Redevelopment Flat Not Taxable U/s 56(2)(x); ITAT Grants Relief on Additional Area Purchase

Bharat KishinSamtani Vs ITO (ITAT Mumbai)

Redevelopment Flat Not Taxable U/s 56(2)(x); ITAT Grants Relief on Additional Area Purchase

Redevelopment Flat Not a ‘Gift’: ITAT Says Section 56(2)(x) Cannot Tax Replacement Home

The Mumbai ITAT held that a flat received by a member in a society redevelopment project in exchange for the original flat surrendered cannot be treated as receipt of immovable property for inadequate consideration under Section 56(2)(x). The Tribunal accordingly granted relief to the assessee and remanded the issue relating to the purchase of additional area for fresh verification.

The assessee, along with his parents, received a larger duplex flat under a redevelopment scheme. Out of the total area, 851.21 sq. ft. represented the replacement flat received in lieu of the old flat surrendered to the developer, while 544.19 sq. ft. was additional area purchased separately. The Assessing Officer invoked Section 56(2)(x) based on the difference between the stamp duty valuation and the consideration paid and made an addition of ₹8 lakh, being the assessee’s 15% share in the alleged differential value.

The Tribunal observed that the area received in exchange for the original flat could not be regarded as acquisition of property for inadequate consideration. Relying on its earlier decision in Anil Dattaram Pitale, it held that allotment of a new flat pursuant to redevelopment is outside the scope of Section 56(2)(x).

As regards the additional area purchased from the developer, the assessee produced evidence showing that part of the consideration had been paid through banking channels in February 2016, much before Section 56(2)(x) came into force. The assessee also contended that the purchase price was in line with the prevailing ready reckoner rates. Finding that these factual aspects required verification, the ITAT restored the matter to the Assessing Officer to examine the payments and valuation and decide the issue afresh in accordance with law.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. This appeal by assessee is directed against the order of ld. CIT(A)/NFAC, Delhi dated 04.09.2025 for Assessment Year (AY) 2018-19. The assessee has raised following grounds of appeal:

“1. In the facts and circumstances of the case and in law the learned assessing officer erred in making addition of Rs. 8,00,137/- under sec.56(2)(x) of the Income-tax Act.

2. In the facts and circumstances of the case and in law the learned assessing officer erred in not taking into account the oral agreement made in 2015 fixing the rate for the additional area.

3. In the facts and circumstances of the case and in law the learned assessing officer erred in not taking into account the fact that the appellant purchased only a part of the area i.e. 15% of the total area which is merged into the alternate Permanent Accommodation allotted to Shri Kishin Hariram Samtani and hence is not independent of the flat and as such is not readily marketable.

4. The learned Assessing Officer erred in not appreciating the fact that the total additional area purchased is 544.19 sq. ft. and the payments have been made as per details shown in the agreement dated 06.09.2017 pages 7, 8 and 9.

5. In the facts and circumstances of the case and in law the learned assessing officer erred in proceeding on the basis that the appellant made payment after 08.05.2017 and hence the proviso to Sec.56(2)(x) is not applicable ignoring the fact first payment for purchase of additional area was made on 20.01.2016.

