SOHAM LAXMAN KULKRANI,PUNE vs. INCOME-TAX OFFICER, WARD - 2(1), PUNE

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ITA 1874/PUN/2018Status: DisposedITAT Pune17 August 2022AY 2014-1513 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that Section 56(2)(vii)(b) applies to any immovable property, including agricultural land, if purchased for consideration less than the stamp duty value. The exclusion for stock-in-trade was noted but found not applicable as the land was held as an investment.

What were the facts?

The assessee purchased rural agricultural land for Rs. 15,00,000, while the stamp duty valuation was Rs. 2,19,25,000. The Assessing Officer (AO) made additions under Section 56(2)(vii)(b) for the difference and for unexplained investment.

What were the issues?

Whether the provisions of Section 56(2)(vii)(b) are applicable to the purchase of rural agricultural land when it is not held as a capital asset as defined in Section 2(14) and whether the land was stock-in-trade.

Which sections of the Income-tax Act were involved?

Section 56(2)(vii)(b),Section 2(14),Section 69C

AI-generated summary — verify with the full judgment below

FEL 314ar ardaiy 7rifeaRu; gu} zurydia,-dxda gu #1 IN THE INCOME TAXAPPELLATE TRIBUNAL, PUNE "B" BENCH, PUNE BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER 34Fear IANo1874PUN/2018 @eruatf Assessment Year : 2014-15 Soham Laxman Kulkarni, Plot No. 4,$. No. 249, GophBaner, A1, Nalanda Soc. Pune 411007 PAN :BILPK8583L adlareff / Appellant TTTA/ VIs. The Income Tax Officer , Ward 2(1), Pune Yyeff _ Respondent ERT / Appearances Assessee by Shri M; R. Shirude Revenue by Shri M. G. Jasnani Jd1 + airirg Date of conclusive Hearing 17/08/2022 qu11 # arr Date of Pronouncement 17/08/2022 33 ORDER PER G.D.PADMAHSHALL, AM; The present appeal of the appellant assessee is assailed against the first appellate order of Commissioner of Income Tax (Appeals)-3, Pune [for short "CIT(A)"] dt.14/09/2018 passed uls 250 f the Income-tax Act,1961 [for short "the Act"] which in turn sprung out of assessment order dt.27/12/2016 passed by the Income Tax Officer Ward 2(1), Pune [for short "AO"] Uls 1 4303) of the Act for the assessment year [for short "AY"] 2014-15. ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 2. The solitary controversy under the present appeal lies in a narrow compass as to attraction of provisions of section 56(2)vii)b) of the Act, to a transaction of purchase of immovable property being rural agricultural land: 3. In advancing the matter for adjudication, it is essential to reproduce grounds challenged by the appellant as; S1) In the facts; circumstances and position of law learned CIT(A)-3, Pune erred in not annulling the assessment being bad in law and void ab initio. 2) In the facts, circumstances and position of law learned CIT(A)-3, Pune erred in not deleting the addition of Rs.2,04,25,000/- made by Assessing Officer Ws: 56(2)(vii)(b) of I.T: Act, 1961 on account 0f difference in actual purchase consideration and value CLS per ready reckoner maintained by Stamp Duty Authority of Maharashtra in respect of rural agricultural lands bearing Gat No. 128/1 & 134/2 situated at Yelwade purchased on 8/5/2013. 3) In the facts; circumstances and position of law learned CIT(A)-3, Pune erred in not deleting the addition of Rs.15,00,000/- made by A.O: on account of unexplained investment in purchase of rural agricultural land bearing Gat No. 128/1 & 134/2 at Yelwade vide purchase deed dated 8/5/2013. ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 FFB In the facts, circumstances and position of law learned CIT(A)-3, Pune erred in charging interest us: 234B at Rs.17,44,116/- 5) Appellant craves leave to add; alter, amend or substitute to the above grounds f appeal at the time of hearing 4. Succinctly stated the facts of the case are; 4.1 The assessee is an individualand for AY 2014-15 e-filed his return of income [for short "ROIITR"] on 31/07/2014, declaring total taxable income of <7,640/- after claiming chapter VI-A deduction for <10,000/-. For verification of large investment in property, by service of notice dt; 01/09/2015 Uls 1 43(2) of the Act, the case 0f the appellant was selected for scrutiny under CASS. The authorised representative for the