2023 (5) TMI 732 - AT - Income Tax

Addition u/s 56(2)(vii) r.w.s. 69 - difference between the purchase price i.e. circle rate/stamp duty value and the value determined by the DVO - assessee has purchased four properties at circle rates with his brothers and has 1/4th share in all four properties - HELD THAT - As section 56(2)(vii) can be invoked only if the consideration at which the property is purchased is less than the stamp duty value of such property. This section can be invoked only if the circle rate of the property was more than the price at which the property was purchased and the property can be referred to DVO only if the assessee disputes the stamp duty value of the property. Thus, it is the plea of the assessee that invocation of section 56(2)(vii) is itself wrong. We find ourselves in agreement with the proposition that the sanguine provision of concerned section duly mandate that value of property purchased has to be less than circle rate for the difference to be added. Hence, we allow the additional ground raised by the assessee. Hence, the assessment is held to be invalid. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves appeals by two assessees against orders of the Ld. CIT(A), Kanpur, both dated 22.11.2021 pertaining to the Assessment Year 2017-18. The issues are related to the addition of income based on valuation differences, invoking section 56(2)(vii) of the Act, and the legality of penalty and interest charges.

Issue 1: Valuation of Properties
The Ld. AO referred the valuation of properties purchased by the assessee to the Department Valuation Officer (DVO) and assessed the difference between the purchase price (circle rate/stamp duty value) and the DVO's value, treating it as income under section 56(2)(vii) r.w.s. 69 of the Act.

Issue 2: Invocation of Section 56(2)(vii)
The additional ground raised by the assessee argued that the properties were purchased at circle rates with no understatement, contending that section 56(2)(vii) is triggered only if the property is purchased below the circle rate. The assessee challenged the invocation of the section, emphasizing the specific conditions under which it can be applied.

Judgment:
The tribunal admitted the additional grounds raised by the assessee, stating they go to the root of the matter. After considering the provisions of section 56(2)(vii) and related statutes, the tribunal agreed with the assessee's argument that the section can only be invoked if the property is purchased below the circle rate. Consequently, the tribunal allowed the additional ground, holding the assessment invalid. As a result, the appeals of the assessees were allowed, and the actions of the authorities below were deemed not legal. The tribunal did not engage in adjudicating other grounds due to the primary issue's resolution. The decision was pronounced in open court on 11th May, 2023.