🧾 Black to White No More: ITAT's Crackdown on Farmland Flipping

For decades, a widely used trick to convert black money into white was deceptively simple: buy farmland using cash and undervalued paperwork, then later sell it at the actual market rate. This method, largely unchecked due to the rural agricultural land’s exemption from capital gains tax, helped many launder unaccounted money quietly. But not anymore.

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT), in a recent judgment in Clayking Minerals LLP vs. ITO (May 2025), has called time on this classic loophole.

🧯 The Modus Operandi: What Used to Happen?

• A buyer identifies rural agricultural land (usually not covered under capital gains tax).

• Pays a large portion of the consideration in cash (undisclosed).

• Registers the transaction at a fraction of the actual market value.

• Later sells the land at full market value, thus "converting" the black cash into legitimate white money.

⚖️ What the ITAT Held

Even if the asset is rural agricultural land, it falls under the ambit of “immovable property” under Section 56(2)(x). Hence, the difference between the market value (stamp duty value) and the actual consideration paid is taxable in the hands of the buyer as “Income from Other Sources.”

This decision is a game-changer because Section 56(2)(x) was traditionally thought to exclude rural agricultural land from its ambit.

💣 Real Impact: Case of Clayking Minerals LLP

• The assessee purchased a rural agricultural land at a declared value of ₹1.5 crore.

• The stamp duty value was ₹7 crore.

• The ITAT held that the ₹5.5 crore difference must be taxed under Section 56(2)(x) — despite the land being rural farmland.

This marks a paradigm shift in tax treatment — the land may be capital gains exempt, but purchase-side underreporting now attracts tax.

🧮 Legal Math: How Section 56(2)(x) Works

If you buy any immovable property (land or building) for less than its stamp duty value, then:

Deemed income = Stamp Duty Value – Consideration Paid

This is taxed as "Income from Other Sources" in your ITR.

🔎 Why This Ruling Matters

✅ Old Scenario	❌ Post-ITAT Ruling
Rural land = CG exempt, safe to underreport	Stamp value mismatch taxable under 56(2)(x)
Cash dealt quietly, no immediate tax impact	Cash difference taxed as income in buyer’s hands
Clean exit via resale	Now traceable, taxable, and open to scrutiny

🚨 What's Next?

While the ruling is from ITAT and subject to appeal, if upheld by High Courts, this could trigger:

• Massive reassessments of past farmland purchases

• Fresh scrutiny under Benami and black money laws

• Stronger IT notices and prosecutions

✍️ Final Thoughts

This ruling is a clear signal — the Income Tax Department is closing in on cash-heavy deals, especially involving agricultural land. No longer can farmland be used as a washing machine for black money.

➡️ If you or your clients have rural land transactions with below-market declarations, it’s time to get them reviewed by a professional.

📌 Case Reference

Clayking Minerals LLP vs. ITOITAT Ahmedabad Bench | I.T.A. No. 82/Ahd/2025 | Date of Order: 27 May 2025