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Facts
The assessee, in a flat redevelopment project, received a new flat of 961 sq. ft in exchange for his old flat (623 sq. ft) and additionally purchased 159 sq. ft. The Assessing Officer made an addition under Section 56(2)(x) and (vii) of the Income Tax Act, 1961, based on the difference between the stamp duty value of the entire new flat and the stated agreement value, considering it as income received without consideration. The CIT(A) upheld the addition but directed re-computation.
Held
The Tribunal held that Section 56(2)(vii) provisions, as applicable to inadequate consideration, were introduced from AY 2014-15, whereas the redevelopment agreement was entered into in AY 2011-12, hence not applicable. It also found that the assessee surrendered his old flat as consideration for the new 961 sq. ft area, and for the additional 159 sq. ft purchased, the consideration paid exceeded the stamp duty value. Thus, no addition under Section 56(2)(vii)/(x) was warranted, and the CIT(A)'s directions were set aside.
Key Issues
Whether the provisions of Section 56(2)(vii) and 56(2)(x) of the Income Tax Act, 1961, concerning income from inadequate consideration for immovable property, were applicable to a flat redevelopment transaction, specifically regarding the relevant assessment year and the nature of consideration (exchange of old flat vs. new flat acquisition).
Sections Cited
48, 56(2), 56(2)(vii), 56(2)(x), 250, 263
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, VP &
(Assessment Year: 2018-19) Laxman Kanaiyalal Dharmani, ITO, Ward-23(2)(6), Roop Kala CHS, 603, 6th Floor, Room No. 613, Plot No. 128, West Avenue Road, Piramal Chamber, Vs. Santacruz (West), Maharashtra. Mumbai-400054. PAN: AABPD3310P Assessee) : Revenue) Assessee by : Shri Gunjan Kakkad, AR : Shri Surendra Mohan, Sr. DR Revenue by Date of Hearing 17.11.2025 : : 02.12.2025 Date of Pronouncement O R D E R
Per Padmavathy S, AM:
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 01.09.2025 for Assessment Years (AY) 2018-19. The assessee raised the following grounds: “Each ground in without prejudice to each other. The grounds of appeal are taken hereunder:
Laxman Kanaiyalal Dharmani 1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income-tax Appeal (hereinafter for sake of brevity referred to as the "Ld. CTT(A)") has erred in confirming the action of the Assessing Officer where he had applied provisions of section 56(2)(x) of the Income-tax Act, 1961 ("the Act")
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to re-compute the income chargeable to tax under section 56(2)(x) of the Act without appreciating that the said provisions do not apply in the present case.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to provide an opportunity of personal hearing which had been specifically sought.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the Appellant is not chargeable to income-tax either under capital gains or under income from other sources.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that even if provisions of section 56(2)(x) of the Act, no income can be charged to tax.
On the facts and circumstances of the case and in law, the Appellant submits that the order passed by the Assessing Officer is invalid and non-est.”
The assessee is an individual and filed the return of income for AY 2018-19 on 24.07.2018 declaring a total income of Rs. 9,30,570/-. The assessee's case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer (AO) called on the assessee to furnish the details along with documents in relation to the immovable property sold/purchased during the year under consideration. The details of facts pertaining to the transactions of immovable property submitted by the assessee are as under: "The assessee along with his wife Mrs. Mamta L. Darmani purchased a residential flat in "Roopkala CHS Ltd." a Society in Santacruz (West), for a consideration of Rs. 25,25,000/- on 24.01.2001. The Society went for redevelopment and entered into an agreement with M/s Orra Realtors Pvt. Ltd. dated 23.10.2010 which was registered Laxman Kanaiyalal Dharmani on 07.02.2011. As per the terms of the agreement the members of the society (including the assessee and his wife) shall be provided with additional area at 135% of the original area. Further it is agreed that the members who are desirous of purchasing additional area would have to pay Rs. 21,000/- per sq. ft. upto 100 sq. ft. and the area in excess would be charged at Rs. 23 to 50 per sq. ft. The Society entered into a supplementary agreement with the Builder owing to the change in development control regulations on 01.03.2013. As per the revised terms the assessee was provided additional area of 120 sq. ft. besides the originally agreed area of 135%. Accordingly the assessee received 961 sq.ft in exchange of the old flat. The assessee also bought 159 sq.ft. at the cost of Rs. 34,71,750/- (100 sq. ft. x Rs. 21,000/- + 159 sq.ft. x Rs. 23,250/-.). As per the agreement dated 23.10.2010 the members were entitled to a compensation of hardship allowance in the form of monthly as well as one time compensation. As per the terms the said compensation was to be adjusted against the consideration to be paid by the members who are purchasing the additional area. Accordingly, the assessee adjusted a sum of Rs. 34,37,425/- against the consideration to be paid for the 159 sq.ft. additional area to be bought by him and paid the balance amount of Rs. 34,325/- to the developer. The construction of the flat was completed and the developer entered into a formal agreement with the assessee on 31.03.2017 registering the additional area of 159 sq.ft. in favour of the assessee. The stamp duty value of the entire flat was at Rs. 84,55,500/-.
