ITAT Deletes S.56(2)(x) Addition, Finds No Basis for Price Suppression in State Govt Sale [Read Order]

The Kolkata Bench Income Tax Appellate Tribunal (ITAT), set aside an addition made under Section 56(2)(x) of the Income Tax Act, 1961, holding that there was no basis to infer suppression of purchase price in the acquisition of property from a State Government undertaking, thereby deleting the addition made by the assessing authority.

The appeal was filed by Kanha Villa LLP, engaged in renting and real estate business, relating to Assessment Year 2020-21. The assessee had purchased an immovable property, Synthesis Business Park, from an entity of the Government of West Bengal for a consideration of Rs. 4,76,50,200. During assessment, a reference was made to the District Valuation Officer, who estimated the fair market value at ₹11,36,27,400.

Based on this enhanced valuation, the Assessing Officer (AO) invoked provisions under Section 56(2)(x) of the Income Tax Act, 1961 and added ₹6,59,77,200 as income from other sources. The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, upheld the assessment, leading to the present appeal before the Tribunal.

The assessee, represented by Ramesh Patodia and Sonal Agarwal, argued that the contract was concluded with West Bengal Housing Infrastructure Development Corporation Limited, a State Government entity, and the consideration was predetermined under the terms stipulated by the Government, thereby eliminating any possibility of under-reporting.

The appellant contended that comparison of the purchase price with a subsequently determined valuation was unwarranted. It was further submitted that the provisions of Section 56(2)(x) require comparison of the price with stamp duty valuation, not with a hypothetical market estimation, and therefore, the addition was unsustainable.

The bench of Judicial Member George Mathan and Accountant Member Sanjay Awasthi observed that the transaction was undertaken with a State Government undertaking and that there was no reason to believe that a State authority would dispose of immovable property at a price lower than the applicable circle rate. The Tribunal held that the allegation of suppressing purchase consideration lacked substance.

Accepting the assessee’s contention that the contractual price approved by the State authority constituted the fair basis for consideration, the Tribunal deleted the addition of ₹6,59,77,200 made by the AO under Section 56(2)(x) of the Income Tax Act, 1961. The appeal was accordingly allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates