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Facts
The assessee, engaged in real estate, purchased land for Rs. 13,95,000, while the stamp duty value was Rs. 37,28,000. The AO treated the difference of Rs. 23,33,000 as income under Section 56(2)(vii)(b)(ii) of the Act, which was confirmed by the CIT(A).
Held
The Tribunal held that Section 56(2)(vii)(b)(ii) is not attracted when the property is acquired in the course of business or as stock-in-trade. The subsequent sale of the developed land and acceptance of business income by the revenue confirmed this.
Key Issues
Whether the differential value between the consideration paid and the stamp duty value for land acquired is to be treated as income under Section 56(2)(vii)(b)(ii) when the land was acquired as stock-in-trade for a real estate business.
Sections Cited
56(2)(vii)(b)(ii), 143(3), 50C
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Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 18/12/2024 in DIN No. ITBA/NFAC/ S/250/2024-25/1071347491(1) for the assessment year 2015-16.
The solitary issue raised by the assessee is that the ld. CIT(A) erred in confirming the addition of Rs. 23,33,000/- under the provisions of sec. 56(vii)(b)(ii) of the Act.
The necessary facts are that the assessee is an individual and claimed to be engaged in the real estate business. The assessee, in the year under consideration, purchased land from his cousin brother for Rs. 13,95,000/-, whereas the stamp duty value of such land was Rs. 37,28,000/- only. Accordingly, the AO proposed to make an addition of the differential amount of Rs. 23,33,000/- under the provisions of sec. 56(vii)(b)(ii) of the Act by issuing a show cause notice to the assessee. The assessee, in response to such show cause notice, submitted that the impugned land was purchased on account of family settlement, and as such, there was no commercial transaction between the parties. Therefore, the differential amount, as observed by the AO, cannot be made subject to the addition.
3.1 However, the AO disagreed with the contention of the assessee by stating that the cousin-brother does not come under the category of relative and, therefore, the same cannot be treated as a gift between relatives. The AO also noted that the impugned purchase of land was classified as a fixed asset in the financial statement of the assessee and, therefore, it may be held that the impugned land was purchased by the assessee for his personal use. Accordingly, the AO made an addition of Rs. 23,33,000/- under the provisions of sec. 56(2)(vii)(b)(ii) of the Act.
3.2 Aggrieved, the assessee preferred an appeal to the ld. CIT(A), who confirmed the order of the AO by observing that the impugned transaction was not between relatives and, therefore, the same cannot be treated as a gift to avoid the provisions of sec. 56(2)(vii)(b)(ii) of the Act.
Being aggrieved by the order of ld. CIT(A), the assessee is in appeal before us.
The ld. AR before us, among various contentions, submitted that the assessee is engaged in the real estate business, and this fact was duly acknowledged by the AO in the assessment framed u/s 143(3) of the Act vide order dated 13/12/2017 for the year under consideration. Likewise, the impugned purchase of land was developed by the assessee and sold in the subsequent assessment year i.e., 2018-19, and the income on the sale of such land after development was offered to tax under the head ‘business income’ which was also accepted by the revenue. The ld. AR, in support of his contention, filed a copy of the ITR along with the statement of income for the assessment year 2018-19. Thus, it was argued by the ld. AR that the impugned transaction is outside the purview of sec. 56(2)(vii)(b)(ii) of the Act.
On the other hand, the ld. DR vehemently contended that the impugned piece of land was classified in the schedule of fixed assets, which evidences that such purchase transaction was not related to the stock-in-trade. The ld. DR supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, it is evident that the assessee acquired a piece of land during the assessment year under consideration at a consideration of Rs. 13,95,000/-, whereas the stamp duty valuation of the said land, as determined under section 50C of the Income Tax Act, 1961 (“the Act”), stood at Rs.37,28,000/- only. Consequently, the Assessing Officer . invoked the provisions of section 56(2)(vii)(b)(ii) of the Act and made an addition of Rs. 23,33,000/-, being the differential amount, treating it as income from other sources in the hands of the assessee.
7.1 The assessee contended that the land was purchased from a relative as part of a family settlement and was later developed and sold in the course of real estate business. It was further submitted that the income from the sale of the developed land was offered to tax under the head “profits and gains of business or profession” in the assessment year 2018-19, and this classification was accepted by the department in that year.
7.2 Section 56(2)(vii)(b)(ii) of the Act provides that where any immovable property is acquired by an individual or Hindu undivided family for a consideration less than the stamp duty value by an amount exceeding Rs.50,000, the difference between the stamp duty value and the consideration shall be chargeable to income tax under the head “income from other sources.” However, the first proviso to section 56(2)(vii) provides an exception in respect of transactions between “relatives,” as defined under Explanation (e) to the said section. It is noted that the seller in this case is the cousin-brother of the assessee, who does not fall under the definition of “relative” as per the said Explanation. Therefore, this exception is not applicable.
7.3 However, a more crucial question is whether section 56(2)(vii)(b) is attracted at all in the facts of the present case. It is a settled position in law that section 56(2)(vii)(b) applies only when an assessee acquires immovable property for inadequate consideration otherwise than in the . course of business or as stock-in-trade. The Memorandum explaining the provisions of the Finance Act, 2013, which inserted section 56(2)(vii)(b), clarifies that the said provision intends to cover individuals or HUFs receiving property without consideration or for inadequate consideration, outside the regular course of business or commercial transactions.
7.4 The assessee has maintained that the land was acquired in the course of real estate business as stock-in-trade. This claim is supported by the subsequent treatment of the property, where it was developed and sold, and income from such sale was declared as business income in A.Y. 2018-19. The revenue accepted this treatment. Further, while the AO observed that the land was shown as a “fixed asset” in the books of account, it is a well-settled principle that entries in books of account are not conclusive and the true nature of the transaction must be gathered from surrounding facts and conduct of the parties.
7.5 The Hon’ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) has held that entries in the books of account are not decisive of the true character of any transaction. Applying these principles, the subsequent conduct of the assessee and the acceptance of business income on sale of the said property by the department affirm that the land was held as stock-in-trade. In view of the above, we hold that the land acquired by the assessee was held as stock-in-trade in the course of business. The mere classification of the land in the balance sheet cannot override the factual matrix of the case and the department’s own acceptance of the treatment in subsequent years. Therefore, the provisions of section 56(2)(vii)(b)(ii) are not attracted in this case. Accordingly, we find that the authorities below . erred in making and sustaining the addition of Rs.23,33,000/- u/s 56(2)(vii)(b)(ii) of the Act. We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to delete the impugned addition made by him. Hence, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in court on 22nd day of May, 2025