The Assessing Officer (AO) after perusing the above facts and the purchase document submitted by the assessee issued a show-cause notice to the assessee as to why the difference between the stamp duty value of Rs. 84,55,500/- and the agreement value of Rs. 34,71,750/- should not be added as per section 56(2) of the Act. The AO did not accept the submission that the stamp duty value of the old space surrendered should be considered and the stamp duty value as mentioned in the purchase deed is for the entire flat which cannot be compared with the agreed purchase value of 159 sq. ft. The AO also did not accept the submission that the value on the date of original agreement i.e. 23.10.2010 should be considered for the purpose of additions, if any u/s. 56(2). The AO proceeded to treat the entire amount of Rs. 89,08,300/- (which includes the stamp duty paid) as amount received without any consideration to make an addition u/s. 56(2)(x)(b) of the Act.
Laxman Kanaiyalal Dharmani Aggrieved the assessee filed further appeal before the CIT(A). Before the CIT(A) the assessee also raised the legal contention that the provisions of section 56(2)(vii)/(x) which existed on the date of agreement i.e. 23.10.2010 does not provide for additions to be made for "inadequate consideration" and therefore no addition could be made. The CIT(A) proceeded to consider the impugned issue on merits to hold that –
“5.1.3.1. It is undisputed fact that the Appellant has vacated his old flat in Roopkala Society along with other flat owners in the society so that the Developer can demolish the existing building and construct a new building. Thus, it is very clear that the new fiat has not been allotted to the Appellant free of cost. The Appellant has paid the consideration in kind i.e. the old flat. Now, the question arises as to what is the consideration of the old flat. The term 'consideration' has not been defined u/s 56(2) of the Act. However, for the purpose of section 48 of the Act, cost of acquisition of the property is taken at (a) cost of purchase plus cost of improvement and (b) expenditure incurred wholly and exclusively in connection with such transfer. In the case of Appellant, the flat has been acquired long back in 2001i.e. it's a long term capital asset. Therefore, cost of purchase and cost of improvement will be enhanced by way of indexation. Therefore, in my considered opinion, the consideration value born by the Appellant against allotment of the new flat (area in new flat given in lieu of surrender of old flat i.e. 961 sq feet only) is indexed cost of purchase of old flat plus cost of improvements and also other expenditure incurred wholly and exclusively for the transfer. The indexation period is to be taken from date of acquisition of the old flat till the date of registration of the new flat. The AO ought to have computed this amount and treated the same as consideration payable by the Appellant in terms of section 56(2)(x).
As regards the date for the purpose of computing the stamp duty value of the new flat (to the extent of 961 sq ft), it would be the date of registration of the new flat. The date when the development agreement or any other agreement entered into by the Society along with the Appellant and the Developer won't be relevant in view of 1st proviso to section 56(2)(x), since consideration has not been paid to Developer in any of the modes provided in the 1st proviso.
Thus, in view of the above following directions are being given to the AO: i. The AO will compute the consideration paid by the appellant to the Developer by way of handing over the old flat to the Developer. The consideration has to be computed by indexing the cost of purchase and cost of any improvements. Indexation has to be provided for the period from the date of purchase of the old flat till the registration of the new flat. The AO has also to consider all other expenditure incurred wholly and exclusively in connection with such transfer.
Laxman Kanaiyalal Dharmani ii. In case stamp duty value of the new flat (to the extent of 961 sq ft) exceeds the above consideration, the AO is directed to add the difference amount in terms of section 56(2)(x)(b). iii. The Appellant is directed to furnish all relevant details before the AO for the purpose of computing the 'consideration' as per 'i' above.”
