ITAT Quashes Rs 18.24 Lakh Tax Addition After DVO Values Land at Price Equal to Its Initial Purchase Price:

A farmer from Katargam in Surat, Gujarat, faced an income tax demand after purchasing a piece of land at a value lower than its stamp duty value and thereafter not paying tax on the differential value.

In the present case, Mr Desai, who is a farmer, had bought land worth Rs 18.24 lakh less than its stamp duty value. As per the provisions of Section 56(2)(vii)(b) of the Income Tax Act, a person becomes liable to pay tax on the differential value in case property is bought at a value less than its stamp duty value. Correspondingly, the farmer had to pay tax on Rs 18.24 lakh. However, being unfamiliar with such income tax provisions, he filed his income tax return (ITR) for the concerned assessment year, merely declaring an aggregate income of Rs 2.43 lakh, including agricultural income of Rs 81,500.

Thereafter, the Assessing Officer (AO) selected Desai's case for scrutiny and served him a notice under Section 143(2) dated September 01, 2015. Subsequently, several notices were sent to him. Desai responded to every notice properly with the help of his chartered accountant (CA) named Arjav Vidani. The key concern highlighted by the AO was that Desai had disclosed every detail in his tax return except the fact that he had purchased a piece of land at a lower stamp duty.

It was further noted by the AO that Desai, along with other co-owners, had purchased two pieces of land worth more than what was paid by Desai. Ideally, he was liable to pay tax on the differential value of Rs 18.24 lakh; however, he did not.

Before the appellate authorities, Desai contended that the AO had made the addition without referring the land valuation to the Departmental Valuation Officer (DVO). During the appeal proceedings, the matter was referred to the DVO, who valued the land at Rs 14.08 lakh, the same amount for which Desai had purchased it.

However, ADDL/JCIT(A)-7, Delhi, dismissed his appeal ex parte merely on the ground of delayed filing. The appeal was not examined on its merits or after considering the DVO's valuation report. Mr Desai, being aggrieved by the order of the first appellate authority, challenged the same before the Income Tax Appellate Tribunal (ITAT), Surat, arguing that the transfer of the case to NFAC, Delhi, and its subsequent dismissal on technical grounds had deprived Desai of a decision on merits. Consequently, the tribunal quashed the impugned addition of Rs 18.24 lakh, thereby holding in Desai's favour.