2025 (8) TMI 37 - AT - Income Tax

Stamp Duty Value Adopted for Property Transfer Income Under Section 56(2)(x)(b); No Capital Gains Addition Under Section 50C

Ketan Himatlal Mehta Versus Deputy Commissioner of Income Tax 1 (1) (1), Mumbai

The ITAT Mumbai held that the assessee's consideration for the transfer of immovable property, evidenced by a valid agreement and adjustment entries in ... Additions u/s 56(2)(x)(b) - Assessee had provided vague explanation regarding the source of purchase consideration and therefore, AO treated the consideration paid by the Assessee as ‘Nil’ and treated the aggregate stamp duty value as income from other sources - HELD THAT:- There was clearly an agreement between the Assessee and the partnership firm (Sunket Associates) fixing the consideration for transfer/sale of immovable property - The entire consideration was paid by way of adjustment entry passed in the books of account as on the date of Declaration Deed whereby the withdrawal of capital by the Assessee was shown from the partnership firm by way of allocation of units/property held by the partnership firm as stock in trade. It is not even the case of the Revenue that the Assessee had introduced capital in the partnership firm by way of cash or modes other than the modes prescribed. On perusal of the Capital Account of the Assessee as on 31/03/2009, we find that the capital was introduced by the Assessee through banking channel and the same was sufficient for allocation of part payment for acquisition of immovable Property 1A & 1B. We direct the AO to adopt the stamp duty value as on the date of the Declaration Deed (i.e., 25/12/2008) for the purpose of determining the applicability of Section 56(2)(x)(b) read with the Provisos thereto and addition, if any, under the said section. Addition deleted - Decided in favour of assessee. Long Term Capital Gain u/s 50C - On perusal of record we find that in respect of Property Sold the AO has recorded that the difference between stamp duty value and consideration is INR. 15,80,568/- which is less than 10% of the recorded consideration value of INR. 2,66,80,568/-. Therefore, we hold that in the facts and circumstances of the present case no addition under Section 50C of the Act was warranted in the hands of the Assessee. Accordingly, order the CIT(A) is overturned and the addition of LTCG is deleted. Thus, Ground No. 3 raised by the Assessee is allowed. ISSUES: Whether additions under Section 56(2)(x)(b) of the Income Tax Act, 1961 are justified where immovable properties were purchased at consideration less than stamp duty value, and whether the proviso to Section 56(2)(x)(b) regarding stamp duty value on the date of agreement applies.Whether there is an arithmetical error in the additions made under Section 56(2)(x)(b) of the Act.Whether enhancement of Long Term Capital Gains (LTCG) under Section 50C of the Act is justified where the difference between the stamp duty value and sale consideration is less than 10%.Whether the order confirming the additions is bad in law and contrary to the provisions of the Act. RULINGS / HOLDINGS: On the applicability of Section 56(2)(x)(b), the Court held that the stamp duty value as on the date of the Declaration Deed (25/12/2008) shall be adopted for determining the income under Section 56(2)(x)(b), as the Assessee had an agreement fixing consideration and payment through prescribed banking channels, satisfying the Proviso to Section 56(2)(x)(b). Accordingly, the addition of INR 1,35,17,669/- was deleted.The alleged arithmetical error in the addition under Section 56(2)(x)(b) was dismissed as infructuous after the primary addition was deleted.Regarding enhancement of LTCG under Section 50C, the Court held that no addition was warranted where the difference between the stamp duty value and declared sale consideration was less than 10%, relying on coordinate bench decisions interpreting the third proviso to Section 50C(1) as applicable retrospectively and harmoniously with Section 56(2)(x)(b). Therefore, the addition of LTCG of INR 6,30,873/- was deleted.Since Grounds No. 1 and 3 were allowed, the ground challenging the legality of the order was dismissed as academic. RATIONALE: The Court applied the statutory framework of Section 56(2)(x)(b) of the Income Tax Act, 1961, particularly its provisos which allow adoption of stamp duty value on the date of agreement if consideration is paid through specified banking channels, thereby excluding additions where these conditions are met.The Court relied on the Declaration Deed and audited financial statements to establish that the Assessee had received the property consideration through proper banking channels and that the agreement fixing consideration existed prior to the relevant assessment year, thereby invoking the Proviso to Section 56(2)(x)(b).In addressing the enhancement of LTCG under Section 50C, the Court followed precedents from coordinate benches which held that the 10% tolerance band introduced by the Finance Act, 2018, operates retrospectively and applies equally to buyers and sellers, preventing additions when the difference between stamp duty value and consideration is within 10%.The Court harmonized the provisions of Sections 50C, 43CA, and 56(2)(x), interpreting them to ensure legislative intent is fulfilled and to avoid contradictory valuations for the same property between buyer and seller.No dissenting or concurring opinions were recorded.