Section 56(2)(x) Not Attracted if Property Purchase Agreement Predates the Provision – Excess Tax Paid by Mistake Eligible for Refund

Sheetal Santosh Shetye Vs ITO (ITAT Mumbai)

Section 56(2)(x) Not Attracted if Property Purchase Agreement Predates the Provision – Excess Tax Paid by Mistake Eligible for Refund

The Mumbai ITAT held that where an agreement for purchase of immovable property was executed and the entire consideration was paid in 2009, the applicability of section 56(2)(x) must be examined with reference to the date of the agreement and not the subsequent date of registration. The Tribunal also reiterated that tax voluntarily paid under a mistaken understanding of law does not disentitle the assessee from claiming a refund.

In the present case, the assessee had purchased a property for ₹15 lakh under an agreement executed in FY 2009-10, with the entire consideration paid through banking channels. Owing to technical difficulties, however, the sale deed was registered much later. During reassessment proceedings for AY 2018-19, the assessee, under a mistaken belief that section 56(2)(x) applied, voluntarily offered ₹19.70 lakh to tax based on a registered valuer’s report and paid the corresponding tax. She subsequently contended that the provision was inapplicable since the transaction had been concluded long before section 56(2)(x) came into force and sought refund of the excess tax paid.

The Tribunal observed that the CIT(A) had dismissed the appeal solely on the ground that the income had been voluntarily offered, without examining the crucial legal issue of whether section 56(2)(x) could at all apply to a transaction concluded in 2009. Relying on the Supreme Court’s decision in CIT v. Shelly Products (261 ITR 367), the ITAT held that where an assessee has mistakenly offered an amount to tax which is otherwise not chargeable, the Revenue is duty-bound to grant appropriate relief and refund the excess tax. The Tribunal also relied on the Visakhapatnam Bench decision in ACIT v. Shri Anala Anjibabu, which held that the law applicable on the date of execution of the agreement, and not the date of registration, governs taxability under section 56.

Accordingly, the ITAT set aside the order of the CIT(A) and restored the matter to the Assessing Officer for fresh adjudication. The Assessing Officer was directed to examine the applicability of section 56(2)(x) with reference to the date of the agreement, consider the judicial precedents relied upon by the assessee, and determine the assessee’s entitlement to refund of excess tax, if found due, after providing a reasonable opportunity of hearing.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity “Ld. CIT(A)”], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’), for Assessment Year 2018-19, date of order 30.01.2026. The impugned order emanated from the order of the Assessment Unit Income Tax Department (for brevity ‘Ld. AO’), order passed under section 147 r.w.s. 144B of the Act, date of order 25.03.2023.

2. The assessee has taken the following grounds:

“1. (a) The learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in confirming the order passed by the learned Assessment Unit, Income Tax Department and has erred by not holding that the provision of Section 56(2)(x) of the Income Tax Act, 1961 do not apply in the facts and circumstances of the appellant’s case.

(b) The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that Assessment Unit of Income Tax Department has not considered the submissions made by the appellant on 31/10/2022 and 12/01/2023 stating that the provisions of sec. 56(2)(x) are not applicable in the appellant’s case as the transaction of property was concluded in 2009 (the fact was accepted by the Assessment Unit) and the provision of sec. 56(2)(x) are applicable only for transactions entered into on or after 01/04/2017.

(c) The appellant prays that the amount added u/s 56(2)(x) of Rs.19,70,760 to the income of the appellant be deleted.

