KOLKATA – The Income Tax Appellate Tribunal (ITAT) Kolkata bench has deleted an income tax addition of Rs 11.35 lakh imposed on an individual homebuyer, Ms. Swati Bajaj, for the Assessment Year 2017-18. The ruling addresses a discrepancy between the property's sale consideration and its higher circle rate (stamp duty value) at the time of final registration, a common issue faced by property buyers in India.

The tax demand arose under Section 56(2)(x) of the Income Tax Act, which deals with instances where a property is received for a consideration less than its stamp duty value, and the difference exceeds a prescribed threshold. In this case, Ms. Bajaj had booked an apartment in Sector V, Bidhannagar, Kolkata, in 2011. She subsequently made a substantial payment of Rs 91 lakh towards the agreed sale price of Rs 1.24 crore in 2012. However, the property’s registration was completed in January 2016. By the time of registration, the government's circle rate for the property had increased to Rs 1.46 crore, significantly higher than the agreed sale price. The Income Tax Department had added Rs 11.35 lakh to her income, representing a portion of this difference.

The ITAT Kolkata bench, comprising Judicial Member Shri Sanjay Garg and Accountant Member Dr. Manish Borad, observed that a substantial part of the consideration was paid by the homebuyer through account payee cheque well before the registration date. The Tribunal referenced the proviso to Section 56(2)(x), which stipulates that if the date of the agreement fixing the amount of consideration is earlier than the date of registration, and at least part of the consideration is paid by an account payee cheque, bank draft, or electronic clearing system on or before the date of the agreement, then the stamp duty value on the date of the agreement should be considered.

Key details of the case are as follows:

  • Property Booking: 2011
  • Substantial Payment: Rs 91 lakh made in 2012 for a property with an agreed sale price of Rs 1.24 crore.
  • Property Registration: January 2016
  • Agreed Sale Price: Rs 1.24 crore
  • Circle Rate at Registration: Rs 1.46 crore
  • Difference: Approximately Rs 22 lakh (Rs 1.46 crore - Rs 1.24 crore)
  • Tax Addition Deleted: Rs 11.35 lakh
  • Relevant Section: Section 56(2)(x) of the Income Tax Act, 1961

The Tribunal concluded that since the homebuyer had paid a significant amount of the consideration by banking channels on or before the agreement date, the stamp duty value on the date of the agreement should be the relevant benchmark, rather than the value on the date of registration. As the circle rate on the agreement date was not higher than the agreed sale price, the provisions of Section 56(2)(x) were deemed not applicable in this specific scenario, leading to the deletion of the tax addition. This ruling provides clarity and potential relief for homebuyers facing similar tax demands due to delays in property registration and subsequent increases in government-determined circle rates.