2025 (7) TMI 1747 - AT - Income Tax

Section 56(2)(vii)(b)(ii) Applies Only to Individuals and HUFs, Not Partnership Firms for Immovable Property Transactions

Kalptaru Infrabuild Versus Principal Commissioner of Income Tax-3, Ahmedabad

The ITAT Ahmedabad held that Section 56(2)(vii)(b)(ii) is applicable only to Individuals and HUFs receiving immovable property for inadequate ... Revision u/s 263 - Addition u/s 56(2)(x) - difference between stamp value and purchase consideration - HELD THAT:- So far as taxability of a partnership firm under Section 56(2)(vii)(b)(ii) of the Act is concerned, we observe that this provision is applicable specifically only to Individuals and HUF receiving immovable property for inadequate consideration. A partnership firm being a distinct entity under Section 4 of the Partnership Act, 1932 and assessed as a “firm” under the Income Tax Act falls outside the ambit of Section 56(2)(vii)(b)(ii) of the Act. This has been so upheld in the case of Shri Mohit Gupta [2025 (3) TMI 595 - ITAT DELHI] Accordingly, since the case of the assessee did not fall under any of the specific charging provisions of Section 56 of the Act, for the impugned year under consideration, we are of the considered view that this is not a fit case for initiating 263 proceedings, considering the assessee’s set of facts. Appeal of the assessee is allowed. ISSUES: Whether the Principal Commissioner of Income Tax (PCIT) had jurisdiction to invoke Section 263 of the Income Tax Act on the ground that the assessment order was erroneous and prejudicial to the interest of revenue.Whether Section 56(2)(vii)(b)(ii) of the Income Tax Act, which taxes the difference between stamp duty value and purchase consideration of immovable property as income from other sources, applies to a partnership firm.Whether the Assessing Officer (AO) erred in not making any addition or adjustment in the assessment despite the purchase price of immovable property being below its stamp duty valuation.Whether the provisions of Section 56(2)(x) of the Income Tax Act, inserted by Finance Act, 2017 with effect from 01.04.2017, apply to the transaction where the deed of conveyance was executed on 31.03.2017 but registered after 01.04.2017.Whether the date of execution or the date of registration of the deed of conveyance determines the applicability of Section 56(2)(x) of the Income Tax Act. RULINGS / HOLDINGS: The PCIT erred in assuming jurisdiction under Section 263 as the assessment order was not 'erroneous and prejudicial to the interest of revenue' given the facts and applicable law.Section 56(2)(vii)(b)(ii) of the Act is applicable specifically and only to Individuals and Hindu Undivided Families (HUF), and does not extend to partnership firms, which are distinct entities assessed under the Income Tax Act.The AO did not err in finalizing the assessment without variation since the relevant provision for taxing such difference was not applicable to the partnership firm for the impugned assessment year.The provisions of Section 56(2)(x) of the Act, effective from 01.04.2017, do not apply to transactions where the deed of conveyance was executed prior to that date, even if registration occurred after 01.04.2017.The operative date of the deed of conveyance for tax purposes is the date of execution (31.03.2017), not the date of registration, thereby excluding the transaction from the scope of Section 56(2)(x) for the relevant assessment year. RATIONALE: The Court applied the statutory framework under the Income Tax Act, specifically Sections 56(2)(vii)(b)(ii), 56(2)(x), and 263. It noted that Section 56(2)(vii)(b)(ii) applies only to Individuals and HUFs, excluding partnership firms as distinct entities under Section 4 of the Partnership Act, 1932.The Court relied on precedent from the Mumbai ITAT which held that Section 56(2)(x), introduced from 01.04.2017, does not apply to conveyances executed prior to that date despite registration occurring later, emphasizing the date of execution as determinative.The Court acknowledged that the AO had referred the matter to the Departmental Valuation Officer (DVO) but finalized the assessment due to limitation constraints; however, since the charging provision was inapplicable, no addition was warranted.The Court rejected the PCIT's view that the AO should have provisionally adopted the stamp duty valuation pending the DVO report, as the legal provisions did not mandate such action for partnership firms under the facts.The decision reflects a strict interpretation of the applicability of charging provisions and procedural jurisdiction under Section 263, avoiding expansion beyond legislative intent and established case law.