Allotment letters should be considered as ‘agreement to sell’ for section 56(2)(x)

Sulochana Saijan Modi Vs ITO (ITAT Mumbai)

ITAT Mumbai held that allotment letters issued for purchase of flat should be considered as ‘Agreement to sell’ for the purpose of section 56(2)(x) of the Income Tax Act.

Facts- The case was selected for limited scrutiny for examining the reasons for stamp duty valuation of property being higher than the transaction value. The statutory notices under the Income Tax Act, 1961 (“the Act”), were issued to the assessee and complied with. In the assessment completed u/s 143(3) of the Act, the Assessing Officer (“AO”) added the difference in value of the property between the stamp duty valuation and the transaction value, in terms of section 56(2)(x)(b) of the Act, amounting to Rs.57,85,300/-.

Ld.CIT(A) upheld the addition made by the AO. Being aggrieved, the present appeal is filed.

Conclusion- Under the proviso if prior to registration of the property , the assessee has entered into purchase agreement fixing the amount of consideration and also partly paid the amount of consideration by way of account payee cheque/draft etc, then for the purpose of section 56(2)(x) of the Act, the stamp duty value as on the date of the agreement may be taken for the purpose of the working out deemed sale consideration.

According to the AO and Ld.CIT(A), the allotment letter is not in the nature of the agreement for sale. However, we find that the Tribunal in the case of Parth Dasrath Gandhi vs Addl./Deputy/Asst. CIT order dated 31.01.2023 for AY 2018-19 held that “the allotment letter should be considered as agreement for sale.”

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal filed by the assessee is directed against the order dated 19.01.2023 passed by CIT(A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)” ] for Assessment Year (“AY”) 2018-19.

2. The grounds raised by the assessee are reproduced as under: –

1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 28,92,650/- u/s 56(2)(x) while doing so, the provisions of the proviso to section 56(2)(x)(b) have been ignored.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the judgement of Apex Court in case of Balbir Singh Maina in as much as

* The relied decision relates to Income from Capital Gain and the case of the appellant falls under Income from Other Sources.

* In the said decision, the mentioned argument is at best an obiter dicta and not a ratio decidendi, therefore, not enforceable.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 28,92,650 w/s 56(2)(x) completely disregarding the following facts:

*  The appellant is a joint owner and the contention of the appellant’s co-owner in regards to the same addition has been accepted and no addition has been made by the Assessing Officer.

* The Appellant has submitted the allotment letter and the copy of the cheque during the course of assessment proceedings which reflects that the payment was made before the agreement date. Thus, satisfying both the conditions under the proviso to section 56(2)(x)(b) of the Act. The provision does not prescribe quantum of payment to be made.”

3. Briefly stated facts are that the assessee, an individual, filed its return of income on 13.06.2018 declaring total income of Rs.3,54,980/-. The case was selected for limited scrutiny for examining the reasons for stamp duty valuation of property being higher than the transaction value. The statutory notices under the Income Tax Act, 1961 (“the Act”), were issued to the assessee and complied with. In the assessment completed u/s 143(3) of the Act, the Assessing Officer (“AO”) added the difference in value of the property between the stamp duty valuation and the transaction value, in terms of section 56(2)(x)(b) of the Act, amounting to Rs.57,85,300/-. Further, Ld.CIT(A) upheld the addition made by the AO.

4. Aggrieved, the assessee is in appeal before the Tribunal by way of raising grounds as reproduced above.

5. Before us, Ld. Counsel for the assessee has filed a Paper Book containing pages 1 o 93.

6. Before us, Ld. Counsel for the assessee submitted that the assessee is one of the joint holders of the property alongwith her son, Shri Ashish Modi, who had booked an under construction residential house as on 22.11.2010 at agreed cost of Rs.83,20,500/-. He referred to the copy of the allotment letter, which is available at page 7 to 10 of the Paper Book. He further submitted that at the time of booking, an amount of Rs.2,00,000/-was paid vide cheque dated 11.11.2010. The property was got registered on 29.07.2017 at a stamp duty valuation of Rs.1,45,55,800/- as against the transaction value of Rs.87,70,500/-. According to the AO, the assessee was only issued an allotment letter, which was according to him, not an agreement and therefore, no benefit of the 2^nd proviso to section 56(2)(x)(b) of the Act, can be extended to the assessee. According to the said proviso, if prior to registration of the property, the assessee has entered into an agreement for purchase of the property, then for the purpose of section 56(2)(x)(b) of the Act , the stamp duty valuation as on the date of the agreement shall be taken as sale consideration of the property if substantial amount of consideration has already been paid at the time of the agreement. The AO accordingly, denied the benefit of the proviso to section 56(2)(x)(b) of the Act and made the addition observing as under:-

