APARNA SANDEEP KULKARANI ,MUMBAI vs. INCOME TAX OFFICER INT TAX WARD 3(1)(1), MUMBAI

Briefly the facts of the case are that basis information available with the Assessing officer, the proceedings u/s. 148 of the Act were initiated and notice u/s. 148 of the Act was issued and served on the assessee on 06-04-2022. In response to the notice, the assessee filed her return of income. Thereafter, notices u/s. 143(2) and 142(1) of the Act were issued calling for necessary information/documentation. On perusal of the information so submitted by the assessee, the AO observed that the assessee had purchased a flat bearing No. 1005, in FY. 2008-09, vide registered agreement dt. 03-01-2009 for a consideration of Rs. 67,30,680/- having an area of 128.48 Sq.Mtrs. It was subsequently cancelled vide Deed of Cancellation dt. 30-07-2014, duly registered on 05-08-2014. Thereafter, the assessee registered a new flat bearing No. 1701, having an area of 177.54 Sq.Mtrs. for a consideration of Rs. 1,07,00,000/-, whereas market value of the property (stamp duty value) was Rs. 1,35,93,400/-. The assessee submitted that due to certain unavoidable reasons, she cancelled the earlier flat and after having the discussion with the developer, agreed to transfer the payment made for the earlier flat towards the new flat and since the booking in the new flat was made as per the terms and conditions of the earlier agreed terms, the agreement was made at a consideration of Rs. 1,07,00,000/- as agreed between the parties. However, the submissions so made by the assessee were not found acceptable to the AO for the reason that the old agreement was cancelled. Further, the AO held that the assessee has purchased a new flat for a consideration which is lower than the market value of the property and the provisions of section 56(2)(vii)(b) of the Act were held applicable. Thereafter, the assessee was issued a show cause dt. 20-02-2024 as to why the difference of Rs. 28,93,400/- should not be added to the income of the assessee as income from other sources. However, there was no compliance on the part of the assessee, thereafter, basis information available on record, the AO proceeded and passed the draft assessment order wherein the amount of Rs. 28,93,400/- was brought to tax as income from other sources.

The assessee thereafter filed objections before the DRP. The DRP considered the submissions so filed by the assessee and disposed off the objections and confirmed the addition so made by the AO u/s. 56(2)(vii)(b) of the Act. Thereafter, the AO passed the final assessment order u/s. 147 r.w.s. 144C(13) of the Act, dt. 12-12-2024 and against which the assessee is in appeal before us.

During the course of hearing, the Ld.AR submitted that the assessee is a Non-resident Indian. The assessee and her husband had purchased an under construction residential flat being Flat No. 1005 in Tower-9 in a project by the developer - Flagship Infrastructure Pvt. Ltd. The flat was purchased vide agreement registered on 03-01-2009 and the relevant details are as under: i. Area 128.48 Sq. Mtrs

It was submitted that the assessee had made payments for purchase of flat from time to time- payment starting from 29-12-2008 to 17-07-2013 (details of the payments made are given on Page No. 63 of the paper book and Receipts for all the payments made are filed at Page Nos. 51 to 59 of the paper book).

It was submitted that the flat so constructed was not as per the specifications as agreed and hence, there was a dispute with the Builder. Also the flat was still under construction in the year 2014. Appellant had already made entire payment towards the flat. The assessee was in a stress that even after making full payment, the possession was not likely to be received. It was submitted that the assessee approached the developer, who proposed to allot another flat in tower 13 in the same project against the Flat No. 1005. Considering that the money was at stack, the assessee agreed for cancellation of the Flat No. 1005 in tower 9 and agreed to acquire another flat i.e. Flat No. 1701 in tower 13.

Accordingly the assessee and the developer entered into a Cancellation agreement on 30-07-2014, which was registered on 05-08-2014 and the details of Cancellation agreement is placed at Page Nos. 5 to 10 of the paper book. It was further submitted that on same day i.e. 30-07-2014, a fresh agreement was entered into for Flat No. 1701. The same was also registered on 05-08-2014 (Agreement for the new flat No. 1701 is filed at Page Nos. 11 to 50) and the relevant details for the Flat No. 1701 are as under:

It was submitted that the draft Assessment Order was passed on 12- 03-2024 wherein the AO made addition of Rs. 28,93,400 u/s. 56(2)(vii)(b) of the Act by comparing the SDV Rs. 1,35,93,400/- and consideration of Rs. 1,07,00,000/-. Being aggrieved, the assessee filed objections before the DRP. However, the DRP confirmed the addition proposed in the Draft assessment order.

