KETAN HIMATLAL MEHTA,MUMBAI, MAHARASHTRA vs. NFAC, NOT APPLICABLE

The present appeal preferred by the Assessee is directed against the Order, dated 26/03/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] whereby the Ld. CIT(A) had dismissed the appeal against the Assessment Order, dated 23/09/2022, passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 for the Assessment Year 2020-2021. 2. The Assessee has raised following grounds of appeal : Assessment Year 2020-2021

The learned CIT(A) erred in not considering Memorandum of Understanding (MOU) entered on 01/11/2017 between Mr. Abbot Anthony Quinny and the Appellant and agreed to renounce all Rights, Title and Interest in the same immovable property located at Dahisar in favor of the Appellant for Rs. 9,00,00,000. It is important to note that out of total consideration of Rs.9,00,00,000 an amount of Rs.3,00,00,000 was paid on 31.10.2017 and the said MOU culminated in Conveyance Deed dated 19.09.2019. 4. Order passed is bad in law and contrary to the provisions of the Act. Therefore, the appellant prays to delete the additions of Rs. 18,48,70,810 confirmed by Ld. CIT(A).”

The relevant facts in brief are the Assessee, an individual, filed its return of Income for the Assessment Year 2020-2021 on 30/01/2021 showing a total income of INR.55,48,740/-, The case was selected for regular scrutiny, inter-alia, for verification of purchase of property for consideration less than the stamp duty value. On perusal of order passed by the Assessing Officer and the CIT(A) it emerges that Assessee had claimed to have purchased land located a Dahisar, Mumbai through a partnership firm (i.e., Vanshree Developer) vide Agreement dated 24/08/2013, which was registered on 22/11/2013 for a total consideration of INR.12,00,00,000/-. Subsequently, dispute arose regarding ownership of the land and in terms of consent terms drawn up between the disputing parties, the Hon’ble Bombay High Court directed the Assessee to make additional payment of Assessment Year 2020-2021

On perusal of the Assessment Order we find that the Assessing Officer adopted stamp duty value of INR.27,19,39,000/- and taking difference between the aforesaid stamp duty value and the book value of INR.8,70,68,190/-, the Assessing Officer made addition of INR.18,48,70,810/- (INR.27,19,39,000 - INR.8,70,68,190/-) under Section 56(2)(x) of Act vide Assessment Order, dated 23/09/2022. Assessment Year 2020-2021

The appeal preferred by the Assessee challenging the aforesaid addition did not yield any favorable results as the CIT(A) confirmed the addition made by the Assessing Officer under Section 56(2)(x) of the Act and dismissed the appeal holding as under:

The appellant contends that a partnership firm named M/S Vanshree Developers then not consisting of appellant as one of the partners entered in to an agreement on 24.08.2013 for purchase of said property at a consideration of Rs. 12.00 Crores. Subsequently, the appellant became sole proprietor of the said partnership firm upon reconstitution of firm on 07.07.2015 and death of other partner and the ultimate purchase of the said property in relevant year by the appellant in his individual capacity does not come under the purview of section 56(2)(x) of the Act as the agreement for purchase was done on 24.08.2013 when section 56(2)(x) was not in force. It is pertinent to mention here that the agreement dated 24.08.2013 was entered in to between the said M/S Vanshree Developers and one M/S Vaibhab Development Corporation & Another and not with the present seller of the property, Mr. Abbot Anthony Quinny. The appellant while claiming so, contends that i) the agreement between said M/S Vanshree Developers and M/S Vaibhab Development Corporation & Another be considered an agreement within the meaning of section 56(2)(x) for the instant purchase transaction of appellant and ii) said partnership firm of the appellant and appellant himself should be treated as one and same person for the applicability of section 56(2)(x) of the Act. Both the contentions of the appellant hold no merit.

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It clear from the above that statute provides for adoption of pre agreed consideration value only in a case, where the amount of consideration, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], on or before the date of agreement for transfer of such immovable property. Assessment Year 2020-2021

One more question arises out of the contention of the appellant is that whether, any agreement between a person/entity other than the present seller and a partnership firm which is also distinct from the present purchaser can be considered as "An Agreement" for the purpose of section 56(2)(x) of the Act?. The answer is in negative. Hence, I hold that invoking of section 56(2)(x) by the AO is valid.

All the grounds of appeal are directed against addition of Rs. 18,48,70,810/- made u/s 56(2)(x) of the Act. The action of AO of making addition of Rs. 18,48,70,810/- by invoking section 56(2)(x) is held to be valid by me. In the result, all the grounds of appeal of the assessee are rejected/dismissed.

Being aggrieved the Assessee has preferred the present appeal before the Tribunal on the grounds reproduced in Paragraph 2 above.

The Learned Authorized Representative for the Assessee placed reliance upon the written submissions and supplementary written submissions filed during the hearing. While the Learned Departmental Representative placed reliance upon the order passed by the Assessing Officer and Learned CIT(A).

We have considered the rival submissions and have perused the material on record.

