Adjudication on merits deems additional evidence admitted, making date of allotment determinative for capital gains.

By | June 3, 2026
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Adjudication on merits deems additional evidence admitted, making date of allotment determinative for capital gains.

Issue

  • Whether the Commissioner (Appeals) can legally decline the formal admission of additional evidence under Rule 46A after already evaluating and adjudicating that identical evidence on its merits.

  • Whether the stamp duty valuation as on the date of the allotment letter (where part consideration is paid via banking channels) should be adopted instead of the valuation on the registration date under Section 56(2)(x).

  • Whether the period of holding for an immovable property should be reckoned from the date of the original allotment letter or the date of the formal registered conveyance deed for calculating Capital Gains.

Facts

  • Property Allotment & Payments: The assessee was issued an allotment letter for an office premises on April 10, 2010, fixing the purchase consideration at ₹71.90 lakhs. Part payments were made through banking channels during the financial years 2010-11 and 2012-13.

  • Registration & Sale: A formal registered conveyance deed was executed much later on August 11, 2017. On this date, the stamp duty valuation (SDV) of the property had risen to approximately ₹1.71 crores. The assessee subsequently sold the property on October 13, 2017, for ₹1.72 crores.

  • AO’s Assessment: The Assessing Officer (AO) determined that the property was acquired only upon registration in 2017. Consequently, the AO taxed the difference between the 2017 SDV and the purchase price (₹98.86 lakhs) as income under Section 56(2)(x), and classified the profit from the subsequent sale as a Short-Term Capital Gain (STCG).

  • CIT(A) Order: The Commissioner (Appeals) reviewed the allotment letter and bank statements on their merits but simultaneously refused to formally admit them under Rule 46A. The CIT(A) upheld the AO’s additions, stating that the provisos to Section 56(2)(x) were not satisfied because the bank cheques were cleared later and the allotment letter lacked credibility.

Decision

  • Deemed Admission of Evidence: It was held that once the Commissioner (Appeals) examines and passes judgment on the merits of additional evidence, those documents are deemed to be admitted. Issuing a separate observation declining their formal admission is self-contradictory and legally unsustainable; the evidence is admitted since it has a direct bearing on the case.

  • Applicability of Provisos to Section 56(2)(x): Since the consideration was fixed via an allotment letter in 2010 and part-payment was made through banking channels, the assessee is fully entitled to the benefit of the First and Second Provisos to Section 56(2)(x)(b)(B). The SDV prevailing on the date of allotment (2010) must be compared with the purchase price, not the SDV of the registration date (2017). The matter was remanded to the AO solely to factually verify the 2010 SDV.

  • Reckoning Period of Holding: Because the allotment letter dated April 10, 2010, conferred substantive and enforceable rights, the period of holding must be calculated from the allotment date rather than the registration date. The subsequent sale on October 13, 2017, must therefore be assessed as a Long-Term Capital Gain (LTCG) and not an STCG.

Key Takeaways

  • No Selective Rejection: An appellate authority cannot look at documents to rule against an assessee on merits while simultaneously claiming those same documents were rejected under Rule 46A. Merits adjudication equals implicit legal admission.

  • Allotment Date Overrides Registration Date: For structural property bookings where payments are traceable through banking channels, the date of allotment fixes both the cost of acquisition and the starting point for the holding period.

  • Protection from Notional Taxation: The provisos to Section 56(2)(x) protect buyers from paying tax on real estate appreciation that occurs between booking a property and its ultimate registration, provided banking channels are utilized for early payments.

