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Facts
The assessee purchased two parcels of land at a consideration significantly lower than the Stamp Duty Value (SDV). The Assessing Officer (AO) made an addition of ₹5,36,81,000/- under Section 56(2)(vii)(b)(ii) of the Income-tax Act, 1961, for the difference. The assessee contended that the lands were held as 'stock-in-trade' and not as 'capital assets'.
Held
The Tribunal noted a delay in filing the appeal but condoned it due to sufficient cause. The Tribunal observed that the proceedings before the lower authorities lacked effective representation and the assessee failed to present crucial documents. While the lower authorities correctly identified that Section 56(2)(vii) targets capital assets and excludes stock-in-trade, they concluded that the assessee failed to discharge the onus to prove the business nature of the land.
Key Issues
Whether the lands purchased by the assessee, held as stock-in-trade, are subject to addition under Section 56(2)(vii) when acquired below Stamp Duty Value, and whether the definition of 'property' under the Act is exhaustive.
Sections Cited
Section 56(2)(vii)(b)(ii), Section 56(2)(vii), Section 2(14), Section 56
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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
ORDER
PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 27.05.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – 51, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising following grounds:
1. It is admitted position that the Appellant is in the business of 1. It is admitted position that the Appellant is in the business of 1. It is admitted position that the Appellant is in the business of the purchase of land and the property in question was stock in the purchase of land and the property in question was stock in the purchase of land and the property in question was stock in Trade, which was also reflected the balance sheet o Trade, which was also reflected the balance sheet of the assessee f the assessee and it was not a capital asset as decided by the AO and as such and it was not a capital asset as decided by the AO and as such and it was not a capital asset as decided by the AO and as such Section 56(2) (vii) does not apply Section 56(2) (vii) does not apply 2. That the Appellant had produced various documents on record 2. That the Appellant had produced various documents on record 2. That the Appellant had produced various documents on record to show that the properties in question were agricultural lands to show that the properties in question were agricultural lands to show that the properties in question were agricultural lands situated at hil situated at hills and as such the valuation of these properties was ls and as such the valuation of these properties was lesser value than the normal properties lesser value than the normal properties 3. That the Hon'ble ITAT in the case titled as Utility Supply Pvt. 3. That the Hon'ble ITAT in the case titled as Utility Supply Pvt. 3. That the Hon'ble ITAT in the case titled as Utility Supply Pvt. Ltd. v. DCIT (ITAT Mumbai) (ITA No. Ltd. v. DCIT (ITAT Mumbai) (ITA No. 3585/Mum/2024) 3585/Mum/2024) dated 03.04.2025 has held that Shares held 03.04.2025 has held that Shares held as 'stock in trade' by a as 'stock in trade' by a company cannot be subject matter of company cannot be subject matter of addition u/s 56(2)(viia) of the 56(2)(viia) of the Act as they are outside the meaning of the word 'property' Act as they are outside the meaning of the word 'property' Act as they are outside the meaning of the word 'property' as provided in clause (vii) provided in clause (vii) 4. On the basis of similar principle the agricultural land is 4. On the basis of similar principle the agricultural land is 4. On the basis of similar principle the agricultural land is excluded and c excluded and cannot be taxed under Section 56 of the Act. Section 56 of the Act. The Explanation (b) to Section 56(2)(x) of the Act, specifically provides Explanation (b) to Section 56(2)(x) of the Act, specifically provides Explanation (b) to Section 56(2)(x) of the Act, specifically provides that "expression of property shall have the same meaning as "expression of property shall have the same meaning as "expression of property shall have the same meaning as assigned to in clause assigned to in clause (d) of explanation of Section 56(2)(vii) of the (d) of explanation of Section 56(2)(vii) of the Act". 