Pushpendra Prakash Dharmawat Vs Assessing Officer (ITAT Mumbai)
Summary: ITAT Mumbai considered an assessee’s appeal against an addition of Rs.443600 under section 56(2)(vii)(b) of the Income Tax Act, 1961 for A.Y. 2017-18. The assessee and his mother were tenants in an old building proposed for redevelopment. Under an arrangement entered into in June 2010, the assessee was to receive alternative premises against surrender of existing tenancy rights and separately agreed to purchase additional area for monetary consideration. The original arrangement was subsequently replaced and Flat No.1002 was allotted, with an agreement registered on 22.12.2016 for consideration of ₹33,51,900/- against stamp duty value of ₹37,95,500/-. The Assessing Officer taxed the difference of ₹4,43,600/- under section 56(2)(vii)(b), and the CIT(A) upheld the addition. The Tribunal examined whether the statutory requirement that an individual “receives” immovable property in the relevant previous year was satisfied. It considered the distinction between pre-existing tenancy rights and the property itself, relying upon ACIT v. Ashok Narendra Mehta. The Tribunal also noted the assessee’s submission that even in 2026 the building had not been constructed and possession had never been received. It observed that registration of an agreement and receipt of immovable property are not necessarily synonymous and that a deeming provision cannot be extended beyond its statutory language. However, because the factual assertion regarding non-construction and non-receipt required verification, the matter was restored to the Assessing Officer for limited factual verification. The Assessing Officer was directed to verify whether the building remained unconstructed and whether Flat No.1002 or any alternative premises had ever been constructed and handed over. If no immovable property had been received, the Tribunal held that no addition under section 56(2)(vii)(b) would survive merely because of registration of the agreement. The appeal was allowed for statistical purposes.
Cases Discussed
- ACIT v. Ashok Narendra Mehta — ITA No. 3373/Mum/2024, order dated 28.08.2024
- Atul G. Puranik v. ITO — (2011) 132 ITD 499 (Mum.)
Full Text of the Judgment/Order
This appeal is filed by the Assessee against the order of Ld. INCOME TAX OFFICER, vide DIN: ITBA/AST/S/147/2023-24/1052266574(1) dated 18- Mar-2026 for the Assessment Year 2017-2018. The Assessee has raised the following grounds of appeal:
1) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals erred in confirming addition made of Rs.443600 under section 56 2 vii b of the Income Tax Act,1961 by the learned Assessing Officer. Provisions of the Act ought to have been properly construed and regard being had to facts of the case said addition of Rs.443600 should not have been confirmed. Reasons assigned by him are wrong and insufficient to justify addition of Rs.443600 under section 56 2 vii b of the Act.
2) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals ought to have appreciated that date of purchases of property is 20.06.2010 and therefore provisions prevailing on that date does not cover cases of WHARE agreement value is less than value adopted by stamp duty authorities.
3) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals erred in arriving at the conclusion that conditions enumerated in proviso to section 56 2 vii b are not complied with and therefore stamp duty value as on 20.06.2010 is not applicable to appellants case.
4) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals ought to have appreciated that share of the appellant in property is 50 percent only therefore whole of amount of Rs.443600 cannot be added in the hands of the appellant.
5) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals erred in rejecting additional claim of the appellant regarding payment of stamp duty, Rs.190000, registration fees Rs.30000 and other expenses Rs.2320 aggregating to Rs.222320 paid for the transfer of the of residential house property to the assessee even though not claimed by the appellant in the computation of income in view of the CBDT Circular No. 14 XL.35, dated 11th April, 1955 which cast the duty on Assessing Officer to allow all the legitimate claim even though not claimed by the appellant in Return of Income.
6) The order made under section 147 r.w.s. to section 144B of the Income Tax Act, 1961 is contrary to the provisions of the Act, illegal, bad in law, ultra virus, without allowing reasonable opportunity of hearing, without appreciating facts, submission and evidences in their proper perspective, hence it is liable to be annulled and set aside.
7) Notice under section 148 of the Act dated 03.05.2021 is contrary to the provisions of the Act, invalid, bad in law and liable to be quashed in as much as Said notice is issued by the Jurisdictional Assessing Officer, 30 1 1, Mumbai and not by the Faceless Assessing Officer. Said notice is issued on 03.05.2021 i.e. after three years from the end of assessment year 2017 2018 for escaped income of Rs.4436000 which is less than Rs. Fifty Lakh. Said notice is issued providing time of thirty days to file Return of Income instead of ninety days as provided in Act. Said notice is issued after obtaining sanction from head of Range 26(1), Mumbai instead of Principal Commissioner of Income Tax, Mumbai
8) Notice under section 148 of the Act dated 31.07.2022 is contrary to the provisions of the Act, time barred, invalid, bad in law and liable to be quashed in as much as: Said notice is issued on 31.07.2022 which is time barred and liable to be quashed. Said notice is issued by the Jurisdictional Assessing Officer, 30(1)(1), Mumbai and not by the Faceless Assessing Officer. Said notice is issued on 31.07.2022 i.e. after three years from the end of assessment year 2017 2018 for escaped income of Rs.4436000 which is less than Rs. Fifty Lakh. Said notice is issued providing time of thirty days to file Return of Income instead of ninety days as provided in Act. Said notice does not bear Document Identification Number which make said notice invalid and liable to be quashed.
