Surat farmer wins at ITAT; tax demand regarding land valuation quashed

Mr. Desai, a farmer from the Katargam area of Surat, has won his legal battle at the Income Tax Appellate Tribunal (ITAT) Surat. The case pertained to the valuation of land purchased in Ratnagiri, Maharashtra, and the subsequent tax claims thereon. The Income Tax Department had treated the difference between the stamp duty value and the purchase price as income and imposed tax, but the Tribunal eventually ruled in favour of the farmer.

The matter began when Mr. Desai purchased a piece of land in Moje Nakhre Tal, Ratnagiri district of Maharashtra. At the time of purchase, there was a difference of ₹18.24 lakh between the stamp duty value and the actual purchase price. According to Section 56(2)(vii)(b) of the Income Tax Act, if a person purchases a property at a price lower than the stamp duty value, that difference is considered as income and is taxable. Mr. Desai was unaware of these complex rules, due to which he did not disclose this matter in his Income Tax Return (ITR).

Mr. Desai filed his ITR on October 14, 2014, declaring a total income of ₹2.43 lakh, of which ₹81,500 was agricultural income. However, the Assessing Officer (AO) of the Income Tax Department was already aware of the land purchase and was waiting for the farmer to declare it. When Mr. Desai did not mention this purchase in the ITR, his case was selected for limited scrutiny and a notice under Section 143(2) was sent on September 1, 2015. Subsequently, several other notices were also issued to him.

In response to these tax notices, Mr. Desai contested the matter, and his Chartered Accountant, Arjav Vidani, represented him in all proceedings. The primary concern of the tax officer was that while Mr. Desai had provided all other details in the ITR, he had concealed the fact that the Ratnagiri land was purchased at a price lower than the stamp duty value. The AO noted that Mr. Desai and other co-owners had purchased two plots of land whose value was higher than the amount paid. Consequently, the AO added the difference of ₹18.24 lakh to Mr. Desai's income and decided to impose tax.

Chartered Accountant Arjav Vidani argued that the decision to add this ₹18.24 lakh to the income was taken without seeking the advice of the Departmental Valuation Officer (DVO). When the matter was appealed before the CIT(A), a hearing was conducted on merits and the case was referred to the DVO. The DVO re-evaluated the Ratnagiri lands and determined the value to be ₹14.08 lakh, which was exactly the amount paid by Mr. Desai.

However, a twist occurred when Mr. Desai's case was suddenly transferred to the ADDL/JCIT(A)-7 in Delhi. The Delhi official did not condone the delay in the case and dismissed the appeal on technical grounds without any decision on the merits. This decision also ignored the DVO's valuation order available on record. Arjav Vidani argued before ITAT Surat that the sudden transfer of the case to NFAC Delhi and the dismissal of the appeal based on delay was not appropriate under the Income Tax Act.

Amit Maheshwari, Managing Partner of AKM Global, told ET Wealth Online that Mr. Desai and a co-owner had purchased agricultural land in Ratnagiri for ₹14.08 lakh, while the stamp duty authority had valued this land at ₹50.56 lakh for unknown reasons. The AO, ignoring the report of the Department's own valuation officer, had treated 50% of this difference, i.e., ₹18.24 lakh, as "income from other sources" under Section 56(2)(vii)(b) and imposed tax.

Finally, on October 28, 2026, ITAT Surat ruled that the CIT(A) cannot ignore the DVO's valuation after referring the matter. The Tribunal directed the AO to grant relief based on this report. Thus, Mr. Desai won the case with the support of the Department's own valuer.

The Income Tax Appellate Tribunal (ITAT) is a quasi-judicial body for the resolution of income tax disputes, which hears appeals in disagreements between taxpayers and the Income Tax Department.