5. The Explanation (d) to 5. The Explanation (d) to Section 56(2)(vii)6 states "property" Section 56(2)(vii)6 states "property" means the following capital asset of the assessee, namely: (i) means the following capital asset of the assessee, namely: (i) means the following capital asset of the assessee, namely: (i) immovable property being land or building or both; (ii) shares and immovable property being land or building or both; (ii) shares and immovable property being land or building or both; (ii) shares and securities; securities; securities; (iii) (iii) (iii) jewellery; jewellery; jewellery; (iv) (iv) (iv) archaeological archaeological archaeological collections; collections; collections; (v) drawings; (vi) paintings; (vii) drawings; (vi) paintings; (vii) sculptures; (viii) any work of art; or sculptures; (viii) any work of art; or (ix) bullion; 6. Hence the agricultural land does not appear in this list of 6. Hence the agricultural land does not appear in this list of 6. Hence the agricultural land does not appear in this list of assets. It lists only specific capital assets and excludes others. assets. It lists only specific capital assets and excludes others. assets. It lists only specific capital assets and excludes others. This is an exhaustive definition, not This is an exhaustive definition, not an inclusive one. By the literal an inclusive one. By the literal interpretation, it means that the revenue cannot levy tax under interpretation, it means that the revenue cannot levy tax under interpretation, it means that the revenue cannot levy tax under Section 56, Income Section 56, Income-tax Act, 1961, on "stock in trade" and "rural tax Act, 1961, on "stock in trade" and "rural agriculture land", by invoking provisions of Section 56(2)(x) of the agriculture land", by invoking provisions of Section 56(2)(x) of the agriculture land", by invoking provisions of Section 56(2)(x) of the Act, as this was never t Act, as this was never the intent of the legislature. 7. CBDT Circular No. 1/2011 dated 7. CBDT Circular No. 1/2011 dated 06.04.2011, which clearly 06.04.2011, which clearly distinguishes between capital assets and stock distinguishes between capital assets and stock-in-trade for the trade for the applicability of Section 56. applicability of Section 56. 8. The that several other properties were purchased during the 8. The that several other properties were purchased during the 8. The that several other properties were purchased during the year at or above the market value, thereby negating any allegation above the market value, thereby negating any allegation above the market value, thereby negating any allegation of undervaluation or tax evasion. of undervaluation or tax evasion.
That the show cause notice dated 9. That the show cause notice dated 24.12.2018 was issued 24.12.2018 was issued merely two days prior to the passing of the merely two days prior to the passing of the assessment order, with assessment order, with 25.12.2018 being a public holiday, there 25.12.2018 being a public holiday, thereby reasonable by reasonable opportunity of hearing was not given and as such the order passed by AO is of hearing was not given and as such the order passed by AO is of hearing was not given and as such the order passed by AO is bad in law. 2. At the threshold, we note a delay of 100 days in the filing of At the threshold, we note a delay of 100 days in the filing of At the threshold, we note a delay of 100 days in the filing of this this this appeal. appeal. appeal. The Assessee The The Assessee Assessee has has has moved moved an moved an an application application application for for for condonation, supported by an condonation, supported by an affidavit, citing compelling personal affidavit, citing compelling personal and legal exigencies. It is submitted that during the relevant period, and legal exigencies. It is submitted that during the relevant period, and legal exigencies. It is submitted that during the relevant period, the Assessee was embroiled in responding to summons issued by the Assessee was embroiled in responding to summons issued by the Assessee was embroiled in responding to summons issued by the Directorate of Enforcement (ED), Bangalore, necessitating the Directorate of Enforcement (ED), Bangalore, necessitating the Directorate of Enforcement (ED), Bangalore, necessitating frequent travel between frequent travel between Mumbai and Bangalore. Furthermore, the Mumbai and Bangalore. Furthermore, the Assessee’s father was suffering from prolonged ill Assessee’s father was suffering from prolonged ill-health. health.
