2025 (2) TMI 289 - AT - Income Tax

Addition u/s 56(2)(x) - difference between the agreement value and the stamp value - HELD THAT -Admittedly the safe harbour applicable for year under consideration is 3%. There is no doubt that the difference between originally agreed price vis- -vis the actual price in to the facts of the present case as per the registered agreement for sale dated 18/11/2017 is 1.5%. CBDT vide circular number 8/2018 explained the intention of rationalisation in section 43CA section 50C and section 56 of the act explaining bona fide variation and the undue hardships faced by assessee s. In the present facts of the case though we need not look into the reason behind the bona fides variation it is apparent that the builder was called upon wide press release to accommodate the purchasers in respect of transferring the benefit of the GST by including the same in the total value of consideration. As a result of which the value that was all generally agreed had to include the GST was payable by the purchasers. Such an adjustment cannot anyway fall within the ambit of section 56(2)(x) of the act. The provisions u/s 56(2)(x) of the act was introduced to curb the practice of receiving any property without consideration or for inadequate consideration by resorting to the registered valuation as per the stamp authorities. We do not find any such intention in the present facts of the case in order to invoke the provisions of section 56(2)(x) of the act and therefore the addition made by the authorities below cannot be upheld. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the notice issued under section 143(2) of the Income Tax Act is valid or void-ab-initio.

2. Whether the assessment order passed by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] violated the principles of natural justice.

3. Whether the addition of 3,89,843 made by the AO under section 56(2)(x) of the Income Tax Act is justified.

4. Whether the delay of 40 days in filing the appeal before the Tribunal should be condoned.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Notice under Section 143(2)

The appellant argued that the notice issued under section 143(2) was bad in law, rendering the consequential assessment order void-ab-initio. However, the Tribunal did not explicitly address this issue in detail, focusing instead on the substantive issues related to the addition under section 56(2)(x).

2. Alleged Violation of Natural Justice

The appellant claimed that the assessment order violated principles of natural justice. The Tribunal's analysis did not specifically address this claim, as the primary focus was on the substantive tax issue concerning the addition under section 56(2)(x). The Tribunal implicitly rejected this claim by proceeding to evaluate the merits of the addition.

3. Addition under Section 56(2)(x)

The relevant legal framework involves section 56(2)(x) of the Income Tax Act, which pertains to the taxation of income from other sources, specifically addressing discrepancies between the agreement value and stamp duty value.

The Tribunal noted that the assessee had initially agreed to a sale consideration of 2,63,67,000 for a property, which was later reduced to 2,55,25,375 due to changes in GST rates. The AO added the difference of 3,89,843 as income under section 56(2)(x), asserting that the registration was done at a lower cost.

The CIT(A) upheld this addition, stating that the difference exceeded the allowable limit of 50,000 for the assessment year 2018-19, as per section 56(2)(x). The CIT(A) rejected the assessee's contention that the difference was within the permissible 5% variation, clarifying that only 50,000 could be ignored for that year.

The Tribunal, however, found that the safe harbour applicable for the year was 3%, and the actual difference of 1.5% fell within this threshold. The Tribunal emphasized that the intention behind section 56(2)(x) was to prevent transactions with inadequate consideration, which was not the case here. The reduction in sale price was due to GST adjustments, a bona fide variation, and thus did not warrant the application of section 56(2)(x).

4. Condonation of Delay

The Tribunal considered the appellant's request to condone the 40-day delay in filing the appeal. The appellant attributed the delay to awaiting the outcome of a rectification petition filed under section 154. The Tribunal, referencing the Supreme Court's liberal approach to condonation of delay in Collector Land Acquisition Vs. Mst. Katiji & Ors., found sufficient cause to condone the delay, emphasizing that no contrary intention was shown by the revenue.

SIGNIFICANT HOLDINGS

The Tribunal concluded that the addition under section 56(2)(x) was unjustified, as the difference in property value was due to legitimate GST-related adjustments and fell within the permissible variation limit. The Tribunal's reasoning emphasized the bona fide nature of the transaction and the legislative intent behind section 56(2)(x).

Key principles established include the recognition of legitimate transactional adjustments due to regulatory changes (like GST) and the importance of considering the legislative intent behind tax provisions.

The Tribunal allowed the appeal, setting aside the additions made by the lower authorities and condoning the delay in filing the appeal.