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TMI Blog2023 (9) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... rs constituting Division Bench. The Third Member vide his order dated 11.07.2023 has agreed with the view take by Hon'ble Accountant Member and held that the impugned addition u/s. 56(2)(vii) of the Act, is liable to be deleted. 3. In view of the majority opinion, we hold that the addition u/s. 56(2)(vii) of the Act is liable to be deleted and decided in favour of the assessee and against the revenue. 4. In the result, appeal filed by the Revenue as well as cross objection filed by the assessee are dismissed. Order pronounced in the open court on 01st September, 2023 ORDER 11-07-2023 GEORGE GEORGE K VICE PRESIDENT The Hon'ble President vide order dated 10.05.2023 has nominated me as a Third Member on the point of difference between the members of the Division Bench, under section 255(4) of the Income Tax Act, 1961 (hereinafter called 'the Act'). 2. While referring the matter to Third Member, separate questions were framed by both the Members in order to settle and finalize the question that was required to be considered and decided by the Third Member. The learned representatives of both sides were required to propose a draft question in such a manner that same shall pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , vide order dated 29.12.2018. 4. Aggrieved, the assessee filed appeal before the First Appellate Authority. The CIT(A) deleted the addition made under section 56(2)(vii)(b) of the Act and partly granted relief to the assessee with reference to the addition made under the deemed rental income from house property. Out of the four units, the CIT(A) held that one unit is entitled to exemption as a self-occupied property. 5. Aggrieved by the order of the CIT(A), the Revenue filed an appeal before the Tribunal (ITA No.1088/Mum/2022) and the assessee filed a cross-objection (C.O. No.106/Mum/2022). The learned Accountant Member concurred with the view of the CIT(A) in deleting the addition made under section 56(2)(vii)(b) of the Act. The primary reason for the learned Accountant Member to concur with the view taken by CIT(A) was that the assessee had filed the payment vouchers of balance sale consideration of Rs. 2,16,00,000/- paid to the builder and thereby making good the entire sale consideration. The learned Judicial Member, however, disagreed with the learned Accountant Member. The learned Judicial Member was of the view that the assessee has not acted as per the terms of the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai Shelter Housing Development Pvt Ltd is also enclosed showing that Ms Gitika Sane, Mr Ganesh Sane are holders of 9% shares each 3. Reasons/Clarifications from builder for not enforcing the clause of penal interest for delay in payment of consideration: Certificate from M/s Neminath Mumbai Shelter enclosed 4. Rationale and Legal Basis for renting out one of the units before having obtained possession of the same. The extract of agreement to sale showing the plan and the letter from the tenant would indicate that all the four units were combined and given on rent. The rationale was that right at the inception, the units were contemplated to be given on rent. Though formal possession was received on executing sales agreement, the possession of all the premises as stock in trade was with the builder AOP of which Ms Gitika Sane as a shareholder and director could access and hence with mutual consent of both members of AOP entered into the Leave and License agreement to enable the tenant to make necessary modifications to the office units including making shelves and other structures at inception rather than breaking pre existing structures and spoiling the show. 8. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er as well as the Assessing Officer are of the opinion that since possession was obtained by the assessee before discharging the entire consideration, it is certain that the balance consideration was paid by the assessee in cash (unaccounted money). 13. In this context, it is worthy to note the decision of the Hon'ble Supreme Court in Umacharan Shaw & Bros. (1959) 37 ITR 271 (SC) wherein it has been held that suspicion howsoever strong cannot take place of proof. From the entire appreciation of the evidence, I note that the Assessing Officer has failed to establish that the assessee had paid unaccounted money/cash to the developer. The Supreme Court in the case of Kishanchand Chellaram Vs. CIT[1980] 125 ITR 713 has observed that "It was for the revenue to rule out this possibility by bringing proper evidence on record, for the burden of showing that the amount was remitted by the assessee was on the revenue". 14. It was the duty of the Assessing Officer to bring on record sufficient evidences and material to prove assessee had paid unaccounted money to the developer in order to obtain possession of the property. The Supreme Court in yet another case in CIT Vs. Daulat Ram Rawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s processed u/s. 143(1) of Income-tax Act, 1961 (in short "Act"). The case was selected for Limited Scrutiny under the category CASS and subsequently, notice u/s. 143(2) of the Act was issued and served upon the assessee. 