Addition u/s 56(2)(vii)(b) sustained as immovable property received without consideration

ITO Vs Pramod A. Thakur (ITAT Pune)

ITAT Pune held that addition u/s 56(2)(vii)(b) of Income Tax Act sustainable as assessee failed to prove that the developer had agreed to share its developed area; which in turn, had come to the assessee from his father by way of nomination.

Facts- The Revenue’s sole substantive ground raised in the instant appeal challenges correctness of the CIT(A)’s action deleting section 56(2)(vii)(b) addition of Rs.6,54,61,100/- made by the Assessing Officer in his assessment order dated 21.12.2017.

Conclusion- Held that section 56(2)(vii)(b)(i) is attracted only where any immovable property is received by the assessee, who is an individual or a HUF, without any consideration.

Held that learned counsel could not pin-point even a single stipulation in this clinching agreement that the developer had agreed to share its developed area; which in turn, had come to the assessee from his father by way of nomination. Further, the assessee failed to lead us to the clinching material inter alia indicating any arrangement between his father and developer wherein the former had parted with the land for getting developed area in lieu of consideration; which in turn, has been passed on to him as a gift from the father and covered under forgoing exemption clause. We thus conclude that the Assessing Officer had rightly made the impugned addition u/s. 56 (2)(vii)(b) of the act and therefore, the CIT(A) has erred in law and on facts in deleting the same.

FULL TEXT OF THE ORDER OF ITAT PUNE

1. This Revenue’s appeal for A.Y. 2015-16 arises against the CIT(A) – 2, Thane’s order dated 29/03/2019 passed in ITA No. 10433/2017-18 involving proceeding u/s. 143(3) of the Income Tax Act, 1961 ; in short “the Act”.

Heard both the parties. Case file perused.

2. The Revenue’s sole substantive ground raised in the instant appeal challenges correctness of the CIT(A)’s action deleting section 56(2)(vii)(b) addition of Rs.6,54,61,100/- made by the Assessing Officer in his assessment order dated 21.12.2017. The former’s lower appellate discussion to this effect reads as under.

“6. I have carefully considered the facts of the case, findings of the AO in the assessment order, submissions of the appellant and material placed on record. From the facts of the case it is noticed that during the year under consideration the appellant was allotted 13 flats at Tulsi Kamal, Kharghar, by M/s Metro Reality, for a consideration of Rs. NIL, as per development agreement dated 18.08.2008, as against the market value of the above flats was Rs. 6,54,61,100/-. The AO, therefore, required the appellant to show cause as to why Rs. 6,54,61,100/- should not be added to his income as per provisions of section 56(2)(vii)(b) of the Act. In compliance the appellant filed detailed written submissions stating that his father, Shri Arjun Gira Thakur, along with his brother and two sisters, had entered into a development agreement with M/s Metro Reality vide agreement dated 17.04.2009. upon the execution of the development agreement 33 flats accrued to the share of all the parties. Out of these 33 flats Shri Arjun Gira Thakur, father of the appellant was entitled for 13 flats and being aged, infirm and sick, he requested the developer to register the said 13 flats in the name of his son, i.e. the appellant. Therefore, these flats were allotted to the appellant as per the family agreement. The AO, however, did not accept the contention of the appellant and added Rs. 6,54,61,100/- to his income.

6.2 During the course of appellate proceedings the AR of the appellant submitted copies of development agreement dated 17.04.2019, memorandum of family settlement and confirmation letter from M/s Metro Reality that the appellant’s father had requested them to directly allot the flats in the name of the appellant. Considering the factual matrix I am of the view that the provisions of section 56(2)(vii)(b) were not attracted as the premises received by the appellant were for valuable consideration, being grant of development rights by the father & other family members of the appellant’s family. Provisions of section 56(2)(vii)(b) are hence not attracted as the flats received by the appellant were for valuable consideration & being development rights of the lease hold plot transferred by the appellant’s father & his siblings to the developer. Moreover, the allotment of the 13 flats was transferred from the father of the appellant to his son, the appellant. As per the explanation (e) to 56(2)(vii)(b) the son would be covered under (i) (E) “any lineal descendent of the individual.” Considering the above facts, addition of Rs.6,54,61,100/- made by the AO is hereby deleted and the grounds of appeal, raised as above, are allowed.”

3. Learned CIT-DR vehemently argued that the CIT(A) herein has erred in law and on facts in deleting the impugned addition. The assessee on the other hand has chosen to file a detailed note of his written submissions as follows :-

“Salient points

1. The respondent is an individual having income from house property, capital gains and other sources. The return of income for the year under appeal was filed by the appellant on 31.03.2017, declaring therein total income of Rs.7,78,000/-. Addition of Rs.6,54,61,100/- was made by the Id AO by relying upon the provisions of section 56(2)(vii)(b) of the I.T Act, 1961. The Hon. CIT(A) deleted the addition and the department has filed the present appeal.