In the aforesaid factual background, it was submitted that the assessee’s case is covered by the first proviso to section 56(2)(vii)(b) of the Act. In so far as the area of 128.48 Sq. Meters is concerned, the agreement fixing the consideration was entered into on 03-01-2009. Payments were made by cheque starting from 29-12-2008. Therefore, the second proviso has not been violated. Transaction value in the year 2009 was Rs. 67,30,680/- as compared to the Stamp Duty value of Rs. 57,25,335/- and submitted that these figures are available in Index II of the original agreement filed at Page No. 62 of paper book.

It was further submitted that as per the assessee, the total area of 177.54 Sq. Meters and the consideration can be bifurcated as under:

As far as application of section 56(2)(vii)(b) of the Act, it was submitted that the total consideration can be bifurcated as explained above between the original area and incremental area.

It was further submitted that without prejudice to the aforesaid contentions, the consideration for the purpose of section 56(2)(vii)(b) of the Act is not confined to monetary consideration only. It includes monetary as well as non-monetary consideration. As such, even if the first proviso is held to be not applicable, the consideration of Rs. 1,07,00,000/- is not the only consideration paid by the assessee. There is a non-monetary element in the total consideration which is valuable and hence, the same cannot be ignored.

It was submitted that the term consideration has not been defined in the Act. As held by the Hon'ble Kerala High Court in the case of CGT v. Smt. C. K. Nirmala 215 ITR 156 (Ker.) since the term is not defined in the Income-tax Act, the meaning of the term has to be adopted as defined under Indian Contract Act. Section 2(d) of the Indian Contract Act defines the term consideration as under: "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."

It was submitted that in the instant case of the assessee, she has forgone the appreciation in the value of the property to the extent of original 128.48 Sq. Meters, which she was entitled to by forgiving the right to acquire the original 128.48 Sq. Meters at the originally agreed price. Abstinence from acquiring the 128.48 Sq Meters at the original price is a valuable consideration. The appreciation forgone can be worked out at Rs. 31,06,389/-i.e. 128.48 Sq. Meters @ Rs. 24,178 [76,565 (SDV per sq. meter in 2014)-52,387 (SDV per Sq. Meter in 2009)]. As such the total consideration for the appellant is Rs. 1,38,06,389/- (Monetary Rs. 1,07,00,000+ Appreciation forgone Rs. 31,06,389). This amount is higher than the Stamp Duty value of the entire 177.54 Sq. Meter i.e. Rs. 1,35,93,400/- and, therefore, the provisions of section 56(2)(vii)(b) cannot be applied.

In support of his contentions, the Ld.AR drawn our reference to the decision of the Co-ordinate Bench of the Tribunal in the case of Anil Dattaram Pitale v. ITΟ (TA No. 465/Mum/2025), wherein the Co-ordinate Bench of the Tribunal has held as under: "4. We heard the parties and perused the record. The facts discussed above would show that the assessee got a new flat in the redeveloped property in lieu of old flat. Hence, it is a case of extinguishment of old flat and in lieu thereof, the assessee has got new flat as per the agreement entered with the developer for redevelopment of the society. Thus it is not a case of receipt of immovable property for inadequate consideration that would fall within the purview of the provisions of sec.56(2)(x). Accordingly, we are of the view that the provisions of sec. 56(2)(x) will not be applicable to the facts of the present case."

It was submitted that the ratio of the above observations of the Co- ordinate Bench of the Tribunal are equally applicable in the instant case of the assessee. In the present case also there is an extinguishment of rights in the old flat and the new flat is received in lieu of the right to acquire the old flat and prayed that the appeal of the assessee be allowed.

