Difference Between Stamp Duty Value And Leasehold Acquisition Price Attracts Section 56(2)(x) But Requires DVO Valuation

ORDER

Anikesh Banerjee, Judicial Member.- The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2018-19, date of order 20.02.2025. The impugned order emanated by the order of the National eAssessment Centre (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 143(3A) and 143(3B) of the Act date of order 15.03.2021.

2. The registry informed that the assessee filed the appeal with a delay of 280 days. The assessee filed a notarized affidavit duly executed on 27.03.2026 related to explanation for delay in filing appeal before the ITAT. The Ld. DR had placed his objection to the submissions of the assessee. Upon consideration, we are satisfied that there existed sufficient cause for the delay. Accordingly, the delay of 280 days in filing the appeal is hereby condoned and the appeal is taken for adjudication.

3. The brief facts of the case have been duly set out in the impugned appellate order, which are identical to the submissions advanced by the Ld. AR. The same are reproduced hereunder as narrated in the impugned appellate order.

“2.1. The appellant has filed his return of income for the AY 2018-19 declaring a total income of Rs.3,06,810/- The case was selected for Compulsory scrutiny to verify Transaction in Immovable Property” and notice u/s 143(2) was issued on 27.09.2020. Notices u/s 142(1) A were issued to the appellant by the AO during the course of assessment proceeding for rights of a Room/Tenement being Room No.214, Second Floor, Siddhi Sadan Building, Fithwala Road, Elphinstone Road (West), Mumbai for a consideration of Rs.32,50,000/- in a building which is constructed leasehold land which is owned by MHADA and the seller has acquired the rights vide allotment letter dated 06.06.2017 issued by MHADA in favour of the seller. On perusal of the details submitted by the appellant, the AO found that the market value of property determined by the Sub-Registrar was at 53,35,500/- whereas the appellant has paid amount of Rs.32,50,000/- against purchase of property which is lesser to the tune of Rs.20,85,500/-, Hence, the AO invoked provisions of Section 56(2)(x) of the IT Act. The appellant contended that provisions of Section 56(2)(x) was not applicable in his case as the Room/Tenement purchased is on a leasehold land owned by MHADA and relied upon the decision of Bombay High Court in CIT v. Greenfiled Hotels & Estate Pvt. The AO did not accept the contention put forth by the appellant as the facts and circumstances of the present case is different from the case law relied upon by the appellant. Hence, the AO invoked provisions of Section 56(2)(x) of the IT Act and treated the difference amount of stamp duty value exceeding consideration paid as Income from Other sources which works out to Rs.20,85,500/- and added the same to the total income of the appellant.”

4. The Ld. AR argued and contended that the assessee has acquired the right of a room/tenement being Room No.214, 2^nd floor, Siddhi Sadan, Building, Fitwala Road, Mumbai-400013, for consideration of Rs.32,50,000/-. The said building is constructed on leasehold land owned by the MHADA. The seller has acquired the rights vide allotment letter dated 06.06.2017 issued by the MHADA in his favor. The Ld. AR argued that the acquisition of room/tenement purchased on leasehold land owned by the MHADA the provision of section 56(2)(x) of the Act is not applicable. The Ld. AR respectfully relied on the order of Hon’ble Bombay High Court in case of CIT v. Greenfiled Hotels and Estate (P.) Ltd. [IT Appeal No. 735 of 2014, dated 24-10-2016] which placed its reliance on the order of Coordinate Bench of ITAT, Mumbai in case of Atul G. Puranik v. ITO TTJ 69/132 ITD 499/11 ITR(T) 120 (Mumbai). It was further contended that although both the orders pertain to section 50C, the same observations are equally applicable to section 56(2)(x) of the Act.

5. The Ld. AR contended that idendical fact related to section 50C is considered in orders of the Hon’ble Bombay High Court and Coordinate Bench of the ITAT-Mumbai. He respectfully relied on the orders which are as follows:-

5.1. Hon’ble Bombay High Court in the case of Greenfiled Hotels and Estate (P.) Ltd. (supra). The relevant paragraphs are reproduced as below:-

“3. The impugned order of the Tribunal has dismissed the Revenue’s appeal from the order dated 15 June 2012 passed by the Commissioner of Income Tax (Appeals). The issue before the Tribunal was whether Section 50C of the Act would be applicable to transfer of leasehold rights in land and buildings. The impugned order of the v. ITO (ITA Tribunal followed its decision in Atul G. Puranik v. No.3051/Mum/2010) decided on 13 May 2011 which held that Section gains on transfer of 50C is not applicable while computing capital gains leasehold rights in land and buildings.

