For Section 56(2)(x) Stamp Duty Value on Allotment Date Must Be Considered: ITAT Mumbai

Smt. Shashi Yogendra Raj Singhavi Vs ITO (ITAT Mumbai)

The appeal before the ITAT Mumbai arose from the order of the National Faceless Appeal Centre (NFAC) dated 17.09.2021 for Assessment Year 2018-19. The dispute related to an addition of Rs. 45,41,815 made under Section 56(2)(x) of the Income Tax Act, 1961 and assessed as “Income from Other Sources.”

The assessee had filed a return declaring total income of Rs. 49,33,640 after claiming deductions under Chapter VIA. The case was selected for limited scrutiny on issues relating to investment in immovable property and capital gains on sale of property. During assessment proceedings, the Assessing Officer observed that the assessee had purchased a flat at Akar Pinnacle, Borivali East, Mumbai on 13.10.2017 for Rs. 98,94,080, while the stamp duty valuation of the property was Rs. 1,52,01,545. The Assessing Officer treated the difference between the stamp duty value and the purchase consideration, after adjustment for stamp duty paid, as taxable under Section 56(2)(x), resulting in an addition of Rs. 45,41,815. The Commissioner (Appeals) confirmed the addition.

Before the Tribunal, the assessee submitted documents showing that the residential flat had actually been booked in the year 2014 and the consideration of Rs. 98,94,080 had been negotiated at that time. The Tribunal examined the allotment letter dated 28.02.2014 and found that it clearly specified the flat number, wing, and other terms and conditions of the transaction. The assessee had paid Rs. 5 lakh by cheque dated 26.02.2014 and subsequently made further payments in financial years 2013-14, 2014-15, and 2015-16 through banking channels. These payments were reflected in the ledger account of the developer and supported by bank statements and Form 26QB/Form 16B documents.

The Tribunal referred to the proviso to Section 56(2)(x), which provides that where the date of agreement fixing the consideration and the date of registration are not the same, the stamp duty value on the date of agreement may be considered, provided that consideration or part thereof has been paid through account payee cheque, bank draft, electronic clearing system, or other prescribed electronic mode on or before the date of agreement.

The Tribunal also reproduced the proviso to Section 50C and observed that both provisions were intended to safeguard taxpayers in property transactions where there may be substantial delay between the date of agreement or allotment and the date of registration, while the consideration and contractual terms remain unchanged. According to the Tribunal, in the present case, the relevant date for determining stamp duty value was the date of allotment letter in 2014 and not the registration date in 2017.

The Tribunal held that the addition under Section 56(2)(x) was not sustainable because the authorities failed to consider the provisos to Sections 56(2)(x) and 50C in their entirety. The Tribunal described it as “astonishing” that both the Assessing Officer and the Commissioner (Appeals) overlooked the provisos while making and confirming the addition.

The Tribunal also referred to several coordinate bench decisions supporting the same legal position. Relying on the facts of the case and the judicial precedents cited, the Tribunal allowed the assessee’s appeal and directed the Assessing Officer to delete the addition of Rs. 45,41,815 made under Section 56(2)(x).

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FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal by assessee is directed against the order of NFAC, Delhi dated 17.09.2021 under section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) for A.Y. 2018-19. The assessee has raised the following grounds of appeal:

“The appellant has preferred an appeal against the order dated 17 09 2021 passed by National Faceless Appeal Centre (NFAC), u/s 250 of the Income Tax Act 1961, in pursuance of appeal filed against assessment order dated 16.03 2021 passed u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Income Tax Act 1961 Following are the grounds of appeal without prejudice to one another:-

i) The learned Commissioner of Income Tax (Appeal) erred in confirming addition of income made by AO u/s 56(2)(x) of the Income Tax Act, 1961 amounting to Rs 45,41,815/ without any base and further added to the total Income under the head “Income from Other Sources”

ii) The appellant craves to add, amend or alter the grounds of appeal at the time of or before the hearing of appeals

2. Brief facts of the case are that assessee filed the return of income on 17-10-2018 declaring total income at Rs 49, 33,640/- after claim of deduction under chapter VIA. Case of the assessee was selected for limited scrutiny on the following issues:

I. Investment in immovable property.

II. Capital gain on sale of property.

3. During the assessment proceedings, it was observed by the AO that assessee has purchased Flat no.D-203, D-wing, 2nd floor, Akar Pinnacle, Datta Pada Road, Borivali East. Date of purchase was 13-10-2017 and purchase consideration of Rs 98, 94,080/-, whereas stamp duty value at the time of purchase was Rs 1, 52, 01,545/- as per sec 50C of I.T.Act.1961. AO made addition of Rs 45,41,815/- being the difference between stamp duty value i.e. Rs 1,52,01,545/- on 13-10-2017 minus amount of purchase consideration i.e. Rs 98,94,080/- equal to 53,07,465/- minus Rs 7,65,650/-(being stamp duty paid) is equal to Rs 45,41,815/-. Being aggrieved with this order of AO assessee preferred an appeal before the Ld.CIT (A). Order of Ld.CIT (A) also confirmed the addition made by the AO. Assessee being further aggrieved approached ITAT through this appeal.

