2025 (1) TMI 96 - AT - Income Tax

Agricultural land purchase difference between fair market value and consideration deleted under section 56(2)(vii)(b)(ii)

Smt. Vimla Tripathi Versus The Income Tax Officer Ward 1 (2) (1) Kanpur

ITAT Lucknow allowed the appeal and directed deletion of addition under section 56(2)(vii)(b)(ii) regarding difference between fair market value and ... Addition u/s 56(2)(vii)(b)(ii) - difference between the Fair Market Value and the consideration paid by the assessee for purchase of the agricultural land - HELD THAT:- As undisputed that the impugned transaction was carried out on 01.08.2012 i.e. in financial year 2012-13. Thus, in such circumstances, the provisions prior to the amendment would squarely apply and, therefore, the AO could not have legally brought this transaction within the ambit of tax. The observation of the First Appellate Authority, that the transaction was without consideration, is also incorrect, inasmuch as, it is undisputed that the assessee had parted with a sum of Rs. 6 lakhs towards consideration. We find merit in the issue raised on behalf of the assessee and, accordingly, set aside the order of the Ld. First Appellate Authority and direct the AO to delete the impugned. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions addressed in this judgment include:Whether the addition of Rs. 29,65,000/- to the assessee's income under section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961, was legally sustainable given the timing of the transaction and the nature of the asset.Whether the provisions of section 56(2)(vii)(b)(ii) apply to agricultural land transactions conducted before the section's effective date.Whether the assessment order was void ab initio due to procedural lapses such as incorrect jurisdiction and lack of proper approval under section 151 of the Income Tax Act.Whether the principles of natural justice were violated by the closure of the reply window prematurely, preventing the appellant from making submissions.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Applicability of Section 56(2)(vii)(b)(ii)Relevant legal framework and precedents: Section 56(2)(vii)(b)(ii) of the Income Tax Act deals with the taxation of income from other sources, specifically concerning the difference between the fair market value and the consideration paid for certain transactions.Court's interpretation and reasoning: The Tribunal noted that the transaction occurred on 01.08.2012, prior to the section's effective date of 01.04.2014. Therefore, the section could not be legally applied to the transaction.Key evidence and findings: The assessee had paid Rs. 6 lakhs as consideration for the agricultural land, contradicting the claim of a transaction without consideration.Application of law to facts: The Tribunal found that the provisions of section 56(2)(vii)(b)(ii) were inapplicable to the transaction due to its timing and the nature of the asset (agricultural land).Treatment of competing arguments: The Tribunal rejected the lower authorities' interpretation that the transaction was without consideration and thus subject to the section.Conclusions: The addition of Rs. 29,65,000/- was unsustainable, and the Tribunal directed its deletion.Issue 2: Procedural Lapses and JurisdictionRelevant legal framework and precedents: Sections 147, 148, and 151 of the Income Tax Act govern the reopening of assessments and the procedural requirements for issuing notices and obtaining approvals.Court's interpretation and reasoning: The Tribunal observed procedural lapses, including premature closure of the reply window and mechanical approval under section 151.Key evidence and findings: The Tribunal found that the assessment proceedings were initiated based on vague reasons, lacking a live link to the recorded reasons.Application of law to facts: The Tribunal determined that these procedural lapses rendered the assessment order void ab initio.Treatment of competing arguments: The Tribunal sided with the appellant, highlighting the procedural deficiencies that compromised the validity of the assessment order.Conclusions: The Tribunal quashed the assessment order due to procedural irregularities and jurisdictional errors.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The provisions prior to the amendment would squarely apply and, therefore, the AO could not have legally brought this transaction within the ambit of tax.'Core principles established: The Tribunal reinforced that tax provisions cannot be retroactively applied to transactions conducted before their effective date, particularly when the asset in question is not a capital asset under the relevant section.Final determinations on each issue: The Tribunal set aside the order of the First Appellate Authority, directing the deletion of the addition. Procedural lapses and jurisdictional errors further invalidated the assessment order.Conclusion: The Tribunal's judgment emphasizes the importance of adhering to procedural requirements and the effective dates of statutory provisions. The decision underscores the necessity for tax authorities to ensure compliance with legal standards and procedural justice, particularly in assessing transactions involving non-capital assets like agricultural land.