IN THE ITAT MUMBAI BENCH ‘A’
Maniti Jayesh Shah
v.
Income-tax Officer*
ANIKESH BANERJEE, Judicial Member
and Om Prakash Kant, Accountant Member
IT Appeal No. 287 (MUM) OF 2026
[Assessment year 2018-19]
MAY  11, 2026
Mahesh Rajora for the Appellant. Surendra Mohan, Sr. DR for the Respondent.
ORDER
Om Prakash Kant, Accountant Member. – This appeal by the assessee is directed against order dated 12.11.2025 passed by the Learned Commissioner of Income-Tax (Appeals) – National Faceless Appeal Centre, Delhi [in short, ‘the Ld. CIT (A)’], for Assessment Year [in short ‘the A.Y.’] 2018-19, raising following grounds:
“1. (a) The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter ‘CIT(A)’ erred in confirming the action of AO in making addition of Rs. 98,86,100/- (i.e. Rs. 1,70,76,100 – Rs. 71,90,000) u/s 56(2)(x) of the I.T. Act considering the same as excess of stamp value of immovable property over the purchase consideration.
The Appellant submit that she has purchased the property in F.Y. 2010-11 vide allotment letter dt. 10.04.2010 and in view of proviso to Section 56(2)(x) no addition is called for in the case of the Appellant.
(b) The CIT(A) erred in confirming the action of AO in assessing the gain from sale of office premises as Short Term Capital Gain at Rs. 1,23,900/- (considering cost of acquisition without indexation) as against Long Term Capital Gain of Rs. 62,99,032/- (considering cost of acquisition after indexation) declared by the Appellant.
The Appellant submit that office premises was purchased in F.Y. 2010-11 which was held for a period of more than 36 months and hence the AO ought to have assessed the gain on sale of office premises as Long Term Capital Gain considering the cost of acquisition after indexation.
(c) The CIT(A) erred in disposing off the appeal without admitting additional evidences filed by the Appellant i.e. Allotment letter issued by Shree Naman Developers Limited and Appellant’s bank statement for F.Y. 2010-11 and 201213.
The Appellant submits that all the facts of the case of Appellant are already on record before the AO and CIT(A) and additional evidences filed by the Appellant are vital and goes to the root of the issue under consideration, and hence on the facts and circumstances of the case of Appellant and in law and in the interest of justice, the CIT(A) ought to have admitted the additional evidences filed by Appellant for deciding the appeal.
2. Briefly stated, the facts borne out from the record are that the return of income filed by the assessee was selected for scrutiny assessment and statutory notices issued under the Income-tax Act, 1961 (hereinafter referred to as “the Act”) were duly served upon the assessee. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had entered into transactions involving purchase and subsequent sale of an immovable property during the relevant previous year. On perusal of the purchase deed and sale deed placed on record, it was observed that the assessee had purchased an office premises from M/s Shree Naman Developers Limited for a consideration of Rs.71,90,000/-, which transaction was registered on 11.08.2017, whereas the stamp duty valuation of the said property stood at Rs.1,70,76,100/-. The property was thereafter sold on 13.10.2017 for a consideration of Rs.1,72,00,000/-. The assessee in the return of income declared long-term capital gain of Rs. 62,99,032/-, which was worked out as under;
Full value consideration in respect of assets other than quoted shares Rs. 1,72,00,000/-
Deduction u/s 48
Cost of acquisition without indexation Rs. 1,00,47,143/-
Cost of improvement without indexation Rs. 8,53,825/-
Total Rs. 1,09,00,968/-
Long term capital gain on assets Rs. 62,99,032/-

 

