2025 (9) TMI 345 - AT - Income Tax

Addition under s.50C read with s.56(2)(x) deleted where earlier transfer completed and 2006 agreement value lower than 2018 SRO value

ITAT MUMBAI - AT held that addition under s.50C read with s.56(2)(x) cannot be sustained where vendor had earlier transferred all rights and the ... Addition u/s 50C r/w section 56(2) (x) - stamp duty value for the property as on the date of registration per was more than the agreement value - HELD THAT:- There is no doubt that the vendor (or original allottee by MAHADA) transferred all the right title and interest in the said property in the name of assessee. The registration of the sale deed carried on 23/03/2018 complete ownership of the said property in the name of assessee. It is noted that there is nothing on record brought by the DR or authorities below to prove any action taken by MAHADA against the original allottee or the assessee any violation. As per the I.T. Act read with Transfer of Property Act, the said property was transferred in the name of assessee in the year 2006. As on the date of registration, the value of the said property increased due to passage of time. Under such circumstances, provisions of Section 50C cannot be invoked merely because the value adopted by the assessee on 19/10/2006 was less than the stamp duty value as on date of Registration being 23/03/2018. It is noted that the Ld. AO Choose to assessee income adopting the SRO value as on the date of registration without carrying out any verification with the vendor. Therefore direct the AO to delete the addition made in the hands of the assessee. Accordingly Grounds raised by the assessee stands allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the differential between agreement price (2006) and stamp duty (SRO) value at registration (2018) can be treated as income under section 56(2)(x) by invoking the deeming operation of section 50C where the assessee claims effective transfer and payment in 2006 but registration occurred in 2018. 2. Whether the assessee's documentary evidence (agreement to sell dated 19/10/2006, affidavit, indemnity bond, power of attorney, society membership certificate, electricity bill, ration card) is sufficient to establish transfer of rights, title and interest and payment of consideration in 2006 so as to exclude application of section 50C/56(2)(x). 3. Whether the revenue's contention that the 2006 agreement is an afterthought and that the real transfer occurred only on registration in 2018 is substantiated by material on record. ISSUE-WISE DETAILED ANALYSIS Issue 1: Application of section 50C read with section 56(2)(x) where registration occurs in 2018 but alleged transfer and payment in 2006 Legal framework: Section 50C deems the stamp duty value at the date of transfer/registration to be the full value of consideration for computing capital gains where the stamp duty value exceeds declared consideration; section 56(2)(x) treats receipt of property for inadequate consideration as income from other sources unless specified proviso conditions (including pre-agreement payment by specified modes) are satisfied. Precedent treatment: The Tribunal applied the statutory interplay between s.50C and s.56(2)(x) as relied upon by the AO and CIT(A); no new precedent was overruled or distinguished in the reasoning. The Court examined factual matrix to determine whether the deeming provisions could be invoked. Interpretation and reasoning: The Tribunal found that invocation of s.50C/s.56(2)(x) cannot rest solely on comparison of stamp duty value at registration and an earlier declared agreement value where evidence shows transfer of rights and payment before registration. The Court emphasized that passage of time and consequent increase in market/stamp duty value by 2018 does not automatically permit application of s.50C to a transaction that, on the assessee's case and supporting contemporaneous documents, took place in 2006. Ratio vs. Obiter: Ratio - where credible contemporaneous evidence establishes effective transfer and payment prior to the registration date, the deeming under s.50C (and consequent addition under s.56(2)(x)) should not be mechanically applied based solely on SRO value at registration. Conclusions: The Tribunal concluded that s.50C could not be invoked against the assessee on the facts established; the addition under s.56(2)(x) adopting the SRO value at registration was unsustainable and was directed to be deleted. Issue 2: Sufficiency and credibility of documentary evidence to prove transfer and payment in 2006 Legal framework: The burden is on the assessee to substantiate the date of transfer and mode/time of payment where the revenue invokes deeming provisions; proof may include dated agreements, payment records, and contemporaneous acts evidencing possession/ownership. Precedent treatment: The Tribunal treated contemporaneous documentation and external acts of ownership (membership admission, utility bills, ration card) as relevant evidentiary factors to assess genuineness of claimed earlier transfer; no authority was expressly followed or distinguished. Interpretation and reasoning: The Court examined: (a) the agreement to sell on stamp paper dated 18/10/2006 and notarised 19/10/2006, (b) indemnity bond and affidavit from vendor, (c) general power of attorney executed in favour of the assessee, (d) society membership dated 10/04/2010, (e) electricity bill (March 2011) and ration card (29/03/2011) showing possession/occupation, and (f) absence of any record that MAHADA had taken action to invalidate the transfer. The Tribunal held that the timing and provenance of these documents made the revenue's allegation of an after-thought agreement unconvincing in the absence of contrary evidence from the revenue (e.g., evidence of MAHADA objection or cancellation). The Court observed that documentary indicia of possession and transfer supported the assessee's contention of effective transfer well before registration in 2018. Ratio vs. Obiter: Ratio - contemporaneous documents and acts of ownership can, in appropriate factual contexts, establish an effective transfer and payment predating registration and thereby negate mechanical application of s.50C/s.56(2)(x). Conclusions: The Tribunal held that the documents and surrounding facts sufficiently established transfer/payment in 2006; consequently the addition adopting 2018 SRO value could not be sustained. Issue 3: Effect of MAHADA lock-in restriction and the fact of registration in 2018 Legal framework: Allotment conditions (such as lock-in restrictions by a housing authority) may affect transferability and registration timing; however, tax treatment hinges on actual transfer of rights and receipt of consideration under transfer/contract principles as recognised by Transfer of Property Act and tax statutes. Precedent treatment: The Tribunal noted the MAHADA circular imposing a 10-year transfer restriction but treated it as contextual factual background rather than conclusive evidence negating private transfer; the Court did not rely upon any specific authority setting out tax consequences of breach of such restriction. Interpretation and reasoning: The Tribunal acknowledged the existence of MAHADA's lock-in policy but observed that such restrictions are often not strictly followed and that the vendor had executed documents (affidavit, indemnity bond, power of attorney) effecting transfer. The absence of any record of MAHADA action or any material showing that the transfer was legally ineffective weighed against treating the registration date as the only effective transfer date for tax purposes. The Court further relied on the view that, under transfer/tax law, the property was transferred in 2006 given the documents and possession-indicating acts. Ratio vs. Obiter: Ratio - mere presence of a contractual/administrative restriction on transfer does not ipso facto render earlier acts of transfer ineffective for tax purposes where contemporaneous evidences and lack of enforcement indicate de facto transfer. Conclusions: The Tribunal treated MAHADA's restriction as not determinative; registration in 2018 did not override the established facts of transfer in 2006 for the purpose of denying the assessee's case. Additional procedural/contention notes (limited to matters actually considered) 1. The revenue's assertion that the 2006 agreement was an afterthought was rejected in the absence of affirmative evidence contradicting the authenticity and timing of the agreement and supporting documents. 2. The AO's approach of adopting SRO value without verifying vendor's position or exploring contemporaneous evidences was found to be unsatisfactory; the Tribunal directed deletion of the addition. 3. Matters raised in grounds relating to penalty proceedings and interest under section 234B were not the focus of the Tribunal's decision as recorded; the operative conclusion pertained to deletion of the s.56(2)(x) addition based on established transfer in 2006.