| Question And Answer | |
|---|---|
| Subject: | Sec. 56(2)(viib) and agreement to sale |
| Category: | Income-Tax |
| Querist: | Prakash |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | Agreement to sale, agreement value, consideration, stamp value |
| Date: | April 29, 2023 |
- The assessee is an individual engaged in the business of real estate dealings as well as in real estate consultancy. Assessee is also a partner in various partnership firms from which he derives exempt income and also has agricultural income.
- The assessee had filed his return of income for A.Y. 2016-17 on 01.02.2017 disclosing total income at Rs. Nil.
- During the year under review appellant had entered into Sathekhat with land owner for purchase of land for a consideration of Rs.. 1,85,00,000/-. Appellant have paid Rs. 1.00 crores against the said “Sathekhat” and balance amount of Rs. 85.00 lakhs to be paid at the time of execution of the registered agreement for sale of land by the land owners in the name of the assessee and when the name of the assessee is recorded on 7/12 extract of the property.
- Although the stamp duty value of the said property is Rs. 6,80,00,000 /-, the appellant agreed to purchase this property for Rs. 1,85,00,000/-, since there is litigation in the said property which is also clearly mentioned at para 7 on page 7 of the Sathekhat
- Meanwhile Mr. X came to know about this litigated property and he approached the appellant and agreed to purchase the said property by executing MOU with the assessee.
- The Ld AO has made the addition mainly on the ground that provision of section 56(2)(vii)(b) get attracted in the case of assessee and as per the said provision, difference between market value of land at circle rate and actual consideration, which comes to Rs. 4,95,00,000/- is income of assessee, within the meaning of section 56(2)(vii) of the Income tax Act, 1961, and accordingly the Ld AO made an addition amounting of Rs. 4,95,00,000/- to the total income of assessee, under the head Income from Other Source.
- CIT(A) has confirmed the addition made by the AO, relying upon the assessment order on the ground that the difference in market value/circle rate and the actual consideration shall become taxable in the hands of the appellant.
- Contention:
- The assessee has executed the agreement to sale with land owners and therefore immovable property has not been purchased by the appellant and thus the provisions of section 56(2)(vii)(b) are not applicable. As the said provision is applicable to individual and HUF if he/she receives any immovable property for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs. 50,000/-.
- An agreement to sale is an agreement to sell the property in future. This agreement specifies the terms and conditions under which the property in question will be transferred in future.
- While making the addition the reliance was place upon the market value indicated by the stamp duty authorities as realistic valuation stated on the Sathekhat and the Ld AO as well as CIT(A) failed to appreciate that:
- The valuation by the Stamp Authority is based on the circle rates.These circle rates adopt uniform rate of property for the entire locality, which inherently disregard the peculiar features of a particular property.
- In the case of the appellant the ld AO has made the addition u/s 56(2)(vii)(b) without referring it to the DVO.
- Issues :–
- Whether assessee’s stand is correct?
- Is any other arguments which can be taken.
- Any decisions to support assessee’s stand .
The matter has to be referred to the DVO for the valuation of the property and the assessee is also at liberty to file a valuation report.
Disclaimer: This article is only for general information and is not intended to provide legal advice. Readers desiring legal advice should consult with an experienced professional to understand the current law and how it may apply to the facts of their case. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this article nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org