Per contra, the Ld. DR vehemently relied on the orders so passed by the AO as well as that of the DRP, and submitted that - i. The Flat No. in a project namely Project B at Blue Ridge, Hinjewadi, Tal. Mulshi, Dist. -Pune was booked by the appellant and duly registered in 2009. ii. The said agreement was cancelled in the year 2014 by way of a cancellation deed. iii. The assessee purchased another flat of a larger area from the same developer, in the year 2014, in Tower 13 of Project B. iv. The agreement fixing the amount of consideration was cancelled and hence the same cannot support the assessee for invoking the proviso to Sec. 56(2)(vii)(b) of the Act. v. The transferring of balance amount to another flat account tantamount to refund to the assessee. vi. The AO was correct in charging to tax an amount of Rs. 28,93,400/- as income from other sources.

Without prejudice to the above, the Ld. DR made the following alternate arguments: i. The assessee has purchased a flat of larger area comprising of 49.06 Sq. Mtrs. As incremental area (177.54 sqm128.48 sqm). ii. This larger area came into existence for the first time in the year 2014. iii. The average market rate/stamp duty rate of the new flat works out to Rs. 76,772/-PSM. iv. The agreement rate of the new flat comes to Rs. 60,431/-PSM.

In light of the above, the Ld. DR submitted that the action of the AO and confirming action of the DRP in making addition of Rs. 28,93,400/- is valid, in the eyes of law. Alternatively, addition to the extent of Rs. 8,01,690/- may kindly be sustained and prayed that the grounds raised by the assessee be dismissed.

In his rejoinder, the Ld. AR submitted that there are some inherent fallacy in the submissions and calculations made by the Ld.DR and the same have been explained hereunder: i. In paragraph 4.2.8 it is contended that the stamp duty differential value of Rs. 1,35,93,400 and Rs. 67,30,380/- should be attributable to additional area for the purpose of section 56(2)(vii)(b) of the Act and therefore the rate comes to Rs. 1,39,890/- PSM (Rs. 68,63,020/-). In connection with this, the assessee respectfully submits that the figure of Rs. 68,63,020/- is derived by reducing the original consideration of Rs. 67,30,680/- from the Stamp Duty value of 2014 at Rs. 1,35,93,400/-. The assessee submits that the consideration and Stamp Duty value are two different items and it is not appropriate to reduce the original consideration from the later Stamp Duty value. Comparison can be for comparables and not otherwise. The assessee also submits that in any case, the stamp duty authorities compute the stamp duty value for the entire flat and not for any incremental area etc. Accordingly it is absolutely incorrect to compute the rate at Rs. 1,39,890/- per Sq. Meter. The Stamp Duty value in the year 2014 for the entire flat of 177.54 Sq. Meter was Rs. 1,35,93,400/-. This works out to Rs. 76,565/- per Sq. Meter. ii. In paragraph 4.2.9, the Ld.DR has considered the amount of Rs. 1,39,890/- per Sq. Meter, as computed above (wrongly though) and compared the same to the actual transaction value of the appellant at Rs. 80,907/-. The amount of addition is accordingly

It was submitted that once the incremental consideration of Rs. 39,69,320/- is considered in relation to incremental area of 49.06 Meters, the consideration per Sq. Meter comes to Rs. 80,907/-per Sq. Meter. This amount is higher than the SDV per Sq. Meter of Rs. 76,565/- per Sq. Meter and hence, section 56(2)(vii)(b) does not apply.

The Ld.AR finally submitted that no addition can be made in the instant case u/s. 56(2)(vii)(b) of the Act read with the first proviso thereof. It was submitted that the contentions made by the Ld.DR has some inherent fallacies and hence, the same deserves to be ignored and, prayed that the impugned addition of Rs. 28,93,400/- may be deleted.

We have heard the rival contentions and perused the material available on record. The relevant provisions of section 56(2)(vii)(b) which have been invoked in the instant case interalia provides that where an individual receives in any previous year from any person any immovable property 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 shall be chargeable to income tax under the head “Income from other sources”. It further provides 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. However, the said relaxation 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.