3. The assessee is an individual and during the year under consideration having income from salaries, income from house property and income from other sources. During the assessment proceedings Assessing Officer observed that assessee had purchased office premises Nos. 101, 102, 103 and 104 at Siddharth Nagar Chaitanya CHS Society Ltd., vide agreement for sale dated 26.08.2015 for total purchase consideration of Rs..2,17,00,000/- and during the course of assessment proceedings, assessee was asked to submit the source of purchase of property vide notice u/s 142(1) of the Act. In response, Authorised representative of the assessee vide letter dated 12.11.2018 has submitted that the cost of property is Rs..2,17,00,000/- but have paid Rs..1,00,000/- and balance is still payable to the builder. Therefore, a show cause notice dated 27.11.2018 was issued to the assessee and at the same time notice u/s. 133(6) of the Act dated 30.11.2018 was issued to M/s Neminath Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee purchased the property from M/s. Neminath Mumbai Shelter in which the assessee's husband is the one of the partner and M/s. Mumbai Shelter housing development Pus. Lad is the another partner in which Mr Neminathjain the share holder and director. 6) The assessee claimed that the joint venture still in existence and her husband yet so receive the share of profit and the balance payable will be adjusted against the share of prof receivable. The assessee failed to appreciate the fact that the assessee and his husband are separate entity. There is connection between the property was given to the assessee at throw away prices and share of profit yet to be received by the assessee 1 husband if the property is sold to the third party the possession will be given only after getting the entire sale consideration. In this transaction, since the assessee is wife of Mr Neminath Jain who is having substantial interest in the seller entity M/s. Neminath Mumbai Shelar, the property has transferred to the assessee at the throw away price of Rs. 100,000/ which is lesser than the market value of the property. 7) Therefore the difference between the market value of the proper and cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property by an amount exceeding fifty thousand rupees, the stamp value such property as exceeds such consideration: Since the crux of the deification it the "consideration" understanding the term consideration is very important. The Income Tax Act has not defined the term "consideration in respect of a contract by which an asset is purchased/sold. Hence the term consideration as per contract act is to be seen. According to Section 2(d) of Indian Contract Act, 1872 Consideration is defined as: "When at the desire of the promisor, the promise or any other person has done or abstained from doing or does or abstains form doing, or promises to de abstain from doing something such act abstinence promise is called consideration for the promise." Here the seller is considered as Promise to transfer the flat - The consideration is the payment already made or the Promise to make Payment given by the promise the buyer. Thus consideration includes amount paid or payable as per agreement. That is precisely the reason for mentioning the consideration as the aggregate amount for which the seller agrees to transfer the flat t the buyer-The consideration mentioned in our registered agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R has relied on the decision of Honourable Bombay High Court in the case of Keshub Mahindra vs. CIT. The AR failed to appreciate the fact that the said case law is supporting revenue stand rather than the assessee's argument. The AR relied on the particular paragraph of the said decision that substance of the particular commercial transaction is more important than form of the particular commercial transaction. In this case, the form of the transaction is that the remaining consideration of Rs. 2,16,00,000/- was shown as payable whereas the substance of the transaction is that the remaining consideration was paid as cash Further, the AR submitted that the liability to pay Rs. 2,16,00,000/- is still exist, therefore the agreement is not entered for lesser consideration than the market value, therefore section 56(2)(vii)(b) is not applicable in this case The AR failed to appreciate the fact that it is mentioned in Page No. 4 of Para No. 4(M) of in the agreement that the balance consideration of Rs. 2,16,00,000/- is to be paid on or before date of handing over possession of property to the assessee. In this transaction the possession was handed over to the assessee without payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other sources us. 56 (2) (vii)(b)(ii) of the IT Act, 1961. For better understanding of the provision the same is reproduced as follows: "For a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration." From the above facts of the case, this clear that the transaction which was entered by the assessee is the co-lovable device by way of purchasing the property lower than the market value of the property and evade the payment of tax by way of understating the source for purchase of the property. Without payment of full consideration, the seller would not sell the property therefore it is understood that the remaining consideration of Rs 2 16 00, 000/ was paid as cash to the seller before transferring the property to the assessee, Therefore the assessing officer is directed to assess the balance payable amount of Rs. 2,16,00,000/- as income from other source us 56(2)(vii)(b)(ii) of the IT Act, 1961." 