6. Appellant craves leave to add to, alter, amend or delete any of the above grounds of appeal.”

2. Brief facts of the case are that assessee is individual filed his return of income for assessment year (A.Y.) 2018-19 on 31.07.2018 declaring income of Rs. 6,46,340/-. Case was selected for scrutiny. During the assessment, the Assessing Officer (AO) noted that he has information from Joint Sub Registrar (MSD), Andheri -3 that assessee has purchased a Flat at Khar Paschim, Mumbai for sale consideration of Rs. 2.44 crore on 09.06.2017 and have paid stamp duty of Rs. 14,91,300/-. As per endorsement from the office of Joint Sub Registrar (MSD), Andheri – 3, the value of property for the purpose of registration of transaction was determined at Rs. 2.98 crore. The AO was of the view that assessee has purchased property for inadequate consideration and hence provision of section 56(2)(x) is applicable as there is difference of Rs. 53,34,250/- vis-à-vis the sale value declared by assessee and the value assessed by Stamp Valuation Authority. On the basis of such observation, the AO issued show cause notice to the assessee on 13.01.2021. In response to such show cause notice, the assessee filed his reply on 03.02.2021 and 05.02.2021. In the reply, the assessee stated that provision of section 56(2)(x) is not applicable in his case. Section 56(2)(x) was inserted with effect from 01.04.2017. The assessee further explained the facts regarding non-applicability of section 56(2)(x) as the assessee has received new flat pursuant of development agreement for development of existing property. Such development agreement was as per the State Government policy. The assessee was having a Flat in Dwarakamai CHS Ltd. Dwarakamai CHS Ltd. entered into redevelopment of society with Kripa Oneness Private Ltd. In lieu of existing flat, the assessee along with his mother and father was allotted Flat No. 601.The share of father 50%, mother is 35% and assessee is having 15%. As per agreement, every member of existing co-operative society was eligible for allotment of newly constructed area. Further, one of clause of agreement provides for additional area over and above the area mentioned in the agreement in respect of existing member of the society. The existing member of society was also eligible have corpus fund calculated @ Rs. 2,700/- per square feet to per month. Clause 8 of the agreement also provides sale of additional area to members @ Rs. 55,000/- upto 160 square feet and beyond 160 square feet @ Rs. 60,000/- per square feet. Each member requiring additional area have to decide and agree upon with the builder before the developer submit the sanctioned plan and acquisition of additional are shall form part of individual agreement to be executed with each member. The builder was also eligible to recover his cost from sale of free space. The supplement agreement was also executed. The supplement agreement was executed among the society member and the developer due to the fact project was unviable to the builder. But due to appreciation of members of society, the developer agreed to develop the property of new terms and conditions. The copy of supplement agreement was dated 31.03.2017 was also furnished. As per supplement agreement, the additional area was to be sold @ Rs. 45,000/- per square feet. However, no rent for alternative accommodation during period of construction was to be paid to the members. There was a clause in supplementary agreement for compensation of Rs. 117/- per square feet. If the developer is unable to construct and obtain occupation certificate, which was Rs. 150/- per square feet in original agreement. The assessee explained that he purchased additional area of 544.19 square feet in 2016 that is before submission of plan by developer to Municipal Corporation of Greater Mumbai. A certificate of Municipal Corporation of Greater Bombay(MCGB) dated 02.09.2016 was also furnished. The assessee also furnished copy of ledger account in the books of Kishin Hariram Samtani and Deepa Kishin Samtani highlighted for payment for additional area. The assessee in without prejudiced submission submitted that additional area purchased by assessee was a result of composite agreement between Dwarakamai Co-op Housing Society Ltd. along with members of the society and developer Kripa Oneness Private Ltd. The discounted price at which the assessee purchased additional area was result of economic benefits the builder received from co-operative society, wherein the assessee was a member. The old flat was having area of 630.53 square feet. The builder has given additional area of 25.0 square meter that is 220.68 square feet as free of cost. The assessee has purchased additional area of 50.623 square meter that is 544.19 square feet and the assessee’s share is only 7.58 square meter that is 81.628 square feet. The stamp valuation authority while calculated the market value of entire flat including the parking charges at Rs. 2.98 crore.

3. The reply of assessee was not accepted by AO. The AO noted that assessee along with his father, Kishin Hariram Samtani and mother, Deepa Kishin Samtani acquired a flat. The share of father 50%, mother is 35% and assessee is having 15%. There is difference of 53,34,250/- vis-à-vis the stamp duty valuation of Rs. 2,98,22,800/- and the purchase consideration declared is Rs. 2,44,88,550/-. The assessee made first payment on 08.05.2017. The development agreement and the supplementary agreement were signed before 01.04.2017. The assessee has not furnished documentary evidence that market value of the property at Khar Paschim, Mumbai as on date of transfer was Rs. 2.44 crore and not as per valuation. The AO issued show cause notice dated 16.02.2021 for proposing addition of difference of stamp duty valuation and the value declared by assessee. The assessee again filed his reply reiterating the similar submission. The AO was of the view that provision of section 56(2)(x) is applicable and the addition of Rs. 8,00,137/- being 15% of difference of valuation vis-à-vis stamp duty valuation and sale consideration declared by assessee was added to the income of assessee.

4. Aggrieved by the addition in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee made similar submission as made before AO in reiterating for provision of section 56(2)(x) is not applicable on the transaction of assessee. As transaction relates to only purchase of additional area forming part of alternative accommodation jointly purchased by assessee and his parent. The ld. CIT(A) held that submission of assessee is misplaced. The material fact under the provision of section 56(2)(x) is whether the immovable property was acquired for inadequate consideration compared to stamp duty valuation irrespective of fact whether such property is termed as a flat or an additional area merged into a existing flat. The assessee has not furnished if any payment is made prior to 01.04.2017. The assessee has paid first consideration only on 08.05.2017. The assessee failed to satisfy the condition of second proviso attached with the section 56(2)(x). On the basis of such finding the ld CIT(A) confirmed the action of AO. Further, aggrieved the assessee has filed present appeal before Tribunal.