4. Mr. Kotangale, learned Counsel for the Revenue, states that the Revenue has not preferred any appeal against the decision of the Tribunal in the case of AtulPuranik (supra). Thus, it could be inferred that it has been accepted. Our Court in DIT v. Credit Agricole Indosuez 377 ITR 102 (dealing with Tribunal order) and the Apex Court in UOI v. Satish P. Shah 249 ITR 221 (dealing with High Court order) has laid down the salutary principle that where the Revenue has accepted the decision of the Court/Tribunal on an issue of law and not challenged it in appeal, then a subsequent decision following the earlier decision cannot be challenged. Further, it is not the Revenue’s case before us that there are any distinguishing features either in facts or in law in the present appeal from that arising in the case of AtulPuranik (supra).

5. In the above view, the question as framed by the Revenue Thus, not does not give rise to any substantial question of law. entertained.”

5.2. Coordinate Bench of ITAT Mumbai in case of Atul G. Puranik (supra). The relevant observations are as follows:-

“11.3 It is a settled legal proposition that a deeming provision cannot be extended beyond the purpose for which it is enacted. The Hon’ble Apex Court in CIT v. Amarchand N. Shroff [1963] 48 ITR 59 has considered the scope of a deeming provision and came to hold that it cannot be extended beyond the object for which it is enacted. Similar view has been reiterated by the Hon’ble Supreme Court in CITv. Mother India Refrigeration Industries (P.) Ltd. [1985] 155 ITR 711/ 23 Taxman 8 by laying down that “legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond their legitimate field”. In CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210 /[2005] 144 Taxman 855 (Bom), the Hon’ble jurisdictional High Court considered the facts of a case in which the assessee was a partner in a firm which was dissolved in the year 1984 and the assessee was allotted a flat towards the credit in the capital asset with the firm. The assessee showed the flat as capital asset in its books of account and depreciation was claimed and allowed from year to year. In the previous year relevant to asst. year 1992-93, the assessee sold the flat and invested the net sale proceeds in a scheme eligible u/s.54E of the Act and accordingly declared Nil income under the head ‘Capital gains’. The AO formed the view that since the block of building ceased to exist on account of sale of flat during the year, the written down value of the flat was liable to be taken as cost of acquisition u/s.54E of the Act. He further held that since the assessee had availed depreciation on such asset, which was otherwise a long-term capital asset, the deeming provision u/s.50 would apply and it would be treated as capital gain on the sale of short-term capital asset and hence no benefit u/s.54E could be allowed. When the matter came up before the Hon’ble Bombay High Court, it was noticed that sub-sections (1) and (2) of sec. 50 contained a deeming provision and such fiction was restricted only to the mode of computation of capital gain contained in sections 48 and 49 and hence it did not apply to other provisions. The assessee was held to be eligible for exemption u/s.54E in respect of capital gain arising out of the capital asset on which depreciation was allowed.