2. The appellant craves leave to add to, amend, alter, and substantiate the above grounds at the time of hearing.”

3. The brief facts of the case are that the assessee filed her original return of income for A.Y. 2018-19. Subsequently, the assessment was reopened under section 147 of the Act on the ground that she had purchased an immovable property for a consideration of Rs.15,00,000/-, whereas the stamp duty valuation was substantially higher. During the reassessment proceedings, the assessee voluntarily offered a sum of Rs.19,70,760/- to tax under a mistaken understanding of the provisions of section 56(2)(x) and paid the corresponding tax. However, she later contended that the property had actually been purchased pursuant to an agreement executed in F.Y. 2009-10, much prior to the introduction of section 56(2)(x), and therefore the said provision was not applicable. The assessee also sought refund of the excess tax paid. The Ld. AO, however, accepted the revised computation and completed the reassessment accordingly. The Ld. CIT(A) upheld the assessment, holding that the income voluntarily offered by the assessee could not subsequently be withdrawn. Being aggrieved, the assessee has preferred the present appeal before the Tribunal.

4. The Ld. AR argued and filed a paper book comprising page 1 to 99 which has been placed on record. The Ld. AR for narrating the fact stated that the Ld. AO noted the fact in impugned assessment order. The relevant paragraphs of the impugned assessment order contended the fact in paragraph nos. 3 to 7 is reproduced as below:

“3. The assessee before the FAO was responsive. The relevant details have always been filed by the assessee as and when called for. In response to notice u/s143(2) dated 10.01.2023 and a notice u/s 142(1) of the Income Tax Act, 1961 dated 17.10.2023, the assessee was always responsive, During the course of reassessment proceeding, copy of filing of Return acknowledgement in response to notice u/s 148 of the Income Tax Act, 1961, computation of revised total income offering income from other sources of Rs. 19,70,760/, Copy of Form 16 issued by Employer, details of Bank Accounts maintained etc were filed.

4. The assessee has claimed to have purchased the property during the Financial year 2009-10 and the payment for the same was also completed within the same Financial year 2009-10 via Cheque mode of Rs. 15,00,000/-. The registration of the property could not be done in the F.Y 2009-10 due to some technical difficulties. The assessee stated that the possession of the property was also received by her in the financial year 2009-10 from the seller Shri Rabindra Athmaram Kali.

5. The value of the property for the purpose of Stamp Valuation in the financial year under consideration was of Rs. 1,06,84,500/-. The assessee claimed to have purchased the same on November 2009 and in support copy of agreement with the seller Shri Rabindra Athmaram Kali has also been filed. The evidence of full consideration claimed of Rs.15,00,000/- has been paid by the assessee on 10.11.2009 which was reflected in the bank statement of the assessee.

6. The assessee suo-moto done valuation of the property by a Registered valuer M/s RAM LAKHANI (Architects- Town Planner’s Interior Designer- Valuers of Rajshree Shahu Maharaj Cross Road, Andheri West, Mumbai-400069) dated on 29.03.2022 who has determined the value of the property at Rs.34,70,760/- (for the Financial Yea 2009-10).

7. Now the assessee re-compute her return of income by considering her income from other sources of Rs. 19.70.760/-, i.e. the difference of value of the property between the value determined by the Govt. Approved Valuer and the consideration paid by the assessee. The entire tax has been paid by the assessee.”

5. The Ld. AR further contended that the aggrieved assessee filed an appeal before the Ld. CIT(A) by challenging the impugned assessment order. The Ld. CIT(A) adjudicated the issue and noted the observations in following paragraph nos.5.2 to 5.2.4 which are reproduced as below:

“5.2 Findings on Ground of appeal 1:

5.2.1 The appellant had purchased an immovable property at a consideration of Rs. 15,00,000/-. However, the market value of the said property taken by the Land Revenue Authority for Stamp Valuation purposes was Rs.1,06,84,500/-. Ongoing through Return of Income filed by the appellant for AY 2018-19, it was noticed that the income from the above transaction has not been included in the ITR of the AY 2018-19. Thus, the case was reopened as difference in amount of Rs.91,84,500/-held liable to be added to the total income as “Income from Other Source” as per Section 56(2)(x).

During the course of the reassessment proceedings the appellant submitted before the AO that she had purchased the property in the financial year 2009-10 and the payment for the same was also completed in the same year via Cheque mode of Rs. 15,00,000/-. However, she submitted that registration was not done in the year 2009 due to some technical difficulties.

