DIMPLE RAJESH OSWAL,PUNE vs. INCOME TAX OFFICER WARD 5(1), PUNE

In appeal the CIT(A) / NFAC upheld the addition made by the Assessing Officer by observing as under: “4. CIT(A)'s Decision: 4.1. The appellant's given written submissions and grounds of appeal have been carefully perused. The assessee Smt. Dimple Rajesh Oswal has not filed return of income for the A.Y. 2016-17. During the assessment proceedings, the AO has received the information that the assessee has purchased immovable property of 66.91 sq. meters vide registered deed No. 1440/2016 for Rs.46,55,000/- as against stamp duty value/market value of Rs.57,31,291/- during the year. The assessee has filed return of income vide Ack No 695230310290713 on 29/07/2013 declaring Income of Rs.5,65,610/-. The case was reopened for scrutiny and notice u/s 148 was issued on 20/03/2023. During the assessment proceedings, the assessee has not filed any objection against proposed addition u/s 56(2)(vii)(b) on purchase of immovable property. As there is difference in the computation of the SRO value of the property and the fair market value (as claimed) the AO has noticed that provisions of section 56(2)(vii)(b) are attracted in the present case and the difference of Rs.10,76,291/- (Rs.57,31,291/- minus Rs.46,55,000/-) was added in the total income of the assessee. 4.2. During the appellate proceedings, the appellant submitted his reply which is reproduced as under.

In the result, the appeal stands dismissed.”

Aggrieved with such order of Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1) The learned assessing officer erred in the facts and circumstances of the case, and as per the law, in reopening the case, by issuing notice on 20.03.2023 under section 148 in person by the Jurisdictional Assessing Officer when the same is required to be issued in a faceless manner as per Notification No.18 dated 29.03.2022 and hence the assessment based on notice issued without jurisdiction deserves to be cancelled. Just and proper relief be granted to the assessee in this respect. WITHOUT PREJUDICE TO THE ABOVE LEGAL GROUND OF APPEAL 2) The authorities below erred in the facts and circumstances of the case, and as per the law, in confirming the assessed income at Rs.1960971 as against the returned income at Rs.884680. Just and proper relief be granted to the assessee in this respect. 3) The authorities below erred in the facts and circumstances of the case, and as per the law, in considering the sum of Rs.1076291 as income from other sources, being the difference between the ready reckoner rate and actual consideration paid for the purchase of the residential property. Just and proper relief be granted to the assessee in this respect. 4) The authorities below erred in the facts and circumstances of the case, and as per the law in arriving at the conclusion that assessee has purchased property at a price which is less than the ready reckoner rate for the year 2016 when the property was actually purchased in 2012 and registration was effected in 2016 and consequently the ready reckoner rate available on Index II pertains to year 2016 and on this basis a sum of Rs.1076291 is made taxable under section 56(2)(vii)(b) of the Income Tax Act. Just and proper relief be granted to the assessee in this respect. 5) The learned assessing officer erred in the facts and circumstances of the case, and as per the law, in computing the aggregate income tax liability at Rs.1937463 due to an arithmetical error by including twice the amount of addition in income from other sources. Just and proper relief be granted to the assessee in this respect. 6) The learned assessing officer erred in the facts and circumstances of the case, and as per the law, in levying interest under section 234A, 234B. Just and proper relief be granted to the assessee in this respect. 7) The Appellant prays to be allowed to add, amend, modify, rectify, delete, raise any ground of appeal before or at the time of hearing.

So far as the other grounds are concerned, the Ld. Counsel for the assessee made two-fold arguments. The first argument of the Ld. Counsel for the assessee is that while the Assessing Officer in the order passed u/s 143(3) r.w.s. 147 of the Act has determined the total income at Rs.19,60,971/-, however, in the computation statement he has determined the same at Rs.31,97,261/- which is not correct.

