Loading judgment…
Facts
The assessee filed an appeal against the order of the CIT(A) which upheld the disallowance under Section 14A and addition under Section 56(2)(vii)(b) of the Income Tax Act. The assessee argued that the disallowance was mechanical and no expenditure was incurred for dividend income, while the addition related to an immovable property purchased before the amended provisions were applicable.
Held
The Tribunal found merit in the assessee's contention regarding the applicability of Section 56(2)(vii)(b), stating that the transaction was governed by pre-amended provisions as the agreement and substantial payment were made prior to the relevant financial year. The disallowance under Section 14A was also contested.
Key Issues
1. Whether the disallowance under Section 14A and Rule 8D was justified when no expenditure was incurred for earning exempt income. 2. Whether the amended provisions of Section 56(2)(vii)(b) were applicable to the purchase of immovable property when the agreement was entered into and payment made in an earlier financial year.
Sections Cited
14A, 8D(2)(iii), 56(2)(vii)(b), 234B, 234C, 143(3)
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
Date of Hearing 01.10.2025 Date of Pronouncement 12.11.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :-
The present appeal arising from the appellate order dated 18.07.2025 is filed by the assessee against the order passed by the Learned Commissioner of Income-tax, Appeal, ADDL/JCIT(A), Panaji [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 21.11.2016 for the Assessment Year [A.Y.] 2014-15. P a g e | 2 A.Y. 2014-15 Nilesh Ishwar Mehta, Mumbai 2. The grounds of appeal are as under:
1. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in confirming disallowance of Rs. 248687 under Section 14A r.w.r 8D of Income Tax Act, 1961.
2. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in confirming addition of Rs. 1977000 under section 56(2)(vii)(b) of Income Tax Act, 1961.
3. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in confirming the action of Ld. AO in charging interest under section 234B and 234C of the Income Tax Act, 1961.
3. Ground no.1-Facts in brief are that the assessee derives income from commission, share income from partnership firm, interest etc. The AO noticed that the assessee despite having exempt income of Rs 9,58,120/- did not make any suo motu disallowance. Accordingly, he after confronting the assessee, made disallowance under 8D(2)(iii) of Rs 2,48,687/-,based on 0.5% of average investment. No disallowance was made in respect of interest as per clause (i) and (ii) of Rule 8D(2).
3.1 In the subsequent appeal before the ld.CIT(A),the assessee agitated the disallowance claiming that it was made in a mechanical manner and without recording any dissatisfaction with assessee’s claim. Besides, no expenditure was incurred for earning the dividend income. However, the ld.CIT(A) dismissed the ground observing that no books of account or working were produced by the assessee to show that no direct/indirect expenditure were incurred. The claim of the investment made out of surplus fund was also negated as the disallowance made P a g e | 3 A.Y. 2014-15 Nilesh Ishwar Mehta, Mumbai pertained to Administrative and General expenses only. Reliance was placed in the case of Hon’ble Supreme Court in Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC), in which it was held that disallowance under Section 14A is permissible even in cases where the assessee claims that no expenditure was incurred, if the AO records dissatisfaction.
4. Before us, the ld.AR has made the same contentions as ,made before the ld.CIT(A).We find no merit therein as the Rule being mandatory, the addition was justified as despite having substantial exempt income the assessee did not offer any suo moto disallowance. Moreover, the disallowance is restricted to General/Admn. expenses only as per the formula of Rule 8D(2)(iii).There is no question of utilization of any surplus fund etc. as the AO did not make any disallowance of interest. Moreover, there is absolutely no question of any dissatisfaction as the assessee itself did not make out a case of no disallowance, apart from making a general statement that no expenditure was incurred. The said clause(iii) takes care of such situations. Therefore, appellate order is upheld dismissing the ground of appeal.
P a g e | 4 A.Y. 2014-15 Nilesh Ishwar Mehta, Mumbai 5. Ground No.2 pertains to the addition made amounting to Rs 19,77,000/- in respect of an immovable property purchased for a consideration which was less than stamp duty value in terms of section 56(2)(vii) of the Act.The basic contentions raised before the ld.CIT(A) was that the amended provisions of section 56(2)(vii)(b)(iii) introduced from AY 2024-15 were not applicable to its case since both the agreement and the registration of the impugned property were concluded on 26.09.2012 relevant to AY 2013-14.The property being office premises, was only put to use during the year under consideration. The assessee also placed reliance on several decisions of various co- ordinate benches of ITAT where on identical facts, it was held that the amended provisions effective from AY 2014-15 were not applicable. However, the ld.CIT(A) rejected the contention stating that there was no infirmity in the assessment order. Accordingly to him, in the present case, the difference between stamp duty value and actual purchase price is Rs. 19,17,000/-, which clearly exceeded the threshold. The AO had rightly applied the statutory provision. The appellant failed to rebut the deemed value by providing i.e.evidence of any defect in stamp valuation, request for reference to the DVO within the assessment proceedings or a valuation report to substantiate fair market value. The case laws relied upon were not found applicable by him.
