ITAT Mumbai on Section 56(2)(x): Allotment Letter vs Agreement for Sale in Property Purchases

Background of the Dispute

In Vinit Ramnath Parkar Vs ITO (ITAT Mumbai), the Mumbai Bench of the Income Tax Appellate Tribunal examined whether an allotment letter issued by a developer could be treated as an “agreement” for the purposes of the first proviso to Section 56(2)(x)(b)(B) of the Income Tax Act 1961, and whether the entire addition under this provision could be taxed solely in the hands of one co-owner.

The appeal related to AY 2020-21, arising out of an order dated 29.10.2025, passed under Section 250 following reassessment under Sections 148A and 148. The reassessment was triggered based on information from the Insight Portal indicating purchase of an immovable property by a non-resident assessee.

The assessee challenged an addition of ₹45,51,307 made under Section 56(2)(x)(b)(B) as “Income from other sources”, arguing both on valuation date and on co-ownership allocation.

Reassessment and Core Facts

Initiation of Proceedings

  • The assessee, a non-resident, was flagged through the Insight Portal for having acquired an immovable property.
  • Proceedings were initiated under Section 148A, culminating in an order under Section 148A(d) and subsequent notice under Section 148 on 08.03.2024.
  • In response, the assessee filed a return on 05.06.2024, declaring total income of ₹4,850.
  • Scrutiny followed through notices under Sections 143(2) and 142(1).

Property Transaction and Valuation

During the relevant year, an agreement for purchase of a flat was registered in May 2019. Key financial figures considered by the Assessing Officer (AO) were:

  • Stamp duty valuation of property: ₹1,01,93,807
  • Stamp duty paid: ₹6,12,000
  • Total value adopted by AO (property + stamp duty): ₹1,08,05,807
  • Cost of purchase claimed by assessee: ₹56,42,500
  • Payment details substantiated by assessee: ₹44,87,248

Initially, the AO proposed an addition under Section 69 as unexplained investment of ₹63,18,559 (₹1,08,05,807 – ₹44,87,248) in a draft order under Section 144C(1).

The assessee approached the DRP-2, Mumbai. Following DRP’s directions under Section 144C(5), the AO passed a final order under Section 147 on 29.10.2025, shifting the legal basis of the addition to Section 56(2)(x)(b)(B) and restricting the addition to ₹45,51,307, being the difference between:

  • Stamp duty value: ₹1,01,93,807
  • Actual purchase cost accepted: ₹56,42,500

Assessee’s Contentions Before ITAT

Claim of Prior Allotment and Earlier Valuation Date

The assessee, represented by counsel, argued as follows:

  1. Joint Ownership

    • The flat was purchased jointly by the assessee and his father, Mr. Ramnath Parkar.
    • The total amount paid to the developer (including share money, legal charges, entrance fees, etc.) was ₹66,51,165.
    • Out of this, the assessee contributed ₹44,87,248, and his father paid the balance ₹21,63,917.
    • Payment details and summary were supported by the developer’s letter dated 12.04.2025, placed in the paper book.

  2. Allotment Letter Dated 29.10.2010

    • The assessee contended that the original reservation of the flat was made on the basis of a letter of allotment dated 29.10.2010, issued in favour of both the assessee and his father.
    • It was argued that this allotment letter fixed the consideration for the flat as early as 2010, though the formal registration occurred only in May 2019.

  3. Invocation of First Proviso to Section 56(2)(x)(b)(B)
    The assessee relied on the first proviso to Section 56(2)(x) (reproduced before the Tribunal), which states: