The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has taken direct aim at a long-running method of converting black money into white using rural agricultural land transactions.
The bench of Dr. BRR Kumar (Vice President) and Siddhartha Nautiyal (Judicial Member) has observed that t the difference between the land’s actual market value and the amount stated in the sale deed can now be taxed as “income from other sources” under Section 56(2)(x) of the Income Tax Act. This means that if someone buys land worth ₹7 crore but records the transaction as ₹1.5 crore and pays ₹5.5 crore in cash, that ₹5.5 crore can now be taxed immediately—even if the land itself remains exempt from capital gains tax when sold later.
For years, individuals with unaccounted cash—commonly called black money—would purchase rural farmland at below-market prices on paper, while secretly paying the seller large amounts in cash. For example, land worth ₹7 crore would be officially recorded as a ₹1.5 crore deal, with the remaining ₹5.5 crore handed over in cash.
Since rural agricultural land is not considered a “capital asset” under Indian tax law, any future sale of the land—even at full market value—would escape capital gains tax. This made it a popular tool to turn undeclared cash into clean money.
The decision is a potential game-changer for the real estate and black money ecosystem. While the sale of rural agricultural land still enjoys tax exemptions, the earlier loophole of avoiding scrutiny during the purchase has effectively been closed.
Experts say if this interpretation is upheld by higher courts, the decades-old method of laundering black money through farmland could soon become obsolete.
The ITAT ruling signals a strong move by tax authorities to plug loopholes and bring hidden transactions into the tax net—making it riskier than ever to use farmland as a black money safe haven.
Case Details
Case Title: Clayking Minerals LLP Versus ITO
Case No.: I.T.A. No.82/Ahd/2025
Date: 27.05.2025
Counsel For Appellant: Hem Chhajed, AR
Counsel For Respondent: Kalpesh Rupavatia, Sr. DR
