Section 56(2)(vii)(b) Cannot Apply Retrospectively To Property Allotted and Partially Paid Prior To October 1, 2009

ORDER

Anikesh Banerjee, Judicial Member. – The instant appeal of the assessee filed against the order of NFAC Delhi [for brevity “Ld. CIT(A)”], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act), for Assessment Year 2014-15, date of order 13.01.2026. The impugned order emanated from the order of the Ld. Income Tax Officer-Ward 23(3)(1), Mumbai (for brevity ‘Ld. AO’), order passed under Section 143(3) r.w.s. 147 of the Act, date of order 29.12.2018.

2. Brief facts of the case are that the assessee filed the return. The Ld. AO had reopened the assesse’es case u/sec.147 of the Act. The Ld. AO found that the assessee had purchased with joint ownership an immovable property by a registered sale deed dated 06.05.2013 with agreed value amount to Rs. 1,18,00,000/- and difference in between the agreement value and stamp duty value amount to Rs.1,59,76,895/- considering 50% share of the assessee. The Ld. AO issued the showcause notice and asked to explain the difference between stamp duty value amounting to Rs.4,37,53,790/- and the purchase value of Rs.1,18,00,000/-= Rs.3,19,53,790/-, the assessee’s share should not be taken as income chargeable to tax under the head “Income from Other Sources” under section 56(2) of Act. The assessee had contend that whether the registration was executed in the impugned assessment year but the allotment of the said property was on 11.04.2007 and the copy of allotment letter was duly submitted before the revenue authorities. The total valuation of the property as per the deed of agreement amount to Rs.1,18,00,000/- and assessee had paid amount to Rs.30,00,000/- for allotment of the property through account payee cheque. The Ld. AO without considering the assessee’s submission, had initiated the proceeding and confirmed the addition u/sec. 56(2)(vii)(b) amount to Rs.1,59,76,895/-. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) after considering all the evidence had rejected the appeal. Being aggrieved assessee filed an appeal before us.

3. The Ld. AR filed a paper book comprising pages 1 to 143, which has been placed on record. The Ld. AR contended that the assessee had agreed to purchase the property on 11.04.2007 and, upon payment of part of the agreed consideration, an allotment letter was issued in favour of the assessee. A copy of the said allotment letter is placed at APB pages 72 to 73. As recorded in the allotment letter, the total consideration agreed for purchase of the property was Rs.1,18,00,000/-. Pursuant thereto, the assessee made a part payment of Rs.30,00,000/- towards the purchase consideration through cheque No. 627075. The said amount was debited from the assessee’s bank account on 12.04.2007, and the relevant bank statement is placed at APB pages 74 to 76. The Ld. AR further contended that the transaction for purchase of the property was thus initiated and crystallised in the year 2007, when the provisions of section 56(2)(vii) of the Act were not in existence. It was submitted that section 56(2)(vii) was inserted by the Finance (No. 2) Act, 2009, with effect from 01.10.2009. Since the agreement for purchase of the property and the payment of part consideration had taken place prior to the insertion of the said provision, the Ld. AR contended that no addition could be made by invoking the provisions of section 56(2)(vii) of the Act.

4. The Ld. AR respectfully relied on the order of Co-ordinate Bench of ITAT-Mumbai in case of Lodha Developers Ltd v. DCIT   (Mumbai – Trib.) while dealing with provisions of section 43CA of the Act held that where property was allotted prior to 01.04.2014 and only agreement was registered in AY 2014-15, then provisions of section 43CA would not apply. The relevant head note of the decision is reproduced below:

5. Identical issue is considered by the Coordinate Bench of the ITAT-Kolkata Bench in case of Reegal Construction v. ITO [2023]  (Kolkata – Trib.) held that provisions of section 43CA shall apply prospectively in relation to transaction entered post 01.04.2014 and would not apply where booking of flats was done in the year 2012 or 2013.