11.4 In view of the aforenoted judgments rendered by the Hon’ble Apex Court and that of the Hon’ble jurisdictional High Court, it is clear that a deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. Turning to sec. 50C, it is seen that the deeming fiction of substituting adopted or assessed or assessable value by the stamp valuation authority as full value of consideration is applicable only in respect of “land or building or both. If the capital asset under transfer cannot be described as ‘land or building or both’, then sec. 50C will cease to apply. From the facts of this case narrated above, it is seen that the assessee was allotted lease right in the Plot for a period of sixty years, which right was further assigned to M/s. Pathik Construction in the year in question. It is axiomatic that the lease right in a plot of land are neither ‘land or building or both’ as such nor can be included within the scope of ‘land or building or both’. The distinction between a capital asset being ‘land or building or both’ and any ‘right in land or building or both’ is well recognized under the I.T. Act. Sec. 54D deals with certain cases in which capital gain on compulsory acquisition of land and building is charged. Sub-sec.(l) of sec. 54D opens with : “Subject to the provisions of sub-section (2), where the capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking.”. It is palpable from sec. 54D that ‘land or building’ is distinct from ‘any right in land or building’. Similar position prevails under the W.T. Act, 1957 also. Section 5(1) at the material time provided for exemption in respect of certain assets. Clause (xxxii) of sec. 5(1) provided that “the value, as determined in the prescribed manner, of the interest of the assessee in the assets (not being any land or building or any rights in land or building or any asset referred to in any other clauses of this subsection) forming part of an industrial undertaking” shall be exempt from tax. Here also it is worth noting that a distinction has been drawn between ‘land or building’ on one hand and ‘or any rights in land or building’ on the other. Considering the fact that we are dealing with special provision for full value of consideration in certain cases u/s.50C, which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As sec. 50C applies only to a capital asst, being land or building or both, it cannot be made applicable to lease rights in a land. As the assessee transferred lease right for sixty years in the Plot and not land itself, the provisions of sec.50C cannot be invoked. We, therefore, hold that the full value of consideration in the instant case be taken as Rs.2.50 crores.”

6. The Ld. AR further contended that the assessee had purchased rights in a room/tenement in a leasehold building constructed by MHADA, and such rights were acquired from the seller, who had originally been allotted the same by MHADA. In the alternative, the Ld. AR submitted that the addition was made on account of the difference between the stamp duty value and the agreed consideration. The Ld. AR contended that difference of the value of the property was not referred by the Ld. AO to the DVO. The Ld. AR had specifically requested that the property be referred to the DVO for valuation if the earlier ground is not survived. Finally, it was prayed that the addition made by the Ld. AO be deleted.

7. The Ld. DR argued and contended that the assessee had purchased the said property, from previous allotte. So, in any case, the assessee’s purchase is liable to be taxed u/sec. 56(2)(x) of the Act. He further argued that the transfer of immovable property is purely comes under the purview of section 56(2)(x). He argued that the immovable property has wide range of implication. It covers in “Land & Building or both” as per section 50C of the Act. So, the Ld. AO correctly implemented the section 56(2)(x) related to the alleged transfer. The Ld. DR prayed to uphold the impugned additions.

8. We have heard the rival submissions and perused the material available on record. Upon careful consideration of the facts and legal position, we find that the primary contention of the assessee that the provisions of section 56(2)(x) of the Act are not applicable to the impugned transaction is devoid of merit. The reliance placed by the Ld. AR on the decisions rendered in the context of section 50C, including the judgment of the Hon’ble Jurisdictional High Court in Greenfield Hotels & Estates Pvt. Ltd. (supra) and the coordinate bench decision in Atul G. Puranik (supra) is distinguishable on facts as well as on law. The said decisions deal with the limited scope of deeming fiction under section 50C in the context of computation of capital gains, whereas the present case pertains to taxation under section 56(2)(x), “immovable property” which operates in a different field and has a wider scope in taxing receipt of immovable property for inadequate consideration. Accordingly, the applicability of section 56(2)(x) in the present case is upheld. So, the Ground of the assessee related to this issue is dismissed.

9. However, with regard to the alternative contention of the Ld. AR that the valuation adopted by the stamp valuation authority ought to have been referred to the Departmental Valuation Officer (DVO), we find merit in the said submission. The Ld. DR has not raised any objection to this alternative plea, we deem it appropriate to restore this limited issue to the file of the Ld. AO for the purpose of obtaining a valuation report from the DVO and thereafter recomputing the addition, if any, in accordance with law. Accordingly, while upholding the applicability of section 56(2)(x) of the Act, we set aside the impugned order on the limited issue of valuation and restore the matter to the file of the Ld. AO for de novo adjudication in accordance with law after obtaining the DVO’s report. Needless to say, the assessee shall be afforded a reasonable opportunity of being heard. The grounds raised by the assessee are partly allowed for statistical purposes.

10. In the result, the appeal of the assessee bearing ITA No.1259/Mum/2026 is partly allowed for statistical purposes.