2023 (8) TMI 1334 - AT - Income Tax

Addition u/s 56(2)(vii)(b) - Purchase of property below circle rate / stamp value - computation of tax chargeable u/s 56(2)(vii)(b) - FMV determination - HELD THAT - As in the case of Vembu Vaidyanathan 2015 (11) TMI 1069 - ITAT MUMBAI which action has been upheld by the Hon ble High Court 2019 (1) TMI 1361 - BOMBAY HIGH COURT we are inclined to take the allotment letter of the flat date i.e. 25.11.2011 as the date of agreement for sale because in the allotment letter itself the details of flat, sale consideration, payment terms etc has been spelled out i.e, the sale consideration was agreed at Rs. 2.11 Crores ,and balance amount after adjusting the advance paid of Rs. 3,00,000/- was acknowledged as Rs. 2.08 crores for sale/purchase of Flat No. 1306 B Wing along with specification of sq. ft etc. And it was agreed between parties that in case of default/delayed payment of instalments as the work/construction progresses was specified i.e. penal interest of 21%. Therefore, accordingly the first second proviso to section 56(2)(vii)(b) of the Act is applicable in the facts of the case. As noted that the assessee along with three (3) of the co- owners has been allotted Flat No. 1306 B Wing of building/flat developed by American Spring And Pressing Works Pvt. Ltd. vide allotment letter dated 25.11.2011 wherein the developer acknowledges advance payment of Rs. 3,00,000/- by cheque no. 342339 dated 15.11.2011; and the assessee along with otherwise agreed to make the payment of balance amount of Rs. 2,08,00,000/- (Rs. 2,08,00,000/- only). According first proviso and second proviso is applicable in the facts of the case. Therefore, as per the first proviso to Section 56(vii)(b) of the Act, the date of agreement fixing the amount of consideration for the transfer of immovable property was on 25.11.2011 (AY. 2012-13). And since the assessee/co-owners has made part payment (part consideration of Rs. 3 Lakhs) by cheque , therefore, the date of agreement as per the proviso to section 56(2)(vii) (b) of the Act should be taken as 25.11.2011. In such a scenario, the stamp duty value as on the date of agreement must be taken for the purpose of taxation under consideration u/s 56(2)(vii)(b). Such an exercise has not been carried out by the AO or Ld. CIT(A). Therefore, the impugned order of the Ld. CIT(A) is set aside and the issue is restored back to the file of the AO to compute the tax chargeable if any u/s 56(2)(vii)(b) of the Act by taking into consideration , the stamp duty value of the flat in question as on 25.11.2011 and if the as see contests, the AO to seek DVO report to find the fair market value of the property. Needless to say that the assessee should be given sufficient opportunity to submits necessary documents to substantiate its claim/stand. Appeal of the assessee is allowed for statistical purpose.

Summary

Issues Involved:

1. Confirmation of addition by CIT(A).
2. Applicability of Section 56(2)(vii)(b) of the Income Tax Act.
3. Determination of date of agreement for the purpose of taxation.
4. Applicability of provisos to Section 56(2)(vii)(b).

Summary:

1. Confirmation of Addition by CIT(A):

The main grievance of the assessee was against the action of the Ld. CIT(A) in confirming the addition of Rs. 7,78,104/- as against the addition of Rs. 31,12,145/- made by the AO. The AO added the difference of Rs. 31,12,415/- based on the circle rate/stamp value adopted by the Stamp Valuation Authority, which was higher than the purchase value of the property. The CIT(A) granted partial relief by apportioning the difference among four co-owners, thus restricting the addition to Rs. 7,78,104/- in the hands of the assessee.

2. Applicability of Section 56(2)(vii)(b) of the Income Tax Act:

The AO noted that the difference between the purchase value and the stamp duty value should be added to the total income under Section 56(2)(vii)(b) of the Income Tax Act, 1961. The assessee's contention that the amended section would not be applicable was found to be incorrect. The section was attracted in the year the assessee received the immovable property.

3. Determination of Date of Agreement for the Purpose of Taxation:

The assessee argued that the property was allotted by a letter of allotment dated 25.11.2011, and part payment was made on 15.11.2011. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of PCIT Vs. Vembu Vaidyanathan, which held that the date of allotment should be considered as the date of agreement for the purpose of computing capital gains. The Tribunal agreed with this view and took the allotment letter date as the date of agreement.

4. Applicability of Provisos to Section 56(2)(vii)(b):

The Tribunal noted that the first and second provisos to Section 56(2)(vii)(b) were applicable in this case. The date of agreement fixing the amount of consideration was 25.11.2011, and part payment was made by cheque. Therefore, the stamp duty value as on the date of the agreement should be taken for taxation purposes. The AO was directed to compute the tax chargeable by considering the stamp duty value of the flat as on 25.11.2011 and, if contested, seek a DVO report to find the fair market value of the property.

Conclusion:

The appeal of the assessee was allowed for statistical purposes, and the issue was restored back to the file of the AO for recomputation of tax chargeable under Section 56(2)(vii)(b) by considering the stamp duty value as on the date of the agreement. The assessee was to be given sufficient opportunity to submit necessary documents to substantiate their claim.