Case Law Details
Akshay Manoj Pagdhare Vs ITO (ITAT Mumbai)
Mumbai ITAT: Registration of Flat Solely for Mortgage Loan Does Not Automatically Attract Section 56(2)(x)
The Mumbai ITAT held that registration of an already allotted under-construction flat solely to create a mortgage in favour of a bank does not, by itself, amount to a fresh receipt of immovable property so as to attract section 56(2)(x). In the present case, the assessee had obtained an allotment letter in October 2016, paid the entire purchase consideration between 2016 and 2017, and acquired valuable rights in the flat at that stage. The agreement was registered only in A.Y. 2020-21 because the lending bank required registration before sanctioning a mortgage loan. The Assessing Officer, however, invoked section 56(2)(x) and taxed the ₹20.98 lakh difference between the purchase price and the stamp duty value.
The Tribunal observed that the deeming provisions of section 56(2)(x) apply only where there is a receipt of immovable property for inadequate consideration. Prima facie, registration undertaken merely to facilitate a mortgage over pre-existing rights does not constitute a fresh acquisition of property. Since the Assessing Officer had not examined the allotment letter, mortgage agreement, loan documents, payment schedule, possession records, and other contemporaneous evidence, the matter was restored for fresh adjudication. The Tribunal directed that if the registration was only incidental to obtaining a mortgage loan and did not result in any fresh receipt or transfer of property, section 56(2)(x) should not be invoked. Accordingly, the appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2020-21, date of order 04.04.2025. The impugned order emanated from the order of the Assessment Unit Income Tax Department (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 144B of the Act date of order 21.09.2022.
2. When the appeals were called for hearing, none appeared on behalf of the assessee. The Bench had granted several opportunities and adjourned the matter on multiple occasions to enable the assessee to prosecute the appeal. However, despite such opportunities, no one appeared on behalf of the assessee. Accordingly, after considering the material available on record, we proceed to dispose of the appeal ex parte qua the assessee after hearing the submissions of the Ld. DR.
3. The Registry informed that the appeal filed by the assessee was delayed by 241 days. The assessee has filed a condonation petition explaining the reasons for the delay in filing the appeal. Upon consideration of the submissions made in the condonation petition, we are satisfied that there existed sufficient cause preventing the assessee from filing the appeal within the prescribed period of limitation. Accordingly, the delay of 241 days is condoned and the appeal is admitted for adjudication on merits.
4. We have heard the submissions of the Ld. DR and perused the material available on record. The assessee filed its return of income declaring a total income of Rs.16,26,690/-. The case was selected for limited scrutiny under the CASS on the issue of investment in immovable property. During the course of assessment proceedings, the Ld.AO observed that the assessee had purchased an immovable property for a consideration lower than the value adopted by the stamp valuation authority. The stamp duty valuation of the property was determined at Rs.1,22,98,200/-, whereas the agreed purchase consideration was Rs.1,02,00,000/-. Accordingly, the difference of Rs.20,98,200/- was treated as income under Section 56(2)(x) of the Act, and added to the total income of the assessee. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A), who upheld the addition made by the Ld. AO. Being further aggrieved, the assessee is now in appeal before us.
5. Upon perusal of the record, it is observed that the assessee had purchased a residential flat and paid the entire consideration for the same. The initial booking amount was paid on 11.10.2016, and an allotment letter was issued by the builder on the very same date. Thereafter, the assessee made the entire payment towards the purchase of the flat during the period from 11.10.2016 to 23.06.2017. The property was under construction and possession thereof was not handed over to the assessee until 15.10.2021, relevant to A.Y. 2022-23. It is further noted that on 31.03.2020, the assessee availed a mortgage loan by creating a charge over the rights acquired in the said under-construction property. For the purpose of sanctioning the mortgage loan, the lending bank insisted upon registration of the agreement relating to the flat. Consequently, the agreement was registered during A.Y. 2020-21. At the time of such registration, the registering authority adopted the stamp duty valuation prevailing on the date of registration, which was higher than the originally agreed purchase consideration. The Ld. AO invoked the provisions of Section 56(2)(x) of the Act and made an addition on account of the difference between the agreement value and the stamp duty valuation adopted for the purpose of the mortgage transaction. The assessee contended that the subsequent registration undertaken solely to facilitate the mortgage loan had no nexus with the acquisition of the property and, therefore, could not trigger the provisions of Section 56(2)(x). According to the assessee, the revenue authorities erroneously treated such registration, undertaken only for obtaining a mortgage loan, as a transaction attracting the deeming provisions of Section 56(2)(x) of the Act.