9) On the facts and circumstances of the case and in law the learned Assessing Officer failed to serve draft assessment order as provided under section 144B xxi of the Act, thereby assessment completed under section 147 rws 144B of the Act is bad in law, contrary to the provisions of the Act invalid, void ab initio and liable to be annulled.
10) On the facts and circumstances of the case and in law Show Cause Notice dated 11.04.2023 is bad in law, invalid in as much as same in not in conformity with SOP issued by department allowing minimum seven day time to respond by the appellant which make subsequent assessment also invalid, void ab initio and liable to be annulled.
11) On the facts and circumstances of the case and in law, the learned Assessing Officer failed to serve copy of order under section 151 passed by the Principal Commissioner of Income tax granting sanction to issue notice under section 148 of the Act, thereby issue of notice under section 148 of the Act subsequent proceeding and assessment are liable to be quashed and annulled.
2. The brief facts of the case are that the assessee, Shri Pushpendra Prakash Dharmawat, is an individual who filed his return of income for A.Y. 2017-18 declaring total income of ₹4,27,660/-. The Assessing Officer reopened the case on the basis of information received through the Insight Portal that the assessee had acquired an immovable property for a consideration which was lower than its stamp duty value. The difference between the consideration and the stamp duty value was ₹4,43,600/-.
3. During the course of assessment proceedings, the assessee submitted that he and his mother, Smt. Kamladevi Prakash Dharmawat, were tenants of Room No. 6 in the building known as “Madhav Bhavan”. The said building was taken up for redevelopment. Under an arrangement entered into in June 2010, the assessee was initially allotted Flat No. 701 in the building known as “Horizon Homes”. Against surrender of the existing tenancy rights in respect of 141 sq. ft., the assessee was to receive an area of 171 sq. ft., comprising the existing 141 sq. ft. and an additional 30 sq. ft. Apart from this, the assessee agreed to purchase an additional area of 297 sq. ft. for a consideration of ₹24.60 lakh. Thus, the upcoming new premises consisted of two distinct components, viz. the area receivable against surrender of the pre-existing tenancy rights and the additional area of 297 sq. ft. which the assessee agreed to purchase for a monetary consideration separately.
4. The project, however, did not proceed as originally contemplated. Owing to changes in the development plan and delay in construction, the earlier arrangement was subsequently replaced and the assessee was allotted Flat No. 1002 having approximately the same total area of about 468 sq. ft. A subsequent agreement was registered on 22.12.2016 wherein the total consideration was finalized at ₹33,51,900/-. The stamp duty value taken at the time of registration was ₹37,95,500/-. The difference of ₹4,43,600/- between these two amounts is the subject matter of the present addition.
5. The Assessing Officer did not accept the assessee’s contention that the transaction should be considered with reference to the original redevelopment arrangement of June 2010. According to the Assessing Officer, the earlier deed had been cancelled and the consideration under the subsequent agreement had changed from ₹24.60 lakh to ₹33.51 lakh. The Assessing Officer, therefore, compared the consideration of ₹33,51,900/- with the stamp duty value of ₹37,95,500/- (this is the stamp duty value of the property taken for registration purposes when the subsequent agreement was registered on 22.12.2016). The Assessing Officer taxed the difference of ₹4,43,600/- under section 56(2) (vii)(b) of the Act.
6. The learned CIT(A) upheld the action of the Assessing Officer. The CIT(A) held that the relevant transfer and registration had taken place during F.Y. 2016-17 relevant to A.Y. 2017-18 and, therefore, the provisions of section 56(2)
(vii)(b) of the Act were applicable. The CIT(A) also rejected the contention that the transaction had to be considered with reference to the original tenancy rights and the earlier redevelopment arrangement. The assesseescontentions that the tenancy rights and subsequent allotment were jointly held by the assessee and his mother was also rejected on the ground that the investment and consideration were reflecting in the hands of the assessee and no material had been produced to establish the share of the mother.
7. The CIT(A) further upheld the stamp duty value of ₹37,95,500/- prevailing at the time of registration. According to the CIT(A), the benefit of the provisos to section 56(2) (vii)(b), which permitting taking of the stamp duty value on an earlier agreement date, was not available because the assessee had not established the requisite payment through a non-cash mode before or on the relevant earlier date. The assessee’s claim for deduction under section 80C in respect of stamp duty, registration charges and other expenses aggregating to ₹2,22,320/- was also rejected.