“Thus, In view of the provisions of section 56(2)(x)(b) of the Act and facts of the case the argument of the assessee is not accepted for the following reasons:

1. “In the registered deed dated 29.07.2017, it is nowhere mentioned that the assessee is only co-owner of the property. In fact, the property is jointly purchased by the assessee with her son. It doesn’t matter that who has contributed how much.

2. The assessee failed to furnish the copy of notarized agreement with M/s. JP Infra and merely furnished the copy of allotment letter dated 22.11.2010 vide her submission dated 31.12.2020 and after being asked for notarized copy of agreement, furnished the same letter simply getting attested from a Notary on 16.02.2021.

3. Another condition of second proviso to the section 56(2)(x)(b) that payment of sale consideration or part thereof on or before the date of agreement is also not satisfied as the first payment has been made only on 23.11.2020 this doesn’t mean that the assessing officer is accepting the allotment letter as an agreement among the buyers and seller of the property.

4. The assessee was specifically requested to furnish the copies of receipts of payments made to M/s. JP Infra during the FY 2010-11 and thereafter but she failed to provide the same, 5. Further, on perusal of the bank passbook of the assessee it is noticed that the following payment were made to M/s. JP Infra during the year 2015 by her:

Thus, the claim of the assessee that she has paid Rs.8,32,050/- directly to M/s. JP Infra on behalf of her son and the same is still stands as loan too him is not tenable as the amount differs.

10. In view of the above discussion, the difference in the consideration value of and stamp value of the property i.e. Rs.57,85,300/- (1,45,55,800­87,70,500) and 50% of the same has to be taxed under ‘Income from other sources”. In the meantime, the assessee had furnished the copy of scrutiny assessment order for the YA 2018-19 in her son’s case, Shri Ashish Modi wherein the return income has been accepted.

11. However, as discussed above, since the assessee has not satisfied the basic conditions of section 56(2)(x)(b) of the income tax act, 1961, the entire of Rs.57,85,300/- is taxed substantively in the hands of assessee as ‘Income from other sources’. Penal proceedings u/s.270A r.w.s. 274 of the Act are being initiate separately as the assessee has under-reported her income.”

7. On further appeal, Ld.CIT(A) also upheld the addition in view of reasoning; firstly, the allotment letter/agreement was not having any legal value as same was not registered; secondly, substantial consideration should have been obligated and paid on the date of the agreement; thirdly, the transaction value of Rs.87,70,500/- was paid as against the allotment value of Rs.83,20,500/-;and fourthly, the said registered agreement of sale dated 29.07.2017 did not have any reference of existence of prior agreement between the assessee and the seller i.e. J.P. Infra (Mumbai) Pvt.Ltd.

8. Before us, Ld. Counsel for the assessee submitted that allotment letter issued by the seller, J.P. Infra (Mumbai) Pvt. Ltd. was duly accepted by the assessee and in acceptance, the assessee paid booking amount and therefore, said allotment letter fulfills all ingredients of contract agreement for purchase of flat. He further referred to page 66 of the Paper Book, which is a receipt issued by the builder. This receipt is part of the registered sale agreement and according to which a cheque No.552555 dated 11.11.2010 amounting to Rs.2,00,000/- was paid to the builder. Ld. Counsel for the assessee accordingly, submitted that the assessee fulfills the requirement of provision to section 56(2)(x)(b) of the Act as part of the consideration has already been paid by account payee cheuqe at the time of entering to purchase agreement. Further, Ld. Counsel for the assessee submitted that the decision of Hon’ble Supreme Court in the case of CIT vs Balbir Singh Maini & Ors. 398 ITR 531 [2017] (SC) is not applicable over the facts of the instant case, as in the said case, Hon’ble Apex Court held that “there cannot be transfer of immovable property without registration of sale agreement whereas in the instant case, the letter of allotment/agreement is the document which shows intention of the party to transfer at a future date which has been duly acted upon by way of Sale Deed which is registered.”