Subsequently, the appellant suo-moto had done valuation of the property by a Registered valuer M/s RAM LAKHANI (Architects- Town Planner’s Interior Designer-Valuers of Rajshree Shahu Maharaj Cross Road, Andheri West, Mumbai-400069) dated on 29.03.2022 who has determined the value of the property at Rs.34,70,760/- (for the Financial Year 2009-10). Accordingly Return of income was filed by the appellant in response to the notice issued u/s148 wherein the value of the property was considered by the appellant on the basis of valuation made at Ra.34.70.760/-. The appellant thus re-computed her return of income by considering her income from other sources of Rs. 19,70,760/- and had paid the entire tax. The FAO has also accepted the returned income filed by the appellant.

5.2.2 During the course of the appellate proceeding the appellant submitted that provisions of Section 56(2)(x) are only applicable for transactions entered into on or after 1-4-2017 and the section is not applicable in the appellant’s case as the appellant had purchased the property in the year 2009. The appellant thus submitted that her total income be computed based on the original return of income filed by her on 8-7-2018 and delete the addition u/s 56(2)(x) made under the head Income from Other Sources.

The appellant further submitted that non applicability of provisions of Section 56(2)(x) in the appellant’s case was intimated to the AO vide submissions dated 31-10-2022and 12-1-2023 wherein she has requested the AO to complete the assessment based on the original return filed by the appellant and issue refund to the appellant in respect of the tax paid inadvertently by the appellant. However the AO assessed the income of the appellant on the basis of the computation of income of return filed u/s 148 ignoring the submissions made by the appellant.

5.2.3 I have examined the facts of the case and the submissions of the appellant. Documents uploaded and the findings of the AO have been perused.

5.2.4 After careful consideration and for the fact that the appellate proceeding being continuation of the assessment proceeding in view of the power of the CIT(A) being co-terminous with the AO, I am of the considered view that the income which has been offered voluntarily by the appellant in response to notice u/s 148 after valuation from a registered valuer cannot be said to be mistakenly offered for taxation. Further it is observed that the appellant has not calculated the income as per section 56(2)(x) as difference of sale consideration and valuation by registered valuer has been taken in her case. In view of the above discussion, it is held that the AO has correctly assessed the total income of the appellant in his order u/s 147 r.w.s. 144B. The contention of the appellant is held liable to be dismissed. Ground of appeal 1 is dismissed.”

6. The Ld. AR contended that the appeal involves two principal issues, namely: (i) whether the excess tax paid by the assessee is liable to be refunded; and (ii) whether, for the purpose of determining the date of purchase of the property, the relevant date is the date of execution of the agreement or the date of registration of the sale deed. In support of these contentions, the Ld. AR placed reliance on the following judicial precedents, submitting that they deal with identical issues and squarely support the case of the assessee. The order of the Hon’ble Supreme Court in the case of CIT vs M/s. Shelly Products reported in (2003) 261 ITR 367 SC. The relevant para is reproduced as below:

“We cannot lose sight of the fact that the failure or inability of the revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of abundant caution advance tax or self- assessment tax which is in excess of his liability on the basis of return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of assessment proceeding. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case when refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief. In cases governed by section 240 of the Act, an obligation is cast upon the revenue to refund the amount to the assessee without his having to make any claim in that behalf. In appropriate cases therefore, it is open to the assessee to bring facts to the notice of the concerned authority on the basis of the return furnished, which may have a bearing on the quantum of the refund, such as those the assessee could have urged under section 237 of the Act. The concerned authority, for the limited purpose of calculating the amount to be refunded under section 240 of the Act, may take all such facts into consideration and calculate the amount to be refunded. So viewed, an assessee will not be placed in a more disadvantages position than what he would have been, had an assessment been made in accordance with law.”