6. It is further evident from the appellate order that the assessee had contended that the right in the flat was acquired upon issuance of the allotment letter in October 2016 and that such right constituted a capital asset within the meaning of Section 2(14) of the Act from A.Y. 2017-18 itself. The subsequent registration of the agreement was merely a procedural requirement necessitated by the bank for sanctioning the mortgage loan and did not result in any fresh acquisition or transfer of rights in the property. The assessee further submitted that the rights acquired pursuant to the allotment letter continued uninterrupted and were never terminated by the builder. The registration was carried out only for the purpose of exploiting the existing rights in the property to secure financial assistance from the bank. The assessee had financed the purchase entirely from its own sources and no borrowings were utilized for acquisition of the property. Possession of the flat was eventually received in A.Y. 2022-23. In support of the aforesaid contentions, reliance was placed on the decision of the Coordinate Bench of the Tribunal in the case of Smt. Nargis Airani v. ITO reported in (2006) 287 ITR 142 (Pune), wherein it was held that the rights relating to possession, enjoyment, and control over a flat constitute a capital asset. Since the assessee had acquired such rights in October 2016 itself and those rights remained subsisting throughout, it was argued that neither the deeming provisions analogous to Section 50C nor the provisions of Section 56(2)(x) could be invoked merely on account of the subsequent registration carried out for obtaining a mortgage loan. Accordingly, it was contended that the impugned addition was unsustainable in law.
7. The Ld. DR submitted that the transaction was rightly treated by the revenue authorities as a deemed transfer for the purpose of applying the relevant provisions of the Act. While the Ld. DR did not dispute the factual matrix of the case, he placed complete reliance on the findings recorded by the revenue authorities. In support of his contentions, the Ld. DR invited our attention to paragraph 4.6 of the assessment order, which is reproduced hereunder:
“4.6. Conclusion drawn-
The assessee has failed to show the income u/s 56(2)(x) of the I.T. Act arising on account of difference in Purchase Value of Property and value as per Stamp authority. In this case the property was registered in year 2019-20 (date of agreement 06/05/2019) for Rs.1,02,00,000/-and the year of first payment was 2016-17 (date of allotment/first payment13/10/2016). As the value of the property as per Stamp Authority for the year 2016-17 is not available, the Joint Sub-registrar-2 Mumbai was requested for the same, but there is no response from the Joint Sub-registrar-2, Mumbai. The assessee in its reply dated 03.11.2021 has submitted valuation report of the property purchase prepared by the Registered Valuer and as per the report the value of the property as on 01.04.2016 has been valued at Rs.1,22,98,200/-. In the absence of the report of the Joint Sub-registrar the value of the property is being taken as Rs.1,22,98,200/-. The difference in value of purchase value and valuation report i.e. Rs.20,98,200/- (12298200-10200000) is treated as unexplained income u/s 56(2)(x) of the I.T. Act 1961 under the head income from other sources and added to the total income of the assessee.
The penalty proceedings u/s 270A of the IT Act for misreporting of income is also initiated separately on this issue.”
7. It is an undisputed fact that the assessee had acquired rights in the subject residential flat pursuant to the allotment letter dated 11.10.2016 and had substantially paid the entire consideration between 11.10.2016 and 23.06.2017. It is further evident that the property remained under construction and possession thereof was ultimately handed over only on 15.10.2021, relevant to A.Y. 2022-23. The registration carried out during the impugned assessment year was stated to have been undertaken solely to comply with the requirement of the lending bank for availing a mortgage loan against the rights already acquired in the said property. In our considered view, the provisions of Section 56(2)(x) of the Act can be invoked only where there is a receipt of immovable property for inadequate consideration. Prima facie, the registration of an already allotted property for the limited purpose of creating a mortgage in favour of a bank does not, by itself, result in a fresh acquisition or receipt of immovable property so as to attract the provisions of Section 56(2)(x) of the Act. However, neither the assessment order nor the appellate order contains any detailed examination of the mortgage documents, loan sanction papers, terms of registration, and other contemporaneous records to ascertain the true nature and purpose of the impugned registration. Considering the peculiar facts of the case and in the interest of justice, we deem it appropriate to set aside the impugned appellate order and restore the matter to the file of the Ld. AO for fresh adjudication. The Ld. AO shall verify the mortgage agreement, loan documentation, allotment letter, payment schedule, possession-related documents, and other relevant evidences to determine whether the registration was merely incidental to the creation of a mortgage over pre-existing rights in the property. If, upon such verification, it is found that the registration was undertaken only for availing a mortgage loan and did not result in any fresh receipt or transfer of immovable property, the provisions of Section 56(2)(x) shall not be invoked. The assessee shall be afforded a reasonable opportunity of being heard and shall be at liberty to furnish all supporting evidences in support of its claim.
Accordingly, this ground of appeal is allowed for statistical purposes.
8. In the result, the appeal of the assessee bearing ITA No.1013/Mum/2026 is allowed for statistical purpose.
Order pronounced in the open court on 24th day of June 2026.
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