ITAT Rejects Business Parlance Test in Section 56 Application

Himmatbhai M. Patel Vs ITO (ITAT Ahmedabad)

Part payment or  before the Agreement  seals agreement date: ITAT Ahmedabad deletes section 56(2)(vii)(b)(ii) addition- Act does not mandate payment of substantial consideration or handing over of possession for applying the provisos

Ahmedabad  ITAT allowed Assessee’s appeal &  deleted the addition of ₹41.40 lakh made u/s 56(2)(vii)(b)(ii) on alleged undervaluation of immovable property.

Assessee had entered into an agreement to purchase property on 28-06-2007 &  paid ₹1 lakh through banking channels at that time. The sale deed, however, was registered later on 05-03-2014. AO, following revision u/s 263, adopted the stamp duty value as on the registration date &  taxed the difference between the Jantri value &  the purchase consideration as income from other sources u/s 56(2)(vii)(b)(ii). CIT(A) confirmed the addition on the ground that substantial consideration was not paid &  possession was not handed over in 2007.

Tribunal held that the first &  second provisos to section 56(2)(vii)(b)(ii) (pari materia with section 50C) clearly provide that where the date of agreement &  date of registration differ, the stamp duty value as on the date of agreement must be adopted, provided any part of the consideration is paid through banking channels on or before the agreement date. Since this condition was admittedly satisfied, the statutory requirement stood fulfilled.

Rejecting  CIT(A)’s reasoning, ITAT held that the Act does not mandate payment of substantial consideration or handing over of possession for applying the provisos. The lower authority’s approach was thus contrary to the express provisions of law.

Accordingly, the ITAT deleted the entire addition of ₹41.40 lakh &  allowed the appeal

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal has been filed by the assessee against the order dated 16.07.2025 passed by the Ld. Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi (“Ld. CIT(A)” for short), under Section 250 of the Income-tax Act, 1961 (“the Act” for short), relating to the Assessment Year 2015­16.

2. The brief facts of the case are that the assessee is an individual and had filed the return of income for the A.Y. 2015-16 on 30.10.2015 declaring total income of Rs 11,04,230/-. The case of the assessee was selected for limited scrutiny under CASS for verifying “Large investment in property as compare to total income”. The Assessing Officer has passed order u/s. 143(3) of the Act on 22.08.2017 by accepting the returned income.

2.1 Subsequently, the Principal Commissioner of Income-tax- 5, Ahmedabad passed an order u/s 263 on 20.12.2019 to revise the order u/s 143(3) dated 22.08.2017. The PCIT also observed in the order that the assessee has under­valued the property purchased to the tune of Rs.41,40,000/- in comparison to the value adopted by SRO.

2.2 On verification of assessee’s case records, Assessing Officer noticed that, during the year under consideration the assessee has purchased immovable properties jointly and assessee’s share is 15% which is amounting to Rs.73,95,000/- and paid stamp duty of Rs. 5,65,215/-. In this case, the assessee has purchased land and made payment in cash and payment is not done as per Jantri rates ie. market value. The assessee has paid purchase consideration lesser than the market value, therefore, section 56(vii)b(ii) of the Act was held to be applicable on the purchase consideration. Hence, Assessing Officer assessed the difference in value of Rs.41,40,000/- as income from other sources u/s 56(vii)b(ii) of the Act total income of the assessee for the A.Y.2015-16 u/s 143(3) r.w.s.263 r.w.s. 144B of the Act.

3. Aggrieved by the aforesaid addition of Rs.41,40,000/- made by the Assessing Officer, the assessee preferred an appeal before the Ld. CIT(A) who held as under:-.

“7.3 During the course of appellate proceedings, the assessee has filed the written submission along with supporting documents and the same are perused and examined by the undersigned. The assessee has claimed that the original agreement was entered on 28.06.2007 and Rs.1,00,000/-was paid through banking channel, therefore, the market value as on the date of registration on 05.03.2014 is not applicable and the market value as on 28.06.2007 is to be adopted. The assessee argument is perused and the same is not acceptable for the reason that though the assessee has entered initial agreement entered on 28.06.2007, the substantial purchase consideration was not paid as on 28.06.2007 and possession of the property was not handed over to the assessee. In the normal business parlance, the transfer of the property to take place only after paying the entire consideration and possession should be handed over. In the assessee’s case, the substantial purchase consideration was not paid and the possession was not handed over, therefore, the market value as on 28.06.2007 could not be adopted. In view of the above mentioned facts and discussions, the property was transferred only on 05.03.2014, therefore, the addition made by the AO u/s 56(vii)b(ii) of the Act is confirmed. The assessee has raised the objection on the addition of Rs.41,40,000/- through ground nos. 1 to 4, therefore, ground Nos. 1 to 4 are decided against the assessee. “

4. In this background, the provisions of Section 56(2)(vii)(b) of the Act are examined. The same reads as under:-

(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 for 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 property is disputed by the assessee 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;]

(c) any property, other than immovable property,—

(A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(B) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration

……

Section 50C reads as under:-

Special provision for full value of consideration in certain cases.

50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer :

Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:

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

5. Thus, on going through the provisions of the Act, since the assessee has entered into an agreement fixing the amount of consideration for the immovable property on 28.06.2007 and an amount of Rs.1,00,000/- has already been paid in the year 2007, i.e. a part has been paid by way of account payee cheques through a bank account, we have no hesitation to hold that the provisions of Section 50C or 56(vii)(b)(ii) of the Act are not attracted in the case of the assessee. The reasoning given by the Ld. CIT(A) that “the assessee argument is perused and the same is not acceptable for the reason that though the assessee has entered initial agreement entered on 28.06.2007, the substantial purchase consideration was not paid as on 28.06.2007 and possession of the property was not handed over to the assessee” cannot be upheld as the reasoning given against the provisions of the Act. Therefore, the addition made by the Assessing Officer is hereby deleted.

6. In the result, appeal of the assessee is allowed.

The order is pronounced in the open Court on ….12.12.2025