Shri Vardhman Stanakwasi Shrawak Sangh Vs ITO (ITAT Mumbai)
Registration in 2018 Cannot Rewrite a Property Deal Concluded in 2001: Allotment Date & Cheque Payment Govern Section 56(2)(x)
The Mumbai Bench of the ITAT has held that where an immovable property was allotted and part of the purchase consideration was paid through banking channels in 2001, the subsequent registration of the conveyance deed in 2018 would not justify adopting the stamp-duty value prevailing on the date of registration for making an addition u/s 56(2)(x). The applicable stamp-duty value was the value prevailing on the date of the original allotment and payment. Since that value was lower than the agreed purchase consideration, the Tribunal deleted the addition of ₹1,42,89,204.
The assessee, Shri Vardhman Stanakwasi Shrawak Sangh, was a charitable and religious trust registered u/s 12A. It filed its return for AY 2018-19 declaring nil income. The case was selected for scrutiny because information available from the registered conveyance deed showed a substantial difference between the purchase consideration and the stamp-duty value of an immovable property.
The property involved was Flat No. 201, Building No. 65, Yogi Nagar, Borivali West, Mumbai. The conveyance deed was registered on 31-03-2018, recording a purchase consideration of ₹38,94,296. However, the assessee explained that the transaction had actually commenced and substantially concluded many years earlier.
According to the assessee, the flat was booked with the developer, Vijaynagar Corporation, in April 2001. An allotment letter dated 27-04-2001 was issued and an advance of ₹11 lakh was paid by cheque dated 24-04-2001 drawn on the assessee’s account with Dena Bank. The balance consideration was paid in instalments during the period from 2001 to 2005. Possession was also obtained long before registration, and the trust had been using the premises for its charitable activities. Electricity, water, gas and property-tax records were produced to substantiate its continuous possession and enjoyment of the property.
The AO rejected the explanation primarily on the ground that the assessee’s PAN showed its date of incorporation as 01-04-2002, while its registration u/s 12A was granted only in 2004. According to the AO, the trust could not have entered into the transaction or paid ₹11 lakh in April 2001, before the date of its supposed incorporation. He consequently treated the registration executed in March 2018 as the relevant transaction and added the difference of ₹1.42 crore between the 2018 stamp-duty value and the stated consideration u/s 56(2)(x)(b).
Before the CIT(A), the assessee explained that the trust was actually constituted through a resolution passed by its executive committee on 25-06-2000. Its bank account with Dena Bank had been opened in its own name on 28-09-2000. It also produced an affidavit of a trustee confirming these facts. Nevertheless, the CIT(A) held that an allotment letter could not be equated with an agreement for sale and that the utility bills did not conclusively answer the question of the trust’s existence in 2001. The addition was accordingly confirmed.
Before the ITAT, the assessee contended that the date mentioned in the PAN was not conclusive of its actual date of formation. The contemporaneous bank records, executive committee resolution, affidavit, allotment letter and cheque payment demonstrated that the trust was very much in existence in 2000-01.
The Tribunal accepted this contention. It observed that neither the AO nor the CIT(A) had found the trustee’s affidavit to be false or fictitious. No independent inquiry had been conducted to disprove its contents. More importantly, the Dena Bank passbook showed that an account had been opened in the assessee’s name on 28-09-2000. These contemporaneous records established the existence of the trust before 01-04-2002. The date subsequently entered in the PAN database could not, by itself, override the evidence on record.
The payment of ₹11 lakh through cheque in April 2001 was also confirmed by the developer. It was, therefore, an undisputed banking transaction made towards booking the property before its eventual registration.
The Tribunal then examined the two provisos to section 56(2)(x). The first proviso provides that where the date of the agreement fixing the consideration and the date of registration are different, the stamp-duty value prevailing on the date of agreement may be adopted. The second proviso makes this benefit available where the consideration, or a part thereof, was paid through the prescribed banking modes on or before the date of agreement.
Both conditions were satisfied in the present case. The allotment letter fixed the property and its consideration, while ₹11 lakh was paid by account-payee cheque in April 2001. Therefore, the relevant date for comparison under section 56(2)(x) was the date of allotment and not the date on which the conveyance deed was formally registered seventeen years later.
The ITAT followed the principle laid down in Sajjan Raj Mehta v. ITO and Pinstripe Properties Pvt. Ltd. v. DCIT, wherein allotment letters coupled with payment through banking channels were treated as agreements for the purposes of the proviso to section 56(2)(x). Registration merely completed the conveyancing process; it did not create a fresh bargain at the market value prevailing on that later date.
The ready-reckoner value of the property as on 27-04-2001 was stated to be ₹32,94,198, whereas the assessee had agreed to pay ₹38,94,296. Since the actual consideration was higher than the contemporaneous stamp-duty value, there was no positive difference capable of being taxed u/s 56(2)(x).
The AO was accordingly directed to delete the addition of ₹1.42 crore. Since relief was granted on this ground, the alternative contention that section 56(2)(x) was inapplicable to a trust registered u/s 12A was left open and was not adjudicated.
Author’s Comments
The ruling correctly prevents taxation of an artificial difference created solely by delayed registration. Where the price was fixed, a substantial payment was made through banking channels and possession followed under an earlier allotment, the transaction cannot be valued as though it originated only on the date of the subsequent conveyance.
The decision is also useful on evidentiary principles. A date appearing in the PAN database is not necessarily conclusive of an association’s actual formation, particularly when earlier resolutions, bank records & third-party confirmations establish its existence. Above all, an allotment letter supported by contemporaneous banking payment can qualify as the relevant agreement for applying the provisos to section 56(2)(x). Registration may perfect the legal title, but it cannot erase the commercial transaction that had already taken place years earlier.
Cases Discussed
- Shri Sajjan Raj Mehta v. Income-tax Officer, ITA No. 56/Mum/2021 (ITAT Mumbai)— The Tribunal relied on this decision for the principle that advance payment through banking channels can qualify the assessee for the benefit of the proviso to section 56(2)(x).
- M/s. Pinstripe Properties Private Limited v. DCIT, ITA No. 3756/Mum/2024 (ITAT Mumbai) — The Tribunal followed this decision in holding that an allotment letter, supported by part payment through banking channels before registration, can be treated as the relevant agreement for applying the proviso to section 56(2)(x), making the stamp-duty value on the allotment/agreement date relevant.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