2.1 The Assessing Officer called upon the assessee to furnish complete documentary evidence in support of the claim of cost of acquisition, including bank statements evidencing payment of Rs.71,90,000/-. The Assessing Officer observed that, since the registered purchase deed was executed on 11.08.2017 and the property was sold on 13.10.2017, the apparent holding period was barely three months. According to the Assessing Officer, no supporting material was produced during assessment proceedings to substantiate the claim that the asset had, in fact, been acquired in Financial Year 2010-11 so as to qualify for treatment as a longterm capital asset. Consequently, the Assessing Officer formed the view that the purchase consideration disclosed by the assessee at Rs.71,90,000/- was substantially lower than the stamp duty valuation of Rs.1,70,76,100/-, resulting in a differential amount of Rs.98,86,100/-, which was brought to tax under Section 56(2)(x) of the Act.
2.2 Further, the Assessing Officer treated the difference between the sale consideration of Rs.1,72,00,000/- and the stamp duty value adopted on the date of purchase, i.e., Rs.1,70,76,100/-, amounting to Rs.1,23,900/-, as Short-Term Capital Gain by adopting the stamp duty value as the cost of acquisition.
2.3 Thereafter, a draft assessment order was issued to the assessee. However, in the absence of any further response from the assessee, the Assessing Officer proceeded to complete the assessment vide order dated 09.04.2021 by making the additions proposed in the show-cause notice.
2.4 Aggrieved by the assessment order, the assessee carried the matter in appeal before the Ld. CIT(A). During the appellate proceedings, the assessee furnished by way of additional evidence, the allotment letter dated 10.04.2010 along with relevant bank statements in support of the contention that the property had, in fact, been acquired in Financial Year 2010-11 and, consequently, the gain arising on its transfer was liable to be assessed as LongTerm Capital Gain.
2.5 Thus, the primary controversy pertains to the addition of ₹98,86,100/-, representing the differential between the Stamp Duty Value (SDV) of ₹1,70,76,100/- and the declared consideration of ₹71,90,000/-. The assessee seeks the protection of the provisos to Section 56(2)(x)(b)(B), contending that the purchase price was crystallized via an allotment letter dated 10.04.2010, and payments were initiated therein.
2.6 The Ld. CIT(A) forwarded the aforesaid evidences to the Assessing Officer for examination and comments in remand proceedings. The Assessing Officer, while objecting to the admissibility of the additional evidences under Rule 46A of the Income-tax Rules, 1962, nevertheless proceeded to furnish his comments on the merits of the claim advanced by the assessee. A copy of the remand report was thereafter supplied to the assessee, who, in turn, filed a rejoinder rebutting the observations of the Assessing Officer.
2.7 Upon consideration of the assessment order, the remand report, the submissions of the assessee, and the rejoinder filed thereto, the Ld. CIT(A), inter alia, observed, firstly, that the transaction in question was not at arm’s length, inasmuch as the assessee herself was associated with entities belonging to the Naman Group and her father was a Director in M/s Shree Naman Developers Ltd., the seller of the property. The transaction is essentially an inter-se arrangement between related parties, lacking the hallmarks of an independent, third-party commercial transaction.
2.8 The Ld. CIT(A) further observed that the allotment letter dated 10.04.2010 could not be regarded as a reliable contemporaneous document, particularly in view of the discrepancy relating to the alleged payment of Rs.10,00,000/-, which, according to the assessee, had initially been tendered by cheque on 09.04.2010 but was ultimately realized only on 05.08.2010.
2.9 The appellate authority noted that no independent evidence, such as cheque return memos or contemporaneous correspondence, had been furnished to substantiate the explanation offered by the assessee.
2.10 The Ld. CIT(A) further recorded a finding that the allotment letter itself recited receipt of payment as on 10.04.2010, whereas the verifiable banking transaction had taken place several months thereafter, thereby lending credence to the inference drawn by the Assessing Officer that the allotment letter was subsequently created or backdated to confer an artificial antiquity upon the transaction.
2.11 It was also observed that the bank statements relied upon by the assessee reflected multiple inter se transactions with various Naman Group entities, rendering it difficult to independently correlate the payments with the alleged acquisition of the property.
2.12 The Ld. CIT(A) further noted the absence of any contemporaneous documentary material, such as possession letters, construction-linked correspondence, or other evidences demonstrating vesting of rights in the property during Financial Years 2010-11 to 2012-13.