The second plank of his argument is that the assessee has purchased the property during the year 2012 for a consideration of Rs.46,55,000/- but the registration of purchase deed was not made in that year. The purchase deed was registered by the assessee in 2016 and accordingly the stamp duty value of 2016 was entered in purchase deed amounting to Rs.57,31,291/-. He submitted that if the deed has been registered in the year when the property was actually purchased, the stamp duty value of the property would have been lower than the stated amount of Rs.57,31,291/-. Referring to the ready reckoner rate he submitted that had the purchase deed been registered in 2012 itself, stamp duty value of the property would have been Rs.28,87,167/-. He submitted that the assessee had made initial booking in 2012 and substantial amount has been paid before 31.03.2013 and only the registration of purchase deed was kept pending.

The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.

I have heard the rival arguments made by both the sides and perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the Assessing Officer in the instant case, invoking the provisions of section 56(2)(vii)(b) of the Act made addition of Rs.10,76,291/-, the reasons of which have already been reproduced in the preceding paragraphs. I find the Ld. CIT(A) / NFAC sustained the addition made by the Assessing Officer, the reasons of which have also been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that since the assessee on the basis of allotment letter determining the cost price at Rs.47,97,557/- has made substantial payment of Rs.34,56,438/- before 31.03.2013 and merely the registration was not done, therefore, the provisions of section 56(2)(vii)(b) of the Act are not applicable.

I find some force in the arguments of the Ld. Counsel for the assessee. The contents of the allotment letter dated 22.02.2012 issued by Gini Citicorp Realty LLP read as under:

I find the Ranchi Bench of the Tribunal in the case of Bajrang Lal Naredi vs. ITO (supra) while deciding a similar issue has observed as under: “6. We have carefully considered the rival submissions on the issue. In the instant appeal, the applicability of Section 56(2)(vii)(b) of the Act as amended by Finance Act, 2013 and applicable to AY 2014-15 in question. On a perusal of pre-amended provisions of Section 56(2)(vii)(b) of the Act, we gather that where an individual or HUF receives from any person any immovable property without consideration, the provisions of pre-amended Section 56(2)(vii)(b) of the Act would apply. The aforesaid provisions was however substituted by Finance Act, 2013 and made applicable to AY 2014-15 onwards. As per the amended provisions, the scope of substituted provision was expanded to cover purchase of immovable property for inadequate consideration as well. It is alleged on behalf of the Revenue that the amended provision will apply in view of the fact that registration has been carried out during the FY 2013-14 concerning AY 2014-15 where the amended law came into force. The assessee, on the other hand, seeks to claim that his case would be covered by pre-amended provision in view of the fact that agreement for purchase of the property was entered into with the prospective seller in FY 2011-12 relevant to AY 2012-13 at which time the new law did not come into play. It was claimed that the purchase consideration was duly paid at the time of agreement in FY 2011-12 and the purchase was de facto completed except for the formality of registration. It was thus submitted that the transactions entered prior to the FY 2013-14 would be governed by the pre-amended provision which triggers the applicability of such provision only where there is a total lack of consideration and does not cover a case of inadequacy in purchase consideration.

I find the Kolkata Bench of the Tribunal in the case of Asha Vijay vs. ITO (supra) while deciding a similar issue has observed as under:

Explanation 2 to Section 2(47) of the Act was added by Finance Act, 2012 with retrospective effect on 1.4.1962 and, consequently, the said provision would be applicable. The said explanation clearly provides that transfer of an asset includes disposing of or parting with an asset by way of an agreement.

In the light of the aforesaid provision, it is apparently clear that the moment an agreement to sell is executed between the parties and part consideration is received, the transfer for the purpose of Section 50C of the Act takes places and computation under Section 48 of the Act will start accordingly, for the purpose of calculating the capital gains under Section 45 of the Act. From the aforesaid, it is apparently clear that the transfer of the property took place in the year 2001 when the provision of Section 50C of the Act was not in existence. Consequently, the Assessing Officer was not justified in making the reassessment and computing the capital gains by invoking the provision of Section 50C of the Act, which was clearly not applicable in the assessees' case.”

