2022 (9) TMI 1464 - AT - Income Tax

Addition u/s 56(2)(vii)(b) - letter of allotment is merely a letter of intent and not an agreement for sale of flat - difference between the consideration and the stamp duty value - HELD THAT - The chronology of the events confirms that the finding of the A.O treating the agreement of the assessee as letter of intent is not correct. In this matter treating the said agreement as letter of intent shows an over thinking and hyper technical interpretation at the end of the A.O. assessees case clearly falls in the proviso to Section 56(2)(vii)(b). Similar property in the case of assessee s wife with similar transactions has been accepted by the same A.O without any addition for the same A.Y. See Gulabrai Hanumanbox. vs. Commissioner of Wealth tax 1991 (8) TMI 21 - GAUHATI HIGH COURT as held two different Assessees having similar/ identical facts w.r.t valuation of property cannot be assessed with different rates for the same property. Thereby, the order passed by the Assessing officer for co-sharer of property is arbitrary and unjustified in law. We delete the addition made by A.O and confirms that assessee is entitled to the benefits of proviso to Section 56(2)(vii)(b).

Issues Involved:
1. Validity of the CIT(A) upholding the AO's order without considering the merits and fact pattern.
2. Addition under Section 56(2)(vii)(b) of the Income-tax Act, 1961.
3. Applicability of the proviso to Section 56(2)(vii)(b)(ii) of the Act.
4. Disallowance of interest expenses incurred by the appellant.
5. Levy of interest under Section 234B and Section 234D, and recovery under Section 244A of the Act.
6. Initiation of penalty proceedings under Section 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Validity of the CIT(A) upholding the AO's order without considering the merits and fact pattern:
The appellant contended that the CIT(A) erred in upholding the AO's order without considering the merits and fact pattern of the case. The Tribunal observed that the CIT(A) failed to appreciate the factual matrix and the legal provisions applicable to the case. The Tribunal found that the CIT(A) did not adequately address the arguments and evidence presented by the appellant.

2. Addition under Section 56(2)(vii)(b) of the Income-tax Act, 1961:
The AO added Rs. 30,28,500/- to the appellant's income under Section 56(2)(vii)(b) on the grounds that the letter of allotment dated 17/10/2011 was merely a letter of intent and not an agreement for sale. The Tribunal noted that the appellant made substantial payments to the developer before the registration of the agreement, indicating a binding agreement. The Tribunal emphasized that the letter of allotment should be considered an agreement for the purposes of Section 56(2)(vii)(b). The Tribunal relied on various judicial pronouncements to support its view that the date of the agreement, rather than the date of registration, should be considered for determining the stamp duty value.

3. Applicability of the proviso to Section 56(2)(vii)(b)(ii) of the Act:
The appellant argued that the proviso to Section 56(2)(vii)(b)(ii) should apply, as the agreement fixing the amount of consideration was executed on 17/10/2011, and substantial payments were made before the registration date. The Tribunal agreed with the appellant, stating that the proviso applies when the agreement and the registration dates are different, and part of the consideration is paid by modes other than cash before the agreement date. The Tribunal found that the appellant fulfilled these conditions and, therefore, the proviso should apply, leading to the deletion of the addition made by the AO.

4. Disallowance of interest expenses incurred by the appellant:
The AO disallowed Rs. 3,36,870/- on account of interest expenses. The Tribunal observed that the case was selected for limited scrutiny under CASS to examine the transaction of property. The Tribunal held that the AO exceeded his jurisdiction by making disallowances under other heads. Consequently, the Tribunal deleted the disallowance of interest expenses.

5. Levy of interest under Section 234B and Section 234D, and recovery under Section 244A of the Act:
The appellant contested the levy of interest under Sections 234B and 234D and the recovery under Section 244A. The Tribunal noted that these grounds were consequential in nature and did not require specific adjudication in light of the main issues being resolved in favor of the appellant.

6. Initiation of penalty proceedings under Section 271(1)(c) of the Act:
The appellant challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal did not specifically address this issue, as the main grounds of appeal were decided in favor of the appellant, rendering the penalty proceedings moot.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, deleting the addition made under Section 56(2)(vii)(b) and the disallowance of interest expenses. The Tribunal emphasized the importance of the letter of allotment as a binding agreement and applied the proviso to Section 56(2)(vii)(b)(ii) in favor of the appellant. The appeal was allowed, and the order was pronounced in the open court on 5th September 2022.

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