Question And Answer
Subject: Section 56(2)(vii)(b) of Income Tax Act 1961
Querist: CA Govind Agrawal
Answered by:
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Date: August 27, 2022
Query asked by CA Govind Agrawal

Mr.A booked a flat in FY 2010-11 and made the payment of booking amount through banking channels. Total consideration to be paid for the flat was Rs.68Lacs.

The builder issued ‘Earnest Money Receipt’ for the same in FY 2010-11 .Subsequently the installments were paid from time to time by Mr.A.Some of the installments were also paid by his real brother Mr.B.The installments paid by Mr.B is also mentioned in the audited accounts maintained by him.

In the sales customer ledger issued by the builder for FY 2010-11 to 2019-20 the name of Mr.B has also been mentioned as co-applicant along with customer name of Mr.A

In the agreement for sale executed before the sub registrar Mumbai, on payment of stamp duty of registration the name of Mr.A & B as the allottees/purchasers are mentioned. The value taken by registrar for stamp duty is Rs.104Lacs.

Valuation report form the registered valuer fully justifies the value of property in FY 2010-11 at Rs.68Lacs.The same is not in dispute.

In limited scrutiny in the case of A & B for investment in immovable property after considering the above details & documents the AO of Mr.A accepted the returned income u/s 143(3).

In the case of Mr.B on the basis of same information the AO has issued a show cause notice for proposed variation proposing to tax 50% of difference between 104Lacs and 68 Lacs i.e. Rs.18Lacs in the hands of the Mr.B as income from other sources.


  1. whether on the grounds that “In the absence of any valid agreement entered between Mr.B & the builder and any payment made by Mr.B through banking channels at the time of agreement” the proposal of the AO in the case of Mr.B to tax Rs.18Lacs is justified?
  2. Whether different treatment be given to Mr.B regarding the aforesaid addition when in the case of Mr.A (the co-owner in the same property ) returned income has already been accepted ?

Please give detailed reply along with case laws and oblige.

Thanks and Regards

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The addition is made in the hands of Mr. B based on the information received from the sub-registrar Mumbai. Further, it is pertinent to understand that registration of a document is a mere formality and the date of execution of the same must be taken into consideration. Therefore, the Stamp Duty value as on the date of entering into an agreement i.e., FY 2010-11 must be considered for the purpose of section 56(2)(vii)(b) of the Act.

Therefore, on merits, no addition can be made as the registration of the agreement relates back to FY 2010-11. Hope the same clarifies

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One comment on “Section 56(2)(vii)(b) of Income Tax Act 1961

    Thanks for your reply.
    If in the facts stated in the query, the agreement in FY 2010-11 was entered by Mr.A only for purchase of flat.
    Mr.B his brother (Co-owner) paid his share of contribution directly to the builder before the stipulated period of payment i.e. in 2019 before execution of registration of flat.
    The registration of flat was executed in favour of ‘A’ & ‘B’ both. The obligation of AO is limited to as under:
    i. No agreement by B with builder in FY 2010-11.
    ii. No payment to builder by B in FY 2010-11

    Why benefit of provision 1 & 2 to Sec.56(2)(x)(b) be not denied to Mr.B.

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