ACIT Vs Mukesh Sharma (ITAT Delhi)
Leasehold Rights Acquired Before April 2017: Subsequent Registration Cannot Trigger Section 56(2)(x)
Introduction
Can the execution of a registered lease deed in a later year justify an addition under section 56(2)(x) when the assessee had already acquired the underlying rights under an earlier agreement? The Delhi Bench of the Income Tax Appellate Tribunal examined this question in ACIT v. Mukesh Sharma, ITA No. 4645/Del/2025, Assessment Year 2020-21, order dated 13 November 2026.
The Tribunal dismissed the Revenue’s appeal and upheld the deletion of the addition. The decision rests on two significant considerations: the acquisition of rights before 1 April 2017 and the distinction between leasehold rights and land or building itself.
Background of the Transaction
The dispute concerned a plot originally allotted by the Yamuna Expressway Industrial Development Authority (YEIDA) to another person in October 2009. The allotment required payments through sixteen half-yearly instalments.
The assessee acquired the rights of the original allottee through an agreement to sell dated 31 August 2016 for a total consideration of ₹2,43,20,000. Of this amount, ₹1,55,76,810 was paid to the original allottee through banking channels. The remaining ₹87,43,190 represented the balance instalments payable to YEIDA.
Following the agreement, the assessee continued making the instalment payments directly to YEIDA. The authority issued a confirmation letter dated 28 March 2018, acknowledging the transfer of rights. Subsequently, a lease deed was executed between YEIDA and the assessee on 4 July 2019.
The Assessing Officer treated the transaction as falling in financial year 2019-20 and added the difference between the stamp duty value and the purchase consideration under section 56(2)(x).
Revenue’s Argument: Registration Determines the Transfer
The Revenue contended that the agreement executed in August 2016 did not constitute an effective transfer. According to the Department, the legally operative transaction occurred only when the registered deed was executed in financial year 2019-20, following permission from YEIDA and payment of stamp duty.
On this reasoning, the Revenue argued that section 56(2)(x) applied to the transaction for Assessment Year 2020-21. It challenged the CIT(A)’s acceptance of the earlier agreement as establishing the acquisition of rights.
Acquisition of Rights Had Already Taken Place
The CIT(A) examined the complete sequence of events. Upon execution of the agreement dated 31 August 2016, the assessee had stepped into the position of the original allottee and assumed the associated rights, responsibilities and payment obligations.
The subsequent payments to YEIDA were made pursuant to that arrangement. Consequently, the appellate authority treated the acquisition of leasehold rights as a transaction concluded before 1 April 2017, rather than a fresh acquisition arising from the lease deed executed in July 2019.
This distinction was crucial because section 56(2)(x) applies to specified receipts on or after 1 April 2017, corresponding to Assessment Year 2018-19 onwards. The later documentation did not, on the facts accepted by the appellate authorities, shift the original acquisition into Assessment Year 2020-21.
Leasehold Rights Distinguished from Land or Building
The CIT(A) also accepted an independent legal ground. The relevant definition of property refers to immovable property being land or building or both. The appellate authority held that the acquisition of leasehold rights did not fall within that specified description.
Reliance was placed on Britannia Industries Ltd. v. PCIT [2024] 161 taxmann.com 705 (Kolkata–Trib.), which supported the non-applicability of section 56(2)(x) to acquisition of leasehold rights.
The order also referred to Shiv Kumar Soni v. ACIT, ITA No. 183/JP/2020, dated 18 October 2022, and Bhavna Shashikant Ghone v. ITO, concerning the corresponding issue under section 56(2)(vii)(b). Khazan Singh Anand v. ITO, ITA No. 5837/Del/2019, dated 2 December 2020, was cited for the analogous distinction under section 50C.
The Tribunal found the CIT(A)’s reasoning logical and declined to interfere. The Revenue’s appeal was dismissed.
Author’s Comments
The decision provides useful support where an assessee can establish an earlier acquisition through the agreement, banking records, assumption of instalment liabilities and development authority correspondence. However, it should not be read as declaring that every agreement to sell automatically completes a transfer. The actual rights created and the surrounding evidence remain decisive.
The leasehold-rights argument also requires care. In Vidarbha Veneere Industries Ltd. v. ITO, Income Tax Appeal No. 34 of 2022, dated 1 April 2025, the Bombay High Court took an adverse view under section 50C, holding that a leasehold mode of holding and assignment did not itself exclude the transaction. Subsequent Tribunal orders reproduce this reasoning. Although that case concerns section 50C, it qualifies any suggestion that the analogous leasehold issue is universally settled.
Finally, exclusion from section 56(2)(x) because acquisition occurred before April 2017 does not automatically establish exemption under every earlier provision. Any possible application of section 56(2)(vii)(b) requires separate examination. The present ruling sustains deletion of the addition for Assessment Year 2020-21 on its particular facts.
Cases Discussed
- Britannia Industries Ltd. Vs PCIT, [2024] 161 taxmann.com 705 (ITAT Kolkata) — Leasehold rights and Section 56(2)(x).
- Shiv Kumar Soni Vs ACIT, ITA No. 183/JP/2020, 18 October 2022 (ITAT Jaipur) — Section 56(2)(vii)(b) and leasehold rights.
- Bhavna Shashikant Ghone Vs ITO (ITAT Pune) — Leasehold rights and Section 56(2)(vii)(b).
- Khazan Singh Anand Vs ITO, ITA No. 5837/Del/2019, 2 December 2020 (ITAT Delhi) — Section 50C and leasehold rights.
- CIT Vs Greenfield Hotels & Estates (P.) Ltd., (2017) 389 ITR 68 (Bombay High Court) — Cited within quoted authorities on leasehold rights.
- Vidarbha Veneere Industries Ltd. Vs ITO, [2025] 174 taxmann.com 223 (Bombay High Court) — Contrary authority discussed in the supplied Author’s Comments.
