DANISH SHEIKH,USA vs. INCOME TAX OFFICER INTL TAX WARD 4(2)(1), MUMBAI

Brief facts of the case are that the assessee had not filed its return of income for AY 2016-17. However, from the departmental database, it was noticed by the Ld. AO that the assessee acquired an immovable property for a consideration of Rs. 1,55,67,185/- during FY 2015-16. Thereafter, a notice u/s 148 was issued, in response to which the assessee filed its return on 12.04.2023 declaring nil income. During the course of assessment proceedings, Ld. AO observed that the assessee had purchased the immovable property at a consideration less than the fair market value of the property, and therefore, sought to add the difference in the fair market value (Rs. 2,24,75,500/-) and the agreement value (Rs. 1,91,75,157/-) as income from other sources u/s 56(2)(vii)(b) of the Act. Since no reply was received to the show cause notices issued, the AO proposed an addition of Rs. 32,96,343/- u/s 56(2)(vii)(b) vide a draft assessment order, against which the assessee filed objections before the A.Y. 2016-17 Danish Sheikh Dispute Resolution Panel (DRP). After considering the response of the assessee, Ld. DRP issued directions to the Ld. AO, in accordance to which the assessment was completed u/s 147 r.w.s 144C (13) of the Act at an income of Rs. 32,96,343/- .

Aggrieved with the order of Ld. AO, the assessee preferred an appeal before the Tribunal. The assessee has raised as many as 13 grounds of appeal

Further, Ld. AR has argued that the above provisos are held to be retrospective nature and applicability from the year of the inception of the main A.Y. 2016-17 Danish Sheikh section, and for this proposition, reliance has been placed on the following decisions of the coordinate benches: i. CIT v. Vummudi Amarendran (2020) 429 ITR 97 ii. Shrimati Rekha Agarwal, 38 NYPTTJ 895 (Raipur) iii. Rahul G. Patel. v. DCIT (2018) 173 ITD 1 iv. Dharamshibhai Sonani v/s ACIT 181 TTJ (Ahd) 721 7. On the other hand, Ld. DR has strongly relied on the orders of the lower authorities and has submitted that since there was no agreement to sell, mere issuance of allotment letter cannot be considered as the agreement envisaged in the first and second proviso to Section 56(2)(vii)(b) of the Act.

We have considered the rival submissions and perused the material placed before us. Although several issues have been raised by the assessee, the sole substantive issue of the consideration is the applicability of Section 56(2)(vii)(b) of the Act to the impugned transactions. Admittedly, the assessee has placed on record all the relevant documents, including a copy of the application/allotment letter from which it is clear that the price was agreed vide this document dated 07.10.2013 and part payment was also made in pursuance of the allotment letter as per the copy of bank account and receipts issued by the builder. We find that this issue has repeatedly been allowed in favour of the assessee in various decisions of the coordinate bench. Specifically, in the case of Mr. Sajjanraj Mehta, Mumbai v/s ITO Ward 21(3)(2), Mumbai in it has been held as under:

The finding of the A.O vide pg no-4, para-2.6 wherein he observed that assessee has deposited Rs 14 lacs with the developer to year mark the said premises for Rs 70 lacs. Even if for the time being it is assumed that this agreement is merely a letter of intent, still amount mentioned in this so called letter of intent can't be changed by either of the party .At the max the parties involved may opt for exit from the transaction but amount of consideration can't be changed. This transaction of the assessee has to be analysed in commercial parlance, without finalisation of consideration nobody will deposit 20% of the final consideration. The vitality of the agreement further found force from the behaviour of the assessee as confirmed by the A.O also that assessee paid further Rs 34.5 lacs till financial year 2012-13. Assessee also paid Rs 1,00,285/-as VAT, Rs 1.35,187/- as service tax, Rs 5,02,000/- as stamp duty and Rs 30,000/- as registration charges.

The chronology of the events confirms that the finding of the A.O treating the agreement of the assessee as letter of intent is not correct. In this matter treating the said agreement as letter of intent shows an over thinking and hyper technical interpretation at the end of the A.O. assessees case clearly falls in the proviso to Section 56(2)(vii)(b). For sake of clarity we are reproducing herein below the relevant portion of proviso "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".

