The Kolkata Bench ofIncome Tax Appellate Tribunal ( ITAT ) invalidated the addition made under Section 56(2)(vii) of the Income Tax Act,1961 and deleted the deemed gift classification due to the incorrect valuation date
Partha Pratim Chakrabarty,the appellant-assessee,filed his return of income on November 13, 2020, declaring total income of Rs. 34,44,260. His case was selected for scrutiny, and a notice under Section 143(2) was issued. The Assessing Officer ( AO ) noted that the assessee purchased a flat for Rs. 81,71,000, while the Stamp Duty Valuation Authority assessed the property’s value at Rs. 1,16,12,200.
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The AO questioned the assessee regarding the difference, suggesting it be treated as a deemed gift under Section 56(2)(vii). The assessee explained that his mother purchased the flat for Rs. 71,00,000, with Tax Deducted at Source ( TDS ) deducted, while he paid the remaining amount of Rs. 9,89,290, also deducting TDS.
The AO did not adequately consider these facts and proceeded to make the addition, referencing the District Valuation Officer ( DVO ) for a fair market value assessment without waiting for the report. Dissatisfied with this addition, the assessee appealed to the Commissioner of Income Tax (Appeals)[CIT(A)], who reproduced the payment details but ultimately dismissed the appeal without addressing the assessee’s arguments.
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The tribunal, after reviewing the case records, concluded that the authorities had incorrectly applied the Stamp Duty valuation. While the principle under Section 56(2)(vii) allows for the addition of any difference between the purchase price and the Stamp Duty valuation as a deemed gift, the tribunal found that the key date for determining the valuation should have been when the agreement was made, not the registration date of the property.
The assessee had provided evidence, including a valuation report, which showed that the fair market value on the agreement date was much closer to the purchase price and differed by less than 10%. This was a significant factor that the authorities had overlooked. The tribunal criticized the revenue authorities for not considering this aspect and failing to verify the report from the DVO before confirming the addition.
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The bench held that the CIT(A) should have carefully examined these details and exercised proper jurisdiction, especially given the clear evidence favoring the assessee.
The two member bench comprising Rajpal Yadav ( Vice-President ) and Manish Borad ( Accountant Member ) ruled that the addition made under Section 56(2)(vii) was unjustified, allowing the appeal and deleting the addition.
In conclusion,the appeal filed by the assessee was allowed.
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