status depends on actual use and intention, not merely classification.

Court's Interpretation and Reasoning: The Tribunal noted that the plain language of section 56(2)(x) uses "immovable property" without excluding agricultural land. The general understanding of immovable property includes agricultural land. The Tribunal distinguished the exclusion of agricultural land from "capital asset" under section 2(14) (relevant for capital gains) from the scope of section 56(2)(x), which applies to the purchaser and refers to any immovable property.

Relying on authoritative principles from Nairin v. University of St. Andrews and Ombalika Das v. Hulisa Shaw, the Tribunal held that where statutory language is clear and unambiguous, the plain meaning must be applied without resorting to legislative intent or extraneous considerations.

Application of Law to Facts: The land in question, although agricultural at the time of purchase, falls within the ambit of "immovable property" under section 56(2)(x). Therefore, the difference between stamp duty value and purchase price is chargeable unless other provisions or exceptions apply.

Treatment of Competing Arguments: The assessee argued that since the land was agricultural at the time of purchase, section 56(2)(x) should not apply. The Tribunal rejected this, emphasizing the plain wording and the absence of any exclusion for agricultural land in section 56(2)(x).

Conclusion: Agricultural land qualifies as immovable property under section 56(2)(x), and the provision applies to such land irrespective of its classification as capital asset under section 2(14).

Issue 2: Requirement of Reference to Departmental Valuation Officer (DVO)

Relevant Legal Framework and Precedents: The proviso to section 56(2)(x) mandates that where the stamp duty value is disputed on grounds mentioned in section 50C(2), the Assessing Officer may refer the valuation to a Valuation Officer. Judicial precedents such as Sunil Kumar Agarwal v. CIT (372 ITR 83) and ITAT Ahmedabad in Amarshiv Construction Pvt. Ltd. v. DCIT have held that reference to the DVO is mandatory where the assessee disputes the valuation.

Court's Interpretation and Reasoning: The Tribunal observed that the assessee had specifically objected to the valuation and requested referral to the DVO via letters dated 28.08.2020 and 19.04.2021. The Assessing Officer and CIT(A) had not complied with this request. The Tribunal emphasized that the failure to refer the matter to the DVO renders the assessment order void and legally untenable.

Application of Law to Facts: Given the dispute over the valuation and the specific request by the assessee, the Tribunal directed the Assessing Officer to refer the matter to the DVO for fresh valuation, thereby ensuring compliance with the statutory mandate and procedural fairness.

Treatment of Competing Arguments: The Revenue relied on the Assessing Officer's and CIT(A)'s orders which did not refer the matter to the DVO. The Tribunal found this approach contrary to the statutory provisions and judicial precedents mandating such reference upon dispute.

Conclusion: The Tribunal held that the Assessing Officer must refer the valuation dispute to the DVO as requested by the assessee, and the matter is remanded accordingly.

Issue 3: Intention and Use of Land in Determining Capital Asset Status and Applicability of Section 56(2)(x)

Relevant Legal Framework and Precedents: The Supreme Court in Sarif Abibi Ibrahim held that agricultural status depends on actual use and intention, not merely on classification in revenue records. Section 2(14) excludes agricultural land from capital asset if it is rural agricultural land.

Court's Interpretation and Reasoning: The Assessing Officer and CIT(A) relied on the certificate from the District Collector indicating that the land was purchased for bona fide industrial purposes and permission was granted for non-agricultural use shortly after purchase. This suggested that the land was intended for non-agricultural use from the outset.

The Tribunal noted that although the land was agricultural at the time of purchase, the subsequent conversion and the intention to use it for industrial purposes were relevant factors. However, this issue was not finally decided by the Tribunal due to the remand for DVO valuation.

Application of Law to Facts: The Assessing Officer treated the land as non-agricultural based on the intention and use, thereby attracting section 56(2)(x). The assessee disputed this characterization, contending the land was agricultural at purchase.

Treatment of Competing Arguments: The Tribunal acknowledged the Assessing Officer's reliance on intention and use but focused primarily on procedural correctness regarding valuation dispute. The substantive issue of intention and classification was left open pending fresh valuation.

Conclusion: The Tribunal did not conclusively rule on this issue but implicitly recognized its relevance in the final determination after valuation.

3. SIGNIFICANT HOLDINGS

- "Going by the plain words of the section 56(2)(x) of the Act, which uses the term 'immovable property', agricultural land cannot be taken out of the purview of section 56(2)(x) of the Act."

- "Where the stamp duty value of the immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer."

- The Tribunal emphasized the mandatory nature of reference to the DVO upon dispute over stamp duty valuation, holding that failure to do so renders the assessment order void and legally untenable.

- The Tribunal remanded the matter to the Assessing Officer with a direction to refer the valuation dispute to the DVO as requested by the assessee.

- The Tribunal upheld the principle that "intention and actual use" of land are relevant in classifying agricultural land for tax purposes but deferred final determination pending fresh valuation.

- The appeal was allowed for statistical purposes, indicating that the matter requires reassessment after compliance with the direction to obtain DVO valuation.