2021 (6) TMI 329 - AT - Income Tax

Addition u/s 56(vii) - assessee has received something more than the amount mentioned in the sale deed - Addition on account of alleged under-valuation - as submitted that the assessee was having an undivided share of 12.5% in the property which was transferred at the prevailing circle rate to her son - HELD THAT - As mentioned earlier, the assessee has sold her 12.5% share in the property to her son and not to an outsider and at the prevailing market rate for which the AO has not invoked the provisions of section 50C of the Act. The AO has no material on record or at his possession to show that the assessee has, in fact received more than what is mentioned in the sale deed. The matter has also not been referred to the DVO. There may be so many reasons for two different rates in the same property such as on account of location of the property, willingness of the seller to sell the property, etc. When a person is not willing to sell the property, but, the buyer is determined to buy the property for becoming the owner of an entire floor, he may have to make some higher payment to tempt the seller to sell the property. In such type of cases it cannot be said that the other sellers must have received payments at the same rate. Since, in the instant case, the assessee has sold her 12.5% share in the property to her son at the prevailing circle rate and there is no evidence on record that the assessee has received something more than the amount mentioned in the sale deed and there is no addition in the hands of the son of the assessee on account of such extra payment made for purchase of the property, therefore, the addition made by the AO on presumption and surmises which has been sustained by the CIT(A), in our opinion, deserves to be deleted. We accordingly set aside the order of the CIT(A) on this issue and direct the AO to delete the addition. Amount received by the assessee due to non-fulfillment of certain obligations - HELD THAT - As an amount of ₹ 1.30 crores was yet to be received by the assessee since it was forfeited by the buyer of the property on account of non-fulfillment of the obligations set out in the sale deed itself. Under these circumstances, we are of the considered opinion that when the amount was not received by the assessee due to non-fulfillment of certain obligations and that condition was mentioned in the sale deed itself, therefore, we are of the considered opinion that the CIT(A) was not justified in sustaining the addition made by the AO. So far as the observation of the ld.CIT(A) that non-receipt of amount does not change the character of the receipt is concerned, we find, out of the total consideration of ₹ 39.30 crores, a sum of ₹ 2.50 crores was in respect of certain obligations to be fulfilled by the assessee. In the instant case, the assessee could fulfill obligations only upto ₹ 1.20 crores which was received by her. But, for the remaining ₹ 1.30 crores, the assessee could not discharge the obligationfor which the said amount was not received. We find merit in the submission of the ld. Counsel that it is not a case that the whole of the consideration was for the transfer of the property, but, there were certain embargo on the property. Therefore, for removing the embargo, the separate consideration was mentioned in the sale deed as agreed between the seller and the buyer. The said consideration amounting to ₹ 2.50 crores although is the part of the full consideration of the transfer of the property, but, it was specifically in respect of certain obligations to be discharged by the assessee which is also apparent from the copy of the letter dated 19th December, 2011 the relevant portion of which has already been reproduced in the preceding paragraph. Since the assessee could not fulfill a part of the obligation as per the sale deed, therefore, the sale consideration to the extent the obligations are not performed cannot be the part of the apparent consideration. In this view of the matter, we are of the considered opinion that the ld.CIT(A) was not justified in sustaining the addition of ₹ 1.30 crore made by the AO. We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to delete the addition. Thus in case the assessee receives any amount out of the forfeited amount on a future date, the same shall be taxed in the year of receipt. This ground of appeal raised by the assessee is accordingly allowed.

Summary

Issues Involved:
1. Addition of ?45.50 lakhs on account of alleged under-valuation of property.
2. Addition of ?1.30 crores on account of forfeited amount not received by the assessee.

Detailed Analysis:

1. Addition of ?45.50 lakhs on account of alleged under-valuation of property:

The assessee sold her undivided 12.5% share in a property at 11B, Jungpura, New Delhi to her son for ?74.50 lakhs. The Assessing Officer (AO) compared this with the sale of a 25% share in the same property by another family member to the assessee's son for ?2.40 crores. The AO concluded that the sale by the assessee was undervalued and made an addition of ?45.50 lakhs, being the difference between the value of 12.5% share at ?1.20 crores and the sale value of ?74.50 lakhs.

The CIT(A) upheld this addition, reasoning that the property was grossly undervalued and the transaction was not at arm's length, despite the property being sold at the prevailing circle rate and the portion sold being at the back side of the building.

The Tribunal found merit in the assessee's argument that the property was sold at the prevailing market rate and the AO did not invoke the provisions of section 50C nor refer the matter to the DVO. The Tribunal noted that the AO had no material evidence to show that the assessee received more than the amount mentioned in the sale deed. The Tribunal concluded that the addition made by the AO was based on presumption and surmises and directed the AO to delete the addition.

2. Addition of ?1.30 crores on account of forfeited amount not received by the assessee:

The assessee sold a property at 264, Industrial Area, Phase III, Okhla, New Delhi for ?39.30 crores but reported the sale consideration as ?37,59,20,845/- due to ?1.50 crores forfeited by the buyer and brokerage of ?20,79,155/-. The AO rejected the claim of forfeiture and made an addition of ?1.30 crores based on information obtained from the buyer, M/s Hero Corporate Services Ltd., which indicated that ?1,29,51,720/- was still payable to the assessee.

The CIT(A) upheld the addition, stating that the amount was still outstanding in the buyer's books and the non-receipt of the amount did not change the character of the receipt.

The Tribunal found that the sale deed explicitly mentioned that ?2.50 crores was retained by the buyer to be released upon the fulfillment of certain obligations by the assessee. Since the assessee could not fulfill these obligations, the amount was forfeited by the buyer. The Tribunal concluded that the non-receipt of the amount due to non-fulfillment of obligations meant it could not be part of the apparent consideration. The Tribunal directed the AO to delete the addition but clarified that if the assessee receives any amount from the forfeited sum in the future, it should be taxed in the year of receipt.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, directing the deletion of both additions: ?45.50 lakhs on account of alleged under-valuation of property and ?1.30 crores on account of the forfeited amount not received. The decision was pronounced in the open court on 08.06.2021.