Section 56(2)(x) addition deleted when property consideration paid through banking channels before agreement date

The ITAT Mumbai held that addition under section 56(2)(x) based on difference between stamp duty value and agreed sale consideration should be deleted. The assessee entered into an agreement in 2013 for a MHADA flat, with initial payment made on 19.12.2013 through banking channels before the agreement date. The allotment letter was issued to the original party on 06.01.2014, and the assessee paid cooperative society charges including maintenance and administrative fees on 05.02.2014. The property was jointly purchased by the assessee and spouse. The tribunal found that provisions of section 56(2)(x) were applicable, but considering that part consideration was paid through account payee cheque prior to the agreement date, the stamp duty value as on the agreement date in FY 2013-14 should be considered. The appeal was allowed and the addition deleted.

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ISSUES:

Whether the addition under section 56(2)(x) of the Income-tax Act, 1961, on the difference between the stamp duty value and the actual purchase consideration of an immovable property is justified when the property was purchased through an unregistered agreement with payment made partly by banking channels prior to registration.Whether the provisions of section 56(2)(x) apply when the date of agreement fixing the consideration and the date of registration of the property are different, but part of the consideration was paid by account payee cheque or bank draft before the agreement date.Whether addition under section 56(2)(x) can be made in the assessment year 2020-21 for a property transaction effectively completed in financial year 2013-14.Whether registration of an agreement is mandatory for property transactions involving cooperative societies under the Maharashtra Cooperative Societies Act, 1960.

RULINGS / HOLDINGS:

The addition under section 56(2)(x) based on the difference between the stamp duty value and the actual purchase consideration is not justified where the purchase consideration was paid partly through banking channels prior to the agreement date and possession was taken in the relevant financial year; thus, the stamp duty value as on the agreement date shall be taken into account.The provisos to section 56(2)(x) apply where the date of agreement and registration differ, and part of the consideration has been paid by an account payee cheque or bank draft on or before the agreement date; hence, the stamp duty value on the agreement date is relevant for valuation.Addition under section 56(2)(x) cannot be made in the assessment year 2020-21 for a property transaction that was effectively completed in financial year 2013-14, as it would violate the provisions of income tax laws regarding the timing of income recognition.Registration of an agreement is not mandatory for transactions relating to shares and debentures of cooperative societies under the Maharashtra Cooperative Societies Act, 1960, thereby supporting the validity of unregistered agreements in such contexts.

RATIONALE:

The Court applied the statutory framework of section 56(2)(x) of the Income-tax Act, 1961, including its provisos which allow the stamp duty value on the date of agreement to be taken where registration occurs later, provided part of the consideration is paid by banking instruments before the agreement date.The Court relied on documentary evidence of payments made through account payee cheques and bank drafts prior to the agreement date, possession of the property taken in the relevant financial year, and payment of society charges, establishing the transaction's effective completion in financial year 2013-14.The Court referred to precedent regarding the non-mandatory nature of registration for cooperative society instruments under the Maharashtra Cooperative Societies Act, 1960, to uphold the validity of the unregistered sale agreement.There was no dissent or doctrinal shift; the decision adhered to established interpretations of section 56(2)(x) and related procedural principles concerning timing and valuation of property transactions for income tax purposes.

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