Section 56(2)(x) Not Applicable when Property Consideration Determined under Earlier Agreement: ITAT [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) ruled that Section 56(2)(x) of the Income Tax Act, 1961, is not applicable when the property consideration is determined under earlier agreement.

The assessee, Ms. Chhaya Divyesh Patel, did not file a return of income for AY 2020-21. Notice under Section 148 of the Income Tax Act, was issued to the assessee and the assessee filed a return of income declaring total income at Rs.9,89,600/-. The case was selected for scrutiny under a draft assessment order assessing the total income at Rs.2,35,89,580/-. The assessee filed an objection against the said proposed assessment before the Dispute Resolution Panel (DRP).

The DRP confirmed the addition of Rs.2,25,99,980/- as undisclosed income from other sources as there was no registered agreement or proof of payment made towards token money through banking channel on an earlier date prior to the date of registration of purchase deed i.e. 29.04.2019 furnished by the assessee in support of her contention that purchase consideration should not be taken as Rs.2,32,48,980/- invoking provisions of section 56(2)(x)(b)(B) of the Income Tax Act. Being aggrieved by the directions of the DRP, the assessee filed an appeal before the Tribunal.

The property was originally acquired by the assessee in 1984, with possession since 1990, and the consideration was later revised through an agreement in 2009, supported by documentary evidence including cheque payments made prior to the registration of sale deeds dated 29.01.2017 and 29.04.2019.

The Authorised Representative (AR) submitted that the assessee has complied with all such conditions, including payment made as per the agreement and the delay in execution was due to genuine circumstances beyond control, including court proceedings and the death of one of the co-owners.

The AR further submitted that since in this case the agreement was signed earlier and most of the payment was made at that time through cheques, the correct value to be considered should be the stamp duty value as on 12.01.2009 (agreement date) as per the provision, the provisions of section 56(2)(x)(b)(B) of the Income Tax Act are not attracted in this case and the addition proposed by the Assessing Officer (AO) is unjustified both on factual and legal grounds.

The Departmental Representative (DR) for the Revenue relied upon the assessment order and the directions of the DRP.

The Tribunal of Dr. BRR Kumar, Vice President and Suchitra Kamble, Judicial Member noted that “Though the stamp duty was paid as per the rules of the government, the purchase consideration was as per the academics entered into on 12.01.2009.

The AR pointed out the documents related to the payment through cheques prior to 2019 and therefore the DRP was not right in confirming the addition thereby invoking the provisions of section 56(2)(x)(b)(B) of the Income Tax Act. Thus, the AO as well as the DRP has not taken the cognizance of the same. Hence, the AO as well as the DRP was not justified in confirming the addition.”

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