2. Addition u/s 56(2)(vii)(b) of the I.T Act 1961 on account of 13 flats received by the appellant – Rs. 6,54,61,100/-

2.1 Facts in brief

The respondent is a member of the Thakur family of Kharghar, Navi Mumbai. The grandfather of the respondent, Late Shri Giraya (Gira) Thakur owned and possessed agricultural lands at Mouje Kharghar, Taluka Panvel, Dist. Raigad. The said lands were acquired by the Govt. of Maharashtra through the nodal agency CIDCO. As part consideration for such acquisition, CIDCO granted lease hold rights of certain plots of land at Sector 10, Kharghar Node, Taluka Panvel, Dist. Raigad, under the 12.50% scheme, to the children of Late Shri Giraya Thakur. Accordingly, the children of Late Shri Giraya Thakur became entitled for lease hold rights of plot of land bearing no. 233, having area of 1899.66 sq. mtrs at Sector 10, Kharghar Node, Taluka Panvel, Dist. Raigad. Shri Arjun Gira Thakur, the father of the respondent, alongwith his brother and two sisters, being children of Late Shri Giraya Thakur entered into development agreement with one, M/s Metro Reality for development of the said plot of land. The members of the Thakur family under the scheme of development became entitled to certain constructed residential flats. Shri Arjun Gira Thakur, father of the respondent under the said development agreement with M/s Metro Reality became entitled for 13 flats. Being aged, infirm and sick, he requested the developer to register the said 13 flats in the name of his son i.e the respondent. These facts are well documented, particularly in the Memorandum of Family Settlement dt.30.09.2012, whereby the allotment of the said 13 flats was transferred to the name of the respondent. Kindly refer to page no. 125 of paperbook for relevant discussion. All related documents were placed before the ld. AO in the course of asst, proceedings. Copies of the relevant agreements are enclosed in the paperbook filed as under.

The 13 constructed flats received by the respondent from M/s. Metro Reality were due to the fact that the plot of land belonging to the appellant and his family members was given for development to the said entity and the father of the respondent transferred his share of consideration being his 13 flats to his son, the respondent under family settlement on 30.09.2012. The ld. AO has grossly erred in assuming that the appellant has received 13 flats from M/s. Metro Reality without consideration and that the value of such flats being Rs.6,54,61,000/- is the deemed income of the respondent u/s.56(2)(vii)(b) of the I.T. Act, 1961. The ld. AO has ignored the explanation of the respondent submitted vide reply dt. 07.12.2017 alongwith the agreement amongst Thakur family recorded under Memorandum of Family Settlement dt. 30.09.2012 reference to which can be found noted at para 5/ pg nos. 8 to 14 of asst.order. The ld.AO also does not appear to have made any enquiries with any person, including M/s. Metro Reality before assuming that the respondent has received 13 constructed flats from a third party i.e. M/s. Metro Reality without any consideration. The transaction between the respondent and M/s. Metro Reality is an arm’s length transaction. The assumption that the said flats have been received by the appellant without any consideration is factually incorrect, the consideration being the development rights of the plot of land at Sector 10, Kharghar, Navi Mumbai granted by the respondent family to the said M/s. Metro Reality.

2.2 Arguments against the addition

On the background of the above undisputed facts, the respondent submits that the deeming provisions of section 56(2)(vii)(b)(i) of the I.T Act, 1961 have no application to the facts of the matter for the under mentioned reasons.

(a) Section 56(2)(vii)(b)(i) is attracted only where any immovable property is received by the assessee, who is an individual or an HUF, without any consideration. In the present case, the premises received by the respondent are for valuable consideration, being grant of development rights by the father & other members of the respondent’s family and therefore the deeming provisions contained in section 56(2)(vii)(b)(i) are not attracted. In making the addition, the ld. AO has quietly ignored the fundamental issue as to why the respondent has received the 13 flats in the manner in which he has so received them. In not addressing this issue, the ld. AO has without reason travelled to the deeming provisions of sec. 56(2)(vii)(b) of the I.T Act, 1961.

