2024 (6) TMI 461 - AT - Income Tax

Addition u/s 56(2)(x)(B) - purchase of land property - stamp value exceeded the consideration paid by more than Rs. 50,000/- - conversion of land into non-agricultural - assessee accordingly contended that there was no violation of provision of section 56(2)(x)(B) because the agricultural land purchased by the assessee company as a beneficial owner in the previous year 2016-17 - AO found that the assessee company was incorporated on 10-03-2017 whereas the impugned MOU was entered on 03-06-2016. Hence on the date of the MOU, the assessee company was not in existence and could not be part of the MOU. Therefore, the story of the assessee regarding purchase of land as beneficial owner is an afterthought HELD THAT - There remains no ambiguity that the MOU dated 30- 06-2016 was translated into action. Hence it is established that the promoters purchased the land property on behalf of the company as on 15-07-2016 before pre-incorporation of the company. Therefore, in our considered opinion the conveyance deed dated 21-04-2017 was executed by the promoters in favor of the assessee company merely for completing its promise/contract entered by the promoters on behalf of company before incorporation and in the process the assessee company paid stamp duty as applicable on the date. As such the original transaction of purchase of land by the assessee company in the given facts and circumstances was 15-07-2016 from the farmers for a consideration which was higher than the value on which stamp duty paid. Accordingly, we hereby hold that the lower authority in the given facts and circumstances erred in invoking the provision of section 56(2)(x)(B) of the Act based on stamp duty paid on conveyance deed executed on 21-04-2017. Therefore we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Ground of appeal of the assessee is hereby allowed.

Summary

Issues Involved:

1. Whether the addition of Rs. 60,31,992/- made u/s 56(2)(x)(B) of the Income Tax Act, 1961 on account of the purchase of land property was justified.

Summary:

Issue 1: Addition of Rs. 60,31,992/- u/s 56(2)(x)(B) of the Act

The assessee, a private company engaged in manufacturing plastic products, was selected for limited scrutiny assessment. The AO noticed that the assessee purchased land for Rs. 49 lakhs, but the stamp value was Rs. 1,09,31,292/-. The AO invoked section 56(2)(x)(B) of the Act, treating the difference as income from other sources, as the stamp value exceeded the consideration paid by more than Rs. 50,000/-. The assessee contended that the land was initially agricultural and purchased by promoters on behalf of the company before its incorporation, and later converted to non-agricultural land. The assessee argued that the provisions of section 56(2)(x)(B) should not apply as the land was purchased for the company's purpose, and the stamp duty value should be considered as of the original purchase date.

The CIT(A) upheld the AO's decision, stating that any MOU or agreement before the company's incorporation had no legal sanctity, and the property purchased by promoters and the company were distinct due to the conversion from agricultural to non-agricultural land. The CIT(A) also noted that the transaction aimed to bypass legal requirements for purchasing agricultural land.

Upon appeal, the Tribunal considered the validity of pre-incorporation contracts, referencing sections 15(h) and 19(e) of the Specific Relief Act, 1963, which allow promoters to enter contracts for a prospective company. The Tribunal found that the promoters acted on behalf of the company, purchasing the land with the intent to transfer it to the company post-incorporation. The MOU dated 30-06-2016 was deemed valid, and the conveyance deed executed on 21-04-2017 was merely fulfilling the pre-incorporation contract. Thus, the original transaction date of 15-07-2016 should be considered, and the provisions of section 56(2)(x)(B) were incorrectly applied based on the stamp duty value on 21-04-2017.

The Tribunal set aside the CIT(A)'s findings and directed the AO to delete the addition, thereby allowing the assessee's appeal.