The ld. AR submitted that the lower authorities have not understood the facts in assessee's case properly before making any addition u/s. 56(2)(vii)/56(2)(x). The ld. AR further submitted that the stamp duty value as mentioned in the agreement dated 31.03.2017 (page 291 to 371 of PB) pertain to the entire flat whereas the consideration as mentioned in the agreement pertain to the additional area of 159 sq.ft. bought by the assessee. The ld. AR also submitted that the AO / CIT(A) failed to consider the fact that the assessee has given up/ surrendered the original flat occupied by him in exchange of the new flat he received as per the the development agreement dated 23.10.2010 and 01.03.2013. The ld. AR took the Bench through the various clauses in the agreements to submit that the consideration as mentioned in the agreement dated 31.03.2017 is only towards the 159 sq. ft. additionally bought by the assessee by way of adjusting the amount due to the assessee as hardship allowance. The ld. AR further drew the attention of the Bench to the provisions of section 56 as applicable to relevant AY i.e. AY 2011-12 to submit that the application of the provisions in cases of inadequate consideration was inserted only from AY 2014-15 whereas in assessee's case the redevelopment agreement was entered into in the year relevant to AY 2011-12. Accordingly, the ld. AR made an alternate plea that even assuming that the agreement has been entered into for inadequate consideration, no addition could be made u/s. 56(2)(vii) for the year under consideration. The ld. AR in this regard relied on the decision of the Calcutta bench of the Tribunal in the case of “7.1 Subsequently, sub-clause (b) was substituted by the Finance Act, 2013 w.e.f. 1-4- 2014 and the amended provision is as under: "Income from other sources. 56.(1).. (2) In particular, and without prejudice to the generality of the provisions of sub- section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :-
(i) ** ** ** (vii) where an individual or a Hindu undivided family 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],- (a)... (b) any immovable property.- (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (ii) 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:
Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property."
7.2 From the above, we note that section 56(2)(vii) was originally introduced in ted statute book w.e.f. 1-10-2009 which was not in existence when the impugned agreement 56(2) (vi) came into existence after the execution of agreement to purchase of property. The purchase consideration of Rs. 31,24,430/- was fixed by this agreement for purchase and part payment had already been made on the dates stated above. Accordingly, at the relevant point in time, when the agreement for purchase was executed, there was no such law which necessitated the market value of the Laxman Kanaiyalal Dharmani property be deemed as consideration price and take the difference as income from other sources. Further, the pre-amended sub-clause (b) dealt with only those situations where the transaction in immovable property is without consideration, which is not so in the present case. Also, the post-amended sub-clause (b) which is effective from 1-4-2014 contains proviso whereby the stamp duty value on the date of agreement may be taken if the date of agreement fixing the amount of consideration for the transaction of immovable property and the date of registration are not same and part of consideration has been paid by any mode other than cash on or before the date of the agreement for the transaction of such immovable property.
7.3 The pre-amended law evidently did not cover a situation where an immovable property was received by an individual or HUF for a consideration, whether adequate or inadequate, whether consideration was less than the stamp duty valuation by an amount exceeding Rs. 50,000/-. In other words, the pre-amended law which was applicable up to A.Y. 2013-14 never contemplated such a situation and it was only in the amended law, specifically made applicable from A.Y. 2014-15 that any receipt of the immovable property with inadequate consideration has been subjected to the provisions of sec. 56(2)(vii)(b) but not before that. Hence, applicability of the said provision in such cases, could not be insisted in the assessment years prior to a A.Y. 2014-15. Having said this, in this case, there was a valid and lawful agreement entered by the parties long back in A.Y. 2008-09 only, when the subject property was transferred and substantial obligations were discharged. The law contained in section 56(2)(vii)(b) as stood at that point of time, did not contemplate a situation of a receipt of property by the buyer without inadequate consideration. Hence, we are of considered view that Ld. Pr. CIT erred in applying the said provision. Because of the mere fact that the flat was registered in the year 2014 falling in A.Y. 2015-16, the amended provision of section 56(2)(vii)(b)(ii) cannot be applied.