8. After considering the submissions of the assessee and the direction of the Jt.CIT, Assessing Officer invoked the provisions of section 56(2)(vii)(b)(ii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t balance amount is paid in cash. Made addition U/s 56(2)(vii)(b) which reads as: (vii) where an individual or a HUF receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017. (b) any immovable property- 1. without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; 2. for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: Thus this section proposes to tax the difference between consideration as per agreement and consideration adopted for stamp duty purposes: I enclose index -2, as per which consideration 2.17 crores can be seen to be higher than the stamp duty value of the property of Rs 21691000. Since the Income Tax Act has not defined the term "consideration in respect of a contract for purchase/sale of an asset, the term consideration as per Section 2(d) of Indian Contract Act 1872 is seen according to which Consideration is "When at the desire of the promisor, the promisee or any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sqft is no where near 240/- derived by AO by considering rent of 60000/- for 250 SQ FT as against 1002 sq ft. I enclose documents furnished to AO to show that while registering stamp duty payment was made by mentioning all 4 units, and confirmation given by tenant furnished to AO. Without prejudice to my above contentions state that AO failed to follow procedure laid down by Hon'ble Bombay High Court in (2014) CIT v. Tiptop Typography, (2014) 48 Taxmann.com 191 (Bom. HC) for determination of deemed rent and hence respectfully following decision of jurisdictional Bombay High Court deemed rent may kindly be deleted. Without prejudice to the above we also state even the computation of deemed rent is inaccurate as the rent agreement which is made the basis of computation I was for July 15- June 16. Hence for the assessment year under appeal only 9 months (July 2015- March 2016 need to be considered. Again one property can be deemed to be self occupied. Thus of the four, only one according to AO (Though I say all being combined have been given by paying stamp duty on all) is given on rent. One I can self occupy. Hence for 2 premises for 9 months, even by adopting an exorbita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the normal circumstances, the transfer was completed only when the entire consideration was paid for the property and the possession was given to the buyer only after payment of all consideration for the particular transaction. b. In this case, the total consideration for the property is Rs 2 17 00 000 out of this Rs. 1,00,000 was paid and the possession was given without payment of full consideration. The assessee purchased the property from M/s. Neminath Mumbai Shelter in which the assessee's husband is the one of the partner and M/s. Mumbai Shelter housing development Pvt. Ltd isthe another partner in which the assessee is holding nine percentage shares and the assessee's husband Mr. Neminath jain is the share holder and director. c. The AR has relied on the decision of Honorable Bombay High Court in the case of Keshub Mahindra vs CIT The AR failed to appreciate the fact that the said case law is supporting revenue stand rather than the assessee's argument. The AR relied on the particular paragraph of the said decision that substance of the particular commercial is more important than form of the particular commercial transaction. In this case the form of thetra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee failed to appreciate the fact that the assessee and his husband are separate legal entity. There is connection between the property was given to the assessee at throw away prices and share of profit yet to be received by the assessee's husband If the property is sold to the third party, the possession will be given only after getting the entire sale consideration. In this transaction, since the assessee is wife of Mr. Neminath Jain, who is having substantial interest in the seller entity M/s. Neminath Mumbal Shelter, the property was transferred to the assessee at the throw away price of Rs. 1,00,000/- which is lesser than the market value of the property. e. The assessee replied on 26/12/2018 that the builder tried to recover the amount of Rs. 2,16,00,000/- through letter dated 18/12/2015 10/02/2016 and the agreement between the builder and the assessee was cancelled through letter dated 25/03/2016 The nature and veracity of the letter was perused and found that the assessee is trying to prove the genuineness of transactions through these kind of letters. If the correspondence was there, the same should be submitted at the time of raising this issue for the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash. iv. That Section 56(2)(vii)(b) of the Act proposes to tax the difference between consideration as per agreement and consideration adopted for stamp duty purposes. It was further submitted that as per enclosed Index -2 consideration 2 17 crores could be seen to be higher than the stamp duty value of the property of Rs 2,16,91,000. Since the Income Tax Act did