Difference between Circle Rate and actual amount paid for Purchase of Land: ITAT upholds addition made u/s 56(2)(vii)(b) of Income Tax Act

The Income Tax Appellate Tribunal (ITAT), Delhi bench, upheld the addition made under Section 56(2)(vii)(b) of the Income Tax Act, 1961, towards the difference between the circle rate and the actual amount paid for the purchase of land.

The assessee, Anwar Hussain Khan, filed its return of income for the assessment year 2014-15. Thereafter, during the assessment proceedings, the AO found that the assessee purchased land, and there is a difference between the circle rate and the actual amount paid for the purchase of land. So, after analyzing all the records, the AO made an addition under Section 56(2)(vii)(b) of the Income Tax Act.

Aggrieved by the order, the assessee filed an appeal before the CIT(A), who confirmed the addition. Thus, the assessee filed a second appeal before the tribunal.

During the proceedings, Rakesh Gupta, Counsel for the assessee, argued that the land was purchased for the purpose of business, and the same was shown as stock in trade. Furthermore, he argued that the assessee and his brother jointly purchased the property in question and entered into a Memorandum of Understanding (MOU) that the land would be utilized for the development of a commercial/residential Multistory Project. Hence, for this purpose, the property would be treated as stock-in-trade or trading assets in the hands of both parties.

Kanv Bali, Counsel for Revenue, argued that no independent evidence has been brought on record by the assessee, either during the assessment proceedings or during the remand proceedings, to substantiate that the purchased land was not a capital asset and it was stock-in-trade in the hands of the assessee and his brother. Moreover, counsel for Revenue argued that if the appellant had held this land as stock-in-trade, then he would have made efforts to find prospective buyers, and there was no evidence that could show that the appellant made some efforts in this regard.

The Tribunal, while considering the appeal, observed that the land was purchased by the assessee and his brother on 10.12.2013 during F.Y. 2013-14, and even after the lapse of 3 years up to A.Y. 2015-16, except signing the MOU, no other action had been taken by the assessee and his brother, showing their intention to develop the land as a business venture.

After reviewing the facts and records, the two-member bench of M. Balaganesh (Accountant member) and Chandra Mohan Garg (Judicial Member) upheld the addition made under Section 56(2)(vii)(b) of the Income Tax Act towards the difference between the circle rate and the actual amount paid for the purchase of land.

To Read the full text of the Order CLICK HERE

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