9. On the contrary, Ld.Sr. DR relied upon the order of the lower authorities.

10. We have heard the rival contentions on the issue in dispute and perused the material available on record. In the case, the assessee is claiming, stamp duty valuation of the flat as on the date of the agreement as deemed sale consideration for the purpose of section 56(2)(x)(b) of the Act, invoking the first & second proviso to the said section. For ready-reference, the relevant provision alongwith proviso is reproduced as under: –

56(2)(x) “where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,-

(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

(b) any immovable property,-

(A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

(B) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:-

(i) the amount of fifty thousand rupees; and

(ii) the amount equal to [ten] per cent of the consideration:]

Provided that where the date of 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 agreement may be taken for the purposes of this sub- clause:

Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account 2[or through such other electronic mode as may be prescribed”], on or before the date of agreement for transfer of such immovable property:

Provided also that where the stamp duty value of immovable co property is disputed by the ass essee on grounds mentioned in – sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections: [Provided also that in case of property being referred to in the second proviso to sub-section (1) of section 43CA, the provisions of sub-item (ii) of item (B) shall have effect as if for the words “ten per cent”, the words “twenty per cent” had been substituted].”

11. Thus, the section prescribe that when the property has been purchased for inadequate consideration, as compared to the stamp duty value, same is liable to be addition for income under the head “income from other sources”. However, under the proviso if prior to registration of the property , the assessee has entered into purchase agreement fixing the amount of consideration and also partly paid the amount of consideration by way of account payee cheque/draft etc, then for the purpose of section 56(2)(x) of the Act, the stamp duty value as on the date of the agreement may be taken for the purpose of the working out deemed sale consideration. In the instant case, the son of the assessee, Shri Ashish Modi has been allotted the concerned flat on 22.11.2010 and the assessee has become co-owner of the said property. The assessee has filed copy of the registered Deed which indicates that a cheque of Rs.2,00,000/- was paid in respect of the allotment of the property on 11.11.2010. The assessee has also filed a copy of bank statement of Shri Ashish Modi from which it is seen that the said payment of Rs.2,00,000/- has been withdrawn from his bank account on 23.11.2010. Thus, as far as the condition of part payment is considered, it is not in dispute. However, Ld.CIT(A) and the AO has disputed the allotment letter. According to the AO and Ld.CIT(A), the allotment letter is not in the nature of the agreement for sale. However, we find that the Tribunal in the case of Parth Dasrath Gandhi vs Addl./Deputy/Asst. CIT order dated 31.01.2023 for AY 2018-19 held that “the allotment letter should be considered as agreement for sale.” The relevant finding of the Tribunal (supra) is reproduced as under: –

6. “We heard the parties and perused the record. We notice that the AO has considered the stamp duty value as on the date of registration of the agreement to sell for the purpose of determining the applicability of sec.56(2)(x) of the Act. However, the facts that the assessee had been allotted both the properties by way of allotment letters and further, the assessee has also paid instalments as per that letter are not disputed. Hence, the question that arises is whether the allotment letter can be considered as “agreement to sale” within the meaning of the provisos to sec. 56(2)(x) of the Act, which states that the stamp duty valuation as on the sale of sale agreement should be taken into consideration for the purpose of sec.56(2)(x),provided that amount of consideration or part thereof had been paid as per the mod prescribed on or before the date of agreement for transfer of such immovable property.

7. Before us, the Ld A.R placed reliance on the decision rendered by the coordinate bench in the case of Mr. Sajjanraj Mehta vs. ITO (ITANo. 56/Mum/202 1 dated 05-09-2022), wherein it was held that the date of allotment letter can be taken as date of agreement of sale for the purposes ofsec.56(2)(x) of the Act. On the contrary, the Ld D.R placed his reliance on the decision rendered by another co-ordinate bench, which was relied upon by AO & CIT(A), viz., Sujauddian Kasimsab (supra).

8. With regard to the decision rendered in the case of Sujauddian Kasimsab (supra), the Ld A.R submitted that the said decision has been rendered on the basis of facts prevailing in that case. The assessee, in the above said case, had paid Rs.3.00 lakhs before the date of agreement, but the same was described as “earnest money deposit” in the Agreement, meaning thereby, the assessee did not fulfill the condition prescribed in sec.56(2)(x) of the Act. The Ld A.R further submitted that the Tribunal did not consider the effect of second proviso to sec.56(2)(x) of the Act in the above said case. We agree with the submissions of Ld A.R with regard to the distinguishing features pointed out in the decision rendered by the co-ordinate bench in the case of Sujauddian Kasimsab (supra). Hence, we are of the view that the above said decision could not lend support to the case of the revenue.