2.13 Emphasizing that the registered conveyance deed had been executed only on 11.08.2017 and the property had thereafter been sold on 13.10.2017, the appellate authority concluded that the holding period was less than thirty-six months and, therefore, the asset could not be regarded as a long-term capital asset within the meaning of Section 2(42A) of the Act.
2.14 On the issue of addition under Section 56(2)(x) of the Act, the Ld. CIT(A) held that the assessee was not entitled to the benefit of the provisos to Section 56(2)(x), since no satisfactory evidence had been brought on record to establish that any part of the consideration had actually been paid through banking channels on or before the date of the alleged allotment agreement. Accordingly, the addition of Rs.98,86,100/- representing the differential between the stamp duty valuation and the stated consideration was sustained.
2.15 Similarly, while adjudicating the issue relating to the nature of capital gain, the Ld. CIT(A) held that the assessee acquired legally enforceable rights in the property only upon execution and registration of the conveyance deed dated 11.08.2017 and, therefore, the gain arising on sale of the property on 13.10.2017 was rightly assessed by the Assessing Officer as Short-Term Capital Gain. In support of the aforesaid conclusion, reliance was placed upon the decisions of the Hon’ble Supreme Court in CIT v. Balbir Singh Maini 398 ITR 531 (SC) and Sanjeev Lal v. CIT  (SC)/[2014] 365 ITR 389 (SC).
2.16 The Ld. CIT(A), however, despite having considered the additional evidences on merits during remand proceedings, declined to formally admit the same under Rule 46A of the Income-tax Rules, 1962, observing that adequate opportunities had been afforded to the assessee during the course of assessment proceedings and that no sufficient cause had been demonstrated for failure to produce such evidences before the Assessing Officer. The appellate authority further held that none of the conditions prescribed under Rule 46A stood satisfied and, placing reliance upon the decisions in Goetze (India) Ltd. v. CIT (SC)/[2006] 284 ITR 323 (SC) and CIT v. Text Hundred India (Delhi)/[2013] 351 ITR 57 (Delhi), refused admission of the additional evidence. Consequently, the appeal of the assessee came to be dismissed.
3. Before us, the learned counsel appearing on behalf of the assessee invited our attention to Ground No. 1(c) relating to the admissibility of additional evidence furnished during the appellate proceedings. It was submitted that the registered agreement for purchase of the immovable property itself contained recitals evidencing that the consideration for acquisition of the property had been paid during Financial Years 2010-11 and 2012-13. According to the learned counsel, the allotment letter dated 10.04.2010 and the bank statements produced during the appellate proceedings were merely clarificatory and corroborative in nature, intended only to substantiate the material already placed before the Assessing Officer.
3.1 We have heard the rival submissions and perused the material available on record. In our considered opinion, once the learned CIT(A) proceeded to adjudicate the issue on merits after taking into consideration the additional evidences furnished by the assessee, such evidences must be deemed to have been admitted on record. In that view of the matter, any separate observation declining or disapproving the admission of such evidence would be selfcontradictory and legally unsustainable. Moreover, where the additional evidence is relevant and has a direct bearing on the adjudication of the controversy involved, the same deserves to be admitted in the interest of substantial justice so as to enable proper and effective adjudication of the dispute on merits. Accordingly, Ground No. 1(c) raised by the assessee stands allowed.
4. Insofar as Ground No. 1(a), challenging the addition of Rs.98,86,100/- made under section 56(2)(x) of the Act on account of the alleged excess of stamp duty valuation over the stated purchase consideration of the immovable property, is concerned, the learned counsel for the assessee submitted that the property in question had originally been allotted to the assessee during Financial Year 2010-11 vide allotment letter dated 10.04.2010. It was contended that the entire purchase consideration amounting to Rs.71,90,000/- had been paid through normal banking channels during Financial Years 2010-11 and 2012-13, comprising payment of Rs.10,00,000/- in Financial Year 2010-11 and Rs.61,90,000/- in Financial Year 2012-13. According to the learned counsel, though the building was completed and the formal agreement for registration was executed on 11.08.2017, the acquisition of rights in the property had already taken place much earlier pursuant to the allotment letter issued in Financial Year 2010-11. It was further submitted that, while the registration authorities valued the property at Rs.1,70,76,100/- for stamp duty purposes at the time of execution of the registered agreement dated 11.08.2017, the transaction itself had originated and substantially concluded long prior thereto.