2.1 Upon considering the submissions, we are of the view that the Upon considering the submissions, we are of the view that the Upon considering the submissions, we are of the view that the Assessee was prevented by "sufficient cause" from filing the appeal Assessee was prevented by "sufficient cause" from filing the appeal Assessee was prevented by "sufficient cause" from filing the appeal within the statutory pe within the statutory period. The Explanation filed by the assessee is The Explanation filed by the assessee is acceptable and following the principle that substantial justice must ollowing the principle that substantial justice must ollowing the principle that substantial justice must take precedence over technical conduits, the delay is hereby take precedence over technical conduits, the delay is hereby take precedence over technical conduits, the delay is hereby condoned, and the appeal is admitted for adjudication on merits. condoned, and the appeal is admitted for adjudication on merits. condoned, and the appeal is admitted for adjudication on merits. ontroversy involves an addition of ₹5,36,81,000/- 3. The core controversy involves an addition of ontroversy involves an addition of made by the Assessing Officer (AO) under Section 56(2)(vii)(b)(ii) Section 56(2)(vii)(b)(ii) of made by the Assessing Officer (AO) under the Income-tax Act, 1961 ('the Act'). The AO observed that the tax Act, 1961 ('the Act'). The AO observed that the tax Act, 1961 ('the Act'). The AO observed that the Assessee acquired two parcels of land at Bhisengaon, Karjat, at a Assessee acquired two parcels of land at Bhisengaon, Karjat, at a Assessee acquired two parcels of land at Bhisengaon, Karjat, at a consideration significantly lower than the Stamp Duty Value (SDV). ration significantly lower than the Stamp Duty Value (SDV). ration significantly lower than the Stamp Duty Value (SDV).
Neelesh Shyamsunder Sable Neelesh Shyamsunder Sable 3.1 Before us, the Ld. Counsel for the Assessee raised the Before us, the Ld. Counsel for the Assessee raised the Before us, the Ld. Counsel for the Assessee raised the contentions, firstly, (i) , (i) Character of Asset: The subject lands were The subject lands were held as 'Stock-in-Trade' and reflected as such in the Balance Sheet. Trade' and reflected as such in the Balance Sheet. Trade' and reflected as such in the Balance Sheet. Consequently, they do not constitute a "Capital Asset" as defined Consequently, they do not constitute a "Capital Asset" as defined Consequently, they do not constitute a "Capital Asset" as defined under Section 2(14) for the purposes of Section 56; secondly (ii) under Section 2(14) for the purposes of Section 56; under Section 2(14) for the purposes of Section 56; Legal Precedent: Reliance was placed on Reliance was placed on Utility Supply Pvt. Ltd. v. Utility Supply Pvt. Ltd. v. DCIT (ITA No. 3585/Mum/2024), where it was held that assets held , where it was held that assets held DCIT (ITA No. 3585/Mum/2024) as stock-in-trade fall outside the ambit of "property" under the trade fall outside the ambit of "property" under the trade fall outside the ambit of "property" under the Explanation to Section 56(2)(vii); Explanation to Section 56(2)(vii); thirdly, Statutory Interpretation Statutory Interpretation: It was argued that the definition of "property" in Explanation (d) to It was argued that the definition of "property" in Explanation (d) to It was argued that the definition of "property" in Explanation (d) to Section 56(2)(vii) is exhaustive exhaustive, not inclusive. By applying the rule of , not inclusive. By applying the rule of literal interpretation, rural agricultural land and stock , rural agricultural land and stock , rural agricultural land and stock-in-trade are excluded from the levy; and excluded from the levy; and lastly, Natural Justice: Natural Justice: The Assessee contended that the Show Cause Notice dated 24.12.2018 provided contended that the Show Cause Notice dated 24.12.2018 provid contended that the Show Cause Notice dated 24.12.2018 provid an illusory window for response, as the assessment order was an illusory window for response, as the assessment order was an illusory window for response, as the assessment order was passed just two days later, with an intervening public holiday. passed just two days later, with an intervening public holiday. passed just two days later, with an intervening public holiday.