The similar issue has been considered by ITAT Ranchi Bench in the case of Bajrang Lal Naredi vs. ITO in order dated 20.01.2020. The finding of the Tribunal in paragraph no. 6 to 7 is worth to note which read as under: “6. We have carefully considered the rival submissions on the issue. In the instant appeal, the applicability of Section 56(2)(vii)(b) of the Act as amended by Finance Act, 2013 and applicable to AY 2014-15 in question. On a perusal of pre-amended provisions of Section 56(2)(vii)(b) of the Act, we gather that where an individual or HUF receives from any person any immovable property without consideration, the provisions of pre-amended Section 56(2)(vii)(b) of the Act would apply. The aforesaid provisions was however substituted by Finance Act, 2013 and made applicable to AY 2014- 15 onwards. As per the amended provisions, the scope of substituted provision was expanded to cover purchase of immovable property for inadequate consideration as well. It is alleged on behalf of the Revenue that the amended provision will apply in view of the fact that registration has been carried out during the FY 2013-14 concerning AY 2014-15 where the amended law came into force. The assessee, on the other hand, seeks to claim that his case would be covered by pre-amended provision in view of the fact that agreement for purchase of the property was entered into with the prospective seller in FY 2011-12 relevant to AY 2012-13 at which time the new law did not come into play. It was claimed that the purchase consideration was duly paid at the time of agreement in FY 2011-12 and the purchase was de facto completed except for the formality of registration. It was thus submitted that the transactions entered prior to the FY 2013-14 would be governed by the pre-amended provision which triggers the applicability of such provision only where there is a total lack of consideration and does not cover a case of inadequacy in purchase consideration.

In the light of the above, if we peruse the facts of the present case then it would reveal that originally the assessee has entered into agreement for purchase of the above flat with the developer in 2010. She has made complete payments up to October 2012, thereafter, she got the possession on 09.01.2013. She installed her electricity connection in her name. All these factors would indicate that transfer within the meaning of Section 2(47) of the Act had completed. Only Conveyance Deed has been registered during the accounting period relevant to AY 2015-16. Once it is construed that transfer has been completed in the year 2013 itself then no deemed gift u/s 56(2)(vii)(b) of the Act is to be determined in the hands of the assessee. Accordingly, we allow the appeal of the assessee and delete the addition.”

In the light of the above decisions cited (supra), I am of the considered opinion that the provisions of section 56(2)(vii)(b) of the Act are not applicable to the facts of the present case since the assessee was allotted the flat on 22.02.2012 and substantial payments were made before 31.03.2013. Accordingly, the order of Ld. CIT(A) is set aside and the Assessing Officer is directed to delete the addition made by him by invoking provisions of section 56(2)(vii)(b) of the Act.

The next grievance of the assessee is that as against the assessed income at Rs.19,60,971/-, the Assessing Officer in the computation statement has determined the same at Rs.31,97,261/- thereby making some other addition. A perusal of the final computation of taxable income as per assessment order shows that the Assessing Officer determined the total income at Rs.19,60,971/-, the details of which are as under: 1 Income as per Return of income filed in response to notice 8,84,680 u/s 148 2 Income as computed u/s 143(1)(a) 8,84,680 3 Variation in respect of issue of (if any) addition u/s 10,76,291 56(2)(vii)(b) 4 Variation in respect of issue of (if any) 0 5 Total Income / Loss determined 19,60,971

However, a perusal of the computation sheet shows that the Assessing Officer has determined the total income of the assessee at Rs.31,97,261/-, the details of which are as under:

I fail to understand as to how the Assessing Officer in the computation statement has made addition of Rs.24,45,761/-. I, therefore, direct the Assessing Officer to verify the record and determine the correct income by rectifying the order. Needless to say, the Assessing Officer shall provide due opportunity of being heard to the assessee. I hold and direct accordingly. The grounds raised by the assessee are accordingly allowed.

In the result, the appeal filed by the assessee is allowed.