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.