During the course of hearing the Learned Authorized Representative for the Assessee had, inter-alia, raised the contention that the Assessee is also engaged in a real estate development and the land in question was acquired and held as stock-in-trade. Reliance was placed on (a) Satendra Kaushik v. ITO 106 taxmann.com 244 (Jaipur), (b) Mubarak Gafur Korabu v. ITO (117 taxmann.com 828) (Pune) and (c) Assessment Year 2020-2021

We have perused the decisions cited on behalf of the Assessee. We note that the Mumbai Bench of the Tribunal had, in the case of Commercial Development Corporation Vs. NFAC/ITO Ward 24(1)(1) [ITA No.3755/Mum/2024, dated 28/10/2024, Assessment Year 2018-2019], held that provisions of Section 56(2)(x) of the Act cannot be invoked in the case of transactions of purchase of stock-in-trade. The relevant extract of decision of Tribunal reads as under:

Briefly stated, facts of the case are that the assessee, a partnership firm, was engaged in the business of real estate development. For the year under consideration, the assessee filed return of income on 25.06.2018 declaring total income at Rs.8,18,890/-. The return of income filed by the assessee was selected for limited scrutiny for verification of the fact that purchase value of the property recorded in the sale consideration was less than the value as per the stamp duty value authorities. The statutory notices under the Act were issued and complied by the assessee. In the course of the assessment proceedings, it was noticed that assessee firm had purchased land along with tenants and dwelling house standing thereon vide two agreements each dated 15.03.1978 for a total consideration of Rs.4,25,000/- for building and Rs.3,25,000/- for land respectively. The large portion of the land is still occupied by unauthorized hutments which are declared as Slum by the appropriate authority. The agreement was executed and possession of the property was taken by the assessee in the year 1977-78. The purchase consideration was also discharged by the banking channels but the conveyance of property was however registered in the year under consideration. As the Assessment Year 2020-2021

On further appeal, the assessee submitted that property in dispute was stock-in-trade and therefore, the provisions of section 56(2)(x) of the Act were not applicable in the case of the assessee. The assessee also contested that provisions of section 56(2)(x) of the Act have been inserted by way of Finance Act, 2009 w.e.f. 01.10.2009 and whereas property in dispute were entered in the books of accounts of the assessee as stock-in-trade in the assessment year corresponding to the previous year 1977-1978 and therefore said provisions cannot be invoked in the year under consideration. The assessee also submitted that invoking proviso to section 56(2)(x) of the Act, if at all any addition has to be made, then the value of the property as per stamp duty value as on date of the agreement in the year 1997-1998 should be considered. The Assessing Officer referred the matter of valuation to the DVO and the report of the DVO was received during the appellate proceedings and therefore, the Ld. CIT(A) applied the rate estimated by the DVO at Rs. 16,29,263/- as against the agreement value of Rs.7,50,000/-shown by the assessee. The Ld. CIT(A) accordingly sustained addition of Rs.8,79,263/- as against the addition Rs.80,34,09,000/- made by the Assessing Officer.

Aggrieved, both the assessee and the Revenue are in appeal before the Tribunal by way of raising grounds as reproduced above.

Before us, the Ld. counsel for the assessee has filed a Paper Book containing pages 1 to 298. Assessment Year 2020-2021

We have heard rival submission of the parties and perused the relevant material on record including Paper Book pages 1 to 298 filed by the assessee. We find that the Ld. CIT(A) has considered the property as stock-in-trade which has not been disputed by the Revenue. The relevant finding of the Ld. CIT(A) is reproduced as under:

1 Further, on the applicability of section 56(2)(x) of the Act on the stock-in-trade, the Ld. CIT(A) rejected the contention of the assessee. The finding of the Ld. CIT(A) is reproduced as under:

2 Before us, the Ld. counsel for the assessee has referred to the decision of the Co-ordinate Bench of the Jaipur in the case of Satendra Kaushik v. ITO [2019] 106 taxmann.com 244 (Jaipur) (Trib.), wherein it is held that provisions of section 56(2)(x) of the Act have application to the property which is in the nature of the capital asset of the recipient. In said case, the assessee purchased a piece of land as its stock-in-trade, therefore, addition made by the Assessing Officer invoking provisions of section 56(2)(x) of the Act was set aside. The relevant finding of the Co-ordinate Bench of the Tribunal is reproduced as under:

.3 Similarly, the Co-ordinate Bench of the Tribunal in the case of Mubarak Gafur Korabu v. ITO [2020] 117 taxmann.com 828 (Pune-Trib.) has adjudicated he issue as under:

4 Respectfully, following above decisions of Tribunal, we hold that section 56(2)(x) of the Act cannot be invoked in the case of the transactions of the assessee, which are undisputed for purchase of stock in trade. Further, the provisions of section 56(2)(x) of the Act have been introduced by Finance Act, 2009 w.e.f. 01.10.2009, whereas transaction of the purchase of the land in question has been recorded by in its books of accounts as stock-in-trade in the assessment year corresponding to the previous year 1977-78 and therefore, now the provision of section 56(2)(x) of the Act cannot be applied over the case, merely for the reason that said property has been registered now. Since, we have held that section 56(2)(x) of the Act is not applicable over the transaction in dispute in this case, the addition cannot be made in the case of the assessee and therefore, the grounds raised by the Revenue in its appeal are dismissed. The grounds raised by the assessee in its appeal are also rendered merely academic, which we are not required to adjudicate, when we have already held the application of section 56(2)(x) of the Act as unsustainable in law in the case of the assessee. The grounds of appeal of the assessee are also dismissed as infructuous.

In the result, the appeal of the Revenue is dismissed, whereas appeal of the assessee stand allowed.” (Emphasis Supplied)

On perusal of above, we find that the Co-ordinate Benches of the Tribunal have held that provisions contained in Section 56(2)(x) of the Act cannot be invoked in the case of purchase of stock-in-trade. On perusal of Balance Sheet of the Assessee for the relevant previous Assessment Year 2020-2021

Accordingly, in terms of paragraph 11 above, Ground No.4 raised by the Assessee is allowed for statistical purpose and Ground No. 1 to 3 raised by the Assessee are dismissed as having been rendered infructuous since we have remanded the issue back to the file of Assessing Officer.

In terms of above, the present appeal is partly allowed.

अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध ,आयकर अपीलीय अदधकरण ,म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.