7. The Ld. AR respectfully relied on the order of Coordinate Bench of ITAT, Vishakhapatnam in the case of ACIT vs Shri Anala Anjibabu, ITA No.415/Viz/2019 date of pronouncement 17.08.2020. the relevant para 6.3 is reproduced as below:

“6.3. In this connection, we also refer to the decision relied upon by the assessee in the case of D.S.N. Malleswara Rao cited supra which is related to the A.Y.2006-07 which is prior to the insertion of section 56(2)(vii) (b) and the same has no relevance in the instant case. However in the cited case of D.S.N. Malleswara Rao also the Hon’ble ITAT held that the law as applicable as on the date of agreement required to be applied for taxing the income. The department has not made out any case of application of 56(2)(vii)(b) and since the provisions of section 56(2)(vii)(b)(ii) were not available in the statute as on the date of entering into the agreement, following the reasoning given in the case of M. Siva Parvathi & Others (supra), the same cannot be made applicable to the assessee. The department has not brought any evidence to show that there was extra consideration paid by the assessee over and above the sale agreement or sale deed. No other case law of any high court supporting the contention of the department was brought to our notice by the Ld. DR. Therefore, we hold that the Ld. CIT(A)has rightly applied the decision of this Tribunal in the assessee’s case and deleted the addition. Hence, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld.”

8. The Ld. DR supported the orders of the revenue authorities and submitted that the assessee had voluntarily offered the impugned amount to tax in the return filed in response to the notice issued under section 148 of the Act and had duly paid the corresponding tax liability. It was contended that the Assessing Officer rightly accepted the returned income, and the Ld. CIT(A) correctly upheld the assessment. The Ld. DR, therefore, prayed that the order of the Ld. CIT(A) be sustained.

9. We have heard the rival submissions and carefully perused the material available on record. The undisputed facts reveal that the assessee had entered into an agreement for purchase of the property in the Financial Year 2009-10 and had paid the entire sale consideration of Rs.15,00,000/- through banking channels during the said year. However, the registration of the property could not be completed at that time due to certain technical reasons. Subsequently, when the reassessment proceedings were initiated, the assessee, under a mistaken understanding of law, voluntarily offered a sum of Rs.19,70,760/- to tax based on the valuation report of a registered valuer and paid the corresponding tax. Thereafter, during the assessment as well as the appellate proceedings, the assessee specifically contended that the provisions of section 56(2)(x) of the Act were not applicable since the transaction had been concluded in the year 2009, much prior to the introduction of the said provision. We find considerable force in the submissions of the Ld. AR. The Hon’ble Supreme Court in the case of M/s Shelly Products (supra) has categorically held that if an assessee, by mistake or inadvertence, offers an amount to tax which is otherwise not chargeable to tax, the revenue is under an obligation to grant appropriate relief and refund the excess tax paid. Likewise, the Coordinate Bench of the ITAT, Visakhapatnam in Shri Anala Anjibabu (supra) has held that the law applicable on the date of execution of the agreement for purchase of the property is relevant for determining the taxability under section 56, and not the subsequent date of registration. In the present case, both the Ld. AO and the Ld. CIT(A) have failed to examine the issue from the correct legal perspective. The Ld. CIT(A) merely proceeded on the footing that the income was voluntarily offered by the assessee and, therefore, could not subsequently be withdrawn, without adjudicating the legal contention regarding the applicability of section 56(2)(x) and the assessee’s entitlement to refund of tax paid under a mistaken understanding of law. Such an approach is not sustainable. Accordingly, we set aside the impugned order of the Ld. CIT(A) and restore the matter to the file of the Ld. AO for fresh adjudication. The Ld. AO shall examine the assessee’s claim regarding the applicability of section 56(2)(x) with reference to the date of execution of the agreement, consider the judicial precedents relied upon by the assessee, and determine the assessee’s entitlement to refund of any excess tax paid, if found due, strictly in accordance with law. Needless to say, the assessee shall be afforded a reasonable opportunity of being heard and shall extend full cooperation by furnishing all relevant documents.

10. In the result, the appeal of the assessee bearing ITA No.2690/Mum/2026 is allowed.

Order pronounced in the open court on 03^rd day of July 2026