2019 (9) TMI 52 - AT - Income Tax

Addition invoking the provisions of section 56(2)(vii)(b) - income from other sources - difference amount between the SRO value and the actual consideration paid - dispute between the parties settled through arbitration - HELD THAT - There is no dispute that there was agreement and both the parties have agreed. The assessee has made the payments as per the agreements which were acknowledged by the recipient, the cheque payment also was made in the bank account to clear the debt of the vendor which was evidenced in the plaintiff copy filed before the District Judge. There is no reason to disbelieve the submissions made by the assessee in the civil suit filed before the Hon ble District Judge and the case of the assessee is squarely covered as exception as per proviso to section 56(2)(vii)(b) of the act and accordingly, we, hold that there is no case for invoking the provisions of section 56(2)(vii)(b) to tax the difference amount between the SRO value and the actual consideration paid as income from other sources. - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining the addition made under Section 56(2)(vii)(b) of the Income Tax Act, 1961.

Detailed Analysis:

Ground No.1 and 3:
These grounds are general in nature and do not require specific adjudication.

Ground No.2:
The primary issue is the addition of ?62,02,000/- under Section 56(2)(vii)(b) of the Income Tax Act, 1961. The assessee declared a total income of ?3,39,420/- for the Assessment Year 2014-15, which was processed under Section 143(1). Subsequently, the assessment was reopened under Section 147, and a notice was issued under Section 148. The assessee purchased immovable property for ?50,00,000/-, while the market value was ?1,12,02,000/-. The Assessing Officer (AO) deemed the difference of ?62,02,000/- as income from other sources under Section 56(2)(vii)(b).

Assessee's Argument:
The assessee contended that the property was purchased as per an agreement dated 19.03.2007, with part payment made in 2009. Due to the seller's reluctance to register the property, the assessee filed a civil suit, which was later settled by arbitration. The assessee argued that Section 56(2)(vii)(b) should not apply.

Assessing Officer's Decision:
The AO was not convinced by the assessee's explanation, as the sale deed was executed on 31.10.2013, and possession was handed over on 31.03.2013. The AO added the difference of ?62,02,000/- to the assessee's income under Section 56(2)(vii)(b).

CIT(A) Decision:
The CIT(A) upheld the AO's order, referencing the Supreme Court's decision in Balbir Singh Miani. The CIT(A) noted that payments were made in cash, and the transaction was treated as a transfer in 2013-14, thus invoking Section 56(2)(vii)(b).

Tribunal's Analysis:
The Tribunal examined the facts, noting that the assessee entered into an agreement on 15.12.2006, with payments made partly in cash and partly by cheque. The vendor failed to honor the agreement, leading to a civil suit. The property was eventually registered following a court order on 31.10.2013.

The Tribunal highlighted the proviso to Section 56(2)(vii)(b), which exempts transactions where an agreement fixing the consideration was made before the amendment's effective date (01.10.2009) and payments were made by modes other than cash. The Tribunal found that the assessee's case met these conditions, as the agreement and payments were made before the amendment.

Conclusion:
The Tribunal concluded that the provisions of Section 56(2)(vii)(b) were not applicable, as the assessee's transaction was covered by the proviso. The orders of the lower authorities were set aside, and the appeal was allowed.

Order:
The appeal of the assessee was allowed, and the difference amount was not taxed as income from other sources under Section 56(2)(vii)(b). The order was pronounced on 30th August 2019.