assessee [for short "AR"T attended the proceedings and filed the copies of ITR, Statement of Income and copy of purchase deed in- respect of investment into immovable property made for a consideration of 215,00,000/- as against the stamp duty valuation [for short "SDV" of <2,19,25,000/-. The Ld. AO considering the submission filed on record, ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 FFB completed the assessment with threefold addition and brought to tax the following amount of by an order Uls 1 43(3) of the Act; a. Addition of <15,00,000/ - being the consideration paid in acquiring the immovable propertyas unexplained investment; b.Addition of <2,04,25,000/- as differential amount of SDV over the purchase value of immovable property of <2,19,25,000/- U/s 56(2)(vii)(b) and, C. Addition of <9,08,340/- as unexplained expenditure incurred in connection with investment in immovable property uls 69C. 4.2 In an appeal before the first appellate authority [for short "FAA"], the Ld. CIT(A) after a due consideration of material placed, reverberated the views of assessing officer in s0 far as the first two additions are concerned and granted a part relief by deleting the addition made Uls 69C on account of unexplained expenditure in support of documentary evidences of gift received from father of the appellant; Aggrieved by the orders of tax ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 authorities below, the appellant assessee brought up the matter before Tribunal with the grounds of appeal assailed herein before at para 3. 5. At the outset of physical hearing; Ld. AR is allowed withdrew the ground number 1 and 3 to 5 as not pressed; resultantly the solitary ground number 2 is contested for adjudication: Ld. AR reiterated the equivalent arguments as were raised before the revenue authorities below and submitted that, the authorities fell in error in confirming the addition u/s 56(2)vii)(b) of the Act, being the difference between the SDV and purchase value of rural agricultural land, by not accepting the contention that, the provisions of section 56(2)(vii)(b) are applicable only in case purchase of "immovable property" being a "capital asset" and not otherwise: As per Ld. AR, since the rural agricultural land purchased by the assessee is not a "Capital Asset" within the meaning of section 2014) of the Act, therefore, the provisions of section 56(2)vii)b) are not attracted. Au contraire, the learned departmental representative [for short "DR"T entrusting the explanation (d) to section ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 56(2)(vii) of the Act, has firmly supplicated the survival of addition in the light of catena of judicial pronouncements and vehemently supporting the orders of the tax authority below contended that; the immovable property being land or building or both held as such and otherwise than stock- in-trade, falls well within the ambit of section 56(2)vii)b) of the Act, hence exigible to taxation thereunder; irrespective of nature of agricultural land: 6. After hearing to the rival contentions of both the parties; and subject to the provisions of rule 18 of Income Tax Appellate Tribunal Rules, 1963 [for short "ITAT, Rules"] perused the material placed on records and duly considered the facts of the case in the light of settled legal position and the case laws relied upon by the appellant assessee as well the respondent revenue: In order to appreciate rival contention and to reach the end of the justice, it shall be imperious to reproduce the provision of section 56(2)vii)(b) ofthe Act, as; ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 56(2) 'In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources namely :- (vii) where an individual or Hindu undivided family receives in any previous year; from any person or persons on or after ISt day of October 2009 but before the Ist day of ApriL2017- (a). (b) any immovable propertys- without consideration, the stamp duty value of the which exceeds fifty thousand rupees, the stamp duty value of such property; (ii)for_a consideration which is less _than _the stamp duty value_of_the_property by an amount exceeding fifty thousand rupees, the stamp duty value of such property ClS exceeds such consideration; (Emphasis supplied)