(b) Without prejudice to the above, it is submitted that, the father of the respondent, Shri. Arjun Gira Thakur was entitled for 13 flats from the developer M/s. Metro Reality. As stated earlier, the said Shri. Arjun Gira Thakur being old, infirm and sick requested the said M/s. Metro Reality to allot the said constructed premises to the appellant. This fact is specifically stated by the appellant vide his letter dt. 07.12.2017 and is in conformity with the terms of Thakur family settlement evidenced by Memorandum dt. 30.09.2012 (Pg nos. 120 to 128 of paperbook). The fact is also independently confirmed by M/s. Metro Reality vide their written confirmation dt. 07.12.2017. (Kindly refer to pg nos. 129 & 130 of paperbook). It is thus the case that allotment of 13 flats, receivable by the father of the respondent, Shri. Arjun Gira Thakur from M/s. Metro Reality was transferred by him to his son, the respondent. As per the second proviso to section 56(2)(vii), the above deeming provisions are not attracted where the immovable property in received from any relative. The term relative has been defined in Explanation (e) to section 56(2)(vii) of the I.T. Act, 1961.

It is thus the case that as per the second proviso, the deeming fiction contained in section 56(2)(vii)(b) of the I.T Act, 1961 is not attracted, where the property in question is received from any relative, in this case, the father of the respondent. The respondent submits that even for this reason the deeming provisions of section 56(2)(vii)(b) of the I.T Act, 1961 are not attracted to the facts of the matter and the addition is not justified and bears deletion. The ld AO under ground no. 1 has disputed this claim citing absence of a gift deed. The respondent points out that the Memorandum of Family Settlement dt.30.09.2012 (Pg nos. 120 to 128 of paperbook) itself is the instrument by which the father of the respondent has gifted the allotment of 13 flats to his son, the respondent.

(c) It is an undisputed fact that the 13 flats received by the respondent are as per the terms of family settlement as recorded under Memorandum of Family Settlement dt. 30.09.2012 where under the flats receivable by the father of the respondent were allotted to the respondent. An asset received on account of family settlement is outside the perview of the deeming provisions of section 56(2)(vii)(b) of the I.T Act, 1961. Reliance placed on

(i) DCIT-vs-Paris Gundecha, 155 ITD 880 (Mum)

(ii) Govind Kumar Khemka-vs-ACIT, (2020) 181 ITD 586 (Delhi)

2.3 As the provisions of section 56(2)(vii)(b) are not attracted to the facts of the transaction, the order /of the Hon. CIT(A) may kindly be upheld and appeal filed by the department may be dismissed.”

4. We have given our thoughtful consideration to the foregoing rival submissions and find merit in Revenue’s stand. We make it clear first of all that the section 56(2)(vii)(b) comes into play in case an individual receives any immovable property for a consideration which is having difference more than Rs.50,000/- as compared to the stamp price thereof. There is no issue between the parties that the impugned statutory provisions does not apply in case the assessee concerned receives the corresponding immovable property from the specified category(ies) of relatives under sub-clause(es) to Explanation thereof. The assessee has made a very strong endeavor to bring his case under foregoing specified exempt category that these impugned 13 flats received from M/s. Metro Builders (Reality) infact represented his father Shri Arjun G. Thakur’s share in lieu of having given development rights on plot no.233, sector 10, Kharghar, Navi Mumbai in favour of the developer.

5. All these assessee’s submissions hardly evoke our concurrence. We first of all notice from the assessee’s father’s so called development agreement dated 08.08.2008 (pages 59 to 79) that none of the parties had signed on all the pages thereof which could indicate that they would undertake any liability arising out from the same. This followed the corresponding registered agreement 17.04.2009 (after 08.08.2008) amongst CIDCO Ltd.(first party), assessee’s family (second party) and M/s. Metro Reality etc. (licensees) wherein there is no indication about any other earlier arrangement including the one dated 08.08.2008 . Learned counsel could not pin-point even a single stipulation in this clinching agreement that the developer had agreed to share its developed area; which in turn, had come to the assessee from his father by way of by way of nomination. Learned counsel vehemently relied on the assessee’s family settlement memorandum dated 30.09.2012 wherein the developer is not a party. He next invited our attention to page 129 containing the builder’s confirmation in support of the assessee’s pleadings. We are of the opinion all these self serving oral assertions hardly support the assessee’s case as he has failed to lead us to the clinching material inter alia indicating any arrangement between his father and developer wherein the former had parted with the land for getting developed area in lieu of consideration; which in turn, has been passed on to him as a gift from the father and covered under forgoing exemption clause.(supra). We thus conclude that the Assessing Officer had rightly made the impugned addition u/s. 56 (2)(vii)(b) of the act and therefore, the CIT(A) has erred in law and on facts in deleting the same. The Revenue succeeds in its sole substantive grievance. Ordered accordingly.

6. Delay of 06 days in filing is condoned for the reasons stated therein.

7. This Revenue’s appeal is allowed in above terms.

Order pronounced in the Open Court on this 30t^h day of August, 2022.