Section 56(2)(vii)(b) Addition Not Sustainable When Property Valuation Taken from Allotment Date Due to Agreement and Payments

Issue:

Whether an addition under Section 56(2)(vii)(b) of the Income-tax Act, 1961 (income from other sources due to difference between property’s set forth value and stamp duty valuation) is sustainable when the assessee entered into a purchase agreement and received an allotment letter, and payments were made through banking channels, but the Assessing Officer (AO) considered the stamp duty valuation (SDV) on the date of registration instead of the date of allotment/agreement.

Facts:

For the assessment year 2017-18, the assessee had entered into an agreement with a promoter-builder in the financial year 2009-10 to purchase a flat for a total consideration of ₹1.05 crores. The Assessing Officer (AO) subsequently made an addition under Section 56(2)(vii)(b) due to a difference between the “set forth value” (₹1.05 crores) and the stamp duty valuation (SDV) of the property, which was higher at the time of registration in FY 2017-18.

The assessee contended that the valuation of the property for the purpose of Section 56(2)(vii)(b) should be taken as on the date of allotment (FY 2009-10) when the agreement was made, not on the date of registration in FY 2017-18. The assessee further supported this by placing a valuation report from a Government-approved valuer, where the valuation of the property was adopted for FY 2009-10, also amounting to ₹1.05 crores. It was established that the assessee entered into an agreement, an allotment letter was duly issued by the promoter, and payments were made through banking channels.

Decision:

Yes, the court ruled in favor of the assessee. It held that since the assessee entered into an agreement, an allotment letter was duly issued by the promoter, and payment was made through banking channels, the stamp duty valuation of the property should be taken as on the date of allotment (FY 2009-10). Consequently, as there was no discrepancy in the purchase value declared by the assessee, the addition made under Section 56(2)(vii)(b) by the Assessing Officer was not sustainable.

Key Takeaways:

Date of Agreement vs. Date of Registration for Section 56(2)(vii)(b): This case clarifies that when a binding agreement for the purchase of immovable property is entered into, and a part or whole of the consideration is paid through banking channels before the date of registration, the stamp duty value to be considered for Section 56(2)(vii)(b) should be the SDV as on the date of the agreement/allotment, not the later date of registration. This aligns with the first proviso to Section 50C, which allows for this treatment for capital gains purposes and is often extended to Section 56(2)(vii)(b) through judicial interpretation to prevent undue hardship.
Protection Against Price Rise: The provision is designed to tax undisclosed income or “gifts” in disguised forms, not to tax a genuine purchaser for the increase in stamp duty value that occurs between the agreement date and the registration date, especially when payments are made upfront.
Substantiation of Transaction: The assessee successfully substantiated the genuineness of the transaction by proving the existence of an agreement, allotment letter, and payments through banking channels.
Relevance of Valuation Report: The government-approved valuer’s report for the date of allotment further strengthened the assessee’s contention regarding the property’s value at the time of agreement.
No Discrepancy in Purchase Value: If the purchase value declared by the assessee matches the SDV on the relevant date (date of agreement), then there is no “difference” that attracts Section 56(2)(vii)(b).
Favor of Assessee: The decision is in favor of the assessee, preventing an addition based on a valuation difference that arose due to a time lag between agreement and registration, rather than actual inadequacy of consideration.

IN THE ITAT MUMBAI BENCH ‘F’

Sudha Agrawal

Income-tax Officer

ANIKESH BANERJEE, Judicial Member
and Miss Padmavathy S., Accountant Member

IT Appeal No. 639 (Mum.) OF 2025
[Assessment year 2017-18]

MARCH 12, 2025

Ashish Thakur Desai for the Appellant. Ms. Kavitha Kaushik, SR DR for the Respondent.

ORDER

Anikesh Banerjee, Judicial Member. – The instant appeal of the assessee was filed against the order of theNational Faceless Appeal Centre, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2017-18, date of theorder04.12.2024.The impugned order was emanated from the order of the Assessment Unit, Income-tax Department (in short, ‘the A.O.’) passed under section147 read with section 144Bof the Act, date of order 02/05/2023.

2. The assessee has taken the following grounds of appeal:-

” 1. On facts, in circumstances of the case and in law, the learned Commissioner of Income Tax- Appeals, National Faceless Appeal Centre ought to have held that reopening of assessment of the appellant is invalid in law.

2.On facts, in circumstances of the case and in law, the learned Commissioner of Income Tax – Appeals, National Faceless Appeal Centre ought to have held that since the impugned notices under section 148, 148A(b) & 148A(d) have been issues by Jurisdictional Assessing Officer, the subsequent assessment order passed by the Assessing Officer is null and void.