5. We have heard the submission of learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the Revenue. The ld. AR of the assessee submits that assessee along with his parent was allotted a flat in redevelopment scheme of society. His father (KishinHariramSamtani) was having a flat in Dwarakamai Co-op Housing Society Ltd. In lieu of surrender of flat in development scheme, the assessee his father and his mother got alternative flat. The old flat was having 630.53 square feet carpet area. In lieu of such flat, the assessee along with his father was entitled a flat 851.21 square feet carpet area. In addition to 851.21 square feet, the assessee along with his parent acquired 220.68 square feet carpet area as free of cost and they also purchased additional area of 544.19 square feet. Thus, total ad-measuring area of new flat became 1395.40 square feet carpet area in duplex flat. The additional are was purchased @ Rs. 45,000/- per square feet as per supplementary agreement. The assessee and his parents paid part payment of said additional area in February, 2016 by way of cheque of Rs. 23,00,000/-. The other sale consideration was paid by way of cheque of Rs. 10,000/- on 06.02.2016. Another payment was made from account of other family member on 10.02.2016 and 11.02.2016. Copy of agreement with builder also acknowledged the payment of Rs. 23,00,000/- vide cheque no. 300488 on 04.02.2016. Copy of agreement with builder / developer is filed. Thus, the assessee has paid part of sale consideration of additional area by way of cheque in the month of February, 2016. The ld. AR also furnished regular reckoner list applicable in 2016-17 wherein the rate in the Khar Mumbai was 302600 per square meter for residential building. The assessee purchased the additional area at more than the prevailing ready reckoner rate of the area. Thus, the assessee is also eligible for eligible for benefit of first and second proviso to section 56(2)(x).

6. So far as area of flat which is allotted in lieu of surrender(exchange) of old Flat is concerned, the regress of section 56(2)(x) is not applicable on such transaction as has been held by co-ordinate bench of Mumbai Tribunal in Anil DattaramPitale vs ITO (2025)173 taxmann.com51 (Mumbai-Trib) held that when the assessee got a new flat in lieu of old flat surrendered by him to society for redevelopment, it was not a case of receipt of immovable property for inadequate consideration that would form within the purview of section 56(2)(x).

7. On the other hand, the ld. Sr. DR for the Revenue supported the order of ld. CIT(A). The ld. Sr. DR for the revenue submits that ld. CIT(A) has clearly recorded the fact that material fact for invoking provision of section 56(2)(x) is whether immovable property was acquired for inadequate consideration as compared to stamp duty value determined by stamp valuation authority.

8. We have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. We have also gone through various documentary evidence filed on record. The basis of making addition has been recorded by us in earlier paras of this order, which is not repeated here for the sake of brevity. On appreciation of facts, we find that assessee with his parents was allotted duplex flat having area of 1395 square feet, out of which 851.21 square feet, was given in lieu of original flat in the existing society. The assessee along with his parent purchased additional area of 544.19 square feet.

9. So far as area of 851.21 Square feet is concern, we find that provision of deeming fiction of section 56(2)(x) is not applicable of such transaction as per the decision of Mumbai Tribunal in Anil Dattaram Pitale vs ITO (2025)173 com51 (Mumbai-Trib) wherein it was held that when the assessee got a new flat in lieu of old flat surrendered by him to society for redevelopment, it was not a case of receipt of immovable property for inadequate consideration that would form within the purview of section 56(2)(x). We find that for remaining area of 544.19 square feet, the assessee claimed that he is owner of 15% of the flat, and that part payment in respect of additional area purchased, was already paid in February 2016. To support his contention, the assessee furnished copy of bank statement showing part payment on 04.02.2016, by way of cheque, which was cleared on 11.02.2016. Thus, the assessee is eligible for benefits of first and second proviso of section 56(2)(x). the assessee also claimed that the additional area purchased by assessee over and above the ready reckoner rate applicable in the area. Hence, the matter is restored to the jurisdictional AO for limited purpose to verify facts about payment of part consideration in February 2016 and if the additional area is purchased at par with ready reckoner rate and to pass order in accordance with law qua the share of assessee in the impugned flat.

10. In the result, the appeal of the assessee is allowed for statistical purpose.

Order was pronounced in the open Court on 08/06/2026.