DEVANG HEMENDRAKUMAR SHAH,MUMBAI vs. MUM-W-(125)(91), AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI

The Assessee has raised the following grounds of appeal:

The brief facts of the case are that the assessee is an individual who filed his return of income for Assessment Year 2020-21 declaring a total income of Rs.13,11,010/-. Subsequently, the case was reopened under section 147 of the Income-tax Act (“the Act”) on the basis of information received by the Assessing Officer that the assessee had jointly purchased an immovable property for a consideration of Rs.1,12,62,500/-, whereas the stamp duty valuation of the property was Rs.1,62,07,500/-. The Assessing Officer was of the view that the difference of Rs.49,45,000/- was liable to be taxed under section 56(2)(x) of the Act.

During the reassessment proceedings, the assessee contended that the property had in fact been purchased entirely by his father, who had paid the entire consideration, and his name was included in the registered documents only for administrative convenience without the assessee having any beneficial ownership in the impugned property. The assessee also referred to allotment letter dated 04.07.2012 to contend that the agreement for purchase had been entered into in the year 2012 and substantial payments had already been made through banking channels, and therefore, in terms of the proviso to section 56(2)(x) of the Act, the stamp duty value as on the date of the allotment/agreement ought to be adopted instead of the value prevailing on the date of registration.

The Assessing Officer, however, rejected these submissions and hold that the registered agreement dated 06.09.2019 and the possession letter clearly stated that both the assessee and his father were joint purchasers. The Assessing Officer further observed that the allotment letter produced by the assessee was neither registered nor signed by the purchasers, referred to Flat No.1204 whereas the registered agreement related to Flat No.1302, and therefore the same did not have legal sanctity. According to the Assessing Officer, in the absence of a proper agreement for the property, the benefit of the proviso to section 56(2)(x) was not available. Accordingly, the Assessing Officer treated the entire difference of Rs.49,45,000/- between the stamp duty valuation and the purchase consideration as income from other sources under section 56(2)(x) of the Act and completed the reassessment.

Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(Appeals). Before the learned CIT(A), the assessee reiterated that he was merely a nominal co-owner and had not contributed any part of the purchase consideration, which had been entirely paid by his father. It was further submitted that the allotment letter dated 04.07.2012 was the original agreement for purchase and that substantial payments had been made through banking channels at that stage. The assessee relied upon the appellate order passed in the case of his father in respect of the same property, wherein relief had been granted by adopting the stamp duty valuation as on the date of allotment, and also relied upon several judicial precedents holding that where the date of agreement and the date of registration are different and part consideration has been paid through banking channels before the agreement, the stamp duty valuation as on the date of agreement should be adopted. The learned CIT(A), after considering the submissions, held that the assessee continued to be a registered joint owner of the property and that the plea of being merely a nominal owner could not override the legal effect of the registered conveyance. The CIT(A) further observed that the allotment letter relied upon by the assessee related to Flat No.1204, whereas the registered agreement and possession letter related to Flat No.1302. Since no valid agreement corresponding to Flat No.1302 executed during Financial Year 2012-13 had been produced, the CIT(A) held that the assessee could not claim the benefit of the proviso to section 56(2)(x) of the Act. The CIT(Appeals) also relied upon the decision of the Hon'ble Supreme Court in CIT v. Balbir Singh Maini [(2017) 398 ITR 531 (SC)] to hold that an unregistered agreement which was not legally enforceable cannot be recognized for such purposes. However, the learned CIT(A) accepted the alternative contention that since the registered sale deed did not specify the ownership ratio between the assessee and his father, each of them should be treated as holding 50% ownership in the property. Accordingly, while upholding the applicability of section 56(2)(x) of the Act, the learned CIT(A) restricted the addition to Rs.24,72,500/-, being 50% of the differential amount of Rs.49,45,000/-, and partly allowed the appeal.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material on record. The contention of the Counsel for the assessee is that though his name appears in the registered conveyance deed, he was merely a nominal co-owner and the entire consideration for acquisition of the property was paid by his father out of his own funds. The Counsel for the assessee submitted that the assessee's name was included in the registered documents only for administrative convenience and that he neither acquired any beneficial interest in the property nor contributed any part of the purchase consideration. The Counsel for the assessee also submitted that the allotment letter dated 04.07.2012 was the original agreement for purchase of the property and substantial payments had already been made through banking channels prior to the execution of the registered sale deed. The Counsel for the assessee placed reliance on the appellate order passed in the case of the assessee's father, the order of the Coordinate Bench in the father's case for Assessment Year 2012-13 and various judicial precedents to contend that where the date of agreement and the date of registration are different and part consideration has been paid through banking channels before the agreement, the stamp duty valuation as on the date of agreement is required to be adopted in terms of the proviso to section 56(2)(x) of the Act.

