ITAT Ahmedabad Sets Aside Tax Addition, Rules Stamp Duty Valuation Not Conclusive for Determining Nature of Land

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In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Ahmedabad, has overturned the order of the Commissioner of Income Tax (Appeals) [CIT(A)], granting relief to the assessee for the assessment year 2018–19 in a dispute relating to a 6,475 square metre parcel of land located in Vastral, Ahmedabad.

The case involved an addition of ₹18,10,640 made by the Assessing Officer (AO) under Section 56(2)(x) of the Income Tax Act, 1961, which had earlier been confirmed by the CIT(A). The addition was based on the allegation that the assessee had purchased the land at a value lower than its fair market value as determined by stamp duty valuation.

The AO treated the difference between the purchase consideration and the stamp duty value as income from other sources, on the presumption that the land was non-agricultural in nature. This conclusion was drawn primarily on the basis of a proposed draft town planning (TP) scheme formulated by the Ahmedabad Urban Development Authority (AUDA).

The assessee, however, contended that the land remained agricultural, as clearly reflected in the sale deed, revenue records, and other official land documents. It was further argued that the draft AUDA scheme had not been finalised or approved and therefore could not alter the legal character of the land.

Representing the assessee, Chartered Accountant Sulabh Padshah submitted that the higher stamp duty was levied solely due to the proposed AUDA draft scheme and did not signify any conversion of the land into non-agricultural property. He further highlighted that the assessee had paid consideration higher than the prevailing jantri (circle) rate applicable to agricultural land, effectively ruling out any allegation of undervaluation.

After examining the facts and records, the ITAT observed that the land had consistently been classified as agricultural in official documents. The Tribunal held that a draft or unapproved town planning scheme cannot change the intrinsic nature of the land.

The ITAT further emphasised that stamp duty valuation is not determinative of the nature of property under the Income Tax Act. In its order, the Tribunal noted:

“The charging of higher stamp duty by the Sub-Registrar’s office based on a draft AUDA scheme would not, in our view, alter the inherent nature of the land. It is a settled legal position that stamp duty valuation or classification for fiscal purposes does not determine the character of the property under the Income Tax Act.”

The Tribunal also rejected the AO’s assumption that 40% of the land had been acquired by AUDA, noting that no such acquisition had taken place and that the draft TP scheme remained unapproved.

Considering that the assessee had paid a value higher than the applicable jantri rate for agricultural land and that there was no evidence of undervaluation or benefit derived, the ITAT concluded that Section 56(2)(x) was wrongly invoked.

Accordingly, the Tribunal held that the addition made by the AO was unsustainable both in law and on facts, and the tax demand was set aside.

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