Pranav B Prem

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The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has set aside an income tax addition of ₹18.48 crore made under Section 56(2)(x) of the Income Tax Act, 1961, and remanded the matter to the Assessing Officer for a fresh examination to determine whether the immovable property in question was held as stock-in-trade by the assessee. The Tribunal held that the applicability of Section 56(2)(x) depends on the nature of the asset and that no addition can be sustained if the property is found to be held as stock-in-trade.

 

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A Bench comprising Judicial Member Rahul Chaudhary and Accountant Member Om Prakash Kant was hearing the appeal filed by an individual assessee for Assessment Year 2020-21 against an order passed by the National Faceless Appeal Centre (NFAC), which had upheld the addition made by the Assessing Officer.

 

The dispute arose from the purchase of land situated at Dahisar, Mumbai. The Assessing Officer noted that the conveyance deed executed in September 2019 recorded a consideration of approximately ₹8.70 crore, whereas the stamp duty valuation of the same property was ₹27.19 crore. Treating the difference of ₹18.48 crore as income of the assessee, the Assessing Officer invoked Section 56(2)(x) and added the said amount to the total income.

 

Before the appellate authorities, the assessee contended that the land was not a capital asset but was held as stock-in-trade. It was submitted that the property had originally been acquired through a partnership firm engaged in real estate development and was consistently treated as stock-in-trade in the books of account. The assessee argued that Section 56(2)(x) is an anti-abuse provision intended to tax unexplained benefits arising from transfers of capital assets, and that it does not apply to business assets held as stock-in-trade.

 

The Commissioner of Income Tax (Appeals), however, rejected these submissions and confirmed the addition. The appellate authority held that the benefit of earlier agreements and the business character attributed to the property could not be extended to the transaction under consideration, and that the difference between the stamp duty value and the consideration stated in the conveyance deed was rightly taxed under Section 56(2)(x).

 

Aggrieved, the assessee approached the Tribunal. The ITAT noted that coordinate benches have consistently held that Section 56(2)(x) cannot be invoked where immovable property is held as stock-in-trade. The Bench observed that the application of the provision necessarily depends on the factual determination of whether the property is a capital asset or a business asset.

 

On examining the balance sheet and financial statements placed on record, the Tribunal found that the property was reflected under the head “Other Current Assets” and not as a capital asset. The Bench further observed that neither the Assessing Officer nor the CIT(A) had recorded a clear and categorical finding on the nature of the property, despite the assessee’s specific plea that it was held as stock-in-trade.

 

In these circumstances, the Tribunal held that the matter required factual verification. It therefore set aside the addition of ₹18.48 crore and remanded the issue to the Assessing Officer with specific directions to examine the assessee’s financial statements, books of account and surrounding facts to determine whether the property was indeed held as stock-in-trade.

 

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The Bench clarified that if, upon such verification, the property is found to be stock-in-trade, no addition under Section 56(2)(x) can be made. With these observations, the Tribunal partly allowed the appeal for statistical purposes, restoring the matter to the file of the Assessing Officer for fresh adjudication limited to the issue of characterisation of the property.

 

Appearance

Appearance for Assessee: Shri Rakesh Joshi

Appearance for Department: Shri Pravin Salunkhe

 

 

Cause Title: Ketan Himatlal Mehta Vs. Deputy Commissioner of Income Tax

Case No: ITA No. 2499/Mum/2024 A.Y. 2020-21

Coram: Judicial Member Rahul Chaudhary, Accountant Member Om Prakash Kant