We further relied on following judicial pronouncement of coordinated benches of ITAT, Hon'ble High Court and Apex Court as under: a) "Siraj Ahmed Jamalbhai Bora vs. ITO Ward - 1(3) (1) dtd. 28/10/2020, (Mum.) (Trib.): Date of registration irrelevant for Sec 56(2)(vii)(b) as substantial obligation discharged on date of agreement. b) Radha Kishan Kungwani vs. ITO Ward-1(2) dtd. 19/08/2020, [185 ITD 433 (Jaipur-Trib.)] Where assessee entered into agreement for purchase of flat and had made certain payment at time of A.Y. 2016-17 Danish Sheikh booking of flat, stamp duty valuation or fair market value of immovable property was to be considered as on date of payment made by assessee towards booking of flat e) Sanjay Dattatraya Dapodikar v/s ITO Ward 6(2), Pune dtd. 30/04/2019(Pune) (Trib) Where date of agreement for fixing amount of consideration for purchase of a plot of land and date of registration of sale deed were different but assessee, prior to date of agreement, had paid a part of consideration by cheque, provisos to section 56(2)(vii)(b) being fulfilled, stamp value as on date of agreement should be applied for purpose of said section d) Ashutosh Jhavs. ITO Ward-2(5), Ranchi ITA No. 188/Ranchi/2019 dtd. 30/04/2021, [190 ITD 450 (Kolkata - Trib.).] Where assessee purchased a property and made part payment of sale consideration by cheque on very next day of execution of purchase agreement and registry was done after a year, since such part payment made by cheque on very next day of execution of agreement was towards fulfilment of terms of purchase contract itself and there was no mala fide or false claim on part of assessee, no addition could be made on account of difference between amount of sale consideration for property shown in purchase agreement and stamp duty value of said property on date of registry by invoking section 56(2)(vii)(b) e) Dy. CIT-5(3)(1) vs. Deepak Shashi Bhusan Roy ITA No. 3204 & 3316/M/2016 dtd. 30/07/2018(Mum.) (Trib.) In order to determine taxability of capital gain arising from sale of property, it is date of allotment of property which is relevant for purpose of computing holding period and not date of registration of conveyance deed f) Mohd. Ilyas Ansari v. ITO-23(2)(3), Mumbai [ITA No. 6174/M/2017dtd. 06/11/2020, 186 ITD 407 (Mumbai - Trib.)] Where Assessing Officer mechanically applied provisions of section 56(2) to difference between stamp duty value and actual sale consideration paid by assessee and made additions, without making any efforts to find out actual cost of property, additions made by Assessing Officer were to be set aside."

Similar property in the case of assessee's wife with similar transactions has been accepted by the same A.O without any addition for the same A.Y. Here we would like to rely on the decision of Hon'ble Gauhati HC. "Gulabrai Hanumanbox, vs. Commissioner of Wealth-tax [198 ITR 131 (Gauhati) (HC).] Two different Assessees having similar/ identical facts w.r.t valuation of property cannot be assessed with different rates for the same property. Thereby, the order passed by the Assessing officer for co-sharer of property is arbitrary and unjustified in law"

Keeping in view the facts of the case, chronology of events and respectfully following the pronouncements of the co-ordinated benches of ITAT, we delete the A.Y. 2016-17 Danish Sheikh addition made by A.O and confirms that assessee is entitled to the benefits of proviso to Section 56(2)(vii)(b).”

In light of the above facts and circumstances and the judicial pronouncements, we are of the view that the stamp duty value on the date of allotment (07.10.2013) has to be considered and not on the date of subsequent registration on 29.09.2015 allowing the assessee the benefit of two provisos of Section 56(2)(vii)(b) of the Act. Accordingly, the addition made by the Ld. AO is set aside, and ground No. 6 of the assessee’s appeal is allowed. As the sole substantive issue is allowed in favour of the assessee, the remaining grounds have been rendered academic and infructuous, and no further adjudication is required on these issues.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 27.06 .2025.