AO 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: Tribunal

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Parinda Borda vs. ITO [ITA No. 360/SRT/2018]

Where the assessee had entered into agreement to sale cum possession of immovable property and paid substantial consideration prior to the date of amendment of the section 56(2)(vii)(b)(ii) of the act (i.e., if the consideration paid is less than the stamp duty value, the difference consideration shall be taxable), 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 although the final sale deed was executed and registered after the amendment in Section 56(2)(vii)

Facts of the case:

The assessee along with other co-owners has purchased immovable property for Rs.1.16 Crores as per executed Sale deed in AY 2014-15, although the consideration of Rs.87.99 lakh was paid on 28.12.2012. The assessee entered into agreement with the seller on 28.03.2013. The substantial part of the sale consideration was also paid to the seller, which is about 80% of the total sale consideration. Though, ultimately the sale deed was registered on 10.09.2013. The details of sale consideration is also mentioned in the registered sale deed, acknowledging the fact that substantial part of consideration was paid on the day of execution of the initial agreement. The assessee claimed that the possession of the land was also obtained by them at the time of agreement. The Stamp Valuation Authority (SVA) determined the stamp value of land at Rs.2.19 Crores on the basis of value determined by Stamp Valuation Authority. The assessee’s share is  Rs.21,95,918/- and this difference of Rs.10,35,918/- (21,95,918 – 11,60,000) was added to the income of assessee under section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961 (‘the Act’).

Contention of the AR of the assessee

The AR of the assessee CA Mehul Shah contended that law cannot be amended in a retroactive manner so as to invalidate any transaction already done. When substantial purchase consideration is paid to the seller, it is very natural that the consideration is fixed between the buyer and the seller and hence even if the written agreement to sell is to be disbelieved, then the payment by account payee cheque itself shows the existence of oral agreement in place, which is also a valid agreement.

Held:

In absence of sub-clause (ii), in the statue book as on the date of agreement to sale of the property, the AO was not entitle to invoke the provisions of section 56(2)(vii)(b)(ii). As per the provisions of the Act from the A.Y.2014-15 sub clause (ii) has been introduced so as to enable the AO to tax the difference in consideration if the consideration paid is less than the stamp duty value. However, 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.

Lead Cases:

Relying on the decision of

  • ACIT Vs. Anala  Anjibabu  (185  ITD  0001) (Visakhapatnam- Trib)
  • M Shiv Parvathi & other Vs ITO [129 TTJ 463 (Visakhapatnam- Trib)

the tribunal allowed the appeal in favour of the assessee.

Read the full judgment at ITATOrders.in

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