2025 (10) TMI 768 - AT - Income Tax

Additions under sections 56(2)(x) and 50C deleted where transfer to relative was genuine gift, appeal allowed

ITAT RAJKOT - AT held that additions under sections 56(2)(x) and 50C must be deleted and the appeal allowed. The transaction concerned sale of property to ... Addition on account of index cost of acquisition and an addition u/s 50C - Addition u/s 56(2)(x) - assessee has gifted the property to his sister in law (younger brother's wife) that is, to a relative for a consideration therefore, when the property is sold for a value lower than the stamp duty value of the property - HELD THAT:- Section 56(2)(x), any property transferred to the relative for inadequate/lower consideration is not be termed as income and therefore, the same is not taxable as per the provisions of the law. Also, the provisions of Section 50C are not applicable in such case where it is expressly excluded as per the law. The assessee submitted copies of the ration cards evidencing their relationship. According to the family chart, and Rasan card, Smt. Rita Kubavat is the wife of brother of the assessee, that is, Kaushik Kubavat, the assessee and who are real brothers. Therefore, the transaction covered is considered among the relatives as per above explanation. All these facts are duly mentioned in the Affidavits filed by the assessee at the appellate stage also. As find that on facts, as the CIT(A) as well as assessing officer have failed to consider the basic fact that the assessee has sold the property to his sister in law (younger brother's wife), that is, to a relative and in the notarized affidavits of the assessee as well as his sister-in-law wherein it is clearly mentioned that the stamp duty value over and above sale consideration is to be considered as gift. Therefore, based on these facts and circumstances, delete both the additions and allow the appeal of the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether delay of 80 days in filing the appeal with the Tribunal should be condoned in view of the assessee's explanation that appellate order communication was routed to the tax return preparer's contact details and that the assessee acted promptly on discovering the disposal. 2. Whether the Assessing Officer and the first appellate authority were justified in invoking Section 50C to make an addition equal to the difference between stamp duty value and declared consideration where the property was transferred to a relative and the excess (stamp duty value minus consideration) was claimed to be a gift. 3. Whether, on the facts, a transfer to a specified relative for inadequate consideration falls within the exclusions to Section 56(2)(x) and thereby prevents the application of Section 50C to treat the differential as taxable income. 4. Whether, if the assessee is entitled to relief (deletion of addition/refund), the tax authorities are bound to give effect to that relief even if the assessee failed to specifically claim it in the assessment proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing appeal (80 days) Legal framework: The Tribunal has discretion to condone delay in filing appeals where sufficient cause/mitigating circumstances exist; limitation principles must be applied but discretion may be exercised in appropriate cases. Precedent treatment: The judgment refers to general principle that limitation must be applied as prescribed, and courts have limited power to extend limitation on equitable grounds (as argued by Revenue). However, the Tribunal invoked its discretion based on facts. Interpretation and reasoning: The assessee explained non-receipt of electronic communication because the online portal recorded the tax return preparer's email/mobile and the preparer failed to inform the assessee. Physical notice later referring to disposal prompted immediate action. Tribunal found these circumstances mitigating and constituting sufficient cause to exercise discretion in favour of the assessee. Ratio vs. Obiter: Ratio - the Tribunal exercised its statutory discretion to condone delay where the assessee provided a credible explanation of non-receipt and prompt action upon discovery; not a general directive on condonation criteria beyond facts. Conclusion: Delay of 80 days in filing the appeal is condoned and the appeal admitted for merits consideration. Issue 2 - Applicability of Section 50C where document (sale deed) shows consideration substantially lower than stamp duty value Legal framework: Section 50C prescribes that for transfer of immovable property, the stamp duty value may be deemed to be full value of consideration for computation of capital gains where consideration in the instrument is less than stamp duty value; Section 56(2)(x) (and its Explanation of 'relative') addresses taxation of receipt of immovable property without consideration or for inadequate consideration, with specific exceptions for transfers from relatives. Precedent treatment: The Tribunal relied upon administrative and judicial authorities emphasizing that tax must attach to real income and that assessing authorities must act judiciously, including identifying and giving reliefs/refunds where due (CBDT circular 03.11.1955; cases cited such as Choksi v. CIT; and multiple Supreme Court decisions). Tribunal considered these precedents to support that relief should not be denied because of procedural omission. Interpretation and reasoning: Factually, the transfer was to the assessee's sister-in-law (younger brother's wife), an individual falling within the statutory definition of 'relative' in the Explanation to Section 56(2). Affidavits, ration card and family chart were placed on record and the relationship was not disputed by the Assessing Officer. The parties also characterized the excess (stamp duty value minus declared consideration) as a gift in notarized affidavits. Section 56(2)(x) excludes receipts from relatives from taxation (both for without consideration and for inadequate consideration where proviso applies). The Tribunal held that where the transfer is to a relative and is evidenced as a gift, the differential cannot be treated as taxable under Section 56(2)(x) and, consequently, the deeming under Section 50C cannot be used to make an addition to the transferor's income in these circumstances. The Tribunal emphasized that the authorities below erred in ignoring the basic fact of transfer to a relative and the documentary evidence of gift. Ratio vs. Obiter: Ratio - where a transfer of immovable property is to a person who qualifies as a 'relative' under the Explanation to Section 56(2) and the excess stamp duty value over consideration is shown and supported as gift, the exclusion in Section 56(2)(x) prevents the treatment of that excess as taxable income and negates applicability of Section 50C addition on that basis. Obiter - general statements about the duty of AO to point out reliefs are supportive but ancillary to the principal holding. Conclusion: The additions under Section 50C (and related indexation entry) were deleted because the transfer was to a relative and the excess value was established and claimed as gift; Section 50C was held inapplicable on these facts. Issue 3 - Interaction between Section 50C and Section 56(2)(x); entitlement to refund/relief despite non-claim Legal framework: Section 50C operates as a deeming provision for capital gains computation; Section 56(2)(x) contains exclusions for transfers from relatives. Separate principles of tax administration require refund where excess tax is collected; authorities must allow deductions/reliefs to which assessee is entitled even if not specifically claimed. Precedent treatment: The Tribunal cited CBDT circular and multiple judicial decisions establishing that AOs are obliged to point out and allow reliefs/refunds due to an assessee notwithstanding the assessee's omission to claim them (cases cited include OCM v. CIT; Depchand v. CIT; Narayan Row v. Model Mills; and others). Interpretation and reasoning: Given the exclusion in Section 56(2)(x) for transfers from relatives, the Tribunal reasoned that the deeming effect of Section 50C cannot be used to override that statutory exclusion in the circumstances; where excess tax has been recovered, the Assessing Officer is obliged to refund it. The Tribunal found that the authorities below failed to consider these legal interactions and the documentary proof supporting the exclusion; therefore the additions were unjustified and required deletion and refund if any tax had been collected. Ratio vs. Obiter: Ratio - tax authorities must give effect to statutory exclusions (Section 56(2)(x)) and refund/relieve an assessee where excess tax is collected, even if the assessee did not rigidly frame the claim during assessment; failure to consider uncontroverted documentary proof of transfer to a relative warrants deletion of additions and refund. Obiter - broader admonitions about judicial/administrative duty to act judiciously. Conclusion: On the interconnected application of Sections 50C and 56(2)(x) and the authorities on refund/relief, the Tribunal deleted the additions and allowed the appeal; any excess tax paid is to be refunded in accordance with law.