9. On the contrary, we are of the view that the decision rendered by another co-ordinate bench in the case of Mr Sajjanraj Mehta (supra) is applicable to the facts of the present case. The decision rendered in the case of Mr Sajjanraj Mehta by the co-ordinate bench is extracted below, for the sake of convenience:-

“10. We have gone through the order of the A.O, Ld. CIT(A) and various submissions of assessee dated 06-10-2021. Vide pg no-23 to 27 of paperbook we have observed the payment made by the assessee to the developer on 17-102011 amounting to Rs 14 lacs vide cheque no 906740, Bank of Maharashtra to enter into an agreement cum acknowledgement of payment made and other terms and conditions about the property. This agreement between assessee and developer clearly confirms the amount of consideration along with other terms and conditions relating to levy of stamp duty, service tax and other charges to be paid by the assessee.

11. The finding of the A. O vide pg no-4, para-2. 6 wherein he observed that assessee has deposited Rs 14 lacs with the developer to year mark the said premises for Rs 70 lacs. Even if for the time being it is assumed that this agreement is merely a letter of intent, still amount mentioned in this so called letter of intent can’t be changed by either of the party. At the max the parties involved may opt for exit from the transaction but amount of consideration can’t be changed. This transaction of the assessee has to be analysed in commercial parlance, without  finalisation of consideration nobody will deposit 20% of the final consideration. The vitality of the agreement further found force from the behaviour of the assessee as confirmed by the A.O also that assessee paid further Rs 34.5 lacs till financial year 2012-13. Assessee also paid Rs 1,00,285/- vs VAT, Rs 1,35,187/- as service tax, Rs 5,02,000/-as stamp duty and Rs 30,000/-as registration charges.

12. The chronology of the events confirms that the finding of the A.O treating the agreement of the assessee as letter of intent is not correct. In this matter treating the said agreement as letter of intent shows an over thinking and hyper technical interpretation at the end of the A.O. assessee’s case clearly falls in the proviso to Section 56(2)(vii)(b). For sake of clarity we are reproducing herein below the relevant portion of proviso “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”.

13. We further relied on following judicial pronouncement of coordinated benches of ITAT, Hon’ble High Court and Apex Court as under:

a) “Siraj Ahmed Jamalbhai Bora vs. ITO Ward-1 (3)(1)ITA No. 1886/M/2019 dtd. 28/10/2020, (Mum.) (Trib.):

Date of registration irrelevant for Sec 56(2)(vii)(b) as substantial obligation ndischarged on date of agreement.

b) Radha Kishan Kungwani vs. ITO Ward – 1(2) ITA No. 1106/JP/2018dtd. 19/08/2020, [185 ITD 433 (Jaipur – Trib.)]

Where assessee entered into agreement for purchase of flat and had made certain payment at time of booking of flat, stamp duty valuation or fair market value of immovable property was to be considered as on date of payment made by assessee towards booking of flat

c) Sanjay Dattatraya Dapodikar v/s ITO Ward – 6(2), Pune ITA No.1747/PN/2018 dtd. 30/04/2019(Pune) (Trib)

Where date of agreement for fixing amount of consideration for purchase of a plot of land and date of registration of sale deed were different but assessee, prior to date of agreement, had paid a part of consideration by cheque, provisos to section 56(2)(vii)(b) being fulfilled, stamp value as on date of agreement should be applied for purpose of said section

d) Ashutosh Jhavs. ITO Ward-2(5), Ranchi ITA No. 188/Ranchi/2019 dtd.30/04/2021, [190 ITD 450 (Kolkata – Trib.).]

Where assessee purchased a property and made part payment of sale consideration by cheque on very next day of execution of purchase agreement and registry was done after a year, since such part payment made by cheque on very next day of execution of agreement was towards fulfilment of terms of purchase contract itself and there was no mala fide or false claim on part of assessee, no addition could be made on account of difference between amount of sale consideration for property shown in purchase agreement and stamp duty value of said property on date of registry by invoking section 56(2)(vii)(b)

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

In order to determine taxability of capital gain arising from sale of property, it is date of allotment of property which is relevant for purpose of computing holding period and not date of registration of conveyance deed

f) Mohd. Ilyas Ansari v. ITO-23(2)(3),Mumbai [ITA No. 6174/M/2017dtd.06/11/2020, 186 ITD 407 (Mumbai – Trib.)]

