2024 (10) TMI 364 - AT - Income Tax

Addition made u/s 56(2)(vii)(b)(ii) - deemed gift in case of property purchase - cost of a property purchased along with his mother would be deemed equivalent to the amount on which stamp duty was paid by the assessee - whether the allotment letter by the developer is to be construed as an agreement or not? - HELD THAT - A perusal of this ledger would indicate that all these amounts starting from 1st June, 2010 upto 2nd September, 2010 and payments have been made by the assessee by way of different cheques. All the payments were made through account payee cheque and part payments were made before 2nd September, 2010. Therefore, it is an incorrect interpretation by both the revenue authorities. This allotment letter is be equated to an agreement to sale. The agreement is not required to be a registered document. The only requirement in the law is that agreement should be followed by payments through banking channel, so that its veracity cannot be doubted. In the present case, the assessee has established the genuineness of the allotment letter by showing that payments were made through account payee cheques. Therefore, the valuation date for the purpose of any deemed gift is the date when first payment was made, in this case it happened around June, 2010. The ld. Assessing Officer has erred in taking the valuation of the property as on 28th October, 2014. Application of CBDT Circular No. 872 dated 16.12.1993 in determining the nature of allotment letters by developers - In the CBDT Circular No. 872 dated 16.12.1993 issue under this Circular was whether allotment of flats/houses by Cooperative Societies and other Institutions whose scheme of allotment and construction are similar to this of DDA should be treated as the cases of construction for the purpose of section 54 and 54F. Earlier there was a Circular bearing No. 471 dated 15.10.1986, wherein it was provided that cases of allotment of flats under the self-financial scheme of the Delhi Development Authority should be treated as cases of construction for the purpose of section 54 54F of the Income tax Act. The scope of this Circular was enlarged to cover other Institutions and Cooperative Societies meaning thereby that allotment letter by the developer was always been recognized as an agreement to purchase the house. Thus, we are also considered as a construction activity where benefit of set off of capital gain could be granted to the purchaser. If we apply that very analogy in the present case, then it would reveal that allotment letter given by the developer to the assessee way back in 2010 would be construed as an agreement of purchase between the developer and the assessee. Therefore, benefit of proviso appended to section 56(2)(vii)(b) would be available in the present case. The ld. Assessing Officer has committed an error by ignoring this aspect. If this starts from June, 2010 for which the assessee has made payments through account payee cheque is being construed as an agreement, then additions under section 56(2)(vii)(b)(ii) will not survive. Accordingly, we allow this appeal of the assessee and delete the addition. Appeal of the assessee is allowed.

Summary

Issues:
1. Interpretation of section 56(2)(vii)(b)(ii) of the Income Tax Act regarding deemed gift in case of property purchase.
2. Consideration of allotment letter as an agreement for property purchase.
3. Application of CBDT Circular No. 872 dated 16.12.1993 in determining the nature of allotment letters by developers.

Analysis:

The judgment by the Appellate Tribunal ITAT Kolkata involved an appeal by the assessee against an order regarding the addition made under section 56(2)(vii)(b)(ii) of the Income Tax Act concerning the purchase of a property jointly with his wife. The dispute revolved around the valuation of the property and whether the difference between the declared value and stamp duty valuation constituted a deemed gift.

The Tribunal examined the provisions of section 56(2)(vii)(b) of the Income Tax Act, emphasizing the significance of the proviso related to the date of agreement and stamp duty valuation for property transfers. It was established that any variance between the declared consideration and stamp duty value could result in a deemed gift, as per the statutory provisions.

A crucial issue in the case was the determination of whether the allotment letter provided by the developer could be construed as an agreement for the property purchase. The Tribunal meticulously reviewed the allotment letter, payment history, and banking transactions to ascertain the genuineness of the agreement. It was concluded that the allotment letter, supported by payments through account payee cheques, constituted a valid agreement for the purchase of the property.

Furthermore, the Tribunal referred to CBDT Circular No. 872 dated 16.12.1993, which recognized allotment letters by developers as agreements for property purchase, akin to construction activities. By applying the principles outlined in the circular, the Tribunal concluded that the allotment letter issued in 2010 should be considered an agreement, entitling the assessee to the benefit of the proviso under section 56(2)(vii)(b). Consequently, the Tribunal allowed the appeal and annulled the addition made by the Assessing Officer.

In light of the above analysis, the Tribunal ruled in favor of the assessee, emphasizing the validity of the allotment letter as an agreement for property purchase and the applicability of the CBDT circular in determining the tax implications.