8. Aggrieved, the assessee is in appeal before us against the order of CIT(Appeals).
9. We have heard the rival contentions and perused the material available on record. The issue for our consideration is whether, on the peculiar facts of the present case, the difference of ₹4,43,600/- between the consideration stated in the registered agreement and the stamp duty value could be brought to tax under section 56(2) (vii)(b) of the Act.
10. At the outset, it would be appropriate to reproduce the relevant provision of section 56(2)(vii)(b), as applicable to the year under consideration:
“56(2)(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—
(b) any immovable property,—
(i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:
Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:
Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property.”
11. A plain reading of the provision shows that the starting point for its application is the receipt of property by the assessee. The Legislature has consciously used the expression “receives, in any previous year”. Therefore, for making an addition in A.Y. 2017-18, it has first to be established that the assessee received the property contemplated by the section during the previous year relevant to that assessment year.
12. The nature of the property covered by the provision is also important. For this purpose, “property”, insofar as immovable property is concerned, means “immovable property being land or building or both”. The provision does not say “land or building or any right therein ”. This distinction importance because section 56(2) (vii)(b) of the Act creates a deeming fiction and such a fiction has to be confined to the situation expressly covered by the statutory language.
13. The principle that a deeming provision referring to “land or building or both” cannot be enlarged to include a mere “right” in land or building has been considered by the Coordinate Bench in ACIT v. Ashok Narendra Mehta, ITA No. 3373/Mum/2024, order dated 28.08.2024. The Tribunal held that tenancy rights are rights in land or building and are distinct from the land or building itself. It further held that section 56 of the Act, being a deeming provision, has to be construed strictly and cannot be extended beyond the property specifically mentioned by the Legislature.
14. In Ashok Narendra Mehta (supra), the assessee had surrendered tenancy rights in an old premises in the course of redevelopment and had become entitled to alternative premises. The Tribunal held that section 56 of the Act could not be applied to the alternative premises to the extent they were towards consideration for surrender of tenancy rights. The Tribunal examined the additional area later purchased by the assessee for monetary consideration. Thus, the decision gives a clear distinction between an area received against surrender of pre-existing tenancy rights and an additional area independently purchased for money.
15. When the facts of the present case are examined in the light of the above purchase of a residential flat. The assessee and his mother were already tenants of Room No. 6 in the building known as “Madhav Bhavan”. The building was proposed to be redeveloped. Under the original arrangement entered into in June 2010, the assessee was initially allotted Flat No. 701 in the proposed building “Horizon Homes”. Against surrender of the existing tenancy rights relating to 141 sq. ft., an area of 171 sq. ft., comprising 141 sq. ft. plus an additional 30 sq. ft., was to be received. Separately, the assessee agreed to purchase an additional area of 297 sq. ft. for ₹24.60 lakh.
16. Thereafter, because of changes in the development plan and delay in construction, the original arrangement did not fructify in the manner originally planned. The earlier arrangement was replaced and Flat No. 1002, having approximately the same total area of about 468 sq. ft., was subsequently allotted. An agreement was registered on 22.12.2016 wherein the total consideration was stated at ₹33,51,900/-. The stamp duty value adopted for registration was ₹37,95,500/-. It is the difference of ₹4,43,600/- between these two figures which has been brought to tax under section 56(2) (vii)(b).
17. The Assessing Officer proceeded on the basis that since the earlier arrangement had been cancelled and a fresh agreement was registered on 22.12.2016, the entire transaction had to be examined with reference to the subsequent agreement. He accordingly compared the consideration of ₹33,51,900/- with the stamp duty value of ₹37,95,500/- and taxed the difference of ₹4,43,600/-. The learned CIT(A) substantially upheld this approach.
18. We are unable to agree with this approach.
19. The first difficulty with the approach of the Tax authorities is that it ignores the origin and true character of the transaction. The assessee did not approach the developer in 2016 as an ordinary purchaser of a flat. The assessee and his mother already possessed tenancy rights in the old premises. Their entitlement to the proposed new premises arose because the existing building was taken up for redevelopment and those tenancy rights were to be surrendered. The monetary consideration for the additional area was only one component of the entire arrangement. Therefore, the entire proposed premises could not be treated as though it had been independently purchased by the assessee merely for the monetary consideration mentioned in the subsequent registered agreement.
