Background of the Case
The assessee filed his income tax return on 31st August 2015, declaring a total income of Rs. 7,27,020. His case was selected for scrutiny, and a notice under Section 143(2) was issued on 5th August 2016. During the scrutiny, the Assessing Officer (AO) found that the assessee had purchased a residential flat jointly with his wife, Smt. Gargi Das, through a Deed of Conveyance. The deed, registered on 28th October 2014, declared the transaction value as Rs. 24,05,715, while the stamp duty valuation was Rs. 38,74,500. The difference of Rs. 14,68,785 was treated by the AO as a deemed gift under Section 56(2)(vii)(b)(ii).
In response to the AO’s action, the assessee submitted that the property was booked in 2010, and the first payment was made on 8th June 2010. To support his argument, the assessee provided documents, including a receipt from the Greenfield City Project LLP, the letter of allotment, and a typical floor plan. However, the AO did not consider the allotment letter as an agreement as per the provisions of Section 56(1)(vii)(b) and added the difference to the total income.
Arguments and Evidence
Mr. Das contended that he had booked the flat in 2010, supported by:
- A receipt from Greenfield City Project LLP.
- A letter of allotment dated June 10, 2010.
- Evidence of payments through account payee cheques starting from June 8, 2010.
The AO, however, dismissed these as insufficient, asserting that the allotment letter did not constitute an agreement under the proviso of Section 56(1)(vii)(b).
Subsequent Appeal and the Assessee’s Arguments
The assessee, dissatisfied with the addition, filed an application under Section 154, requesting rectification. He argued that the allotment letter from the developer was equivalent to an agreement, but the AO rejected the application. The assessee then appealed to the CIT(A), which also dismissed his appeal.
The key point of dispute was whether the allotment letter should be treated as an agreement for the sale of the property. The assessee contended that the payment history, supported by receipts of payments made via account payee cheques between June and September 2010, established the validity of the allotment letter as a genuine agreement.
Legal Interpretation and Resolution
The legal provision in question, Section 56(2)(vii)(b)(ii), requires that if the purchase consideration disclosed by the assessee is lower than the stamp duty valuation, the difference is treated as a deemed gift. The section further outlines that if the date of agreement and the date of registration are not the same, the stamp duty valuation on the date of agreement should be considered.
In this case, the dispute revolved around whether the allotment letter could be treated as an agreement. According to the assessee, the letter, coupled with the payments made through banking channels, should satisfy the requirements of an agreement. The payments made from June to September 2010 supported the genuineness of the transaction, and the AO’s reliance on the valuation date of October 2014 was incorrect.
Tribunal’s Findings
The ITAT observed the following:
- Allotment Letter as Agreement: The allotment letter and associated payments through account payee cheques were deemed equivalent to an agreement. The Tribunal emphasized that an agreement need not be a registered document if payments validate its authenticity.
- CBDT Circulars Support: Circular No. 471 (1986) and Circular No. 872 (1993) equate allotment letters in self-financed housing schemes with agreements, endorsing similar treatment for such cases.
- Valuation Date: Since the payments began in June 2010, the valuation date for stamp duty purposes should align with this period, not the registration date in 2014.
Tribunal Held that
8. At this stage, we would like to draw attention to the CBDT Circular No. 872 dated 16.12.1993. The issue under this Circular was whether allotment of flats/houses by Cooperative Societies and other Institutions whose scheme of allotment and construction are similar to this of DDA should be treated as the cases of construction for the purpose of section 54 and 54F. Earlier there was a Circular bearing No. 471 dated 15.10.1986, wherein it was provided that cases of allotment of flats under the self financial scheme of the Delhi Development Authority should be treated as cases of construction for the purpose of section 54 & 54F of the Income tax Act. The scope of this Circular was enlarged to cover other Institutions and Cooperative Societies meaning thereby that allotment letter by the developer was always been recognized as an agreement to purchase the house. Thus, we are also considered as a construction activity where benefit of set off of capital gain could be granted to the purchaser. If we apply that very analogy in the present case, then it would reveal that allotment letter given by the developer to the assessee way back in 2010 would be construed as an agreement of purchase between the developer and the assessee. Therefore, benefit of proviso appended to section 56(2)(vii)(b) would be available in the present case. The ld. Assessing Officer has committed an error by ignoring this aspect. If this starts from June,2010 for which the assessee has made payments through account payee cheque is being construed as an agreement, then additions under section 56(2)(vii)(b)(ii) will not survive. Accordingly, we allow this appeal of the assessee and delete the addition.
Citation: I.T.A. No. 1200/KOL/2024, Assessment Year 2015-16
