Tribunal deletes tax addition citing timing issue, favors assessee under Income Tax Act

The Tribunal allowed the appeal, directing the deletion of the entire addition under section 56(2)(vii)(b)(ii) of the Income Tax Act. The Tribunal held that the Assessing Officer was not entitled to apply the provision as the relevant sub-clause was not in effect at the time of the property sale agreement. The decision favored the assessee, emphasizing the timing discrepancy between the agreement and the introduction of the sub-clause.

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Issues:
- Addition u/s 56(2)(vii)(b)(ii) of I.T. Act on property value difference

Analysis:
1. The appeal was against the order confirming the addition of Rs. 10,35,918 under section 56(2)(vii)(b)(ii) of the Income Tax Act for the assessment year 2014-15. The Assessing Officer noted a difference between the consideration amount paid by the assessee and the stamp duty value of the property purchased by the assessee along with co-owners. The Assessing Officer contended that the property value was understated by the assessee, leading to the addition.

2. The assessee argued that the provision of section 56(2)(vii)(b)(ii) was not applicable as the property was purchased before the amendment effective from April 1, 2013. The assessee claimed that substantial consideration was paid before the amendment date, and possession was taken prior to that as well. However, both the Assessing Officer and the CIT(A) upheld the addition, stating that the amendment was widely known before its enactment.

3. During the appeal before the Tribunal, the assessee contended that the sub-clause (ii) of section 56(2)(vii) was introduced for AY 2014-15, allowing the AO to tax the difference if consideration was less than the stamp duty value. The assessee argued that since the sub-clause was not in effect at the time of the agreement, the AO could not apply it. The Tribunal referred to similar cases and held that the AO was not entitled to invoke the provision in the absence of sub-clause (ii) at the time of the property sale agreement.

4. The Tribunal found that the AO and CIT(A) did not investigate the genuineness of the agreement or provide evidence of excess consideration. The Tribunal noted that the substantial part of the consideration was paid before the amendment date, and possession was obtained at the time of the agreement. Therefore, the Tribunal allowed the appeal, directing the deletion of the entire addition under section 56(2)(vii)(b)(ii).

5. The Tribunal's decision was announced on August 31, 2021, in favor of the assessee, emphasizing that the AO was not entitled to apply the provision in the absence of the relevant sub-clause at the time of the property sale agreement.

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