The Surat bench of the Income Tax Appellate Tribunal (ITAT) held that the additions under Section 56(2)(x) of the Income Tax Act, 1961 shall not be sustainable when the conditions for purchase were as per the conditions mentioned in the allotment letter.
The assessee is a firm, engaged in the business of buying and selling real estate properties. The assessee filed its return of income declaring NIL income. The case was selected for scrutiny. The assessee has purchased two flats i.e. flats No. 103 and 307 in the Sunstone Project at Shastri Nagar, Bandra (E), Mumbai.
On the addition made by the Assessing Officer under Section 56(2)(x) of the Income Tax Act, the assessee submitted that they had made a booking prior to the insertion of clause (x) in Section 56(2) and the First Proviso thereto states that the date of original agreement fixing the date of consideration and the date of registration are not same, the stamp valuation as on the date of agreement shall be considered.
The assessee had agreed to purchase flats No. 103 and 307 vide an allotment letter dated May 2011 and based on mutual understanding, the payment of consideration was made in accordance with the mode prescribed in the allotment letter. Thus, the date of the allotment letter shall be considered for the purpose of this Section and not otherwise.
The reply of the assessee was not accepted by the Assessing Officer by taking a view that in the month of May, the land was in the possession of Akruti Niraman Ltd. who entered into a joint venture with Sunstone Developers in December 2011 as reflected in the sale deed. The project was started on 11/07/2011 and on that date, Sunstone Developers was not in the picture. The assessee has produced an allotment letter but no proof of payment was furnished.
The Departmental Representative submitted that the Commissioner of Income Tax (Appeal) [CIT(A)] granted relief to the assessee on the basis of the first and second proviso to Section 56(2)(x) of the Income Tax Act. The benefit of the first and second proviso can only be extended on the basis of agreement. There is no agreement between the assessee and the developer. The assessee merely relied on an allotment letter cannot be considered an agreement.
The CIT(A) appreciated the fact and held that the assessee is eligible for the benefit of the first proviso to Section 56(2)(x) of the Income Tax Act as the date of agreement for fixing the amount of consideration for the transfer of property and the date of registration is not same, the stamp duty value on the date of agreement may be considered for the purpose of said sub-clause.
The Authorized Representative supported the order of CIT(A). And submitted that there is no dispute that the assessee was allotted a flat in the year 2011 i.e. at the time of the initial stage of the project. The payments were made through the banking channel. The condition of purchases was as per the conditions mentioned in the allotment letter.
The Two-member bench comprising of Pawan Singh (Judicial member) and Arjun lal Saini (Accountant member) held that the CIT(A) deleted the additions by taking a correct view and there is no illegality or infirmity in the order passed by the CIT(A). Therefore, the order of CIT(A) was upheld and the ground of appeal was dismissed.
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