Section 56(2)(x) Inapplicable Where New Flat Received in Exchange for Surrendered Flat Under Redevelopment: ITAT Mumbai

Case Overview

Case: Amar Narendra Joshi Vs ITO
Forum: Income Tax Appellate Tribunal, Mumbai
Assessment Year: 2018-19
Order Pronounced: 23/04/2026

The Income Tax Appellate Tribunal (ITAT), Mumbai recently delivered a significant ruling in the matter of Amar Narendra Joshi Vs ITO, addressing two critical issues — condonation of delay in filing an appeal before the CIT(A)/NFAC, and the applicability of Section 56(2)(x) of the Income Tax Act, 1961 to transactions involving receipt of a new residential flat under a housing redevelopment arrangement.

The Tribunal ruled in favour of the assessee on both counts — condoning the delay attributed to the Covid-19 pandemic and directing deletion of the addition of Rs. 41,38,500/- made under Section 56(2)(x) on the ground that receiving a new flat in exchange for surrendering an old flat in a redevelopment project does not constitute receipt of immovable property for inadequate consideration under the said provision.

Background and Facts of the Case

The Assessment Proceedings

The assessee, a senior citizen, was subjected to reassessment proceedings under Sections 144, 147, and 144B of the Income Tax Act, 1961. The assessment order was passed on 26.07.2021, during the height of the Covid-19 pandemic. The Assessing Officer (AO) issued only two notices seeking the assessee's explanation regarding a purchase of immovable property — specifically, the difference between the stamp duty valuation and the value recorded in the registered document for purchase of additional area in a redeveloped property.

Due to circumstances arising from the pandemic — including miscommunication and physical dislocation caused by the ongoing redevelopment of the assessee's own residential building — the assessee was unable to respond to these notices. As a result, the assessment was completed ex parte, and an addition of Rs. 41,38,500/- was made under Section 56(2)(x) of the Income Tax Act, 1961.

The said addition represented the difference between:

The stamp duty valuation of Rs. 71,68,500/- for the total area of the flat; and
The cost for purchase of extra area of 140 sq. ft., which was adjusted against corpus and hardship compensation receivable from the developer under a development agreement for the period 1/4/2013 to 31/3/2015 and its supplementary agreement dated 1-3-2013.

The assessee's key contention was that the price was determined in 2013, not 2017, and therefore adopting the stamp duty value of 2017 for a transaction that crystallised in 2013 was legally unjustified.

The CIT(A) Proceedings

The assessee filed an appeal before the CIT(A)/NFAC on 21.04.2024, which involved a delay of 970 days (after excluding the period of the severe Covid-19 pandemic as permissible up to May 2022). An application for condonation of delay was filed along with medical certificates supporting the assessee's inability to pursue the matter earlier.

However, the CIT(A)/NFAC declined to condone the delay and dismissed the appeal as unadmitted, without adjudicating the case on merits. Aggrieved by this outcome, the assessee preferred an appeal before the ITAT Mumbai.

Grounds of Appeal Before ITAT

The assessee raised the following grounds before the Tribunal:

Section 56(2)(x) Not Applicable to Redevelopment Flat Exchange Transactions: ITAT Mumbai Rules in Favour of Assessee