We have heard the rival submissions and perused the material We have heard the rival submissions and perused the material We have heard the rival submissions and perused the material on record. In the case, assessee had purchased two parcels of th In the case, assessee had purchased two parcels of th In the case, assessee had purchased two parcels of the land situated at Bhisengaon, Karjat. The Assessing Officer found land situated at Bhisengaon, Karjat. The Assessing Officer found land situated at Bhisengaon, Karjat. The Assessing Officer found that those properties were registered at a value lower than the that those properties were registered at a value lower than the that those properties were registered at a value lower than the stamp duty valuation and accordingly he made addition for the stamp duty valuation and accordingly he made addition for the stamp duty valuation and accordingly he made addition for the difference aggregating to Rs.5,36,81,000/ difference aggregating to Rs.5,36,81,000/- u/s 56(2)(vii)(b)(ii u/s 56(2)(vii)(b)(ii) of the Act. No details were filed before the Assessing Officer. The Ld. Act. No details were filed before the Assessing Officer Act. No details were filed before the Assessing Officer CIT(A) dismissed the appeal of the assessee mainly for the reason CIT(A) dismissed the appeal of the assessee mainly for the reason CIT(A) dismissed the appeal of the assessee mainly for the reason Neelesh Shyamsunder Sable Neelesh Shyamsunder Sable that the assessee failed in filing the relevant books of accounts, that the assessee failed in filing the relevant books of accounts, that the assessee failed in filing the relevant books of accounts, purchase sales transaction or any other material purchase sales transaction or any other material demonstrating the demonstrating the business nature of the properties. business nature of the properties. Thus, the Ld. CIT(A) sustained he Ld. CIT(A) sustained the addition primarily on an evidentiary deficit. While the Ld. CIT(A) the addition primarily on an evidentiary deficit. While the Ld. CIT(A) the addition primarily on an evidentiary deficit. While the Ld. CIT(A) correctly identified the legal position correctly identified the legal position—that Section 56(2)(vii) targets that Section 56(2)(vii) targets capital assets and generally capital assets and generally excludes stock-in-trade trade—he concluded that the Assessee failed to discharge the that the Assessee failed to discharge the onus probandi onus probandi regarding the business nature of the land. the business nature of the land. Before the Ld. CIT(A), the assessee Before the Ld. CIT(A), the assessee contested that those properties were reflected as stock in trade in contested that those properties were reflected as stock in trade in contested that those properties were reflected as stock in trade in his balance sheet and therefore, provision of section 56(2)(vii) of the sheet and therefore, provision of section 56(2)(vii) of the sheet and therefore, provision of section 56(2)(vii) of the Act could not be attracted. The Ld. CIT(A) dismissed the appeal Act could not be attracted. The Ld. CIT(A) dismissed the appeal Act could not be attracted. The Ld. CIT(A) dismissed the appeal observing as under:
“7.3.3 On a careful perusal of the record, submissions, and relevant 7.3.3 On a careful perusal of the record, submissions, and relevant 7.3.3 On a careful perusal of the record, submissions, and relevant provisions of law, it is observed that the provisions of law, it is observed that the term "property" as defined term "property" as defined in Explanation (d) to section 56(2)(vii) applies exclusively to capital in Explanation (d) to section 56(2)(vii) applies exclusively to capital in Explanation (d) to section 56(2)(vii) applies exclusively to capital assets assets and and excludes excludes stock-in-trade, stock trade, raw raw materials, materials, and and consumables held by the recipient in the course of business. consumables held by the recipient in the course of business. consumables held by the recipient in the course of business. However, the legal burden lies on the app However, the legal burden lies on the appellant to prove by credible ellant to prove by credible evidence that the properties in question were indeed held as stock evidence that the properties in question were indeed held as stock evidence that the properties in question were indeed held as stock- in-trade. In the instant case, the appellant has failed to adduce any trade. In the instant case, the appellant has failed to adduce any trade. In the instant case, the appellant has failed to adduce any evidence such as detailed books of account, purchase evidence such as detailed books of account, purchase evidence such as detailed books of account, purchase-sale transactions, or any other materi transactions, or any other material demonstrating the business al demonstrating the business nature of the properties. nature of the properties. The absence of any sale or The absence of any sale or development activity related to these lands during the development activity related to these lands during the development activity related to these lands during the relevant period undermines the claim of holding them as relevant period undermines the claim of holding them as relevant period undermines the claim of holding them as stock-in- trade. Further, the joint ownership with