We are of the considered view that the controversy cannot be finally adjudicated on the basis of the material presently available on record. Both the Assessing Officer and the learned CIT(Appeals) have proceeded on the premise that the allotment letter dated 04.07.2012 cannot be relied upon since it referred to Flat No.1204, whereas the registered agreement dated 06.09.2019 and the possession letter relate to Flat No.1302. However, the assessee has consistently maintained that the property which was conveyed under the registered agreement emanated from the original allotment.

In our considered opinion, the discrepancy regarding the flat numbers goes to the root of the controversy and requires proper factual verification. The Assessing Officer shall therefore examine the complete records of the builder and all concurrent documents to ascertain whether Flat No.1204 mentioned in the allotment letter was subsequently renumbered or substituted by Flat No.1302 or whether both documents relate to the very same property. Appropriate opportunity shall also be afforded to the assessee to furnish any clarification or supporting evidence explaining the apparent discrepancy in the flat numbers. We further find that although the assessee has relied upon the proviso to section 56(2)(x) of the Act by contending that substantial payments had already been made through banking channels before execution of the registered sale deed, neither the assessment order nor the appellate order records a clear factual finding regarding the exact amount of consideration paid prior to registration, the dates on which such payments were made and the financial years in which the payments were effected. The written submissions state that payments of Rs.42,00,000/- on 20.06.2012 and Rs.3,00,000/- on 18.09.2012 were made through banking channels by the assessee's father, whereas the appellate order records that the allotment letter is dated 04.07.2012. Since these facts have a direct bearing on the applicability of the proviso to section 56(2)(x) of the Act, the Assessing Officer shall verify the entire payment schedule, ascertain the exact amount of consideration paid before execution of the registered sale deed, identify the financial year in which each payment was made, verify whether such payments satisfy the statutory requirements contained in the proviso to section 56(2)(x) of the Act and thereafter decide the issue in accordance with law.

The learned Counsel for the assessee has also sought liberty to produce a Departmental Valuation Report in support of the assessee's contention regarding the valuation of the property. Since the matter is being restored for fresh adjudication, we deem it appropriate, in the interest of justice, to grant such liberty. The Assessing Officer shall permit the assessee to place on record the Departmental Valuation Report or any other valuation evidence which the assessee may seek to rely upon and shall examine the same objectively while adjudicating the issue afresh.

The Assessing Officer shall also examine the assessee's contention that he was merely a nominal co-owner and that the entire investment in the property was made by his father. While it is true that the registered sale deed records the assessee as one of the purchasers, the Assessing Officer shall verify the source of the investment, the flow of funds, the documentary evidence relating to payment of consideration, the claim that the father alone financed the acquisition and the effect, if any, of the appellate order passed in the case of the father in respect of the same property. The Assessing Officer shall thereafter consider the applicability of section 56(2)(x) of the Act in the light of the factual findings so recorded as well as the judicial precedents relied upon by the assessee.

In view of the foregoing discussion and in the interest of justice, we restore the matter to the file of the Assessing Officer for de novo adjudication. The Assessing Officer shall examine all documentary evidence, verify the chronology of payments, determine the exact amount and year of payment made prior to execution of the registered sale deed, reconcile the discrepancy regarding Flat Nos.1204 and 1302, consider the Departmental Valuation Report and any other evidence that may be produced by the assessee, examine the effect of the appellate order and the Tribunal's order in the case of the assessee's father, and thereafter pass a fresh speaking order in accordance with law after affording adequate opportunity of hearing to the assessee. We clarify that we have not expressed any opinion on the merits of the controversy and all contentions of both the parties are left open for fresh adjudication.

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