20. This is precisely where the ratio of Ashok Narendra Mehta assumes importance. The portion attributable to surrender of tenancy rights has to be kept separate from the additional area independently purchased for monetary consideration. The Assessing Officer has undertaken no such exercise in the present case. Instead, the Assessing Officer has compared the stamp duty value of the entire proposed premises of about 468 sq. ft. with the monetary consideration without giving any separate acknowledgement to the pre-existing tenancy rights surrendered by the assessee and his mother. Such an approach cannot be upheld in view of the statutory language and the principle laid down in Ashok Narendra Mehta.
21. There is, however, an even more fundamental aspect of the present case. The learned Counsel for the assessee has specifically submitted before us that even as on date in the year 2026, the building has not been constructed and the assessee has not received the flat or possession thereof.
22. This fact has to be appreciated in the light of the bare language of section 56(2)(vii). The Legislature has not made the provision applicable merely does the opening part of the provision use the expression “transfer”. The statutory condition is that the individual or HUF “receives, in any previous year” the property. Further, the property with which we are concerned is specifically “immovable property being land or building or both”.
23. Therefore, there are two statutory requirements which are of importance. There must first be a receipt by the assessee, and what is received must be the property contemplated by the provision. A contractual or allotment right to obtain a building in future cannot automatically be equated with receipt of the building itself when the Legislature has chosen to identify the property as “land or building or both”.
24. The distinction is particularly stark on the facts before us. The agreement was registered on 22.12.2016. We are now in the year 2026 and, according to the specific statement made before us, the building itself has still not been constructed and no flat has ever been handed over to the assessee. If this factual position is correct, it would mean that nearly ten years after the registered agreement the very building which the assessee is alleged to have “received” in F.Y. 2016-17 has still not come into existence.
25. In our considered view, the registration of an agreement in respect of a building proposed to be constructed cannot, by itself, lead to an automatic conclusion that the assessee had “received” the building in the year of registration when the building itself had not come into existence. Registration of an agreement and receipt of the property are not expressions which the Statute treats as synonymous. Had the Legislature intended registration of an agreement to constitute the charging event, it could have expressly so provided. Instead, the statue used the word “receives”.
26. The statutory scheme itself reinforces this distinction. The provisos to section 56(2) (vii)(b) separately refer to the “date of the agreement fixing the amount of consideration” and the “date of registration”. Thus, the Legislature was fully conscious of an agreement and its registration while drafting the provision. Yet, in the opening charging part of section 56(2)(vii), it chose the expression “receives, in any previous year”. These different expressions used in the same provision cannot be treated as meaning the same thing.
27. The importance of adhering to the actual words employed by Parliament is greater because section 56(2) (vii)(b) is a deeming provision. The Coordinate Bench in Ashok Narendra Mehta, after considering Atul G. Puranik v. ITO (2011) 132 ITD 499 (Mum) and other decisions, reiterated that a deeming provision can be applied only to the situation specifically contemplated by the statute and cannot be extended beyond its explicit mandate.
28. Thus, a mere right to obtain a flat in a building proposed to be constructed cannot be mechanically treated as “receipt” of “land or building or both”. The distinction between the property itself and a right in that property is also consistent with Ashok Narendra Mehta, wherein the Tribunal specifically distinguished tenancy rights from land or building and declined to enlarge the statutory fiction.
29. On the peculiar facts of the present case, therefore, the subsequent agreement dated 22.12.2016 cannot be viewed in isolation. The assessee had pre-existing tenancy rights; those rights formed the foundation of the redevelopment arrangement; part of the proposed premises were towards alternative accommodation against surrender of those rights; another 297 sq. ft. the project was repeatedly altered and delayed; and, most significantly, it has been submitted before us that even till 2026 the proposed building has not been constructed and no flat has been received by the assessee.
30. In these circumstances, we are of the considered view that the Assessing Officer was not justified in proceeding on the assumption that merely because an agreement was registered on 22.12.2016, the assessee had received the entire immovable property during F.Y. 2016-17 and the difference between the stamp duty value and the consideration recorded in that agreement automatically became taxable under section 56(2) (vii)(b) of the Act.
31. At the same time, we notice that the assertion that the building has not been constructed even till 2026 and that the assessee has never received possession is a submission made before us by the learned Counsel. This important factual assertion requires verification from the record. We therefore consider it appropriate to restore the matter to the Assessing Officer only for this limited factual verification and not for reconsidering the legal principle discussed above.
32. The Assessing Officer shall verify whether the building in question has in fact remained unconstructed and whether Flat No. 1002 or any alternative premises has ever been constructed and handed over to the assessee.
33. If, upon verification, it is seen that the building has not been constructed and no flat or other immovable property has ever been received by the assessee, no addition under section 56(2) (vii)(b) shall survive, since the basic statutory condition of receipt of the immovable property contemplated by the provision would not stand satisfied merely by reason of
34. Accordingly, the appeal of the assessee is allowed for statistical purposes in the terms indicated above.
Order pronounced in the open court on 27.08.2026