not define the term 'consideration' in respect of a contract for purchase/sale of an asset, the term consideration as per Section 2(d) of Indian Contract Act 1872 could be seen according to which Consideration is: "When at the desire of the promisor the promisee or any other person has done or abstained from doing or does or abstains from doing, or promises to do or abstain from doing something such act or abstinence or promise is called consideration for the promise." v. Thus here the seller was the Promisor to transfer the flat for the consideration which was either the payment already made or Promise to make Payment given by the Promisee-the buyer. vi. That Consideration is aggregate amount for which seller agrees to transfer the flat to the buyer, which was mentioned in the registered agreement as 2 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer for making the addition is only for the period of July 15 to June 16. Therefore, for the period of July 2015 to March 2016 the relevant interest to be considered only for nine months. Accordingly, Ld.CIT(A) worked out the deemed rental income by adopting the same rent of Rs. 60,000/- per month for two properties. i.e, 60000 X 2 X 9 = Rs..10,80,000 Less deduction u/s. 24 = Rs..3,24,000 Balance = Rs..7,56,000/- 13. Accordingly, he partly allowed the grounds raised by the assessee. 14. Aggrieved revenue is in appeal before us raising following grounds in its appeal: - "1. Whether on the facts and in the circumstances Ld. CIT(A) erred in deleting the addition of Rs 2,16,00,000/- made by the AO under section 56(2)(vii)(b) of the IT Act 1961. 2. Whether on the facts and in the circumstances Ld. CIT(A)/NFAC, Delhi erred in not appreciating the fact that the assessee failed to prove that the transaction entered by the Builder/Assessee is not the prudent Commercial transaction whereas this particular transaction is the colourable device to evade the payment of taxes and the remaining consideration of Rs. 2,16,00,000/-. 3. Whether on the facts and in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has filed payment vouchers to the extent of Rs..2.16 crores paid to the builder on various dates and relevant receipts are filed as part of Paper Book and assessee also brought on record bank statement in support of the above claim that assessee has subsequently settled all the payments. Therefore, it may look not prudent commercial transactions. However, we observe that the assessee and family members are the owners of the company through which the assessee has acquired the certain properties and assessee's husband is having substantial interest in the above said company and for the sake of convenience assessee has registered by acquiring the property this way. As evidences were submitted before us that assessee has made the settlement subsequently proves that the transaction is genuine. Therefore, the appeal filed by the revenue in this regard is dismissed. 18. With regard to Cross objection filed by the assessee, we observe that assessee has entered into rental agreement for the period of 05.06.2015 to 04.06.2016 effectively the property was given on rent for nine (9) months. At the time of hearing it was submitted that all the premises i.e., flat Nos. 101A, 102, 103 and 104 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2,17,00,000/-. The assessee has rented out the property in question vide leave licence agreement dated 10.07.2015 even prior to agreement to sale dated 05.06.2015. During the scrutiny proceedings the assessee was called upon to explain, to which she has filed comprehensive submissions. The Assessing Officer (AO) after declining the contentions raised by the assessee proceeded to invoke the provisions contained under section 56(2)(vii)(b) of the Income Tax Act, 1961 (for short 'the Act') and thereby concluded that it was not a commercial transaction rather a colourable devise to evade the payment of taxes by not making payment of the remaining sale consideration of Rs. 2,16,00,000/- through unaccounted cash and thereby assessed the income of the assessee from other sources under section 56(2)(vii)(b) of the Act by making addition of Rs. 2,16,00,000/-. The AO has also made addition of Rs. 15,12,000/- being the deemed rental income from house property as per leave licence deed (supra) and thereby framed the assessment under 143(3) of the Act. 4. The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has deleted the addition by partly allowing the same. Fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o decide the first question framed, the Ld. CIT(A) deleted the addition by returning following findings: "5.1.4 In light of the above discussion and after duly considering all the facts and circumstances and applicable law related to impugned addition of Rs. 2,16,00,000 it is noted that the Ld. AO could not appreciate the related facts of the case. The Ld. A/R of the appellant lady also got uploaded a copy of a letter dated 15.11.2016 written by the appellant to one Neminath Mumbai Shelter in which the fact was mentioned that the said concern had agreed to distribute share of profit of the joint venture, to which Mumbai Shelter Housing Development Pvt. Ltd. was entitled to. The appellant had planned to take a loan of this profit from Mumbai Shelter Housing Development Pvt. Ltd. and meet her obligation. It was further mentioned in the said letter that since the said concern (Neminath Mumbai Shelter) could not distribute the profit, Mumbai Shelter Housing Development Pvt. Ltd. had a liquidity crunch and hence could not advance her a loan and hence she was unable to make balance payment. 