In the instant case, the assessee has entered into a purchase agreement dated 30/07/2014 whereby she has acquired ownership rights in Flat No. 1701 for a consideration of Rs 1,07,00,000/- where as the stamp duty value was determined at the time of registration of said agreement on 5/08/2014 at Rs 1,35,93,400/- resulting in a differential figure of Rs 28,93,400/- which has been brought to tax by the Assessing officer invoking the aforesaid provisions of section 56(2)(vii)(b) of the Act.

The assessee is contesting the said addition and the explanation canvassed on behalf of the assessee is that she had initially purchased another Flat No. 1005 in year 2009 and due to certain technical reasons, the possession of the said Flat couldn’t be given by the builder and the builder offered another Flat No. 1701 which the assessee agreed to though with certain additional area and consequent certain additional consideration over and above what was paid earlier. Therefore, to the extent of area of original Flat measuring 128.48 sq. meters and original consideration which was adjusted against the consideration for the new flat, there was an agreement between the assessee and the builder and to that extent, the benefit of the proviso to section 56(2)(vii)(b) be provided to the assessee and as far as the incremental area of 49.06 sq.meters is concerned, the transaction value was higher than stamp duty value, and thus the provisions of section 56(2)(vii)(b) cannot be applied.

We have given a carefully consideration to the contention so advanced by the ld AR on behalf of the assessee and are of the considered view that the same cannot be accepted. The provisions of section 56(2)(vii)(b) and the proviso thereto are qua a particular transaction of immovable property which has been entered into by the assessee. The essence of the said provisions is to factor in the time gap between the date of entering into an agreement for purchase of immovable property and the date when the final registration of the said property is done in favour of the assessee and stamp duty value determined thereon. And it has been 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 taxation. In the instant case, we find that there were two independent transactions for purchase of immoveable property undertaken by the assessee with the developer. The assessee had initially purchased a flat bearing No. 1005 having an area of 128.48 Sq.Mtrs in FY. 2008-09, vide registered agreement dt. 03-01-2009 for a consideration of Rs. 67,30,680/- which was subsequently cancelled vide Deed of Cancellation dt. 30-07-2014, duly registered on 05-08-2014. Thereafter, the assessee entered into another agreement with the developer on 30-07-2014 for flat bearing No. 1701, having an area of 177.54 Sq.Mtrs. for a consideration of Rs. 1,07,00,000/-. Contractually, these were thus two agreements entered into by the assessee with the developer having separate areas and separate consideration. The first agreement was cancelled and thereafter, the second agreement was entered into. The second agreement was therefore not in furtherance of and continuation of the first agreement and there were thus two separate transactions entered into by the assessee. The fact that date of cancellation of the first agreement and date of entering into the second agreement is same doesn’t negate the fact that these were two independent transactions from a contractual stand point. Further, the fact that the consideration paid towards the first flat was adjusted against the consideration for the second flat is again a mechanism to avoid refund of consideration towards the first flat and again repaying the amount towards the second flat and is thus purely a financing mechanism for ease of settlement and discharge of consideration towards the second flat and again doesn’t negate the separate nature of each agreement. In view of the same, we are of the considered view that the benefit of the proviso to section 56(2)(vii)(b) cannot be given to the assessee and the contention so advanced by the ld AR cannot be accepted.

Coming to the other contention of the ld AR that the consideration includes non-monetary consideration whereby the assessee has forgone the appreciation in the value of first flat, as we have discussed earlier, these were two independent transactions and the same is also not emerging from the second agreement. Had the same been the understanding between the assessee and the developer, the same would have been factored in the agreement while determining the consideration for the second flat which apparently has not happened in the instant case. Therefore, the said contention cannot be accepted. In light of the same, the addition of Rs 28,93,400 u/s 56(2)(vii)(b) is hereby confirmed.

At the same time, given that it is admitted fact as also acknowledged by the AO that there was cancellation of agreement for the first flat during the financial year relevant to impugned assessment year, the assessee’s rights in the said flat have got extinguished and resultant transfer within the meaning of section 2(47) of the Act, the AO should have determined the loss on account of such transfer and the assessee be allowed necessary set-off/carry forward as permissible under law. To this extent, we deem it appropriate to set-aside the matter to the file of the AO to verify and determine the loss and set-off/carry forward as per law after providing reasonable opportunity to the assessee.

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