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Facts
The assessee purchased an immovable property with co-owners for Rs. 9 Lakhs, while the Stamp Authority valued it at Rs. 2,84,20,000. The AO added the difference of Rs. 39,31,428 as the assessee's share, but the assessee claimed the sale deed was cancelled. The CIT(A) confirmed the addition.
Held
The Tribunal held that since the sale deed was cancelled by a registered cancellation deed, the transaction of purchase did not take place. Therefore, the provisions of Section 56(2)(x)(b) of the Act were not applicable.
Key Issues
Whether Section 56(2)(x)(b) of the Income Tax Act applies when a sale deed is subsequently cancelled by a registered cancellation deed.
Sections Cited
143(3), 144B, 56(2)(x)(b), 56(2)(x)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SURAT BENCH, BENCH
Before: Shri T.R. Senthil Kumar & Shri Narendra Prasad Sinha
Asgarali Mazharali The ITO, Manihar Vs Ward-2(1), Plot No. 184, Alif Manzil, Bharuch Kapodara Road, Noble Market, Ankleshwar, Surat, Gujarat-393002 PAN: CPWPM7542G (Appellant) (Respondent) Assessee Represented: Shri Mehul Shah, CA Revenue Represented: Shri Ashish Kumar, Sr.DR Date of hearing : 03-03-2026 Date of pronouncement : 13-03-2026 आदेश/ORDER PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER
This appeal is filed by the Assessee as against the ex-parte appellate order dated 23-09-2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) read with Section 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2020-21.
A.Y. 2020-21 2 Asgarali Mazharali Manihar Vs. ITO 2. Brief facts of the case is that the assessee is an individual filed his return of income for A.Y. 2020-21 on 09.01.2021 declaring total income of Rs.4,21,660/-. During assessment proceedings, it was noticed that the assessee along with six others purchased an immovable property in Survey No.183 at Ankleshwar on 26.11.2019 for a consideration of Rs.9 Lakhs as per sale deed, whereas, the Stamp Authority fixed the total value of the property at Rs.2,84,20,000/-. Thereby, there is a difference of Rs.39,31,428/- as the assessee’s 1/7th share, which was chargeable to tax under the head ‘income from other sources’ as per the provisions of Section 56(2)(x)(b) of the Act. Hence, a show cause notice was issued to the assessee. Assessee made a reply that the sale deed was cancelled by cancellation deed registered as document no.14011 of 2022, dated 26.09.2022. Therefore, the question of invoking Section 56(2)(x)(b) of the Act does not arise. This explanation was not accepted by the AO whereby made addition of Rs.39,31,428/- and demanded tax thereon.
Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A) who has confirmed the addition made by the AO u/s. 56(2)(x)(b) of the Act.
Aggrieved against the appellate order, the assessee is in appeal before us raising following Grounds of Appeal:
“1. On the facts and circumstances as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in in making addition of Rs 39,31,428/- u/s 56(2)(x) of the Act.
It is therefore prayed that assessment framed u/s 143(3) the Act may kindly be quashed and/or addition made by Ld. Assessing Officer and confirmed by the learned CIT(A) may please be deleted A.Y. 2020-21 3 Asgarali Mazharali Manihar Vs. ITO 3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
Heard rival submissions and perused the materials available on record including the Paper Book filed by the assessee. It is undisputed fact that the assessee along with six other co-owners entered into a purchase transaction for immovable property at Survey No. 183 at Ankleshwar by executing a sale deed on 27.11.2019. However, the same was registered with the Sub- Registrar Office only on 22.09.2022 and was also cancelled on 26.09.2022 by Registered Cancellation Deed vide Document No.14011 of 2022. The Ld. CIT(A) has reproduced first page of the copy of the Cancellation Deed at page no.15 of the appellate order. Thus, there is no transfer, as such taken place between the parties. Therefore, the question of invoking Section 56(2)(x)(b) of the Act does not arise in a case where cancellation deed is also registered between the parties.
5.1 Ld. Counsel also brought to our notice to the appellate order passed by the Ld. CIT(A) in the case of other co-owners, namely, Ashraf Ali Manihar vide order dated 11.07.2024, wherein the addition made u/s.56(2)(x) were cancelled by the Ld. CIT(A) by observing as follows:
“During the course of appellate proceedings, the appellant has uploaded complete details with regard to the transaction including the registered deed of cancellation made on 26/09/2022 with the seller showing that the transaction of purchase made on 27/11/2019 had been cancelled, the transaction which had given rise to the application of provisions of Sec. 56(2)(x). The documents and the submissions uploaded have been carefully examined and found that the transaction of purchase of the property for Rs. 9,00,000/- has been cancelled. In the light of these observations, it must be stated that in view of the cancellation of the purchase deed, subsequently, through a registered cancellation deed, the question of application of provisions of Sec. 56(2)(x) of the Income Tax Act, A.Y. 2020-21 4 Asgarali Mazharali Manihar Vs. ITO 1961 does not arise and has no relevance. In view of this, I am of the considered opinion that there is no application of Sec. 56(2)(x) and accordingly, taxing such transaction does not arise. Therefore, I find there is merit in the ground raised by the appellant and hence the addition made is hereby directed to be deleted. Hence, the ground raised is allowed.” 5.2 Similarly, in other co-owner’s case, namely, Azharali Mazharali Manihar, Ld. CIT(A) vide order dated 20.12.2024 deleted the addition made u/s.56(2)(x) of the Act.
5.3 It is undisputed fact that the assessee’s share of sale consideration was repaid as admitted in the Registered Cancellation Deed. Hence, question of invoking Section 56(2)(x))(b) of the Act does not arise in the above case. Thus, the ground raised by the assessee are hereby allowed and the addition made is directed to be deleted.
In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court on 13-03-2026