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Facts
The assessee, an individual, did not file a return of income for AY 2014-15. The AO issued a notice under Section 148, and upon receiving the return, noticed a discrepancy between the property purchase agreement value and the stamp duty value for a property. This led to an addition under Section 56(2)(vii)(b).
Held
The Tribunal held that the value considered for the addition under Section 56(2)(vii)(b) should be considered as the cost of acquisition for computing capital gains, as per Section 49(4) of the Act. The AO was directed to recompute the capital gain accordingly.
Key Issues
Whether the amount added under Section 56(2)(vii)(b) as difference between sale consideration and stamp duty value can be treated as cost of acquisition under Section 49(4) for computing capital gains.
Sections Cited
147, 144C(13), 148, 56(2)(vii)(b), 49(4), 234A, 234B, 234C
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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SMT BEENA PILLAI, JM &
(Assessment Year: 2014-15) Ravi Ramakrishnan, Income Tax Officer (IT) 205/404, Khar Rose Minar Building, Ward-4(1)(1), 4th Floor, 10th Road, Khar West, Room No. 629, 6th Floor, Vs. Mumbai-400052. Kautilya Bhavan, C-41, C-43, PAN : ANWPR2793J G Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051. Appellant) : Respondent) : Shri Jeet Kamdar/Radhakant Saraf, Appellant /Assessee by AR Revenue / Respondent by : Shri Krishna Kumar, Sr. DR Date of Hearing : 14.01.2025 Date of Pronouncement : 17.01.2025 O R D E R
Per Padmavathy S, AM:
This appeal by the assessee is against the final order of assessment passed under section 147 r.w.s 144C(13) of the Income Tax Act, 1961 (the Act) by the Income Tax Officer (International Tax), Ward -4(1)(1), (in short "the AO") dated 24.09.2024 for Assessment Year (AY) 2014-15.
The assessee is an individual and did not file the return of income for AY 2014-15. The AO received information that the assessee despite having multiple financial transactions has not filed the return of income and accordingly issued a Ravi Ramakrishnan notice under section 148 of the Act. The assessee in response to notice under section 148 filed the return of income declaring a total income of Rs. 51,67,901/-. The AO called on the assessee to furnish various details pertaining to the financial transactions mainly with respect to property transactions entered into by the assessee during the year under consideration. On perusal of the purchase agreement submitted by the assessee with regard to the purchase of property at Flat No. 1501, Aspean Mahindra Eminente, Goregaon (West), Mumbai for a consideration of Rs. 1,76,98,200/-, the AO noticed that the value of the property for the purpose of stamp duty was Rs. 2,22,60,470/-. The AO issued a show-cause notice to the assessee as to why the difference of Rs. 45,62,270/- cannot be added as income from other sources under section 56(2)(vii)(b) of the Act. The assessee submitted that the agreement for purchase of the flat was entered into five years back and that the assessee had paid advance at the time of booking the flat. Accordingly, the assessee submitted that the Stamp Duty Value at the time of booking the flat has to be considered and not at the time of registration. The AO did not accept the submissions of the assessee and proceeded to make the addition of Rs. 45,62,270/- under section 56(2)(vii)(b) of the Act.
The assessee raised objections before the DRP against the draft assessment order passed by the AO. Before the DRP the assessee raised a without prejudice objection that if the addition under section 56(2)(vii)(b) is to be sustained then the same may be added to the cost of acquisition as per the provisions of section 49(4) of the Act. The DRP while upholding the addition made by the AO did not give any finding with regard to the alternate plea of the assessee. Against the final order passed as per the directions of the DRP dated 10.01.2023 the assessee filed an appeal before the Tribunal. The assessee submitted before the Tribunal that a rectification petition is filed before the DRP to consider the without prejudice Ravi Ramakrishnan objections raised before the DRP. The Tribunal vide order dated 26.09.2023 (ITA No. 646/Mum/2023) directed the DRP to decide the rectification petition in accordance with law. The DRP subsequently dismissed the rectification petition stating that the alternate plea cannot be considered since the additional cost of acquisition can be claimed only through the return of income by relying on the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 157 Taxman 1/284 ITR 323. The assessee is in appeal before the Tribunal for the second time against the final order passed by the AO pursuant to the directions of the DRP. The assessee raised various grounds contending the impugned addition made by the AO. However during the course of hearing, the ld. AR submitted argument pertaining to Ground no.4 and therefore Ground No.1 to 3 are dismissed as not pressed. The effective ground i.e. Ground No.4 reads as under: “4. On the facts and circumstances of the case and in law, the Hon'ble DRP erred in not granting corresponding relief in computation of capital gains as per section 49(4) of the Act. This has resulted in double taxation of the same income, once as Capital Gains and again as Income from Other Sources, which is not what the law intends to tax.”
The ld. AR submitted that the assessee has purchased and sold the property within the same Financial Year relevant to AY 2014-15 and has declared a Short Term Capital Gain (STCG) of Rs. 44,58,300/-. The ld. AR further submitted that the STCG has been arrived at by reducing the cost of acquisition of Rs. 1,88,41,700/- which includes Stamp Duty against the sale consideration of Rs. 2,33,00,000/-. The ld. AR prayed that though the issue of addition made under section 56(2)(vii)(b) of the Act is not contended, the alternate plea that the addition so made should be allowed to be claimed as part of cost of acquisition as per the provisions of section 49(4) of the Act, may be considered.
We heard the parties and perused the material on record. The assessee during the year under consideration has purchased the property for a consideration of Rs. 1,76,98,200/-. The said property is sold for a consideration of Rs. 2,33,00,000/- and the assessee after claiming the cost of acquisition (including Stamp Duty & Registration charges) of Rs.1,88,41,700/- offered STCG of Rs. 44,58,300/-. The AO noticed that the Stamp Duty value of property at the time of purchase is Rs. 2,22,60,470/- and accordingly made an addition of Rs. 45,62,270/- under section 56(2)(vii)(b) of the Act. The assessee before the DRP raised a without prejudice contention that the amount added under section 56(2)(vii)(b) should be allowed as a deduction as part of cost of acquisition in the computation of STCG. The DRP rejected the plea of the assessee on the ground that the same can be claimed only by filing the return of income.
The only plea of the assessee before us is that the addition made under section 56(2)(vii)(b) of the Act should be added to the cost of acquisition as per the provisions of section 49(4) of the Act. Therefore, before proceeding further we will look at the relevant provisions which read as under: Cost with reference to certain modes of acquisition (1) to (3) ***** (4) Where the capital gain arises from the transfer of a property, the value of which has been subject to income-tax under clause (vii) or clause (viia)or clause (x) of sub-section (2) of section 56, the cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of the said clause (vii) or clause (viia) or clause (x).
Ravi Ramakrishnan 8. From the plain reading of the above section, it is clear that the value considered for the purpose of section 56(2)(vii) which includes sub-clause (b) shall be considered for the purpose of cost of acquisition. In assessee's case the AO has considered the value of Rs. 2,22,60,470/- for the purpose of making the addition under section 56(2)(vii)(b) and therefore there is merit in the plea of the assessee that the said amount should be considered as the cost of acquisition to be claimed as a deduction against the sale consideration. We therefore, direct the AO to recomputed the capital gain in the hands of the assessee in accordance with provisions of section 49(4) of the Act. Accordingly the alternate plea of the assessee in Ground No.4 is allowed.
Ground No.5 pertaining to levy of interest under section 234A, 234B and 234C are consequential not warranting separate adjudication.
In result, the appeal of assessee is partly allowed.