Agricultural land is outside the deeming provision u/s 56(2)(x) – ITAT

Agricultural land is outside the definition of capital asset, therefore, the deeming provision u/s 56(2)(x) cannot be invoked – ITAT

In a recent judgment, ITAT has held that where the assessee has purchased agricultural land the same is outside the definition of capital asset, therefore, the deeming provision u/s 56(2)(x) of the Income Tax Act, 1961 (the Act) cannot be invoked.

ABCAUS Case Law Citation:
5213 (2026) (08) abacus.in ITAT

As per information available with the Assessing Officer (AO) based on in sight verification portal under non filer-ITR cases, it was noticed that assessee had purchased immovable property.

A show cause notice was issued to the assessee as per the provisions of section 148A(b) of the Act as to why purchase of immovable property should not be treated as income chargeable to tax which was escaped assessment u/s.147 of the Act.

The AO being not satisfied with the submissions, reopened the assessment vide order u/s 148A(d) of the Act. In response to the notice issued u/s.148 of the Act, assessee submitted that he is a farmer deriving income from interest from bank and had received compensation for compulsory land acquisition from Greater Noida Authority, Government of Uttar Pradesh out of which he has purchased two agricultural land and the circle rate of both the land was much higher than the purchase consideration actually paid.

The AO, after verification of the documents submitted by the assessee, he observed that Stamp Duty value of the immovable properties exceeded the consideration of the property more than Rs.50,000/- and according to him the above said difference was to be assessed in the hands of the assessee and to be charged under the head income from other sources u/s 56(2)(vii)(b) of the Act for the year under consideration.

The assessee inter alia submitted that section 56(2) (vii)(b) of the Act is not applicable on rural agricultural land as it was not a capital asset u/s 2(14) of the Act. It was further submitted that the applicability of the provisions of Section 56(2)(vii)(b) of the Act on purchase of rural agricultural land at less than the stamp duty value arose before Pune ITAT which held in allowed the appeal in favour of the assessee.

However, the AO relied on the decision of ITAT Jaipur and made the impugned addition u/s 56(2)(vii)(b) of the Act. The CIT(A) confirmed the addition.

The Tribunal observed that the only issue before it was whether the assessee had purchased the agricultural land or not from the findings of the lower authorities.

The Tribunal noted that both the lower authorities had never raised any doubt on the issue of nature of land purchased by the assessee. Therefore, it was fact on record that the land purchased by the assessee was only agricultural land and the facts in the present case were exactly similar to the facts in the case before ITAT Delhi wherein it was held that since, the assessee had purchased agricultural land the same was outside the definition of capital asset, therefore, the deeming provision u/s 56(2)(x) cannot be invoked.

As a result, following the decision of the Delhi ITAT, the Tribunal allowed the ground raised by the assessee.

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