2021 (11) TMI 1149 - HC - Income Tax

Addition u/s 56(2) (vii) (b) (ii) - DLC rate applied by the AO - plea that the lands were held as business asset was never taken before AO and that the assessee has also shown land/plots as investments and there are no developmental expenses as such debited/claimed in the year - ITAT confirming deletion of the addition by CIT(A) - HELD THAT - As is well known Section 56 of the Act pertains to income from other sources. As provided under sub-section (1) of Section 56 income of every kind which is not excluded from the total income under the Act would be chargeable to income tax under the head income from other sources if it is not chargeable under any of the heads specified in Section 14 items A to E. Sub-section (2) of Section 56 provides that in particular and without prejudice to the generality of the provisions of sub-section (1) the income specified in several sub-clauses contained in this section shall be chargeable to income tax as income from other sources. Revenue did not argue that the said provisions would be applicable to a stock in trade of an assesse- if it was found that assessee was actually in the business of real estate development and the land in question formed part of the stock in trade of the assessee Section 56(2) (vii) would have no applicability. CIT (Appeals) as well as the Tribunal have concurrently come to a finding that the assessee had shown the said property as stock in trade in its business of real estate development and that even otherwise there was sufficient independent evidence for such purpose. Merely because the assessee did not raise such a contention before the AO as per settled law would not preclude the assessee from raising such contention before the Appellate Authority. As noted the assessee followed the proper procedure by filing application for taking additional evidence on record which was allowed by the Commissioner of Appeals and taken into consideration after calling the remand report from the Assessing Officer.No question of law arises. The appeal is dismissed.

Summary

Issues:
Applicability of Section 56(2)(vii) of the Income Tax Act in case of the respondent-assessee.

Analysis:
The appeal before the High Court challenged the judgment of the Income Tax Appellate Tribunal regarding the deletion of an addition of Rs. 3,15,70,809/- by the CIT (Appeals) under section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961. The primary question was whether the ITAT was justified in confirming the deletion without appreciating the contentions raised during the assessment proceedings. The Assessing Officer had made the addition based on Section 56(2)(vii) of the Act, considering the income of the assessee for the relevant assessment year. The assessee contended that the land transferred was a stock in trade, part of the real estate development business. The CIT (Appeals) accepted this contention after considering additional documents produced by the assessee, leading to the deletion of the addition. The Revenue then appealed to the Tribunal, which upheld the CIT (Appeals) decision, prompting the present appeal.

The crux of the matter lies in Section 56 of the Income Tax Act, which deals with income from other sources. Sub-section (2) of Section 56 specifies various incomes chargeable to tax under the head 'income from other sources.' The relevant portion of clause (vii) pertains to transactions involving immovable property and the computation of stamp duty value concerning such property. The provision is clear about the applicability based on the consideration amount and stamp duty value of the property. Notably, it was acknowledged that if the assessee was engaged in the real estate development business and the land was part of the stock in trade, Section 56(2)(vii) would not apply. The Counsel for the Revenue did not contest this position, emphasizing that the provision does not extend to stock in trade situations.

Both the CIT (Appeals) and the Tribunal concurred in finding that the assessee had treated the property as stock in trade for real estate development purposes, supported by independent evidence. The failure to raise this specific contention before the Assessing Officer did not bar the assessee from presenting it before the Appellate Authority. The proper procedure was followed by the assessee in submitting additional evidence, which was duly considered after obtaining the remand report from the Assessing Officer. Consequently, the High Court held that no question of law arose, leading to the dismissal of the appeal.

In conclusion, the judgment delved into the interpretation and application of Section 56(2)(vii) of the Income Tax Act in the context of the respondent-assessee's real estate development business. The decision underscores the importance of establishing the nature of assets and the proper procedure for presenting contentions during assessment and appellate proceedings to ensure a fair and accurate tax assessment process.