Case Law Details
Maniti Jayesh Shah Vs ITO (ITAT Mumbai)
ITAT Treats Property Gain as LTCG Because Holding Period Counted From Allotment Date; Section 56(2)(x) Addition Sent Back for Verification Because Allotment Date Could Determine Stamp Duty Value; Additional Evidence Deemed Admitted Because CIT(A) Considered It While Deciding Appeal; From Related-Party Transaction Without Proof of Sham Arrangement, Says ITAT.
The appeal arose from an assessment for AY 2018-19 involving the purchase and subsequent sale of an office premises. The assessee had purchased the property from a developer for ₹71,90,000, while the stamp duty valuation at the time of registration on 11.08.2017 was ₹1,70,76,100. The property was sold on 13.10.2017 for ₹1,72,00,000. The assessee declared the gain as Long-Term Capital Gain (LTCG), claiming that the property had originally been allotted in Financial Year 2010-11 through an allotment letter dated 10.04.2010 and that consideration had been paid through banking channels in Financial Years 2010-11 and 2012-13.
The Assessing Officer rejected the claim, holding that the registered purchase deed dated 11.08.2017 represented the acquisition date. Since the property was sold within about three months of registration, the gain was treated as Short-Term Capital Gain (STCG). The difference between the stamp duty valuation and the purchase consideration, amounting to ₹98,86,100, was also added under Section 56(2)(x).
During appellate proceedings, the assessee produced additional evidence, including the allotment letter and bank statements. The CIT(A) considered these materials during remand proceedings but declined to formally admit them under Rule 46A. The CIT(A) held that the allotment letter was unreliable, observed that the transaction involved related parties, and concluded that the assessee acquired enforceable rights only upon execution and registration of the conveyance deed on 11.08.2017. Consequently, the addition under Section 56(2)(x) and the treatment of gain as STCG were upheld.
The Tribunal first addressed the issue of additional evidence. It held that once the CIT(A) had examined and adjudicated the matter on merits after considering the additional evidence, such evidence must be deemed to have been admitted. Therefore, the refusal to formally admit the evidence was self-contradictory and legally unsustainable. Ground relating to admission of additional evidence was accordingly allowed.
On the issue of Section 56(2)(x), the Tribunal found the approach of the lower authorities to be overly technical. The allotment letter dated 10.04.2010 recorded receipt of a cheque payment of ₹10,00,000. The Tribunal accepted that the later realization of the cheque through banking channels could not by itself justify a conclusion that the allotment letter was fabricated or backdated. It observed that statutory benefits could not be denied merely because of procedural or banking delays. The Tribunal held that the requirement under the provisos to Section 56(2)(x)(b)(B) should be viewed as one of substantial compliance and not rigid technical compliance.
The Tribunal also rejected the adverse inference drawn merely because the assessee was connected with entities of the seller group. It observed that a relationship between parties, by itself, cannot justify disregarding documentary evidence in the absence of proof of sham transactions, collusion, or colourable devices. Suspicion, however strong, could not substitute proof.
The Tribunal held that if the assessee was entitled to the benefit of the provisos to Section 56(2)(x)(b)(B), the stamp duty valuation prevailing on the date of the allotment agreement had to be considered. Since the assessee claimed that the stamp duty valuation as of 10.04.2010 was lower than the purchase consideration, the matter was restored to the Assessing Officer solely for verification of the stamp duty valuation on that date. If the verified valuation is lower than or comparable to the purchase consideration, no addition under Section 56(2)(x) would survive.
Regarding capital gains, the Tribunal held that once the allotment letter and payment of substantial consideration were accepted, the holding period had to be reckoned from the date of allotment rather than the date of registration. Accordingly, the gain arising from the sale of the property was held to be assessable as Long-Term Capital Gain and not Short-Term Capital Gain. Ground relating to LTCG treatment was allowed, while the Section 56(2)(x) issue was remanded for limited verification. The appeal was allowed for statistical purposes.
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