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2025 (4) TMI 982 - AT - Income TaxAddition u/s 56(2)(vii)(b) - difference between the market value and the deed value as Income from Other Sources - HELD THAT - As decided in Sri Anala Anjibabu 2020 (8) TMI 597 - ITAT VISAKHAPATNAM As per the provisions the Act from the A.Y.2014-15 sub clause (ii) has been introduced so as to enable the AO to tax the difference consideration if the consideration paid is less than the stamp duty value. The AO is not permitted to invoke the provisions of section 56(2)(vii)(b)(ii) in the absence of sub clause (ii) in the Act as on the date of agreement. The department has not made out any case of application of 56(2)(vii)(b) and since the provisions of section 56(2)(vii)(b)(ii) were not available in the statute as on the date of entering into the agreement following the reasoning given in the case of M. Siva Parvathi Others (supra) the same cannot be made applicable to the assessee. The department has not brought any evidence to show that there was extra consideration paid by the assessee over and above the sale agreement or sale deed. No other case law of any high court supporting the contention of the department was brought to our notice by the DR. Therefore we hold that the Ld.CIT(A) has rightly applied the decision of this Tribunal in the assessee s case and deleted the addition - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in the judgment are: (a) Whether the reassessment proceedings initiated under section 147 of the Income Tax Act, 1961 ("the Act") are valid and in accordance with the principles governing reassessment. (b) Whether the Assessing Officer (AO) was justified in invoking the provisions of section 56(2)(vii)(b) of the Act, as introduced by the Finance Act, 2013, effective from 01.04.2014, for taxing the difference between the stamp duty value and the consideration paid for an immovable property, when the registered agreement of sale was executed prior to the introduction of this provision. (c) Whether the addition of Rs. 8,46,000 to the returned income of the assessee, representing the difference between the stamp duty value and the consideration paid for the property, was justified and sustainable. (d) Ancillary issues related to the applicability of fair market value as certified by a registered valuer for the purpose of section 56(2)(vii)(b), and the treatment of the date of agreement versus the date of registration in determining the taxable value. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Validity of Reassessment Proceedings under Section 147 Relevant legal framework and precedents: Section 147 of the Act permits reopening of assessments where the AO has reason to believe that income chargeable to tax has escaped assessment. The reassessment must be based on tangible material and follow due process. Court's interpretation and reasoning: The reassessment was initiated on the ground that the assessee had not disclosed income arising from the difference between the stamp duty value (market value) and the consideration paid for the property. The AO issued notices under section 148 and proceeded accordingly. Key evidence and findings: The AO relied on the market value of Rs. 42,84,000 as per the sale deed registration dated 15.03.2014, while the consideration paid was Rs. 25,92,000 as per the registered agreement dated 29.05.2012. Application of law to facts: The AO considered that the difference of Rs. 16,92,000 (of which Rs. 8,46,000 was the assessee's share) represented income that escaped assessment and hence reassessment was justified. Treatment of competing arguments: The assessee contended that the provisions of section 56(2)(vii)(b) were not applicable as the agreement was executed before the provision came into effect and that the date of agreement should be considered for valuation. Conclusion: The reassessment proceedings themselves were not challenged on procedural grounds beyond the applicability of the substantive provisions. The Tribunal did not find infirmity in the initiation of reassessment per se, but the substantive applicability of section 56(2)(vii)(b) was the key issue. Issue (b): Applicability of Section 56(2)(vii)(b) to Agreements Executed Prior to 01.04.2014 Relevant legal framework and precedents: Section 56(2)(vii)(b) was introduced by the Finance Act 2013, effective from 01.04.2014 (Assessment Year 2014-15). It provides that if immovable property is acquired for a consideration less than the stamp duty value by more than Rs. 50,000, the difference is taxable as income from other sources. The proviso states that if the date of agreement and date of registration differ, the stamp duty value as on the date of agreement may be considered. Precedents include the Supreme Court decision in K.P. Varghese, which held that the character of a transaction for tax purposes should be determined based on the law prevailing on the date the transaction was initially entered into. Tribunal decisions such as M. Siva Parvathi & Ors., ACIT v. Sri Anala Anjibabu, and others have held that provisions introduced after the date of agreement cannot be applied retrospectively to agreements executed prior to their enactment. Court's interpretation and reasoning: The Tribunal examined whether the provisions of section 56(2)(vii)(b) could be applied