Applicability of section 56(2)(x) to stock-in-trade purchases of property rejected where acquisition predates provision, addition denied

Section 56(2)(x) applicability to transactions recorded as stock-in-trade is examined: because the acquisition was entered in books as stock-in-trade in the assessment year corresponding to 1977-78, the deeming provision introduced w.e.f. 01.10.2009 does not apply retroactively; therefore the deeming charge cannot be invoked now and no addition arises. The analysis distinguishes transactions of purchase recorded as stock-in-trade from later registration formalities, treating non-application of the deemed income provision as determinative of taxability, resulting in rejection of the revenue addition.

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Issues: Whether section 56(2)(x) of the Income-tax Act, 1961 applies to immovable property that was purchased and entered in books as stock-in-trade in assessment year corresponding to 1977-78 though conveyance was registered in 2018.

Analysis: The Tribunal examined (i) the treatment of the disputed property in the assessee's books and prior assessments showing it as stock-in-trade from the year of purchase, (ii) the scope and purpose of section 56(2)(x) introduced by the Finance Act, 2009, and (iii) precedents of coordinate benches holding that provisions like section 56(2)(x) apply to property in the nature of capital assets and do not normally extend to stock-in-trade held in the normal course of business. The Tribunal noted that the Revenue did not dispute the accounting treatment of the property as stock-in-trade, that possession and consideration were effected in 1977-78 though formal registration occurred later, and that section 56(2)(x) was a statutory provision introduced decades after the transaction. Applying these principles, and following coordinate-bench decisions which exclude stock-in-trade from the ambit of corresponding anti-evasion provisions, the Tribunal concluded that the provision cannot be invoked against a bona fide business treatment of property recorded as stock-in-trade at the time of acquisition.

Conclusion: Section 56(2)(x) of the Income-tax Act, 1961 is not applicable to the disputed transaction; result is in favour of the assessee and the Revenue's appeal is dismissed while the assessee's appeal is allowed.

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