4.1 The learned counsel further contended that the provisions of section 56(2)(x) of the Act were wholly inapplicable to the facts of the present case, since the said provision was inserted in the statute with effect from 01.04.2017, whereas the transaction for acquisition of the property had been entered into much prior to the said date. It was submitted that a transaction concluded prior to the introduction of the provision could not be retrospectively subjected to tax under section 56(2)(x). In support of the aforesaid proposition, reliance was placed upon the decisions of the Coordinate Benches in Benudhar Gokulanand Biswal v. National E assessment Centre [2023]  (Mumbai – Trib.), Smt. Kajari Banerjee v. ITO  (Kolkata – Trib.), and Dy. CIT v. Romell Housing LLP [2024] (Mumbai – Trib.).
4.2 Without prejudice to the aforesaid submissions, the learned counsel further submitted that even the provisions of section 56(2)(vii)(b), as they then stood, would not apply to the present case, since prior to the amendment brought about by the Finance Act, 2013 with effect from Assessment Year 2014-15, the said provision applied only to transactions involving receipt of immovable property without consideration and did not extend to transactions involving inadequate consideration. It was submitted that the amendment enlarging the scope of the provision to include inadequate consideration was prospective in operation, as held in Bajrang Lal Naredi v. ITO [2020] 203 TTJ 925 (Ranchi).
4.3 The learned counsel further submitted, without prejudice, that even assuming section 56(2)(x)(b)(B) to be applicable, the statutory framework itself recognizes that where the date of agreement fixing the consideration and the date of registration are different, the stamp duty valuation prevailing on the date of agreement is liable to be adopted, provided consideration or part thereof has been paid through account payee cheque, bank draft or electronic banking channels prior to the date of agreement. Referring to the First and Second Provisos to section 56(2)(x)(b)(B), the learned counsel submitted that the allotment letter dated 10.04.2010 constituted the operative agreement for transfer of the property and that substantial consideration had already been paid through banking channels during Financial Years 2010-11 and 2012-13.
4.4 Inviting our attention to page 88 of the paper book, the learned counsel submitted that the stamp duty valuation prevailing during Financial Year 2010-11 was Rs.1,44,000/- per square metre and, accordingly, the total stamp duty value of the office premises admeasuring 44.50 square metres worked out to Rs.64,08,000/(i.e. 44.50 sq mtr X 144,000 per Sq Mtr). It was, therefore, contended that the purchase consideration of Rs.71,90,000/- paid by the assessee was substantially higher than the applicable stamp duty valuation prevailing during Financial Year 2010-11. The learned counsel accordingly submitted that, once the First and Second Provisos to section 56(2)(x)(b)(B) are properly applied, no addition under section 56(2)(x) could legally survive.
4.5 The learned counsel lastly submitted that, once the acquisition of the property is accepted as having taken place in Financial Year 2010-11, the period of holding upon subsequent transfer during Financial Year 2017-18 would exceed thirty-six months and, consequently, the resultant gains would necessarily partake the character of long-term capital gains and not short-term capital gains, as erroneously held by the Assessing Officer.
5. We have given our thoughtful consideration to the rival submissions advanced on behalf of the parties and have carefully perused the material available on record, including the assessment order, the impugned appellate order, the remand report, the rejoinder filed by the assessee, and the documentary evidences placed in the paper book.
5.1 The principal controversy arising for adjudication pertains to the addition made under Section 56(2)(x) of the Income-tax Act, 1961, representing the alleged differential between the stamp duty valuation and the consideration disclosed by the assessee in respect of the immovable property acquired by her. The consequential issue relates to the character of the resultant capital gain, namely, whether the same is liable to be assessed as Short-Term Capital Gain or Long-Term Capital Gain.
5.2 The foundation of the addition made by the Assessing Officer, and sustained by the learned CIT(A), rests substantially upon the premise that the assessee acquired enforceable rights in the property only upon execution of the registered conveyance deed dated 11.08.2017 and that the allotment letter dated 10.04.2010 lacked credibility. The learned CIT(A) further proceeded on the assumption that the conditions prescribed in the provisos to Section 56(2)(x)(b)(B) stood unfulfilled merely because the cheque towards part payment of consideration, though admittedly tendered earlier, was realized through banking channels on a subsequent date. In our considered opinion, the aforesaid approach of the lower authorities is unduly hyper-technical, contrary to the legislative intent underlying the provisos, and unsustainable in law.
