Jayantilal Umashankar Chavji Vs National E Assessment Centre (ITAT Mumbai)
No Section 56(2)(x) addition for reduction in agreement value due to increase in Goods and Services Tax (GST) rates effective from July 1, 2017: ITAT Mumbai
The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has allowed an appeal filed by Jayantilal Umashankar Chavji against an order passed by the National Faceless Assessment Centre (NFAC) for the assessment year 2018-19. The appeal challenged the addition of ₹3,89,843 under Section 56(2)(x) of the Income Tax Act, 1961, which pertains to the difference between the agreed sale value and the stamp duty value of a property.
The case originated when the Assessing Officer (AO) noted a discrepancy between the initially agreed price of ₹2,63,67,000 for an under-construction property booked in 2016-17 and the registered sale price of ₹2,55,25,375 in November 2017. The AO made the addition, considering the stamp duty valuation to be higher than the registered value, triggering the provisions of Section 56(2)(x). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, stating that for the relevant assessment year, only ₹50,000 could be ignored as the difference, and no evidence of the initial booking price before July 1, 2017, was provided to avail the benefit of the provisos to Section 56(2)(x).
Before the ITAT, the assessee’s counsel argued that the reduction in the agreement value was due to the increase in Goods and Services Tax (GST) rates effective from July 1, 2017. It was contended that the builder passed on the benefit of a potentially lower tax burden under the GST regime by reducing the sale price, as suggested by a press release from the Ministry of Finance. The counsel also pointed out that the difference between the registered price and the initially agreed price was only 1.5%, which, for the assessment year under consideration, was within the permissible safe harbor limit of 3% as per a Central Board of Direct Taxes (CBDT) circular.
The ITAT, after considering the submissions from both sides, allowed the assessee’s appeal. The tribunal acknowledged the delay of 40 days in filing the appeal but condoned it, relying on the Supreme Court’s decision in Collector Land Acquisition Vs. Mst. Katiji & Ors. (1987) 167 ITR 471, which advocates for a liberal approach in condoning delays to ensure matters are decided on merit. On the substantive issue, the ITAT observed that the reduction in price appeared to be a bona fide adjustment due to the implementation of GST, intended to pass on the benefit to the purchaser as per the government’s expectation. The tribunal opined that Section 56(2)(x) was introduced to curb the practice of receiving property for inadequate consideration by relying on stamp duty valuations, and the facts of the present case did not indicate such an intention. Consequently, the ITAT held that the addition made by the lower authorities could not be sustained.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
