2025 (9) TMI 1012 - AT - Income Tax

Value under section 56(2)(vii)(b) treated as cost of acquisition under section 49(4); tax officer to recompute capital gains

ITAT held that the value determined for the purpose of section 56(2)(vii)(b) (difference between stamp duty value and purchase consideration) must be ... Addition u/s 56(2)(vii)(b) - difference between stamp duty value and purchase consideration - only plea of the assessee before us is that the addition made under section 56(2)(vii)(b) of the Act should be added to the cost of acquisition as per the provisions of section 49(4) - HELD THAT:- From the plain reading of section, it is clear that the value considered for the purpose of section 56(2)(vii) which includes sub-clause (b) shall be considered for the purpose of cost of acquisition. In assessee's case the AO has considered the value of Rs. 2,22,60,470/- for the purpose of making the addition under section 56(2)(vii)(b) and therefore there is merit in the plea of the assessee that the said amount should be considered as the cost of acquisition to be claimed as a deduction against the sale consideration. We therefore, direct the AO to recomputed the capital gain in the hands of the assessee in accordance with provisions of section 49(4) of the Act. Accordingly the alternate plea of the assessee in Ground is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an amount added to the assessee's income under section 56(2)(vii)(b) as the difference between stamp duty value and declared purchase consideration can be treated as part of cost of acquisition of the property for computation of capital gains under section 49(4). 2. Whether a denial by the Dispute Resolution Panel (DRP) of the assessee's alternate plea to treat the section 56 addition as cost of acquisition on the ground that such relief can be claimed only by filing the return of income is legally sustainable. 3. Whether consequential issues such as levy of interest under sections 234A, 234B and 234C require separate adjudication when capital gains are to be recomputed in accordance with the decision on issue 1. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the section 56(2)(vii)(b) addition must be treated as part of cost of acquisition under section 49(4) Legal framework: Section 56(2)(vii)(b) treats as income the excess of stamp duty value over consideration where property is acquired for inadequate consideration; section 49(4) provides that where capital gain arises from transfer of property the value which has been subject to income-tax under clause (vii) of section 56(2) shall be deemed to be the cost of acquisition. Precedent treatment: The record shows the DRP rejected a rectification plea relying on an authority (Goetze (India) Ltd.) to the effect that certain adjustments can only be claimed by return. The Tribunal did not follow that reasoning as a bar to applying the deeming provision of section 49(4). Interpretation and reasoning: The Tribunal undertook a plain-text construction of section 49(4), noting that the provision expressly deems the value taken into account for the purposes of section 56(2)(vii) as the cost of acquisition where capital gain arises on transfer of such property. Given that the AO made an addition under section 56(2)(vii)(b) by adopting the stamp duty value (Rs. 2,22,60,470) instead of the declared purchase price (Rs. 1,76,98,200), the Tribunal reasoned that the very value used for the section 56 addition is what section 49(4) requires to be treated as cost of acquisition for capital gains computation. The Tribunal therefore found merit in the assessee's alternate plea that the section 56 addition should be allowed as part of cost of acquisition, and directed recomputation of capital gains by treating the section 56 value as deemed cost under section 49(4). Ratio vs. Obiter: Ratio - The Court's decision that an amount brought to tax under section 56(2)(vii)(b) must be treated as the cost of acquisition for capital gains under section 49(4) where the same property is transferred and the addition arises from the stamp duty valuation is determinative of the controversy. Obiter - Any broader observations about timing of booking or registration values (e.g., the assessee's contention regarding stamp duty at booking vs. registration) are not adopted as binding ratio beyond the statutory deeming in section 49(4). Conclusion: The Tribunal allowed the alternate plea; directed the Assessing Officer to recompute capital gains applying section 49(4) so that the value taken into account under section 56(2)(vii) is treated as the deemed cost of acquisition. The ground pressing this contention was allowed. Issue 2: Validity of DRP's refusal to entertain rectification/alternate plea on the ground that relief can be claimed only by filing return Legal framework: The DRP's role includes considering objections to draft assessment orders and related rectification requests under applicable procedures; section 49(4) operates as a substantive provision determining cost of acquisition where value is taxed under section 56(2)(vii). Precedent treatment: The DRP relied on a Supreme Court decision (Goetze) to justify its view that the alternate relief could be availed only by revising/filing the return; the DRP thereby declined to admit the rectification petition on that basis. Interpretation and reasoning: The Tribunal did not accept the procedural bar posited by the DRP as overriding the substantive statutory deeming in section 49(4). The Tribunal observed that where the AO has made an addition under section 56(2)(vii)(b), section 49(4) confers a corresponding entitlement in computing capital gains, and this entitlement falls to be considered in the exercise of the DRP/AO even if raised as a without-prejudice/alternate plea. The Tribunal therefore found the DRP's procedural reliance insufficient to deny substantive relief mandated by statute. Ratio vs. Obiter: Ratio - A DRP cannot refuse to grant relief arising directly from a statutory deeming provision (section 49(4)) by treating the plea as claimable only through the return; substantive entitlement under section 49(4) must be given effect when the AO has treated the stamp duty value as taxable under section 56(2)(vii). Obiter - The Tribunal did not fully examine the limits of rectification or the exact application of Goetze; it confined decision to the necessity of applying section 49(4) when section 56 addition exists. Conclusion: The DRP's dismissal of the rectification petition on the sole ground that the relief could be claimed only by filing the return was not sustained. The Tribunal directed recomputation in accordance with section 49(4) despite the DRP's earlier procedural objection. Issue 3: Consequential interest liabilities under sections 234A, 234B and 234C Legal framework: Interest provisions under sections 234A, 234B and 234C are consequential on tax computations and tax deficiencies as determined after assessment. Interpretation and reasoning: The Tribunal treated the question of interest as consequential to the primary relief directing recomputation of capital gains. No separate adjudication was warranted at the appellate stage on those interest claims; these are to be worked out by the assessing authority after giving effect to the Tribunal's direction. Ratio vs. Obiter: Ratio - Interest and similar consequential levies do not require separate adjudication where primary tax computation is remanded for recomputation; they are to be recalculated by the AO in consequence of the Tribunal's determination. Obiter - The Tribunal did not set principles for recalculating interest beyond stating their consequential nature. Conclusion: Grounds relating to interest under sections 234A, 234B and 234C were treated as consequential and not separately adjudicated; the appeal was partly allowed directing recomputation of capital gains and consequential adjustments.