ITAT Mumbai Treats Allotment Letter as Agreement for Section 56(2)(x): Key Takeaways from Sulochana Saijan Modi Vs ITO

1. Background of the Dispute

The Mumbai Bench of the Income Tax Appellate Tribunal in Sulochana Saijan Modi Vs ITO (ITAT Mumbai), ITA No.557/Mum/2023, dealt with an important issue under section 56(2)(x)(b) of the Income Tax Act 1961 relating to purchase of immovable property at a price lower than stamp duty valuation, and the applicability of the provisos to that provision.

The matter concerned a jointly held residential property acquired by the assessee and her son. The core controversy was:

  • Whether an allotment letter issued by the builder, along with part payment made through banking channels, could be treated as an “agreement” for the purposes of the first and second provisos to section 56(2)(x)(b); and
  • Whether the stamp duty value on the date of such allotment letter, rather than on the date of registered sale deed, should be adopted for computing any deemed income under section 56(2)(x).

The Tribunal ultimately accepted the assessee’s contention that the allotment letter is to be treated as an “agreement to sell” for this limited purpose, following the coordinate bench decision in Parth Dasrath Gandhi Vs Addl./Deputy/Asst. CIT. However, as the record did not contain the stamp duty valuation as on the allotment date, the matter was sent back to the Assessing Officer (AO) for a restricted verification on that point.

2. Facts in Brief

2.1 Filing and Selection of Case

  • The assessee, an individual, filed her return of income for AY 2018-19 on 13.06.2018, declaring total income of Rs.3,54,980/-.
  • The case was picked up for limited scrutiny, specifically to verify the issue of stamp duty valuation of property being higher than the declared transaction value.

2.2 Property Transaction Details

  • The assessee and her son jointly booked an under-construction residential house on 22.11.2010 from J.P. Infra (Mumbai) Pvt. Ltd.
  • The agreed consideration at the time of booking was Rs.83,20,500/-.
  • Prior to the allotment letter, an amount of Rs.2,00,000/- was paid vide cheque dated 11.11.2010.
  • The property was ultimately registered on 29.07.2017.
    • Stamp duty valuation on registration date: Rs.1,45,55,800/-
    • Transaction value in registered deed: Rs.87,70,500/-

The AO noticed a difference between the stamp duty valuation and the purchase price and invoked section 56(2)(x)(b).

2.3 Assessment Proceedings

In the assessment completed under section 143(3), the AO:

  • Computed the difference between stamp duty value and stated consideration as Rs.57,85,300/- (1,45,55,800 – 87,70,500).
  • Treated the entire Rs.57,85,300/- as income assessable under “Income from other sources” in the hands of the assessee, invoking section 56(2)(x)(b).
  • Initiated penalty proceedings under section 270A read with section 274.
  • Rejected the assessee’s argument that the allotment letter dated 22.11.2010, supported by part payment through cheque, should entitle her to the benefit of the provisos to section 56(2)(x)(b).

The Commissioner of Income Tax (Appeals), NFAC, upheld the AO’s action. The assessee carried the matter to the Tribunal.

3. Assessee’s Grounds Before the Tribunal

The assessee raised, inter alia, the following substantive grievances:

  • The Ld. CIT(A) erred in confirming the addition of Rs.28,92,650/- under section 56(2)(x), allegedly ignoring the proviso to section 56(2)(x)(b).
  • The reliance placed by Ld. CIT(A) on the Supreme Court judgment in CIT Vs Balbir Singh Maini was said to be misplaced because:
    • That decision related to Income from Capital Gains and interpretation of section 2(47), whereas the present issue concerned Income from other sources under section 56(2)(x).
    • The relevant portion of that judgment was argued to be, at best, obiter dicta and not a binding ratio on the present issue.
  • The assessee also pointed out:
    • She was a joint owner, and in the case of her co-owner (her son), the AO had accepted the position and made no addition on the same issue.
    • The assessee had produced the allotment letter and a copy of the cheque evidencing payment made before the agreement date, thereby fulfilling the conditions of the proviso to section 56(2)(x)(b).
    • The provision does not prescribe any minimum quantum of part payment for the proviso to apply.

4. Stand of the Assessing Officer and CIT(A)

4.1 AO’s Key Objections

The AO, while declining the benefit of the proviso to section 56(2)(x)(b), concluded broadly as under:

  1. As per the registered sale deed dated 29.07.2017, the property stood jointly purchased by the assessee and her son. The AO held that the question of who had contributed how much was irrelevant.
  2. The assessee did not initially furnish any notarized agreement with M/s. JP Infra.