Where Assessing Officer mechanically applied provisions of section 56(2)to difference between stamp duty value and actual sale consideration paid by assessee and made additions, without making any efforts to find out actual cost of property, additions made by Assessing Officer were to be set aside.”

14. Similar property in the case of assessee’s wife with similar transactions has been accepted by the same A.O without any addition for the same A. Y. Here we would like to rely on the decision of Hon’ble Gauhati HC.

“Gulabrai Hanumanbox. vs. Commissioner of Wealth-tax [198 ITR131 (Gauhati) (HC).]Two different Assessees having similar/identical facts w.r.t valuation of property cannot be assessed with different rates for the same property. Thereby, the order passed by the Assessing officer for co-sharer of property is arbitrary and unjustified in law”

15. Keeping in view the facts of the case, chronology of events and respectfully following the pronouncements of the co­ordinated benches of ITAT, we delete the addition made by A.O and confirms that assessee is entitled to the benefits of proviso to Section 56(2)(vii)(b).”

10. Accordingly, following the above said decision, we hold that the respective allotment letters issued to the assessee should be considered as “Agreement to sell” for the purposes of sec.56(2)(x) of the Act. Since the assessee has paid the parts of consideration as per the terms and conditions of allotment through banking channels prior to the execution of Sale agreement, we are of the view that the provisos to sec.56(2)(x) shall apply to the facts of the present case. Accordingly, the stamp duty valuation as on the date of respective Allotment letters should be considered for the purposes of sec.56(2)(x) of the Act. Hence the AO was not justified in considering the stamp duty valuation as on the date of execution of agreement to sell.

11. On a perusal of record, we notice that the details of stamp duty value as on the date of respective allotment letters was not brought on record. Since we have held that the stamp duty valuation as on the date of respective allotment letters should be considered for the purpose of sec.56(2)(x) of the Act, it is imperative on the part of the assessee to show that the actual consideration was equal or less than the stamp duty valuation as on the date of issue of respective allotment letters. Accordingly, we are restoring this issue to the file of AO for the limited purpose of comparing the actual sale consideration with the stamp duty valuation as on the date of respective allotment letters. In the limited set aside, the AO shall take appropriate decision in accordance with law after affording adequate opportunity of being heard.”

12. The Ld.CIT(A) has relied on the decision of the Hon’ble Supreme Court in the case of Balbir Singh Maini (supra) but we find that in the said decision, following substantial questions were raised before the Hon’ble High Court:-

“i) Whether the transactions in hand envisage a “transfer” exigible to tax by reference to Section 2(47)(v) of the Income Tax Act, 1961 read with Section 53-A of the Transfer of Property Act, 1882?

ii) Whether the Income Tax Appellate Tribunal, has ignored rights emanating from the JDA, legal effect of non registration of JDA, its alleged repudiation etc.?

iii) Whether “possession” as envisaged by Section 2(47)(v) and Section 53-A of the Transfer of Property Act, 1982 was delivered, and if so, its nature and legal effect?

iv) Whether there was any default on the part of the developers, and if so, its effect on the transactions and on exigibility to tax?

v) Whether amount yet to be received can be taxed on a hypothetical assumption arising from the amount to be received?”

13. The Hon’ble Supreme Court accordingly, adjudicated on the issue of interpretation of the transfer defined u/s 2(47) of the Act and upheld the order of Hon’ble High Court. Therefore, ratio in the case of Balbir Singh Maini (supra) is not applicable over the facts of the instant case.

14. In view of the above discussion, we are of the opinion that the assessee fulfills the requirement of proviso 1 & 2 of section 56(2)(x)(b) of the Act and therefore, we feel appropriate to restore this issue to the file of the AO for limited purpose of comparing the stamp duty valuation as on the date of the allotment with the transaction value recorded in the registration document. Accordingly, the AO shall give effect to this decision after affording adequate opportunity of being heard to the assessee in terms indicated above. The Grounds raised by the assessee are accordingly, allowed.

15. In the result, the appeal filed by assessee is allowed. Order pronounced in the open court on 23.05.2023.