7.4 Hence, we are not in agreement with the view taken by the Ld. Pr. CIT holding the applicability of section 56(2)(vii)(b)(ii) in the facts and circumstances of the case and therefore we hold that the assessment order, subjected to revision u/s 263, is not erroneous and prejudicial to the interest of the revenue. Therefore, considering the totality of facts and circumstances of the case, the impugned order passed u/s 263 of the Act by the Ld. Pr. CIT, is quashed. Grounds taken by the assessee are allowed.”
The ld. AR also drew our attention to the ready recknor value of the 159 sq. ft. area purchased by the assessee as on 23.10.2010 (page no. 219 of PB) and the computation submitted before the AO to contend that the stamp duty value is much lower than the value for the assessee acquired the said area.
6. The ld. DR on the other hand submitted that the assessee did not furnish the details of the property transaction while filing the return of income and therefore the details pertaining to the impugned transactions were not available with the lower authorities. The ld. DR further submitted that the assessee himself has submitted before the CIT(A) that a reference can be made to the Departmental Valuation Officer (DVO) which proves that the assessee himself is admitting that the transaction has been entered into for a value less than the stamp duty valuation. The ld. DR also submitted that since the addition has been made based on incorrect facts, the issue may be remitted back to the AO for fresh consideration.
We heard the parties and perused the material on record. The building where the assessee owns a flat went for redevelopment and as per the terms of the agreement dated 23.10.2010 the assessee received 135% of the area of his flat. A supplementary agreement was entered into on 01.03.2013 whereby the assessee received additional 120 sq.ft. The assessee also bought additional space of 159 sq.ft for a consideration of Rs.34,71,750 and the said consideration was paid by Laxman Kanaiyalal Dharmani adjusting the hardship allowance due from the builder as per the redevelopment agreement. The redevelopment was completed and builder executed a final agreement with the assessee on 31.03.2017 (page 291 of PB) and in the said agreement the consideration towards purchase of the additional space is mentioned. We in this regard notice that for the purpose stamp duty the value of the entire flat has been considered to arrive at an amount of Rs.84,55,500/- (page 293 of PB). We further notice that the AO has treated this stamp duty value as addition u/s.56(2)(x)(b) of the Act stating that the assessee has received entire flat free of cost, completely ignoring the fact that the assessee has surrendered his existing flat and in exchange received the new flat after redevelopment. Though the CIT(A) has considered this fact, yet proceeded to direct the AO to make an addition u/s.56(2)(x)(b) to the extent of 961 sq.ft (refer the relevant findings of the CIT(A) as extracted in the earlier part of this order). The provisions of section 56(2)(vii) as applicable to the AY 2011-12 i.e. year in which the redevelopment agreement was entered into, provided for addition under the said section only in cases where no consideration is paid for acquiring an immovable property. The amendment to include inadequate consideration was introduced only from AY 2014-15 and cannot be applied to earlier years as has been held by the coordinate bench in the case of Sashi Jain (supra). In the present case, the assessee has entered into redevelopment agreement whereby he surrendered the right in the property admeasuring 623 sq.ft vide agreement dated 23.10.2010 i.e. AY 2011-12 and in exchange received 961 sq.ft. Therefore it cannot be said that the assessee has received the 961 sq.ft without consideration since the assessee has given up 623 sq.ft of his old flat as a consideration for acquiring the 961 sq.ft. When the ratio laid down by the coordinate Bench on the applicability of the amended provisions of section 56(2)(vii) is applied to the present facts, we see merit in the contention that no addition can be made u/s.56(2)(vii) in assessee's case even if the consideration Laxman Kanaiyalal Dharmani paid by way of surrender of the old flat measuring 623 sq.ft is less than the value of new area of 961 sq.ft acquired by the assessee. Accordingly we hold that no addition can be made u/s.56(2)(vii)/(x) towards 961 sq.ft of the new flat which the assessee has received in exchange of 623 sq,ft in the old flat. Now coming to the acquisition of 159 sq.ft, from the perusal of the stamp duty value computation as per the ready reckoner value (refer table in the earlier part of this order) we notice that the consideration paid by the assessee is more than the stamp duty value. Therefore for the balance 159 sq.ft also we hold that no addition can be made u/s.56(2)(vii)/(x). We hold that the directions of the CIT(A) to the AO to consider the stamp duty value for the purpose of making addition u/s.56(2)(x) is not sustainable and we set aside the order of the CIT(A) accordingly.
In result, the appeal of the assessee is allowed.