4. We have gone through the order of AO, order of Ld.CIT (A) and submissions of the assessee along with paper-book. We observed that assessee had booked residential flat in the year 2014 with project Akar Pinnacle, Borivali East, Mumbai. The cost of the flat was negotiated at Rs 98, 94,080/- at the time of booking of this flat. We have gone through page no. 190 to 210 of the paper-book no.1. It is transpired that letter of allotment was issued to the assessee on 28-02-2014 itself wherein flat no, wing and other terms and conditions of the transaction were mentioned. Assessee paid Rs 500,000/- vide cheque no. 286191 dated 26-02-2014 drawn on ICICI Bank ltd. Thereafter assessee made payment of Rs 24, 75,816/- in FY 2013-14, Rs 59, 14,152/- in FY 2014-15, Rs 9, 89,408/- in FY 2015-16 vide ledger account furnished on page no. 196 of the paper-book no.1. As per the allotment letter and ledger account payments were made by cheque during all the FY involved and duly reflected in the bank statement of the assessee. Payments made during the period i.e. FY 2013-14 to 2015-16 are duly reflected in the books of the assessee vide ledger of the developer submitted before us vide page no.196 of the paper-book no.1. We have gone through form no. 26 QB along with form no 16B issued by assessee to the developer vide page no. 208 to 210 of the paper-book no.1.

5. The amount of addition made by the AO and confirmed by the Ld.CIT (A) u/s 56(2) (x) (b) (B) is not sustainable as first proviso of this section deals with such type of situation and being tax collection authorities, it is imperative on the [art of AO as well as Ld.CIT (A) to read the section in its totality before making any addition prejudicial to the interest of the assessee. For sake of clarity and ready reference we are mentioning herein below the relevant provision of first proviso to section 56(2) (x) as under:

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6. Proviso mentioned above clearly speaks about the relevant value to be taken. In this case relevant value will be the date of letter of allotment. All the terms and conditions of the transaction were clearly mentioned in the allotment letter and around 25% of the payment was also made in the FY 2013-14 itself. Moreover, we are reproducing herein below the first proviso to sec 50C also as under:

“[Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:

Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], on or before the date of the agreement for transfer:]”

7. In both the sections i.e., 50C and 56(2) (x) [dealing with transferor and transferee respectively] A proviso is provided to safe guard the interest of the assessee as in the property matters delay between date of agreement/ allotment letter vis-a-vis completion of transaction there can be a substantial time lag but the consideration and other terms and conditions do not change. In view of the above facts and proviso to both the sections, in our considered view that addition made u/s 56(2) (x) is bad in law and quite astonishing that both the authorities missed the proviso’s mentioned supra.

8. In addition to above time and again various Co-ordinate Benches confirmed this position of law as under:

I. Siraj Ahmed JamalBhai Bora vs ITO ITA No. 1886/M/2019 dtd. 28/10/2020, (Mum) (Trib,):

II. Radha Kishan Kungwadi vs ITA Ward -1(2) ITA No. 1106/JP/2018 dtd 19/08/2020,[185ITD433(JAIPUR-TRIB)]

III. Sanjay Dattatraya dapodikar vs ITO Ward-6(2), Pune ITA No. 1747/PN/2018 dtd 30/04/2019 (pune)(trib)

IV. Ashutosh Jha vs ITO Ward- 2(5),Ranchi ITA No. 188/Ranchi/2019 dtd 30/04/2021, [190 ITD 450(K olkata-trib)]

V. Dy. CIT-5(3)(1) Vs Deepak Shashi Bhusan Roy ITA No. 3204 &3316/M/2016 dtd 30/07/2018/(Mum.)(Trib.)

VI. Mohd. Llyas Ansari vs ITO-23(2)(3),Mumbai [ITA No. 6174/M/2017 dtd. 60/11/2020, 186 ITD 407 (Mumbai-Trib)].

9. In view of the judicial pronouncements and facts of the case ground no. 1 raised by the assessee is allowed and AO is directed to delete the addition.

10. In the result appeal of the assessee is allowed.

Order pronounced in the open court on 21st day of March, 2023.