ITAT Mumbai clarifies: Registration of already-allotted flat for mortgage does not automatically invoke Section 56(2)(x)
The Mumbai Bench of the Income Tax Appellate Tribunal has examined an important issue under Section 56(2)(x) of the Income Tax Act 1961—whether registration of an already allotted, under-construction residential flat, carried out only to enable a bank mortgage, can be treated as a fresh “receipt” of immovable property for inadequate consideration.
In Akshay Manoj Pagdhare Vs ITO (ITAT Mumbai), the Tribunal has indicated that where the assessee’s substantive rights in an immovable property were created much earlier through an allotment letter and full payment of consideration, a later registration done merely at the insistence of a bank for mortgage purposes does not, by itself, give rise to taxable income under Section 56(2)(x)—provided no new rights in the property are received at the time of such registration.
At the same time, since the lower authorities had not carefully scrutinized critical documents such as the allotment letter, mortgage deed, loan sanction papers, and payment records, the ITAT remanded the matter back to the Assessing Officer with clear directions on how to re-examine the issue.
Factual Background
Allotment and payment for under-construction flat
- The assessee had booked a residential flat in an under-construction project.
- The initial booking payment was made on 11.10.2016.
- On the same date, the builder issued an allotment letter in favour of the assessee.
- The assessee then paid the entire agreed purchase price for the flat between 11.10.2016 and 23.06.2017.
- Thus, the assessee claimed to have acquired valuable and enforceable rights in the flat from A.Y. 2017-18 onwards.
Possession and construction status
- The flat remained under construction for a substantial period.
- Physical possession of the flat was actually handed over on 15.10.2021, which falls in A.Y. 2022-23.
- Therefore, during A.Y. 2020-21 (the year under consideration), the assessee only held rights in an under-construction property and had not yet obtained possession.
Registration for mortgage purposes
- On 31.03.2020, the assessee availed a mortgage loan by creating a charge on his rights in the said property.
- The lending bank required that:
- The agreement relating to the flat be formally registered, and
- Such registration be completed before sanction of the mortgage loan.
- Accordingly, the flat agreement was registered in A.Y. 2020-21.
- At the time of registration, the registering authority adopted the prevailing stamp duty value, which was higher than the original agreed price.
Assessment Proceedings and Addition under Section 56(2)(x)
Scrutiny selection and income returned
- The assessee filed his return of income declaring a total income of Rs.16,26,690/- for A.Y. 2020-21.
- The case was picked up for limited scrutiny under CASS, specifically on the issue of investment in immovable property.
Difference between agreement value and stamp duty value
- During the assessment, the
Ld. AOnoticed:- The agreed purchase consideration for the flat was Rs.1,02,00,000/-.
- The stamp duty valuation available at the time of registration was Rs.1,22,98,200/-.
- The difference of Rs.20,98,200/- was treated by the
Ld. AOas income underSection 56(2)(x)on the ground that the assessee received immovable property for inadequate consideration.
Reliance on valuer’s report
- The
Ld. AOsought stamp duty valuation details as on the year of allotment (2016-17) from the Joint Sub-registrar-2, Mumbai, but no reply was received. - The assessee furnished a Registered Valuer’s report, which valued the property as on 01.04.2016 at Rs.1,22,98,200/-.
- In the absence of an official stamp valuation, the
Ld. AO:- Considered Rs.1,22,98,200/- as the relevant value, and
- Treated the difference of Rs.20,98,200/- (1,22,98,200 – 1,02,00,000) as income from other sources under
Section 56(2)(x).
- Penalty proceedings under
Section 270Afor alleged misreporting of income were also initiated separately.