5.3 It is not in dispute that the allotment letter dated 10.04.2010 specifically records receipt of cheque payment of Rs.10,00,000/from the assessee. The explanation furnished by the assessee that the original cheque could not be realized owing to technical banking reasons and that a substitute cheque was thereafter honoured through banking channels has neither been disproved by any cogent evidence nor found to be inherently improbable. Merely because the cheque amount ultimately stood debited from the bank account of the assessee on 05.08.2010 cannot, by itself, lead to the inference that the allotment letter was fabricated or subsequently created. Once the cheque had already been tendered by the assessee, the timing of its presentation or encashment substantially remained within the domain and control of the recipient developer. The assessee cannot be denied the statutory benefit merely on account of procedural or banking delays which do not alter the substantive nature of the transaction.
5.4 In our considered view, the requirement contemplated under the Second Proviso to Section 56(2)(x)(b)(B) is one of substantial and demonstrable compliance and not of pedantic or ritualistic exactitude. The evidences placed on record sufficiently establish that part consideration had, in fact, moved through banking channels pursuant to and contemporaneous with the allotment arrangement. Consequently, the objection raised by the Revenue that the conditions of the proviso stood violated is devoid of merit and liable to be rejected.
5.6 We are equally unable to subscribe to the reasoning adopted by the learned CIT(A) that the transaction deserves to be viewed adversely merely because the assessee was associated with entities belonging to the Naman Group or because her father was a Director in the seller company. Relationship between parties, by itself, cannot constitute a legal ground to disregard otherwise valid documentary evidences, particularly in the absence of any material establishing sham, collusion, colourable device, or flow-back of consideration. Suspicion, however strong, cannot substitute proof. The conclusions drawn by the lower authorities in this regard are founded more on conjecture than on legally admissible evidence.
5.7 Once the assessee is held entitled to the benefit of the First and Second Provisos to Section 56(2)(x)(b)(B), the stamp duty valuation as on the date of the allotment agreement is required to be adopted for the purposes of comparison with the purchase consideration disclosed by the assessee. The assessee has placed material on record indicating that the stamp duty valuation prevailing during Financial Year 2010-11 worked out to Rs.64,08,000/-, which is admittedly lower than the purchase consideration of Rs.71,90,000/- paid by the assessee. If such valuation is found to be correct upon verification, no addition under Section 56(2)(x) could legally survive.
5.8 At the same time, since the precise stamp duty valuation prevailing as on the date of allotment requires factual verification from the relevant statutory records, we deem it appropriate, in the interest of justice, to restore the matter to the file of the Assessing Officer for the limited purpose of verifying the stamp duty valuation of the property as on 10.04.2010. In the event the valuation so verified is found to be lower than or commensurate with the purchase consideration disclosed by the assessee, no addition under Section 56(2)(x) shall survive. The Assessing Officer shall confine himself strictly to the aforesaid limited verification and thereafter decide the issue afresh in accordance with law after affording reasonable opportunity of hearing to the assessee.
5.9 Insofar as the issue relating to the nature of capital gain is concerned, once the allotment letter dated 10.04.2010 is accepted as conferring substantive and enforceable rights in the property and the substantial consideration stood paid during Financial Years 2010-11 and 2012-13, the period of holding necessarily has to be reckoned from the date of allotment and not merely from the date of execution of the formal conveyance deed. The approach adopted by the lower authorities in treating the date of registration alone as determinative of acquisition is legally misconceived and contrary to the settled principles governing allotment-based acquisition of immovable property. Consequently, the gain arising on transfer of the property on 13.10.2017 is liable to be assessed as Long-Term Capital Gain and not as Short-Term Capital Gain as erroneously held by the authorities below.
5.10 Accordingly, Ground No. 1(b) raised by the assessee stands allowed, whereas Ground No. 1(a) is restored to the file of the Assessing Officer for the limited verification indicated hereinabove.
6. In the result, the appeal of the assessee is allowed for statistical purposes.