6. The Ld. AR contended that the Ld. CIT(A) had considered the issue regarding the applicability of section 56(2)(vii) of the Act to a transaction initiated prior to the insertion of the said provision by the Finance (No. 2) Act, 2009. The Ld. CIT(A) observed that the date of registration of the agreement was required to be treated as the relevant date of transfer. Since the agreement was registered on 06.05.2013, the Ld. CIT(A) held that the provisions of section 56(2)(vii) were applicable to the transaction in the impugned assessment year and that the transaction could not be regarded as having taken place in the year 2007. The Ld. AR, however, argued that for determining the applicability of section 56(2)(vii), the relevant date should be the date on which the property was booked and the transaction was initiated. In support of this contention, the assessee relied upon the allotment letter dated 11.04.2007, the earnest money receipt, and the relevant bank statement maintained with Bank of Baroda, P.D. Hinduja Branch, evidencing payment of part of the purchase consideration. On the basis of these documents, the Ld. AR submitted that the transaction had commenced in the year 2007 itself, much prior to the insertion of section 56(2)(vii) of the Act. The Ld. AR further submitted that an identical issue was considered by the Coordinate Bench of the ITAT, Mumbai Bench ‘D’, in Manjulaben Himmatlal Jain v. ITO [2024]   (Mumbai – Trib.), wherein it was held as under:

“10. Even though the date of agreement fixing the amount of consideration for the transfer of immovable property, in the present case, is not the same as the date of registration, however, for the applicability of the first proviso to section 56(2)(vii)(b) of the Act, it is further relevant that the amount of consideration or part thereof is paid by any mode other than cash on or before the date of agreement in terms of the second proviso to section 56(2)(vii)(b) of the Act. In the paper book, the assessee has furnished a copy of statement of its bank account maintained with the Maharashtra Cooperative Bank Ltd from 11/03/2008 till 02/04/2009 in order to show the payments made to the builder. However, since the letter of allotment was issued by the builder on 29/05/2007, therefore for the purpose of applicability of the first and second proviso to section 56(2)(vii)(b) of the Act, it is relevant that some evidence is brought on record to show that the consideration or part thereof was paid by the assessee by any mode other than cash on or before the date of the allotment letter, i.e. 29/05/2007. Even in the decision of the coordinate bench of the Tribunal relied upon by the assessee, as noted in the foregoing paragraphs, while directing the AO to compare the stamp duty valuation as on the date of allotment with the transaction value recorded in the registration document, we find that the coordinate bench took into consideration the fact that the taxpayer, in that case, paid an amount of INR 2 lakh at the time of booking prior to the allotment letter. However, in the present case, no such evidence of payment of agreed consideration or part thereof by any mode other than cash on or before the date of the allotment letter has been brought on record. Therefore, in order to grant one more opportunity to the assessee in the interest of justice and fair play, we deem it appropriate to restore this issue to the file of the jurisdictional AO for adjudication in view of our aforesaid findings with a direction to the assessee to furnish the evidence of payment of agreed consideration or part thereof by any mode other than cash on or before the date of allotment letter to prove the applicability of the first and second proviso to section 56(2)(vii)(b) of the Act. We order accordingly. As a result, the impugned order on this issue is set aside and the grounds raised by the assessee are allowed for statistical purposes.”

7. The Ld. DR argued and stands in favor the revenue authorities. The Ld. DR invited our attention in impugned assessment order. The relevant part of the observations of the Ld. AO is reproduced as below:

“The provisions of the section is very clear in this regard that “where the date of agreement fixing the amount of consideration for the transfer of immovable property and date the registration are not the same, stamp duty value on the date of agreement may be taken for the purpose of this sub clause”. As the date of agreement, in this case, is 18.04.2013 and not 11.04.2007 as claimed by the assessee, therefore, the present case is a fit case to invoke the provisions of the section 56(2)(vii)(b) of the Act. Since year of agreement and registration is same, stamp duty value is taken at Rs.4,37,53,790/- as mentioned in registered agreement. Hence, the difference between purchase price and market value should be taxed in the hands of assessee. Penalty proceedings u/s. 271(1)(c) for furnishing inaccurate particulars of income.”