to the instant case where the agreement to sell was executed on 29.05.2012, prior to the effective date of the provision, but the sale deed was registered on 15.03.2014, after the provision came into effect. The Tribunal noted that the proviso to section 56(2)(vii)(b) allows consideration of the stamp duty value as on the date of the agreement if the agreement and registration dates differ. However, this proviso itself was introduced only with effect from 01.04.2014. Following the principle laid down in K.P. Varghese and subsequent Tribunal decisions, the Tribunal held that the law applicable on the date of the agreement governs the transaction. Since section 56(2)(vii)(b) and its proviso were not in existence on 29.05.2012, they could not be applied to the transaction retrospectively. Key evidence and findings: The assessee proved that the agreement was duly registered and stamp duty paid on the market value of Rs. 42,84,000 as on 29.05.2012. The market value on the date of registration (15.03.2014) was also the same. The AO did not dispute these facts but invoked the amended provision applicable from 01.04.2014. Application of law to facts: The Tribunal relied on authoritative precedents and the principle of non-retrospective application of substantive tax provisions to hold that section 56(2)(vii)(b) could not be invoked for agreements executed before its insertion in the statute. Treatment of competing arguments: The Revenue argued that the provision applies from AY 2014-15 and hence to the registration date. The assessee countered that the transaction must be examined as per the law at the date of agreement. The Tribunal sided with the assessee, following binding precedents. Conclusion: The Tribunal held that the provisions of section 56(2)(vii)(b) are not applicable to the assessee's case, as the agreement was executed prior to the insertion of the provision. Therefore, the addition made on this basis was unsustainable. Issue (c): Justification of Addition of Rs. 8,46,000 to Returned Income Relevant legal framework and precedents: The addition was made under section 56(2)(vii)(b) on the difference between the stamp duty value and the consideration paid. The validity of such addition depends on the applicability of the section itself. Court's interpretation and reasoning: Since the Tribunal held that section 56(2)(vii)(b) could not be applied to agreements executed before 01.04.2014, the addition made under this provision was not justified. Key evidence and findings: The AO's computation of the addition was based on the difference between Rs. 42,84,000 and Rs. 25,92,000, apportioned to the assessee's 50% share. The assessee's documentation and explanation were accepted as credible and consistent. Application of law to facts: The addition was premised on the application of a provision not in force at the time of the agreement, rendering the addition invalid. Treatment of competing arguments: Revenue maintained the addition was valid as the registration occurred after the provision's effective date. The assessee argued for application of the law at the date of agreement. The Tribunal preferred the latter view. Conclusion: The addition of Rs. 8,46,000 was deleted. Issue (d): Ancillary Issues on Fair Market Value and Date of Agreement vs. Date of Registration Relevant legal framework and precedents: The proviso to section 56(2)(vii)(b) allows the stamp duty value on the date of agreement to be considered if the agreement and registration dates differ. The valuation must be supported by registered sale agreements and payment evidence. Court's interpretation and reasoning: The Tribunal noted that the market value on both the agreement date and registration date was the same (Rs. 42,84,000). Therefore, even if the proviso were applicable, it would not alter the valuation. Key evidence and findings: The assessee submitted the registered agreement, sale deed, bank statements evidencing payment, and stamp duty payment receipts. Application of law to facts: Since the proviso was not applicable due to timing, and the market values on both dates were identical, this issue was rendered moot. Treatment of competing arguments: The Revenue did not dispute the valuation but relied on the applicability of the amended provision. Conclusion: The Tribunal did not find it necessary to adjudicate further on valuation issues after deciding the main issue in favor of the assessee. 3. SIGNIFICANT HOLDINGS The Tribunal's crucial legal reasoning is encapsulated in the following verbatim extract: "The provisions of section 56(2)(vii)(b)(ii) came into statute by Finance Act 2013 w.e.f. 01.04.2014 i.e., A.Y.2014-15. In the instant case, the assessee had entered into agreement for purchase of the property on 29.05.2012, prior to the insertion of the said provision. Following the principle laid down by the Hon'ble Supreme Court in K.P. Varghese and the decisions of this Tribunal, the provisions which do not apply at the time of entering into the transaction initially would not also apply at the time the transaction is completed. Therefore, the provisions of section 56(2)(vii)(b) are not applicable to the appellant and the addition made thereunder is to be deleted." Core principles established include:
Final determinations on each issue are:
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