2020 (2) TMI 879 - AT - Income Tax

Income from other sources - Addition on account of difference between sale consideration of property purchased by assessee and the guideline value of the said property for stamp duty purposes, by invoking provisions of Section 56(2)(vii) - HELD THAT - The State Government has noted the hardships faced by parties in real estate transactions and brought down the guideline value in 2017. In the instant case before us, firstly the differential is only 3.711% which is less than 5% and there cannot be precision in all the cases that consideration should be same or higher than guideline value as there are several factors which determine the actual sale consideration. Assessee challenged guideline value being adopted by the AO for the purposes of Section 56(2)(vii) and matter was referred by AO to valuation cell but report of the DVO is not brought on record by Revenue even before us while it was incumbent on revenue to bring on record report of DVO, thirdly the State Government has itself reduced the guideline value in 2017 which is indicator of the fact that the market value of the property was lower than guideline value which aspect is taken note by State Government and amendments were made in guideline value in tune with market price albeit in 2017 while we are presently seized of ay 2016-17 . Amendments were made by Finance Act,2018 in Section 56(2) where in differential upto 5% was allowed and no additions be made under deeming fiction of Section 56(2) albeit it is applicable from ay 2019-20 onwards and fifthly no incriminating evidence is brought on record by Revenue which could evidence that assessee in fact paid higher sale consideration than the actual sale consideration recorded in registered sale document albeit we are aware that Section 56(2) is deeming section and Revenue is not obligated to bring on record any incriminating material in such circumstances to prove that actual sale consideration paid by tax-payer is higher than that recorded in sale document , thus keeping in view cumulative effect of our aforesaid reasonings, we delete the additions - Decided in favour of assessee.

Summary

Issues Involved:

1. Addition due to the difference between the sale consideration and the guideline value of the property under Section 56(2)(vii) of the Income-tax Act, 1961.
2. Applicability of the amendment to Section 56(2) made by Finance Act, 2018, retrospectively.

Issue-wise Detailed Analysis:

1. Addition due to the difference between the sale consideration and the guideline value of the property under Section 56(2)(vii) of the Income-tax Act, 1961:

The core issue in this case was the addition made by the AO due to the difference between the sale consideration of the property purchased by the assessee and the guideline value for stamp duty purposes. The AO observed that the assessee purchased vacant land for ?3,51,12,000/-, while the guideline value was ?3,64,15,000/-. Consequently, the AO invoked Section 56(2)(vii) of the Act, which deems the difference between the sale consideration and the guideline value as income if it exceeds ?50,000/-. The AO added ?13,03,000/- to the assessee’s income, representing the difference.

The assessee argued that the guideline value was later revised downward by the State Government to ?2,43,98,050/- and that the difference of ?13,03,000/- was less than 5%, which should not be treated as income under the deeming fiction of Section 56(2). The assessee also requested the AO to refer the matter to the valuation cell, but the AO proceeded with the addition as the valuation report was not received by the time of assessment.

2. Applicability of the amendment to Section 56(2) made by Finance Act, 2018, retrospectively:

The assessee contended that the amendment made by the Finance Act, 2018, which allows a difference of up to 5% between the guideline value and the sale consideration without deeming it as income, should be applied retrospectively. However, both the AO and the CIT(A) rejected this contention, stating that the amendment applies prospectively from 01.04.2019.

Upon appeal, the tribunal observed that the differential between the sale consideration and the guideline value was only 3.711%, less than 5%. It was noted that the State Government had reduced the guideline value in 2017, indicating that the market value was lower than the guideline value. The tribunal emphasized that Section 56(2)(vii) is a deeming provision creating artificial fiction, but it should not operate in a vacuum disregarding ground realities.

The tribunal also referred to the Finance Act, 2018, which amended Section 50C and 56(2) to minimize hardship in real estate transactions, allowing a 5% differential without deeming it as income. Although the amendment was applicable from AY 2019-20, the tribunal recognized the legislative intent to reduce hardships.

Considering the cumulative effect of these factors, the tribunal concluded that the additions made by the AO and confirmed by the CIT(A) were not sustainable. The tribunal ordered the deletion of the additions, emphasizing that the law should operate within the realm of realities to avoid absurdities and perversities.

Conclusion:

The tribunal allowed the appeal filed by the assessee, deleting the additions made under Section 56(2)(vii) of the Act, and emphasized the importance of considering ground realities and legislative intent in applying deeming provisions.