2021 (2) TMI 318 - AT - Income Tax

Nature of Gain on property sold by HUF - guidance value as on the date of registration was higher than the agreement value because of which the difference was added in the hands of assessee - consideration paid by assessee HUF less than the stamp duty valuation - addition as income chargeable to tax u/s 56(2)(vii) - disallowance under section 50C - HELD THAT - In present facts, there is a consideration paid by assessee HUF, to the vendor (individual member of HUF) in respect of the subject property that is less than the stamp duty valuation. As contended by the Ld. AR that, the transaction is exempt from tax as the transferor and transferee are relative as defined in Clause (e)(ii) to 3rd proviso to section 56(2)(vii) of the Act. By Finance Act, 2012, the definition of relative also include any sum or property received by a Hindu undivided family from its members. This contention of the Ld. AR that HUF can receive property without attracting tax liability from its members deserves to be upheld. Admittedly the transferor and the transferee in the present facts of the case is the Karta, his individual capacity and the HUF itself. Therefore, the argument that, property received by HUF from its members, is not chargeable to tax. CIT(A) relied on provisions of section 50C to consider the value adopted by stamp duty authority on the date of agreement. This provision is applicable in case of recipient of sale consideration. Present case, assessee is the purchaser. We therefore reject applicability of Section 50 C to present facts. Revenue is therefore debarred to hold the transaction under section 56(2)(vii)(b) as taxable. We thus delete the addition sustained by Ld. CIT(A). - Decided in favour of assessee.

Issues Involved:
1. Validity of the assessment order by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].
2. Applicability of Section 56(2)(vii)(b) of the Income Tax Act, 1961.
3. Applicability of Section 50C of the Income Tax Act, 1961.
4. Consideration of the Agreement to Sell dated 20th September 2011.
5. Transfer of asset between relatives as per the Second Proviso to Section 56(2) of the Act.
6. Levy of interest under Sections 234B, 234C, and 234D of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Assessment Order:
The appellant contended that the assessment order passed by the AO and upheld by the CIT(A) was irregular, incorrect, improper, unlawful, and opposed to the facts and law. The appellant argued that the AO did not consider the provisions of Section 56(2)(vii)(b) and Section 50C of the Income Tax Act, 1961 correctly.

2. Applicability of Section 56(2)(vii)(b) of the Income Tax Act, 1961:
The AO noted that the assessee purchased a site for ?53,16,000/- while the fair market value was ?98,15,000/-. The AO treated the difference of ?44,99,000/- as undisclosed income under Section 56(2)(vii)(b). The CIT(A) upheld this view, stating that the sale agreement dated 20/09/2011 was not registered and did not mention the stamp duty value. The CIT(A) also observed that the funds transferred between the appellant HUF and M/s. Gagan Construction and Apartments amounted to ?94.59 lakhs, indicating that the sale agreement value was less than the actual amount transferred.

3. Applicability of Section 50C of the Income Tax Act, 1961:
The CIT(A) invoked Section 50C, which deals with the full value of consideration for capital assets. The CIT(A) noted that the stamp duty value on the date of registration (26/07/2013) was ?98,12,500/-, which was higher than the sale agreement value. The CIT(A) upheld the AO's action of bringing the difference to tax.

4. Consideration of the Agreement to Sell dated 20th September 2011:
The appellant argued that the sale agreement dated 20/09/2011 should be considered, and the value as per the notification dated 17/04/2007 should apply. The appellant contended that the value as per the said notification was ?57,18,240/- on a composite basis. The CIT(A) rejected this argument, stating that the sale agreement was not registered and did not reflect the fair market value of the property.

5. Transfer of Asset Between Relatives:
The appellant argued that the transaction was exempt from tax as the transferor and transferee were relatives as defined in Clause (e) to the 3rd Proviso to Section 56(2)(vii)(b). The appellant contended that the HUF received the property from its members, and thus, the provisions of Section 56(2)(vii)(b) should not apply. The Tribunal upheld this argument, stating that the definition of "relative" includes any sum or property received by an HUF from its members. Therefore, the transaction was not chargeable to tax under Section 56(2)(vii)(b).

6. Levy of Interest under Sections 234B, 234C, and 234D:
The appellant contended that the levy of interest under Sections 234B, 234C, and 234D was incorrect. The Tribunal did not explicitly address this issue, but since the main addition was deleted, the interest levied would also be affected accordingly.

Conclusion:
The Tribunal concluded that the addition of ?44,99,000/- as income under Section 56(2)(vii)(b) was not justified, as the transaction was between relatives, and the provisions of Section 50C were not applicable to the purchaser. The Tribunal deleted the addition and allowed the appeal filed by the assessee. The order was pronounced in the open court on 19th January 2021.

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