Deemed income under Section 56(2)(x)(b) not attracted where sale deed was cancelled and consideration returned.

Addition under Section 56(2)(x)(b) was challenged where a sale deed was subsequently cancelled by a registered cancellation deed and the assessee's share of consideration was repaid; the Tribunal held that the statutory circumstances for treating the gap between stamp valuation and declared consideration as deemed income do not subsist once the transaction is legally rescinded and restitution effected. The Tribunal relied on the evidentiary and operative effect of the registered cancellation and restitution, and allowed the appeal, deleting the impugned addition by the revenue.

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Issues: Whether the addition of Rs. 39,31,428 made under Section 56(2)(x)(b) of the Income-tax Act, 1961 is sustainable where the sale deed of an immovable property was subsequently registeredly cancelled and the consideration returned.

Analysis: The Tribunal noted the undisputed facts that the purchase transaction evidenced by a sale deed dated 27.11.2019 was subsequently registeredly cancelled by a registered cancellation deed dated 26.09.2022 and that the assessee's share of the sale consideration was repaid as recorded in the cancellation deed. The Tribunal observed that the Commissioner of Income Tax (Appeals) in co-owner cases had examined the registered cancellation deed and deleted additions under Section 56(2)(x) where the purchase transactions had been cancelled and consideration returned. Considering the registered cancellation of the sale deed and restitution of consideration, the circumstances for treating the differential between stamp valuation and declared consideration as taxable deemed income under Section 56(2)(x)(b) did not subsist.

Conclusion: The addition of Rs. 39,31,428 under Section 56(2)(x)(b) of the Income-tax Act, 1961 is not sustainable in view of the registered cancellation of the sale deed and repayment of consideration; the appeal is allowed in favour of the assessee.

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