2024 (8) TMI 967 - AT - Income Tax

Addition u/s 56(2)(x) - difference between fair market value and sale consideration - property is purchased through an auction conducted by the Bank - HELD THAT - As there in SOUTHERN STEEL LTD. 2018 (1) TMI 582 - ITAT HYDERABAD there is no scope of substitution of fair market value in case the property is purchased through auction. Hence, the same being a statutory process and there cannot be any scope of understatement of consideration, therefore, we hold the AO was not justified in making addition under section 56(2)(x) of the Act which was confirmed by the learned CIT(A). Consequently, we set aside the impugned order passed by the learned CIT(A) and allow the issue raised in ground by the assessee.

Issues Involved:
1. Legality and validity of the order passed under section 143(3) read with section 144B of the Income Tax Act.
2. Justification of the addition of Rs. 3,56,100 under section 56(2)(x) of the Income Tax Act.
3. Consideration of the difference between fair market value and sale consideration.
4. Applicability of judgments from various ITAT benches regarding allowable differences between fair market value and sale consideration.
5. Liability of interest charged under sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

Issue 1: Legality and Validity of the Order
The assessee challenged the legality, validity, and correctness of the order passed under section 143(3) read with section 144B of the Income Tax Act. However, this issue was deemed general in nature and did not require separate adjudication.

Issue 2: Justification of Addition under Section 56(2)(x)
The core issue was whether the Assessing Officer (AO) was justified in making an addition of Rs. 3,56,100 under section 56(2)(x) of the Income Tax Act, which was confirmed by the learned Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee purchased a property through a bank auction for Rs. 55,00,000, while the stamp value was Rs. 1,41,75,000. The AO determined the fair market value of the property at Rs. 62,12,200 and added the difference of Rs. 7,12,200 (50% share being Rs. 3,56,100) to the assessee's income under section 56(2)(x).

The CIT(A) upheld this addition, stating that the provisions of section 56(2)(x) apply where the purchase consideration is below the stamp valuation price, irrespective of whether the property was purchased through a bank auction.

Issue 3: Consideration of Difference Between Fair Market Value and Sale Consideration
The assessee argued that the difference between the fair market value and the sale consideration was nominal (11.46%) and should not be added to income. The CIT(A) disagreed, stating that the fair market value determined by the Departmental Valuation Officer (Rs. 62,12,200) exceeded the purchase consideration (Rs. 55,00,000), thus justifying the addition under section 56(2)(x).

Issue 4: Applicability of Judgments from Various ITAT Benches
The assessee cited various ITAT judgments, arguing that differences up to 15% between fair market value and sale consideration were allowable. However, the CIT(A) did not consider these judgments relevant to the case. The Tribunal referred to a previous decision by the Hyderabad Bench in ITO v. Southern Steel Ltd., which held that properties purchased through public auctions should not have their fair market value substituted under section 50C or 56(2)(x). The Tribunal concluded that there is no scope for substitution of fair market value when the property is purchased through an auction, as it is a statutory process with no scope for understatement of consideration.

Issue 5: Liability of Interest under Sections 234A, 234B, and 234C
The assessee denied liability for interest charged under sections 234A, 234B, and 234C. The Tribunal noted that the levy of interest under these sections is consequential in nature and did not require separate adjudication.

Conclusion:
The Tribunal held that the Assessing Officer was not justified in making the addition of Rs. 3,56,100 under section 56(2)(x) of the Income Tax Act, as the property was purchased through a bank auction, a statutory process with no scope for understatement of consideration. Consequently, the Tribunal set aside the order passed by the learned CIT(A) and allowed the appeal filed by the assessee. The issue of interest under sections 234A, 234B, and 234C was deemed consequential and did not require separate adjudication. The appeal was pronounced in the open court on 14/08/2024.

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