Taxman accused a farmer of 'underpaying' on his land, but he fought back and saved his life savings.

Mr. Desai, encountered difficulties with the Income Tax Department after purchasing land for a price less than the stamp duty value. The Income Tax Department attempted to levy taxes on an Rs 18.24 lakh discrepancy, but his Chartered Accountant opposed this claim. The case was sent to the Departmental Valuation Officer, who appraised the land at Rs 14.08 lakh.

When Mr Desai, a farmer from Katargam in Surat, Gujarat, bought a piece of land in Mouje Nakhre tal, Ratnagiri, Maharashtra, he got into trouble with the Income Tax Department. The problem arose because Desai bought the land for Rs 18.24 lakh less than its stamp duty value. According to income tax law, if you buy any property for less than its stamp duty value then under Section 56(2)(vii)(b), you will have to pay income tax on the differential value which was Rs 18.24 lakh for Desai.

Unfamiliar with income tax regulations , Desai filed his income tax return (ITR) on October 14, 2014, declaring a total income of Rs 2.43 lakh, of which Rs 81,500 was agricultural income. The Income Department Assessing Officer (AO) was already aware of Desai's land purchase and was waiting for him to declare it in his ITR. W hen Desai did not declare it, his case was selected for limited scrutiny and a notice under Section 143(2) was issued to him on September 1, 2015. Subsequently,more income tax notices were sent to him.

Desai responded to these tax notices and his Chartered Accountant, Arjav Vidani, attended the proceedings. The primary concern of the tax officer was that Desai showed everything in his ITR except the fact that he had purchased the Ratnagiri land for less than its stamp duty value. The AO observed that Desai along with other co-owners, had purchased two lands which were valued higher than what was paid by Desai. Thus the AO added the difference (Rs 18.24 lakh) to Desai's income and decided to tax it.

Chartered Accountant Arjav Vidani representing Desai said that this Rs 18.24 lakh addition of income to Desai's name was made without referring the valuation to the Departmental Valuation Officer (DVO) on which Desai had paid the stamp duty. Vidani says when they appealed to CIT(A), the matter was heard on merit and referred to the DVO officer who then did a valuation of the Ratnagiri lands.

The DVO valued the lands at Rs 14.08 lakh which was the same amount Desai had purchased the land for. However, for unknown reasons, Desai's case was transferred to ADDL/JCIT(A)-7, Delhi, who ch ose not to condone the delay and dismissed Desai's appeal on technical grounds without adjudicating any grounds on merits and without adverting to the valuation order of the DVO which was already on record.

Vidani thus argued before ITAT Surat that the sudden transfer of Desai's case to NFAC, Delhi and dismissing the appeal on the ground of delay did not appear to be as per the Income Tax Act.

On October 28, 2026 Desai won the case at the Income Tax Appellate Tribunal (ITAT) Surat.

Why did Desai win the case?Mr Desai and a co-owner bought an agricultural land in Ratnagiri, Maharashtra, for Rs 14.08 lakh, while the stamp duty authority valued this same land at Rs 50.56 lakh for unknown reasons. Amit Maheshwari, Managing Partner, AKM Global, said to ET Wealth Online that the Income Tax Department Assessing Officer without referring to the valuation down by Income Tax Department's own valiation officer (DVO) taxed Mr Desai's 50% share of the gap, Rs 18.24 lakh, as "income from other sources" under Section 56(2)(vii)(b) of Income tax Act,1961.

The ITAT held that the CIT(A) could not ignore the DVO's valuation after referring the matter, and directed the AO to grant relief based on the report. So, Mr Desai won because the department's own valuer supported his purchase price.

What should land purchases do?Chetna Chaudhary, Director - Tax and Regulatory, AKM Global, said to

ET Wealth Online: The key lesson from this ruling is that stamp duty value is not the last word for income-tax purposes. If it is higher than the land's actual market value, the buyer can dispute it and seek a reference to the Income Tax Departmental Valuation Officer (DVO), whose report can replace the stamp value.

Chaudhary says that if you are are land buyers then you should raise this objection in writing during assessment and ask the Assessing Officer to make the reference to the DVO. You should also collect supporting evidence at the time of purchase rather than years later, including a registered valuer's report, sale deeds of comparable nearby land, and records of the land's condition.

It is equally important to know the tolerance limit. Under Section 92 of Income tax Act, 2025, no tax arises if the gap between purchase value and stamp duty value does not exceed the higher of Rs 50,000 or 10% of the price paid.

Chaudhary says that the gap between purchase price and stamp duty valuation gap is large then it can be taxed as the buyer's income, while the seller may face a capital gains adjustment under Section 78 if the land is a capital asset.

ITAT Surat discussionITAT Surat observed that the DVO's report found the fair market value of the said property at Rs 14.08 lakh and this was the amount paid by Desai. So this value was correctly declared.

Thus the ITAT Surat ruled that once DVO has given his report and order dated February 17, 2020 under Section 16-A(3) of the Wealth Tax Act, 1957, according to the reference of the CIT(A), it cannot be ignored by the CIT(A) at any cost.

ITAT Surat said that the stamp duty authorities followed their local traditions for calculating stamp duty but the sale deed accepted by the stamp duty officials , recorded the value at Rs 14.08 lakh.

ITAT Surat order: "The DVO's report also states the amount mentioned by the assessee in the sale deed and once the CIT(A) has referred the matter to the DVO, the said price mentioned by the DVO should have been taken into account by the CIT(A). Thus, the AO is directed to take cognizance of the DVO's report and accordingly grant relief to the assessee (Desai)."