DY. COMMISSIONER OF INCOME TAX (CENTRAL CIRCLE)-2(4), MUMBAI, MUMBAI vs. SHREE SWAMI SAMARTH SOLAR PARK PRIVATE LIMITED, NAVI MUMBAI

This appeal is filed by the Revenue against the order of the Ld. CIT(A) dated 21.10.2024 for A.Y. 2018-19.

The sole grievance of the Revenue is against the action of the Ld. CIT(A) in deleting the addition of Rs.4,25,10,900/- made by the Assessing Officer u/s 56(2)(x) of the Act.

Brief facts of the case are that the assessee company is engaged in the business of trading in solar PV module and solar products. A search and seizure action u/s 132 was conducted in the Waaree Group on 20.11.2018. During the course of search, various purchase agreements relating to agricultural lands purchased by the assessee in villages Gogaon and Waghdari, Taluka Akkalkot, District Solapur were found. On examination of the agreements, the Assessing Officer noticed that the stamp duty valuation of the lands exceeded the purchase consideration. The aggregate difference for the year under consideration was worked out at Rs.4,25,10,900/-. The Assessing Officer was of the view that the assessee had acquired immovable property for consideration lower than the stamp duty value and therefore the difference was liable to be taxed u/s 56(2)(x) of the Act. Accordingly, an addition of Rs.4,25,10,900/- was made and assessed as income from other sources.

Aggrieved, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submissions of the assessee, held that the lands purchased by the assessee were rural agricultural lands situated beyond the prescribed municipal limits and therefore did not constitute "capital asset" within the meaning of section 2(14)(iii) of the Act. The Ld. CIT(A) further held that the expression "property" occurring in section 56(2)(x) covers only those immovable properties which constitute capital assets and since the subject lands were not capital assets, provisions of section 56(2)(x) were not attracted. Accordingly, the addition was deleted.

The Ld. DR strongly relied upon the assessment order. It was submitted that the assessee had admittedly purchased the lands for setting up a solar power project and not for agricultural operations. The lands were reflected as fixed assets in the balance sheet and not as investments. According to the Assessing Officer, the intention of the assessee from the very inception was to utilize the lands for industrial purposes and therefore the lands constituted capital assets. The Ld. DR submitted that the expression "property" 2 in Explanation to section 56(2)(x) includes immovable property being land or building and therefore the differential amount between the stamp duty value and purchase consideration was rightly brought to tax under section 56(2)(x). It was accordingly contended that the Ld. CIT(A) was not justified in deleting the addition.

Per contra, the Ld. AR supported the order of the Ld. CIT(A). The Ld. AR submitted that the lands in question were admittedly rural agricultural lands situated in villages having population below 10,000 and located beyond the prescribed municipal limits. The agricultural character of the lands was never disputed by the Assessing Officer. It was submitted that even the revenue records and 7/12 extracts demonstrated cultivation on the lands. Merely because the assessee intended to establish a solar power project in future or reflected the lands as fixed assets in its balance sheet, the statutory character of the lands as rural agricultural lands could not be altered. The Ld. AR further submitted that agricultural land which is excluded from the definition of capital asset u/s 2(14)(iii) cannot be regarded as "property" for the purposes of section 56(2)(x). Reliance was placed on the decisions in the cases of Mubarak Gafur Korabu vs. ITO (117 Taxmann.com 828), Prem Chand Jain vs. ACIT (ITA No.98/JP/2019), Yogesh Maheshwari (125 Taxmann.com 273) and George Gee Varghese vs. ITO (ITA No.3004/Chny/2018). It was thus submitted that the Ld. CIT(A) was justified in deleting the addition.

We have heard the rival submissions and perused the material available on record. The short issue before us is whether the differential amount between the stamp duty valuation and purchase consideration of the subject lands can be brought to tax u/s 56(2)(x) of the Act.

The undisputed facts emerging from the record are that the lands in question are rural agricultural lands situated in villages Gogaon and Waghdari in Akkalkot Taluka, Solapur District. The Assessing Officer himself has recorded 3 that the lands are agricultural lands situated beyond the prescribed municipal limits. The addition has been made principally on the reasoning that the assessee intended to use the lands for setting up a solar power project and had shown the lands as fixed assets in its balance sheet.

In our considered view, the aforesaid reasoning adopted by the Assessing Officer is not sufficient to alter the legal character of the lands. The character of the property has to be examined on the date of acquisition with reference to the statutory provisions. Rural agricultural land falling outside the ambit of section 2(14)(iii) does not constitute a capital asset under the Act. The expression "property" occurring in section 56(2)(x) has been interpreted by various coordinate benches to cover only such immovable property which qualifies as a capital asset. The Ld. CIT(A) has examined the factual matrix in detail and has also relied upon judicial precedents holding that rural agricultural land is outside the ambit of section 56(2)(x). The Revenue has not brought any material before us to demonstrate that the findings recorded by the Ld. CIT(A) are factually incorrect or contrary to law. 10. Merely because the assessee proposed to establish a solar power project in future or disclosed the lands as fixed assets in its books cannot by itself convert rural agricultural land into a capital asset on the date of purchase. The end use intended by the purchaser cannot determine the character of the land when admittedly the lands continued to be agricultural lands and satisfied the conditions prescribed under section 2(14)(iii) of the Act.

In view of the foregoing discussion, we find no infirmity in the well- reasoned order of the Ld. CIT(A) deleting the addition of Rs.4,25,10,900/- made u/s 56(2)(x) of the Act. Accordingly, the grounds raised by the Revenue are dismissed.

In the result, the appeal of the Revenue is dismissed.