Section 56(2)(vii)(b) Cannot Automatically Apply to Unconstructed Flat: ITAT Mumbai

Pushpendra Prakash Dharmawat Vs Assessing Officer (ITAT Mumbai)

Summary: ITAT Mumbai considered an assessee’s appeal against an addition of Rs.443600 under section 56(2)(vii)(b) of the Income Tax Act, 1961 for A.Y. 2017-18. The assessee and his mother were tenants in an old building proposed for redevelopment. Under an arrangement entered into in June 2010, the assessee was to receive alternative premises against surrender of existing tenancy rights and separately agreed to purchase additional area for monetary consideration. The original arrangement was subsequently replaced and Flat No.1002 was allotted, with an agreement registered on 22.12.2016 for consideration of ₹33,51,900/- against stamp duty value of ₹37,95,500/-. The Assessing Officer taxed the difference of ₹4,43,600/- under section 56(2)(vii)(b), and the CIT(A) upheld the addition. The Tribunal examined whether the statutory requirement that an individual “receives” immovable property in the relevant previous year was satisfied. It considered the distinction between pre-existing tenancy rights and the property itself, relying upon ACIT v. Ashok Narendra Mehta. The Tribunal also noted the assessee’s submission that even in 2026 the building had not been constructed and possession had never been received. It observed that registration of an agreement and receipt of immovable property are not necessarily synonymous and that a deeming provision cannot be extended beyond its statutory language. However, because the factual assertion regarding non-construction and non-receipt required verification, the matter was restored to the Assessing Officer for limited factual verification. The Assessing Officer was directed to verify whether the building remained unconstructed and whether Flat No.1002 or any alternative premises had ever been constructed and handed over. If no immovable property had been received, the Tribunal held that no addition under section 56(2)(vii)(b) would survive merely because of registration of the agreement. The appeal was allowed for statistical purposes.

Cases Discussed

• ACIT v. Ashok Narendra Mehta — ITA No. 3373/Mum/2024, order dated 28.08.2024
• Atul G. Puranik v. ITO — (2011) 132 ITD 499 (Mum.)

Full Text of the Judgment/Order

This appeal is filed by the Assessee against the order of Ld. INCOME TAX OFFICER, vide DIN: ITBA/AST/S/147/2023-24/1052266574(1) dated 18- Mar-2026 for the Assessment Year 2017-2018. The Assessee has raised the following grounds of appeal:

1) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals erred in confirming addition made of Rs.443600 under section 56 2 vii b of the Income Tax Act,1961 by the learned Assessing Officer. Provisions of the Act ought to have been properly construed and regard being had to facts of the case said addition of Rs.443600 should not have been confirmed. Reasons assigned by him are wrong and insufficient to justify addition of Rs.443600 under section 56 2 vii b of the Act.

2) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals ought to have appreciated that date of purchases of property is 20.06.2010 and therefore provisions prevailing on that date does not cover cases of WHARE agreement value is less than value adopted by stamp duty authorities.

3) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals erred in arriving at the conclusion that conditions enumerated in proviso to section 56 2 vii b are not complied with and therefore stamp duty value as on 20.06.2010 is not applicable to appellants case.

4) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals ought to have appreciated that share of the appellant in property is 50 percent only therefore whole of amount of Rs.443600 cannot be added in the hands of the appellant.

5) On the facts and the circumstances of the case and in law the learned Commissioner of Income tax Appeals erred in rejecting additional claim of the appellant regarding payment of stamp duty, Rs.190000, registration fees Rs.30000 and other expenses Rs.2320 aggregating to Rs.222320 paid for the transfer of the of residential house property to the assessee even though not claimed by the appellant in the computation of income in view of the CBDT Circular No. 14 XL.35, dated 11th April, 1955 which cast the duty on Assessing Officer to allow all the legitimate claim even though not claimed by the appellant in Return of Income.

6) The order made under section 147 r.w.s. to section 144B of the Income Tax Act, 1961 is contrary to the provisions of the Act, illegal, bad in law, ultra virus, without allowing reasonable opportunity of hearing, without appreciating facts, submission and evidences in their proper perspective, hence it is liable to be annulled and set aside.

7) Notice under section 148 of the Act dated 03.05.2021 is contrary to the provisions of the Act, invalid, bad in law and liable to be quashed in as much as Said notice is issued by the Jurisdictional Assessing Officer, 30 1 1, Mumbai and not by the Faceless Assessing Officer. Said notice is issued on 03.05.2021 i.e. after three years from the end of assessment year 2017 2018 for escaped income of Rs.4436000 which is less than Rs. Fifty Lakh. Said notice is issued providing time of thirty days to file Return of Income instead of ninety days as provided in Act. Said notice is issued after obtaining sanction from head of Range 26(1), Mumbai instead of Principal Commissioner of Income Tax, Mumbai

8) Notice under section 148 of the Act dated 31.07.2022 is contrary to the provisions of the Act, time barred, invalid, bad in law and liable to be quashed in as much as: Said notice is issued on 31.07.2022 which is time barred and liable to be quashed. Said notice is issued by the Jurisdictional Assessing Officer, 30(1)(1), Mumbai and not by the Faceless Assessing Officer. Said notice is issued on 31.07.2022 i.e. after three years from the end of assessment year 2017 2018 for escaped income of Rs.4436000 which is less than Rs. Fifty Lakh. Said notice is issued providing time of thirty days to file Return of Income instead of ninety days as provided in Act. Said notice does not bear Document Identification Number which make said notice invalid and liable to be quashed.

9) On the facts and circumstances of the case and in law the learned Assessing Officer failed to serve draft assessment order as provided under section 144B xxi of the Act, thereby assessment completed under section 147 rws 144B of the Act is bad in law, contrary to the provisions of the Act invalid, void ab initio and liable to be annulled.

10) On the facts and circumstances of the case and in law Show Cause Notice dated 11.04.2023 is bad in law, invalid in as much as same in not in conformity with SOP issued by department allowing minimum seven day time to respond by the appellant which make subsequent assessment also invalid, void ab initio and liable to be annulled.

11) On the facts and circumstances of the case and in law, the learned Assessing Officer failed to serve copy of order under section 151 passed by the Principal Commissioner of Income tax granting sanction to issue notice under section 148 of the Act, thereby issue of notice under section 148 of the Act subsequent proceeding and assessment are liable to be quashed and annulled.

2. The brief facts of the case are that the assessee, Shri Pushpendra Prakash Dharmawat, is an individual who filed his return of income for A.Y. 2017-18 declaring total income of ₹4,27,660/-. The Assessing Officer reopened the case on the basis of information received through the Insight Portal that the assessee had acquired an immovable property for a consideration which was lower than its stamp duty value. The difference between the consideration and the stamp duty value was ₹4,43,600/-.