Allotment Letter Can Qualify as Agreement Under First Proviso to Section 56(2)(x) Without Registration Requirement: ITAT Mumbai

Case Overview

Case Name: Ankit Bharat Sheth Vs ITO (ITAT Mumbai)
Relevant Assessment Year: 2018-19
Forum: Income Tax Appellate Tribunal, Mumbai

Background: Property Purchase and Reassessment

The assessee, an individual, submitted his return of income for Assessment Year 2018-19 on 27.07.2018, declaring a total income of Rs. 2,39,900. Based on data retrieved from the Insight Portal, the Assessing Officer identified that an immovable property had been acquired for a stated consideration of Rs. 57,00,000, while the stamp duty authority had valued the same property at Rs. 95,64,335. This discrepancy of Rs. 38,64,335 prompted initiation of reassessment proceedings under Section 147 read with Section 148A and Section 148 of the Income-tax Act, 1961.

During the course of reassessment, the assessee put forth the position that the developer had allotted the property on 06.12.2014, and that a substantial portion of the purchase consideration had been remitted through regular banking channels at the time of allotment itself. The assessee argued that since the consideration was crystallised on the date of allotment, the first proviso to Section 56(2)(x) mandated adoption of the stamp duty value prevailing on 06.12.2014 rather than the value applicable on the date of registration of the conveyance deed. The assessee further submitted that the stamp duty valuation as on the allotment date did not exceed the consideration that had been agreed upon.

Assessing Officer's Position

The Assessing Officer declined to accept the assessee's explanation on several grounds:

  • The allotment letter dated 06.12.2014 was not a registered document and had been signed only by the seller — the buyer's signature was absent — making it a unilateral instrument rather than a bilateral agreement.
  • The subsequently registered agreement dated 13.06.2017 contained no reference to any prior arrangement or allotment, thereby undermining the assessee's claim of a pre-existing contractual commitment.
  • The Assessing Officer held that legal rights in immovable property cannot vest or be transferred without a registered instrument, placing reliance on the Supreme Court's ruling in CIT v. Balbir Singh Maini [(2017) 398 ITR 531 (SC)].
  • He further held that decisions of coordinate Tribunal Benches favouring the assessee's interpretation could not prevail over the binding ratio of the Supreme Court.
  • The co-owner's assessment being completed without any similar addition was held to be irrelevant, each assessee being an independent unit of assessment.

Accordingly, the Assessing Officer treated the sum of Rs. 38,64,335 as income chargeable under the head "Income from Other Sources" by invoking Section 56(2)(x) of the Income-tax Act, 1961.

Key AO Observation: "The allotment letter and the sale agreement are two separate documents and cannot be considered to mean one and the same. Moreover, the said allotment letter has only been signed by the seller, not by the assessee. Therefore, the said allotment cannot be termed as sale agreement between the assessee and the said seller for fixing the value of consideration for transfer of property."

CIT(A)'s Findings

The Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, upheld the Assessing Officer's order by its decision dated 09.03.2026. The CIT(A) observed that:

  1. The allotment letter lacked essential contractual attributes such as representations and warranties, conditions precedent, breach remedies, and dispute resolution mechanisms.
  2. Being signed only by one party, it could not be characterised as a binding bilateral agreement.
  3. The registered agreement dated 13.06.2017 made no mention of any earlier allotment arrangement.
  4. Reliance was placed on CIT v. Balbir Singh Maini [(2017) 398 ITR 531 (SC)] and Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana [(2012) 340 ITR 1 (SC)] to hold that transfer of immovable property rights requires a duly registered instrument.
  5. Since the stamp duty value on 13.06.2017 was Rs. 95,64,335 against the consideration of Rs. 57,00,000, the difference of Rs. 38,64,335 squarely fell within Section 56(2)(x).

Regarding the co-owner's assessment, the CIT(A) cited CIT v. J.K. Charitable Trust and Radhasoami Satsang v. CIT to hold that each assessee and each assessment year constitutes a separate and independent proceeding, and outcomes in one assessee's case cannot automatically govern another.

CIT(A) Conclusion: "The allotment letter relied upon by the appellant cannot be regarded as an agreement fixing the consideration for transfer of immovable property within the meaning of the proviso to section 56(2)(x). The registered agreement dated 13.06.2017 is the only legally valid agreement governing the transaction."

Assessee's Arguments Before ITAT Mumbai