2019 (9) TMI 552 - AT - Income Tax

Taxability of deemed income u/s 56(2)(vii)(b)(ii) - AO noticed that the assessee has purchased certain land parcels below stamp duty valuation rate - AO accordingly replaced the stamp duty valuation rate for the purposes of determination of purchase consideration by applying provisions of Section 56(vii)(b) - HELD THAT - AO has applied the aforesaid provision after comparing the purchase price of the land vis- -vis the stamp duty valuation and added the difference in the hands of the assessee in proportion to his share in land holding. CIT(A) has upheld the aforesaid action of the AO. No infirmity in the order of the CIT(A) in this regard. Section 49(4) clearly provides that the benefit of the inflated cost of acquisition in view of the deeming provisions u/s 56(2)(vii)(b)(ii) would be available at the time of sale of the asset and capital gains will be accordingly reduced to the extent of such increase in deemed consideration. CIT(A) has given appropriate relief in this regard. We thus see no wrong in action of the CIT(A). The plea of the assessee that the agricultural land is rural land was raised for the first time before us. In the absence of any findings of the lower authorities on factual aspects, we decline to entertain the aforesaid new plea. We also find no merit in the plea of the assessee for its inapplicability of Section 56(2)(vii)(b)(ii) to the FY 2013-14 concerning AY 2014-15. The aforesaid provision is applicable from AY 2014-15 and would thus apply to transactions concerning FY 2013-14 as intended by the legislature. The assessee has taken an altogether new plea that agricultural land bearing Block No. 143 was purchased in the subsequent financial year, which plea was not taken before the lower authorities. We thus see no reason to entertain such plea in the absence of any supporting material placed before the lower authorities. Otherwise also, in view of the provisions of Section 150(1) r.w.s. 153(6) of the Act, the differential income can be assessed in AY 2014-15 and therefore the whole exercise will be revenue neutral. We, however, do not seek to delineate. We thus find no merit in any of the grounds set up by the assessee.

Summary

Issues Involved:
1. Applicability of Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961.
2. Classification of agricultural land as rural land under Section 2(14) of the Act.
3. Prospective application of Section 56(2)(vii)(b)(ii) from 01.04.2014.
4. Claim of enhanced cost under Section 50C read with Section 56(2)(vii)(b)(ii) for set-off under Section 54B.
5. Admission of additional evidence under Rule 29 of ITAT Rules.

Detailed Analysis:

1. Applicability of Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961:
The Assessing Officer (AO) noticed that the assessee purchased land parcels below the stamp duty valuation rate and applied Section 56(2)(vii)(b)(ii) of the Act, adding the difference to the assessee's income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, stating that the stamp duty value exceeding the consideration paid by more than fifty thousand rupees should be taxed under the head "income from other sources." The Tribunal found no infirmity in the CIT(A)'s order, confirming that the addition was correctly made under Section 56(2)(vii)(b)(ii).

2. Classification of Agricultural Land as Rural Land under Section 2(14) of the Act:
The assessee argued that the agricultural lands purchased were rural lands and thus not capital assets under Section 2(14), making Section 50C inapplicable. This plea was raised for the first time before the Tribunal. The Tribunal declined to entertain this new plea due to the absence of findings from lower authorities on this factual aspect and lack of compelling reasons for not presenting this argument earlier.

3. Prospective Application of Section 56(2)(vii)(b)(ii) from 01.04.2014:
The assessee contended that Section 56(2)(vii)(b)(ii) applies only to transactions occurring after 01.04.2014. The Tribunal disagreed, stating that the provision is applicable from Assessment Year (AY) 2014-15, thereby covering transactions from Financial Year (FY) 2013-14. The Tribunal upheld the CIT(A)'s decision, confirming the applicability of the provision to the relevant transactions.

4. Claim of Enhanced Cost under Section 50C read with Section 56(2)(vii)(b)(ii) for Set-off under Section 54B:
The assessee argued that the addition under Section 56(2)(vii)(b)(ii) should increase the cost of the asset for claiming exemption under Section 54B, as per Section 49(4). The CIT(A) dismissed this claim, stating that the cost step-up for calculating capital gains applies only when the property is sold/transferred as a capital asset at a later date, not for the deduction under Section 54B in the year of purchase. The Tribunal agreed with the CIT(A), confirming that the enhanced value is not deductible under Section 54B for the year under appeal.

5. Admission of Additional Evidence under Rule 29 of ITAT Rules:
The assessee sought to introduce additional evidence, claiming the lands were rural and excluded from capital assets. The Tribunal found no compelling reason for admitting this evidence, as the assessee had not presented these facts before the lower authorities. The Tribunal emphasized the stringent stipulations of Rule 29 of ITAT Rules and declined to admit the additional evidence.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s order. It confirmed the applicability of Section 56(2)(vii)(b)(ii) for the relevant transactions, rejected the new plea regarding rural land classification, and denied the claim for enhanced cost deduction under Section 54B. The Tribunal also refused to admit additional evidence due to procedural non-compliance.