5.1.5 At the end of letter it was also mentioned that since the said concern (Neminath Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of which nothing can be added or deleted, the Bench is required to examine the entire issue in the light of the contents and intentions of the parties to the contract. So my reasons for dissenting with order passed by the Hon'ble Accountant Member are as under: (i) when undisputedly the assessee has purchased property in question for a sale consideration of Rs. 2,17,00,000/- and got the agreement for sale registered in her favour only by making part payment of Rs. 1,00,000/- and payment of remaining sale consideration of Rs. 2,16,00,000/- has never been made, it is highly improbable to treat the sale in question as a genuine transaction. (ii) that there is not an iota of evidence on record nor discussed by the lower revenue authorities that the assessee's husband is having substantial interest in the property in question and the assessee has having 9% stakes in M/s. Neminath Mumbai Shelter from whom the property in question was purchased. There are mere submissions of the assessee in this regard. (iii) that even if it is assumed for argument sake that the assessee's husband was having substantial share in M/s. Neminath Mumbai Shelter (seller) and the assessee was having 9% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mentioned herein above and purchasers herein has agree not to raise dispute or claim any on the basis of area. 6) The purchaser has prior to the execution of this Agreement is satisfied him/herself the title of the Developer to the said property and has accepted the same and shall not be entitled any further investigation relating thereof. 7) If the Purchaser/s commits default; a) In payment of any of the installments aforesaid at the respective time for payment (time being the essence of the contract) and/or b) In observing and performing (prior to the delivery of possession of the said shop/office by the Developer to the Purchaser/s) any of the terms and condition of this Agreement and if the default continues inspite of 15 days notice to be sent by the developer to the purchaser/s, the Developer shall be at liberty to terminate this Agreement, in which event the said deposit or earnest money paid by the purchaser/s to the developer shall stand forfeited. The developer shall, however, refund installment to the purchaser/s the part payment, if any, which may have till then been paid by the Purchaser/s to the Developers, but without any further amount by way of interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that the assessee herself has agreed that she shall be liable to and shall at the option of developer, pay interest @ 24% per annum on all amounts that may be due and payable by the purchaser under this agreement. However, no such penal interest is shown to have been paid by the assessee. (ix) that since it is proved from the recital made in the agreement to sale that the assessee has taken possession of the property in question after making payment of entire consideration, she is estopped by her own act and conduct from claiming that she has made the balance payment of Rs. 2,16,00,000/- from 15.02.2019 to 22.03.2019, which is further a round tripping of the money from one account to another or an afterthought when hauled up by revenue authorities. So when the assessee has already paid entire sale consideration qua the property in question at the time of taking possession there is no question of again making payment by virtue of the receipts placed on record and which have never been examined by the revenue authorities below. (x) that the receipts for making payment of Rs. 2,16,00,000/- even if assumed to be correct for argument sake, the evidential value of the same hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the remaining premises was never rented out and the contention of the assessee that the leave licence agreement was for entire property i.e. unit No.101, 102, 103 & 104 is in contravention to the leave licence agreement relied upon by the assessee herself. In these circumstances, the AO has rightly assessed the deemed rent qua the remaining property. 15. However, the Ld. CIT(A) further given part relief to the assessee by returning following findings: "5.2.6 The Ld. A/R of the appellant also submitted through the written submission that one property could be deemed to be self-occupied. Thus of the four, only one according to AO (though the argument of the appellant was that all being combined had been given by paying stamp duty on all) could be presumed to have been given on rent. Thus for 2 premises for 9 months, even by adopting the deemed rent of Rs. 60000 per month as was taken by the Ld. AO the calculation should have been as under:- 60000X2X9 = Rs. 10, 80,000 Less Deduction u/s 24 3,24, 000 Balance 7,56,000 5.2.7 In light of above discussion made from Para no. 5.2 to 5.2.6 of this appeal order, the appellant gets relief for which she is found to be entitled. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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