BIPIN DHARAMSHI SAVLA,MUMBAI vs. ITO WARD -22(1)(1), MUMBAI

On the facts and circumstances of the case, and in Law, the Commissioner of Income Tax "CITA" has erred in confirming the addition u/s 50C of the Act of Rs. 6,34,500/- without appreciating fact that the registration is made on the rates agreed in 2011.

Briefly stated the facts of the case are that the Assessee filed its return of income for the year under consideration on 10th August, 2018 declaring total income of Rs.11,16,601/-. Subsequently, the Assessing Officer received information from the Sub-Registrar, Mumbai City that the Assessee had sold the immovable property for Rs.89,80,000/-, but the stamp duty value of the same was adopted at Rs.96,14,500/- by the Sub- Registrar for the purpose of stamp duty valuation. On verification from return of income, the Assessing Officer noticed that the Assessee had shown sale consideration of Rs.66,00,000/- only. Accordingly, the Assessing Officer selected the case for scrutiny assessment and issued statutory notices under the Income Tax Act, 1961 (for short the ‘Act’) which were duly complied with.

During the assessment, the Assessee explained that the amount of Rs.96,14,500/- includes the amount of Rs.23,80,000/- for additional portion of the property i.e. 119 Square feet, which was purchased by the buyer directly from the developer M/s Laxmi Construction. After verification, the Assessing Officer accepted the contention of the Assessee and took balance amount of Rs. 72,34,500/- for the purpose of the stamp duty value of flat as against sale consideration of Rs.66,00,000/- shown by the Assessee in the return of income and therefore, he made addition for difference amount of Rs.6,34,500/- [Rs. 72,34,500 - Rs.66,00,000] invoking Section 50C of the Act.

Further, against the capital gain on the sale consideration on the property, Assessee claimed deduction under Section 54 of the Act. It was claimed by the Assessee that he had made investment of Rs. 45,15,000/- out of the capital gain before due date of filing of return of income, for purchase of flat from builder/developer. It was claimed that the Assessee filed allotment letter issued by the builder but, the Assessing Officer denied the deduction under Section 54 of the Act.

In the assessment order passed under Section 143 (3) dated 6th April, 2021, the Assessing Officer accordingly made additions, firstly, for difference in stamp duty value and sale consideration amounting to Rs.6,34,500/- and secondly, for withdrawal of the deduction under Section 54 amounting to Rs.43,35,600/-. Aggrieved, the Assessee filed appeal before the Ld. CIT (A) but could not succeed.

We have heard rival submission of the parties and perused the relevant material available on record. Before us the Ld. Counsel for the Assessee has filed a paper book containing pages 1-21 which comprises of copy of sale deed, copy of letter confirming rate from developer and details of capital gain investment.

In relation to ground no. 1, the Ld. Counsel submitted that the Assessee had entered into agreement to sale on 31st December, 2016 for sale of the property to Ms. Prachi Agarwal at sale consideration of Rs.66,00,000/- but due to certain reasons same could be registered for stamp purpose in the next financial year on 10th April, 2017. According to the Ld. Counsel, the difference in stamp duty valuation of the property is because of the delay in registration of the property. The Ld. Counsel for the Assessee submitted that the difference in stamp duty and the sale consideration is within tolerance limit of 10% provided under section 50C but the said limit of variation of 10% for the purpose of addition under Section 50C have been introduced w.e.f. 1/4/2001 i.e. subsequent to the assessment order under consideration, but the Ld. Counsel for the Assessee submitted that the difference between the stamp duty valuation as on the date of the agreement of the sale i.e. 31st December, 2016 and the sale consideration is within the permitted tolerance of limit of 5 percent which was prevent during the relevant assessment year. The Ld. Counsel for the Assessee however, submitted that the stamp duty valuation as on 31st December, 2016 was not readily available , therefore, he submitted that matter may be restored back to the Assessing Officer with permission to the Assessee to file stamp duty valuation as on date 31st December, 2016. In our opinion, the addition of ₹6,34,500 has been made in the hands of the Assessee by taking difference in stamp duty valuation as on the date of the registration i.e. 10/4/2017 and the sale consideration, whereas under the provisions of the Section 50C C, if the assessee has entered into agreement to sale on a prior date and some of amount has been received in advance in compliance of the said agreement by way of the account payee cheque, then for the purpose of Section 50 C, the stamp duty valuation as on the date of the entering into agreement has to be considered. The ready reference, relevant proviso to section 50C is reproduced as under:

Since, the stamp duty valuation of the property as on date of agreement to sale i.e. 31/12/2016 is not readily available with the Assessee, we feel it appropriate to restore the matter back to the file of the Assessing Officer for providing one more opportunity to the Assessee of filing necessary documents in support of its claim to justify the difference in his stamp duty valuation as on the date of the agreement to sale in the stamp duty evaluation, and sale consideration within the tolerance limit prevalent during the irrelevant assessment year. The ground number 1 (one) of the appeal of the Assessee is accordingly allowed for statistical purposes.

The ground number two of the appeal relates to the deduction under Section 54 of the Act amounting to Rs.43,35,600/-.

We have heard rival submissions of the parties and perused the material available on record. Before the lower authorities, the Assessee claimed that he made investment of Rs. 45,15,000/- in a project of Laxmi Construction and submitted a copy of the allotment letter from the said builder. The Assessing Officer, however, was of the view that no agreement to sell was filed by the Assessee in respect of the investment in property. According to him, firstly, only a confirmation from builder was only filed, secondly, wife of the assessee was partner in said Laxmi Construction and the assessee did not file Income-tax return or balance sheet of said firm to show that said amount was received against booking of flat, thirdly, copy of registered deed of purchase was not filed. The ld AO was of view that unless the Assessee entered into agreement to purchase or registration of agreement, no benefit of deduction under Section 54 could be allowed.

The Ld. CIT (A) also noted that the assessee only filed an offer letter from the developer and not allotment letter. The ld LIT(A) rejected the claim of deduction u/s 54 observing as under: “5.3 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:- The AO noted that the assessee has submitted some documents belongs to M/s. Lakshmi Construction which not sufficient to prove that the assessee has purchased a house property and has fulfilled condition prescribed u/s 54 of the Act. The AO noticed that wife of the assessee is one of the partner in above firm. The AO noted that only a confirmation from the above firm was furnished. However, no documents furnished like ITR/balance sheet of the above firm which show that amount actually received against booking of new flat. Hence it is larger possibility that amount given by the assessee to Laksmi Construction may be loan. The AO also noted that the assessee has submitted that he will submit copy of register deed in a couple of days'. However, no document submitted. Thus, this is a case where the assessee is claiming the benefit of exemption u/s.54F without becoming owner of a residential property. All these facts leads to the conclusion that assessee has not purchased residential house within a period of two years from the date of sale of asset and hence the assessee has not fulfilled the conditions of section 54 of the I.T. Act, 1961. The appellant stated that against the total LTCG amount of Rs. 43,35,600/- the assessee has paid total amount of Rs. 45,15,000/- before 31/03/2018 which is before the due date of filing of returns. Thus the assessee has fulfilled all the requirements of section 54 of the IT Act. The builder has issued the necessary allotment letter in respect of the specific flat.

Before us learned counsel for the Assessee submitted that Assessee is willing to file necessary documentary evidence in support eligibility of deduction u/s 54 before the assessing officer. In view of the submission of the Assessee, we feel it appropriate to provide one more opportunity for submitting documents in support of his claim for deduction under Section 54 of the Act. The ground no. II of appeal is accordingly allowed for statistical purposes.

In the result, appeal of the assessee is allowed for statistical purposes.