a business trade. Further, the joint ownership with a business trade. Further, the joint ownership with a business partner without clear delineation of trading activity does not partner without clear delineation of trading activity does not partner without clear delineation of trading activity does not satisfactorily establish that the appellant was engaged in a satisfactorily establish that the appellant was engaged in a satisfactorily establish that the appellant was engaged in a property trading business in respect of these lands. It is also property trading business in respect of these lands. It is also property trading business in respect of these lands. It is also noted that the appellant did not respond to the show cause noted that the appellant did not respond to the show cause noted that the appellant did not respond to the show cause notice issued by the AO and also to the hearing notices sued by the AO and also to the hearing notices sued by the AO and also to the hearing notices issued during the course of appellate proceeding. issued during the course of appellate proceeding. issued during the course of appellate proceeding. 7.3.4 In view of the foregoing and having regard to the settled legal 7.3.4 In view of the foregoing and having regard to the settled legal 7.3.4 In view of the foregoing and having regard to the settled legal position, the addition of Rs.5,36,81,000/ position, the addition of Rs.5,36,81,000/- made by the AO under made by the AO under Neelesh Shyamsunder Sable Neelesh Shyamsunder Sable 56(2)(vii)(b)(ii) section 56(2)(vii)(b)(ii) of the Act on account of the difference between of the Act on account of the difference between the purchase consideration and the market value of the immovable the purchase consideration and the market value of the immovable the purchase consideration and the market value of the immovable properties is upheld. The contention of the appellant that the said properties is upheld. The contention of the appellant that the said properties is upheld. The contention of the appellant that the said provision is inapplicable to stock provision is inapplicable to stock-in-trade fails in absence of trade fails in absence of requisite evidence to substantiate such claim. Accordingly, the evidence to substantiate such claim. Accordingly, the evidence to substantiate such claim. Accordingly, the ground of appeal filed by the appellant is dismissed. ground of appeal filed by the appellant is dismissed.” (emphasis supplied externally) (emphasis supplied externally) 4.1 However, we note that the proceedings before the Lower However, we note that the proceedings before the Lower However, we note that the proceedings before the Lower Authorities , there was , there was a lack of effective representation and a a lack of effective representation and a the assessee failed to present his books of account and purchase to present his books of account and purchase-sale to present his books of account and purchase registers. Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that one more opportunity might be granted to the assessee to file all the one more opportunity might be granted to the assessee to file all the one more opportunity might be granted to the assessee to file all the documents in support of its contention that properties in question ments in support of its contention that properties in question ments in support of its contention that properties in question were stock in trade of the business of the assessee. In the interest were stock in trade of the business of the assessee. were stock in trade of the business of the assessee. of justice, and considering the substantial tax implications, the of justice, and considering the substantial tax implications, the of justice, and considering the substantial tax implications, the Assessee deserves a final opportunity to substantiate the "business Assessee deserves a final opportunity to substantiate the Assessee deserves a final opportunity to substantiate the asset" character of the properties. asset" character of the properties.
4.2 Without expressing any opinion on the merits of the Without expressing any opinion on the merits of the Without expressing any opinion on the merits of the classification of the asset, we deem it fit to classification of the asset, we deem it fit to set aside set aside the impugned order. The matter is order. The matter is remanded/restored to the file of the Assessing to the file of the Assessing Officer for a de novo adjudication adjudication. The AO is directed to The AO is directed to ( i) Examine the books of accounts and the treatment of the subject land in the the books of accounts and the treatment of the subject land in the the books of accounts and the treatment of the subject land in the financial statements;(ii) ;(ii) Verify the applicability of the CBDT Circular Verify the applicability of the CBDT Circular No. 1/2011 and relevant judicial precedents concerning the No. 1/2011 and relevant judicial precedents concerning the No. 1/2011 and relevant judicial precedents concerning the definition of "property" under Section 56 finition of "property" under Section 56; (iii) Afford the Assessee a Afford the Assessee a reasonable and effective opportunity of being heard. reasonable and effective opportunity of being heard.
In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on ounced in the open Court on 25/02/2026 /02/2026.