Section 56(2)(vii)(b)(ii) does Not Apply to Land Purchase Made Prior to 1st April 2014: ITAT deletes Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT), Lucknow bench, deleted the addition made under Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961, holding that the provision is prospective and applies only to transactions on or after 1 April 2014. Since the assessee’s agricultural land was purchased prior to this date, the Tribunal held that the addition was without legal basis.

The appellant, Smt. Vimla Tripathi, filed her return of income for Assessment Year 2013-14 declaring income of Rs. 1,93,140. The Assessing Officer (AO) observed that she and Shri Siddha Kumar Tripathi jointly purchased agricultural land for Rs. 12,00,000, while the stamp duty value was Rs. 71,30,000. Treating the difference of Rs. 59,30,000 as deemed income, the AO added half of it (Rs. 29,65,000) to the assessee’s income under Section 56(2)(vii)(b)(ii).

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The Commissioner of Income Tax (Appeals), NFAC [CIT(A)], upheld the addition, prompting the assessee to appeal before the Tribunal.

The issue was whether addition under Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961, could be sustained in respect of a land purchase made on 1 August 2012, prior to the provision’s insertion, and whether agricultural land constituted a capital asset for the purposes of the section.

Swaran Singh, Chartered Accountant, representing the assessee argued that Section 56(2)(vii)(b)(ii) was introduced with effect from 1 April 2014 and could not be applied retrospectively to her purchase on 1 August 2012. It was further contended that agricultural land is not a capital asset, and therefore, the section did not cover such transactions.

The assessee also highlighted that consideration of Rs. 6 lakh was paid from her bank account, supported by the sale deed, thereby disproving the finding that the transaction was “without consideration.”

Sanjeev Krishna Sharma, Departmental Representative, representing the revenue authorities supported the orders of the AO and the CIT(A), arguing that the addition had been correctly made under Section 56(2)(vii)(b)(ii).

The Tribunal held that the provisions of Section 56(2)(vii)(b)(ii) were not applicable as the purchase was completed before 1 April 2014. It was further observed that the registered sale deed and bank statements of the assessee, establish that consideration had indeed been paid for the land purchase, thereby disproving the Revenue’s claim that the transaction was without consideration.

Accordingly, the Tribunal set aside the order of the CIT(A) and directed deletion of the addition of Rs. 29.65 lakh. The appeal was therefore partly allowed.

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