2021 (8) TMI 800 - AT - Income Tax

Addition u/s 56(2)(vii)(b) - valuation of land purchased by assessee - deemed gift under section 56(2)(vii)(b)(ii) - difference between the sale consideration shown by the assessee vis-a-vis the value determined by the stamp duty valuation authority - contention of the assessee is though initially it could be said that the land was purchased by the assessee but ultimately in reality this transaction never materialised rather to some extent it was a fraud upon the assessee - HELD THAT - As it is ascertainable whether any capital gain tax was levied in the hands of the vendor on the strength of section 50C,First Appellate Authority did not appreciate these facts rather swept away with the facts that the assessee continued to make payment inspite of this dispute. On the strength of this point, it appears that the ld. First Appellate Authority has construed that sale transaction has taken place at a lower rate and, therefore, a deemed gift is to be assumed in the hands of the assessee. However, after going through the material on record including copies of revenue record entries we are satisfied that actually no transaction has been materialised for which it could be assumed that deemed gift is assessable in the hands of the assessee. In view of the above discussion, we allow this appeal and delete the addition done by the Assessing Officer with the aid of section 56(2)(vii)(b) (ii) - Decided in favour of assessee.

Summary

Issues Involved:
Appeal against CIT(A)'s order confirming addition under section 56(2)(vii)(b) of the Income Tax Act, 1961.

Detailed Analysis:

1. Background and Assessment by AO:
The assessee, engaged in metal fabrication business and as a partner in another firm, filed a return declaring income. The AO, during scrutiny, noted a land purchase with a variation in valuation compared to stamp duty charges. The AO considered the difference as a deemed gift under section 56(2)(vii)(b)(ii) of the IT Act.

2. Appeal before CIT(A):
The assessee appealed, providing additional evidence related to the land purchase and ongoing litigations. Despite the submissions, the CIT(A) upheld the AO's decision, leading to dissatisfaction on the part of the assessee.

3. ITAT's Analysis and Decision:
Upon review, the ITAT examined the details of the land transaction, highlighting discrepancies in the mutation of land records and ongoing legal disputes. The ITAT noted that the transaction did not materialize due to errors in recording ownership, leading to a situation where no actual sale occurred. Considering the evidence from the High Court and revenue authorities, the ITAT concluded that no deemed gift was assessable in the hands of the assessee. Consequently, the ITAT allowed the appeal and deleted the addition made by the AO under section 56(2)(vii)(b)(ii) of the IT Act.

4. Conclusion:
The ITAT's decision, based on a thorough analysis of the facts and legal aspects, overturned the CIT(A)'s confirmation of the addition. By considering the complexities of the land transaction, legal proceedings, and documentary evidence, the ITAT concluded that no deemed gift was applicable in this case. The appeal was allowed in favor of the assessee, highlighting the importance of detailed scrutiny and legal interpretation in tax matters.