2024 (4) TMI 739 - AT - Income Tax

Enhancement of assessment by CIT(A) u/s 251(2) - addition u/s 56(2)(vii) - HELD THAT - As from the perusal of the provisions of section 251 of the Act, it is pertinent to note that though the statute has conferred the power of enhancement on the learned CIT(A) while disposing of an appeal against an order of assessment, however, as per the provisions of sub-section (2) the learned CIT(A) is required to grant reasonable opportunity of showing cause against such enhancement to the assessee prior to making any such enhancement. Ostensibly, in the present case, no such opportunity was granted by the learned CIT(A) to the assessee while making the aforesaid enhancement and directing the AO to tax Rs. 25 lakh in the hands of the assessee under section 56(2)(vii)(a) of the Act. Therefore, we are of the considered view that the learned CIT(A), while directing the impugned addition under section 56(2)(vii)(a) of the Act, did not comply with the provisions of section 251(2) of the Act. Addition u/s 56(2)(vii)(a) - Whether such a contravention is an illegality or irregularity ? - As u/s 56(2)(vii)(a) of the Act, one of the preconditions for the taxability of the money received by the assessee is that the same should have been received without consideration, which, in our considered view, is not fulfilled in the present case, as the amount was received by the assessee as a security deposit towards the development agreement entered into by the assessee with the developer for development of non-agriculture land. Since one of the conditions for applicability of section 56(2)(vii)(a) of the Act is not satisfied in the present case, we are of the considered view that the impugned enhancement directed by the learned CIT(A) under section 56(2)(vii)(a) of the Act is not sustainable. Therefore, the impugned addition u/s 56(2)(vii)(a) is directed to be deleted. Since the relief has been granted to the assessee on merits, the course of action as noted above in case of non-compliance with the procedure prescribed under section 251(2) of the Act is now rendered to be merely an academic exercise and thus not required in the facts of the present case. Appeal by the assessee is allowed.

Summary

Issues involved:
The appeal challenges an order passed u/s 250 of the Income Tax Act, 1961 by the Commissioner of Income Tax (Appeals) for the assessment year 2011-12.

Enhancement of Assessment u/s 251(2) of the Act:
The first issue raised by the assessee challenges the enhancement of assessment by the Commissioner of Income Tax (Appeals) in contravention of section 251(2) of the Act. The assessee also contests the addition of Rs. 25 lakh under section 56(2)(vii) of the Act.

The Assessing Officer determined long-term capital gains of Rs. 95,69,037 taxable in the hands of the assessee due to a development agreement with a developer. However, the Commissioner (Appeals) deleted this addition based on the agreement's non-fulfillment by the developer. Subsequently, the Commissioner directed the AO to tax Rs. 25 lakh as "income from other sources" under section 56(2)(vii)(a) of the Act, which the assessee contested for lack of compliance with section 251(2) of the Act.

The Tribunal found that the Commissioner did not grant a reasonable opportunity to the assessee before making the impugned enhancement under section 56(2)(vii)(a) of the Act, thus not complying with section 251(2) of the Act. The Tribunal deemed this as an irregularity and directed the issue to be restored for de novo adjudication after granting the assessee an opportunity to show cause against the enhancement.

Merits of the Addition under Section 56(2)(vii)(a) of the Act:
Regarding the merits of the addition, the Tribunal considered the Rs. 25 lakh received as a security deposit under the development agreement. The Tribunal noted that as per section 56(2)(vii)(a) of the Act, any sum exceeding Rs. 50,000 received without consideration is taxable. However, in this case, the amount was received as a security deposit under a development agreement, not without consideration. Therefore, the Tribunal held that the impugned enhancement under section 56(2)(vii)(a) of the Act was not sustainable and directed the addition to be deleted.

In conclusion, the appeal by the assessee was allowed, and the impugned addition under section 56(2)(vii)(a) of the Act was directed to be deleted.