8. We have heard the rival submissions and perused the material available on record. The controversy before us is essentially with regard to the relevant date to be adopted for the purpose of applicability of section 56(2)(vii)(b) of the Act. The revenue has proceeded on the basis that the relevant transaction took place in the year 2013, when the agreement was executed and subsequently registered, whereas the assessee contends that the transaction had already commenced and crystallised on 11.04.2007 upon allotment of the property and payment of part of the agreed consideration.

9. From the material placed before us, we find that the allotment letter dated 11.04.2007, placed at APB pages 72 to 73, records the agreed consideration of Rs.1,18,00,000/-. The assessee has also placed on record the relevant bank statement at APB pages 74 to 76 evidencing payment of Rs.30,00,000/- through account-payee cheque towards the purchase consideration. Thus, the assessee’s case is not based merely upon an assertion of an earlier booking; contemporaneous documents have been placed on record to demonstrate the allotment of the property and payment of substantial part consideration in the year 2007.

10. We have also considered the decision of the Coordinate Bench in Manjulaben Himmatlal Jain (supra). In the said decision, the Coordinate Bench recognised the relevance of the date of allotment and specifically examined whether the agreed consideration or part thereof had been paid through a mode other than cash on or before the relevant date. In the present case, the assessee has produced the allotment letter as well as evidence of payment of Rs.30,00,000/- through banking channel in pursuance of the allotment. The decisions relied upon by the Ld. AR in Lodha Developers Ltd. (supra) and Reegal Construction (supra), though rendered in the context of section 43CA, also support the proposition advanced by the assessee that a subsequently introduced deeming provision cannot ordinarily be applied merely because registration of an already initiated transaction takes place after the provision has come into force.

11. It is pertinent that section 56(2)(vii) was inserted by the Finance (No. 2) Act, 2009 with effect from 01.10.2009. The transaction evidenced by the allotment letter and payment of part consideration in the present case dates back to April 2007. Therefore, the provisions of section 56(2)(vii)(b), which were not on the statute book at the time when the property was allotted and part consideration was paid, cannot be applied retrospectively to the transaction merely by adopting the subsequent date of registration as the sole determinative factor.

12. Even otherwise, if for the purpose of section 56(2)(vii)(b) the date on which the consideration was fixed under the allotment is to be recognised as the relevant date, the corresponding stamp duty value/circle rate prevailing on that relevant date has necessarily to be considered for comparison with the agreed consideration. The stamp duty value prevailing in the year 2013 cannot be mechanically compared with the consideration fixed under the allotment in the year 2007. Significantly, in the year 2007, section 56(2)(vii) itself had not been enacted. Therefore, the subsequent registration of the property in the year 2013 cannot, by itself, result in application of a deeming provision to the transaction which had already been initiated on the basis of the allotment and payment of part consideration prior to the enactment of the said provision.

13. In view of the above discussion and having regard to the material placed on record and the principles emerging from the aforesaid decisions of the Coordinate Benches, the addition made by the Ld. AO under section 56(2)(vii)(b) by adopting the stamp duty value prevailing at the time of registration in the year 2013 cannot be sustained on the stated basis. So, the addition amount to Rs.1,59,76,895/- is deleted. Accordingly, the grounds raised by the assessee are disposed of in terms of the above observations.

14. Since the quantum appeal itself stands disposed of by this order, the Stay Application arising there from does not survive for adjudication and is accordingly dismissed as infructuous.

15. In the result, the appeal of the assessee bearing ITA No.2709/Mum/2026 is allowed and stay application bearing SA No.73/Mum/2026 is dismissed as infructuous.