ATLANTA CO-OP HOUSING SOCIETY LIMITED,MUMBAI vs. WARD 41(3)(1), MUMBAI, MUMBAI

This appeal by the assessee is directed against the order dated 02.01.2026 passed by the National Faceless Appeal Centre, Delhi [“the learned CIT(A)”] under section 250 of the Income-tax Act, 1961 [“the Act”], arising out of the assessment order dated 10.02.2025 passed under section 147 read with section 144B of the Act for the assessment year 2020-21.

The assessee has raised the following grounds of appeal:

Briefly stated, the assessee is a co-operative housing society formed by the purchasers of flats and shops in the building known as “Atlanta”, comprising six wings. The building was constructed by R.G. Builders Pvt. Ltd. on land owned by Associated Land Development Corporation. The construction was completed and occupation certificates 2 were issued in 1985-86. The Society was registered on 06.05.1988 and, since then, the members and the Society have remained in possession of and have maintained the property. Under the agreements with the flat purchasers and section 11 of the Maharashtra Ownership of Flats Act, 1963, the promoter was obliged to convey the land and building to the Society after its formation. Owing to disputes between the landowners and the builder, that obligation remained unperformed despite repeated letters from the Society from 2007 to 2012.

The disputes were ultimately settled and a deed of conveyance dated 25.11.2019 was executed by the owners, the confirming parties, the builder and the assessee Society for a negotiated consideration of Rs.11,00,000/-. The stamp valuation authority adopted a value of Rs.1,07,67,200/-. Treating the difference of Rs.96,67,200/- as income under section 56(2)(vii)(b), the Assessing Officer made the impugned addition. He also disallowed deduction of Rs.34,348/- claimed under section 80P and determined the total income at Rs.97,60,058/-.

The learned CIT(A) agreed that section 56(2)(vii)(b), as quoted by the Assessing Officer, was not the applicable provision, but held that the reference to that provision was merely an incorrect citation and that the transaction was covered by section 56(2)(x). According to the learned CIT(A), execution of the conveyance transferred title to the Society in the previous year and the statutory difference between the stamp duty value and the consideration was therefore taxable. The appeal was dismissed.

Before us, the learned Authorised submitted that the flats and shops had been purchased by the members, the building had been completed and occupied in 1985-86, and the Society had been registered and put in de facto possession in 1988. The 2019 deed did not result in receipt of a new immovable property; it only discharged the promoter’s 3 pre-existing statutory and contractual obligation and conveyed the owners’ reversionary interest and the confirming party’s leasehold interest so as to perfect the Society’s legal title. The consideration of Rs.11,00,000/- was a negotiated settlement amount necessitated by disputes beyond the Society’s control. It was accordingly contended that section 56(2)(x) could not be applied merely because the formal conveyance was registered in the relevant previous year.

The learned Authorised Representative further relied upon the decision in M. Siva Parvathi and the principle stated by the Hon’ble Supreme Court in K.P. Varghese that a taxing provision should not be construed so as to tax a bona fide transaction merely because formal completion occurs later for reasons beyond the parties’ control. Reliance was also placed upon Administrator of Estate of Late E.F. Dinshaw v. ITO (ITA No.3019/Mum/2008), Cinestaan Entertainment (P.) Ltd. v. ITO [2019] 106 taxmann.com 300 (Delhi - Trib.), Utility Supply (P.) Ltd. v. DCIT [2025] 174 taxmann.com 250 (Mumbai - Trib.) and Vaani Estates (P.) Ltd. v. ITO [2018] 98 taxmann.com 92 (Chennai - Trib.).

The learned Departmental Representative, on the other hand, relied upon the order of the learned CIT(A). It was submitted that the deed described the assessee Society as purchaser, consideration was paid by it and the property stood conveyed to it on 25.11.2019. Therefore, the difference between the stamp duty value and the consideration was rightly brought to tax under section 56(2)(x), notwithstanding the incorrect reference to section 56(2)(vii)(b) in the assessment order.

We have heard the rival submissions and perused the material available on record. The narrow issue is whether, on the peculiar facts, the deed dated 25.11.2019 represents receipt by the Society of 4 immovable property for inadequate consideration in the relevant previous year.

The contemporaneous record shows that the building had been completed and occupation certificates had been issued in 1985-86. The flat purchasers were placed in possession under their respective agreements; the Society was registered on 06.05.1988; and the Society and its members thereafter continuously possessed, occupied, managed and maintained the property. Clause 19 of the purchasers’ agreement obliged the builder to execute or cause the owner to execute the conveyance of the property together with the building in favour of the Society. Section 11 of the Maharashtra Ownership of Flats Act, 1963 likewise imposed an obligation upon the promoter to take the necessary steps for conveyance of his right, title and interest in the land and building to the organisation of flat takers. Thus, the conveyance was not an independent bargain for acquisition of a new building in 2019; it was the belated performance of an obligation embedded in the original flat- purchase arrangement.

The deed itself records the transfer of the vendors’ reversionary interest and the confirming party’s leasehold interest. The possessory and beneficial enjoyment of the constructed building had already passed decades earlier. What remained outstanding was the formal vesting and perfection of title. The payment of Rs.11,00,000/- was made to settle intervening disputes and procure performance of that outstanding obligation. There is no finding by either authority that the Society paid any unaccounted consideration, that the transaction was colourable, or that it received in 2019 a property commercially distinct from the property already occupied and enjoyed by its members.

In M. Siva Parvathi, the Tribunal, while dealing with a delayed registration caused by disputes and circumstances beyond the assessee’s control, observed in paragraph 8.5, in substance, that where the parties have satisfactorily explained the delay in registration and the evidence demonstrates genuine disputes and claims requiring settlement, the delayed execution of the sale deed cannot by itself alter the bona fide character of the original transaction. The Tribunal also applied the following principle stated by the Hon’ble Supreme Court in K.P. Varghese:

Though those decisions arose in the context of provisions concerning consideration on transfer, the principle that the legal form and delayed registration must be examined in the setting of the antecedent contractual rights is relevant. Section 56(2)(x)(b) taxes receipt of immovable property for a consideration lower than the stamp duty value beyond the prescribed tolerance. On the facts before us, the Society did not receive the constructed property for the first time in the relevant previous year. The deed regularised and perfected the legal title to property already constructed, possessed and beneficially enjoyed pursuant to the original agreements, and discharged a statutory and contractual obligation that had arisen long before section 56(2)(x) came into force.

Accordingly, we are of the considered view that the difference of Rs.96,67,200/- between the stamp duty value and the settlement consideration cannot, on these peculiar facts, be treated as income of the 6 assessee under section 56(2)(x). The Assessing Officer is directed to delete the addition. Grounds 5 to 8 are allowed. In view of our decision on merits, grounds 2 to 4 challenging the validity of the reassessment are rendered academic and are left open. Ground 1 is allowed to the extent indicated above. The disallowance of deduction under section 80P of Rs.34,348/- was not specifically assailed or argued before us and therefore calls for no separate adjudication.

In the result, the appeal of the assessee is partly allowed.