2022 (11) TMI 174 - AT - Income Tax

Addition u/s 56(2)(vii) - difference in market value and agreement value - A.O has treated the shifting of flat as transfer and booked the difference in stamp duty valuation and the prices paid by the assessee as income u/s 56 - As per assessee agreement so registered was nothing but the ratification of pre existing agreement dated back to the principal agreement of 2010 and this was merely same contract with only to be constructed premises being replaced and there was no new agreement and the earlier payment form part of the consideration of the registered agreement - CIT(A) has considered the complete facts of the case and the circumstances under which the assessee was offered alternative flat by the buyers and deleted the addition - HELD THAT - CIT(A) has clearly elaborated in his findings that when the developer failed to provide original flat then it had offered another flat in the building which was to be constructed on a future date. When the assessee has booked the flat that property was not in existing and it was a property to be constructed in future time. CIT(A) had explained in detail that if such transaction are treated as transfer by notionally assigning value then the benefit of indexation and benefit of Sec. 54 etc. to be given to the assessee. In the light of the above facts and circumstances, we don t find any infirmity in the decision of CIT(A). Accordingly, both the grounds of appeal of the Revenue are dismissed.

Summary

Issues Involved:
1. Deletion of addition made under Section 56(2)(vii) of the Income Tax Act, 1961.
2. Consideration of the difference between the amount invested and the amount received back as "Income from other sources."

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 56(2)(vii):
The primary issue revolves around whether the CIT(A) erred in deleting the addition of Rs.2,42,77,500/- made under Section 56(2)(vii) of the Income Tax Act, 1961. The Assessing Officer (A.O) noticed that the assessee executed a purchase agreement for flat No.A3-3405 with an agreement value of Rs.5,62,28,500/- while the stamp duty value was Rs.8,05,06,000/-. The A.O added the difference of Rs.2,42,77,400/- to the total income as "income from other sources." The assessee contended that this flat was acquired in lieu of previously booked flats (No. 4707 and No. 3907) due to construction issues, and there was no new agreement or additional payment. The CIT(A) accepted the assessee’s explanation, emphasizing that the agreement was a ratification of the original booking from 2010, and the shifting of flats was not a "transfer" but a continuation of the initial agreement. The CIT(A) also noted that treating such transactions as transfers would require considering benefits like indexation and Section 54 deductions. Thus, the addition was deleted, and the Tribunal upheld this decision, finding no infirmity in the CIT(A)'s order.

2. Consideration of Difference as "Income from Other Sources":
The second issue was whether the CIT(A) ignored the difference between the amount invested in 2011 and the amount received back in A.Y. 2013-14, which the A.O argued should be taxed as "Income from other sources." The A.O treated the shifting of flats as a transfer, asserting that the difference in stamp duty valuation should be considered income. However, the CIT(A) reasoned that the original booking and subsequent changes due to the developer’s inability to construct the initially agreed flats did not constitute a transfer of property. The CIT(A) elaborated that the property was contingent and future-oriented, and the agreements were for properties to be constructed, not existing properties. The Tribunal agreed with the CIT(A), highlighting that the valuation of future properties differs from existing ones and that the assessee’s payments and agreements were consistent with the original booking. Therefore, the CIT(A)'s deletion of the addition was justified, and the Tribunal dismissed the revenue's appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs.2,42,77,500/- under Section 56(2)(vii) and agreed that the difference between the invested amount and the amount received back should not be taxed as "Income from other sources." The Tribunal found no infirmity in the CIT(A)'s detailed and reasoned order, leading to the dismissal of the revenue's appeal. The judgment emphasized the importance of considering the nature of agreements and the context of property transactions, especially when dealing with future and contingent properties.