P a g e | 5 A.Y. 2014-15 Nilesh Ishwar Mehta, Mumbai 6. On careful consideration of all the relevant facts of the case,we find merits in the contentions of the ld.AR. It is stated by him that all payments made before agreement dated 26.09.2012 excepting Rs 8,28,000/- to be paid on possession. It is submitted that the property was purchased and agreement was made in the FY 2012-13 only. However, for want of possession, it was taken to the Block of assets in FY 2013-14 after taking possession thereof. Therefore, the amended provisions of section 56(2)(vii) were not applicable to the facts of the case. Reliance was placed various ITAT decisions i.e. Bajrang Lal Naredit ITA No,327/Ran/2018,Anala Anjibabu Ashotosh Jha 129 taxmann.com 204(Kol), Naina Saraf in ITA No.271/Jp/202(Jpr).
6.1 We find that identical issue has been adjudicated in plethora of cases by various coordinate benches of ITAT. We place reliance on the case of Bajrang Lal Naredi AY: 2014- 15).Relevant paras are extracted as below for the sake of brevity and easy reference:
“The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals), Jamshedpur (CIT(A)' in short), dated 09.07.2018 arising in the assessment order dated 31.08.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2014-15.
As per multiple grounds of appeal
, the assessee has essentially raised two grievances; (i) applicability of amended provisions of Section 56(2)(vii)(b) of the Act P a g e |
6. A.Y. 2014-15 Nilesh Ishwar Mehta, Mumbai in the facts and circumstances of the case; & (ii) chargeability of interest under s.234B of the Act on additions made.
The assessee in the year under consideration registered in his name, an immovable property on 17.06.2013 against the actual purchase of property on 15.04.2011 in FY 2011-12. The purchase consideration was determined at Rs.9,10,000/- at the time of agreement for purchase in FY 2011-12 and accordingly the payment was made at the time of such agreement to the vendor. As noted, the registration was however carried out at a belated stage on 17.06.2013 on which date the stamp duty valuation stood at a higher figure at Rs.22,60,000/-. The AO noticed the alleged under-valuation in the purchase price of the property qua stamp duty valuation and applied provisions of Section 56(2)(vii)(b) of the Act and worked out the adjusted purchase consideration of Rs.18,89,350/-. The AO accordingly treated the difference of Rs.9,79,350/- as 'deemed income' having regard to the provisions of Section 56(2)(vii)(b) of the Act as amended by Finance Act, 2013 and applicable to AY 2014-15 onwards.
In the first appeal, the CIT(A) did not give any relief on inapplicability of amended provisions of Section 56(2)(vii)(b) of the Act to the facts of the case as claimed b y the assessee.
Further aggrieved, the assessee preferred appeal before the Tribunal against the order of the CIT(A).
We have carefully considered the rival submissions on the issue. In the instant appeal, the applicability of Section 56(2)(vii)(b) of the Act as amended by Finance Act, 2013 and applicable to AY 2014-15 in question. On a perusal of pre-amended provisions of Section 56(2)(vii)(b) of the Act, we gather that where an individual or HUF receives from any person any immovable property without consideration, the provisions of pre-provisions was however substituted by Finance Act, 2013 and made applicable to AY 2014-15 onwards. As per the amended provisions, the scope of substituted provision was expanded to cover purchase of immovable property for inadequate consideration as well. It is alleged on behalf of the Revenue that the amended provision will apply in view of the fact that registration has been carried out during the FY 2013-14 concerning AY 2014-15 where the amended law came into force. The assessee, on the other hand, seeks to claim that his case would be covered by pre-amended provision in view of the fact that agreement for purchase of the property was entered into with the prospective seller in FY 2011-12 relevant to AY 2012-13 at which time the new law did not come into play. It was claimed that the purchase consideration was duly paid at the time of agreement in FY 2011-12 and the purchase was de facto completed except for the formality of registration. It was thus submitted that the transactions entered prior to the FY 2013-14 would be governed by the pre-amended provision which triggers the applicability of such provision only where there is a total lack of consideration and does not cover a case of inadequacy in purchase consideration.
We find merit in such plea advanced on behalf of the assessee. It is not in dispute that purchase transactions of immovable property were carried out in FY 2011-12 for which full consideration was also parted with the seller. Mere registration at later date would not cover a transaction already executed in the earlier years and substantial obligations have already been discharged and a substantive right has accrued to the assessee therefrom. The pre-amended provisions will thus apply and P a g e | 7 A.Y. 2014-15 Nilesh Ishwar Mehta, Mumbai therefore the Revenue is debarred to cover the transactions where inadequacy in purchase consideration is alleged. We thus find merit in the issue raised on behalf of the assessee. The order of the CIT(A) is accordingly set aside and the AO is directed to delete the additions made under s. 56(2)(vii)(b) of the Act and restore the position claimed b y the assessee.”
7. In the light of the above discussion and respectfully following the above decision, we are of the considered view that the ld.CIT(A) was not justified in upholding the addition in this regard. The said order is therefore, set aside with a direction to the AO to delete the addition. Ground of appeal stands allowed.
8. Ground no.3 pertaining to charging of interest u/s 234B and 234C of the Act is consequential in nature and does not need any adjudication.
In the result, the appeal is of the assessee is partly allowed.
Order pronounced in the open court on 12/11/2025. NARENDER KUMAR CHOUDHRY PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)