3 On facts, in circumstances of the case and in law, the learned Commissioner of Income Tax – Appeals, National Faceless Appeal Centre ought to have held that since notice under section 148 has been issued without valid DIN, the subsequent assessment order passed by the Assessing Officer is invalid in law.

4. On facts, in circumstances of the case and in law, the learned Commissioner of Income Tax-Appeals, National Faceless Appeal Centre erred in confirming addition of Rs.97,72,517/- by the Assessing Officer, as income from other source u/s 56(2)(vii)(b) of the Income Tax Act, 1961.

5.The appellant craves leave to add, alter, modify or delete any of the above Grounds of Appeal.”

3. The brief facts of the case are that the assessee has challenged the addition made under Section 56(2)(vii)(b) of the Act, which pertains to the difference between the registered value and the set forth value of Flat No. 904, Wing-H, Octacrest, Kandivali East, Mumbai. The assessee’s grievance is that the revenue authorities failed to duly consider the provisions of Section 56(2)(vii)(b) while making the addition of Rs.97,72,517/-, being the difference between the set forth value and the stamp duty valuation of the property. The assessee contends that the property was duly allotted by the promoter on 08/11/2019, and payments were made at the time of allotment and on subsequent dates, totaling Rs.1,05,00,000/-. This was the final settled consideration, and the property was registered at the same value, which was taken as the set forth value. However, the stamp duty valuation, as per the Stamp Duty Registration, amounted to Rs.2,02,72,517/-, resulting in an addition of Rs.97,72,517/- under Section 56(2)(vii)(b) of the Act.

Aggrieved by this addition, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A), however, treated the assessee’s allotment letter as a self-serving document and ultimately dismissed the appeal. Being dissatisfied with the order of the Ld. CIT(A), the assessee has now preferred the present appeal before us.

4. The Ld.AR argued and filed a written submission containing pages 1 to 124. The Ld.AR first invited our attention related to the letter of allotment by the promoter dated 08/11/2009 annexed in APB pages 21-23. The assessee has made the payment at the time of allotment and also at the later dates. The details of payments alongwith supporting bank statements and receipt from builders are duly annexed in APB pages 25-84. It is also argued that the delay was on the part of the builder and the letter so given by the builder for the reasons of delay is annexed at pages 85-91. The assessee has gone through an agreement which was executed on the same day, i.e. 08/11/2009 and the said agreement is duly annexed at pages 102-124. The grievance is that the Proviso to section 56(2)(vii)(b) is applicable, as the valuation of the property should be taken as on the date of agreement, i.e. related to F.Y. 2009-10. But the Ld. AO erroneously has considered the valuationof the property on date of registration related to AY 2017-18. The Ld.AR further placed a valuation report of the government approved valuer dated 01/02/2023 and where the valuation of the property was adopted for FY 2009-10 amount to Rs.1,05,00,000/-. The said valuation report is annexed in APB pages 92 – 101. So, in any case, the addition of Rs.97,72,517/- for the impugned assessment year is bad in law.

5. The Ld.DR argued and fully relied on the orders of the revenue authorities.

6. We have heard the rival submissions and examined the documents available on record. A plain reading of the proviso to Section 56(2)(vii)(b) of the Act reveals the following:

“56(2)(vii)………………

(b) Any immovable property,—

(i) Without consideration, if the stamp duty value exceeds fifty thousand rupees, the stamp duty value of such property shall be considered.

(ii) If acquired for consideration that is less than the stamp duty value by an amount exceeding fifty thousand rupees, the portion of the stamp duty value exceeding such consideration shall be considered.

Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value as on the date of the agreement may be taken for the purposes of this sub-clause:

Provided further that this proviso shall apply only if the consideration, or part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property.”

(Emphasis supplied)

In the present case, the assessee entered into an agreement, and the allotment letter was duly issued by the promoter. The payment was made through banking channels. Therefore, the stamp duty valuation of the property should be taken as on the date of allotment, i.e., F.Y. 2009-10.Upon perusal of the valuation report, it is noted that the valuation of the property, as determined by the registered valuer, is Rs.1,05,00,000/-. There is no discrepancy in the purchase value declared by the assessee. Consequently, the addition of Rs.97,72,517/-, representing the difference between the set forth value and the stamp duty value, cannot be sustained in the impugned assessment year. Accordingly, the said addition is quashed.Further, we remit the matter to the file of the Ld. AO with a direction to consider the stamp duty valuation as per the financial year of the agreement, i.e., F.Y. 2009-10, and to recompute the assessment accordingly. Needless to say, the assessee should get reasonable opportunity of hearing in set aside assessment proceeding. The impugned appeal order is set aside, and the matter is remanded to the Ld. AO for this limited purpose.

7. In the result, appeal of the assessee bearing ITA No. No.639/Mum/2025 is allowed.