8.

The provisions of section 56(2)vii) are anti-abusive and acts as counter evasion mechanism in preventing money laundering of unaccounted vis-a-vis untaxed income, consequently the provisions are to be construed in its strict sense: For bringing the excess of SDV over the amount of investment into immovable property to tax, the explanation (d) categorically provided a list of exclusive ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 class or classes of property to which the provision of section 56(2)(vii) applies, ergo the reproduction thereof is also of paramount importance before we ride the cycle of adjudication; (d) "property means the following capital assets of the assessee namely: immovable property being land_or building_Or_both; (ii) shares and securities; (iii) jewellery; archaeological collections; ( drawings; (vi) paintings; (vii) sculptures; (viii) any work of art; [or] (ix) bullion: (Emphasis supplied)

9.

The isolative reading of aforestated clause may give rise to a question as to whether , the phrase "capital assets of the assessee" as appearing in the explanation (d) can it be read into the definition of "Capital Asset" as defined by section 2(14) of the Act or not: For the reasons it shall be noteworthy to sheer mention that; the term property as per clause (a) falling within section 2(14) "Capital Asset" was in context of "held by an assessee" denoting prior holding for application, whereas the ITAT-Pune Page & of 13 Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 explanation clause (d) to section 56(2)vii) r.w. the text of memorandum refers to "of the recipient" or "of the assessee" denoting no prior holding: So much SO, the question is negatively but airlessly answered by the text of memorandum to Finance Act, 2010 which reads as under; Taxation of certain transactions without consideration or for inadequate consideration Under the existing provisions 0f section 56(2)(vii), any sum_of _money or_any property in _kind_which is received without_consideration Or_for_inadeguate_consideration (in excess of the prescribed limit of Rs 50,000) by an individual or an HUF is chargeable to income-tax in the hands of recipient under the head income from other sources . However, receipts from relatives or on the occasion 0f marriage or under C will are outside the scope Of this provision. The existing definition of property for the purposes of section 56(2)(vii) includes_immovable_property_being land or building or boths shares and Securities, jewellery, archaeological collection, drawings, paintings, sculpture 0r any work 0f art A: B. The provisions of section 56(2)(vii) were introduced OLS 0 counter_evasion_mechanism to prevent laundering of unaccounted income under the garb 0f gifts, particularly after abolition of the Gift Tax Act: The provisions were intended to extend the tax net to such ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 transactions in kind The intent is not to tax the transactions entered into in the normal course of business_Or_trades the profits 0f which are taxable under specific head of income. It is, therefore, proposed to amend the definition of property sO aSto provide that section 56(2)(vii) wilL have_application to_the_Sproperty which is in the_nature of_ & capitaL_asSet _of_the recipient and_therefore_wuld_not_apply to_stock-in-trade raw materiaL and_consumable stores of_any business of_ such recipient C DS E: This amendment is proposed to take effect from ISt Julys 2010. (Emphasis supplied)

10.

In this framework; when read explanation (d) to section 56(2)vii) in support of text of memorandum; it abundantly clarifies that, the legislature in its wisdom excluded "Stock-in-Trade or raw material or consumable stores of the recipient" from the class or classes property as defined by clause (d) explanation to section 56(2)vii), consequently there remain no iota of doubt to press into service any part of the definition of section 2(14) of the Act for the purpose of explanation ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 clause (d) vis-a-vis section 56(2)vii) Of the Act, and in holding so, we are mindful to the decision of co-ordinate bench in "Mubarak GafurKorabu Vs. Income Tax Officer" (ITA No. 752/PUN/2018) which is strongly relied by the Ld. AR, however the facts of the case are disparate or dissimilar to the extent that; the assessee therein purchased agricultural land and held as its stock in trade and on its sale the receipts were recognized and accepted as business income, per contra, in the present case, the appellant's investment into immovable property is otherwise than stock in trade, hence de-jure falls out of decision relied upon: 11. In nutshell; we concur with the view of tax authorities below to the effect that; explanation clause (d) to section 56(2)(vii) refers to any immoveable property and the same is not circumscribed or limited to any particular nature or class of immoveable property, as it refers to any immoveable property which by its grammatical meaning would mean all and any property which is immoveable in nature. In the instant case, the appellant purchased ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 agricultural land (may it be rural or urban) and held as such, being a property squarely falling within the purview of clause (d) explanation to section 56(2)vii) of the Act, and irrespective Of whether such property falls within the definition of capital asset u/s 2014), in our considered view is exigible to taxation Uls 56(2)vii)b) SO long as the property as defined by explanation (d) thereto is exterior to exclusion carved out by the Memorandum to Finance Act 2010 and for the reasons, we see no infirmity with the orders of tax authorities below, therefore the ground number 2 of the appeal stands adjudicated against the appellant assessee and in favour of the revenue: 12. Resultantly, the appeal of the appellant assessee is dismissed in terms of aforestated observation: In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Wednesday 17th day of August; 2022. S.S. GODARA G.D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER gut/ PUNE faaia Dated day of August; 2022. ITAT-Pune Soham Laxman Kulkarni PAN :BILPK8583L Asstt Yr:: 2014-15 3itrr tbqfafafgzpfea Copy of the Order forwarded to 1 . 3dctreff The Appellant; 2 9cqeff The Respondent: 3. The Pr . CIT-2, Pune (Mh-India)

4.

The CIT(A)-3, Pune (Mh-India) 5. fa8rafry 9A@fu,3r 34ar ~rfearru; 9u}-4-da, goj DR, ITAT, Pune "B" Bench, Pune. 6. 711395134t Guard File: 33R1TTR BY RDER, aoofasf Hfd Sr. Private Secretary 3Tah 3dalr cyrifechzu; goj ITAT, Pune: ITAT-Pune

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