Income Tax Appellate Tribunal - Hyderabad
Mahmood Hussain Syed,Hyderabad vs Assistant Commissioner Of Income Tax, ... on 13 March, 2026
आयकर अपीलीय न्यायाधिकरण में , है दराबाद 'ए' बेंच, है दराबाद
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad "A" Bench, Hyderabad
श्री विजय पाल राि, माननीय उपाध्यक्ष एिं श्री मंजूनाथ जी, माननीय लेखा सदस्य
SHRI VIJAY PAL RAO, HON'BLE VICE PRESIDENT
AND
SHRI MANJUNATHA G, HON'BLE ACCOUNTANT MEMBER
आयकरअपीलसं./I.T.A.No.541/Hyd/2023
(निर्धा रण वर्ा/ Assessment Year: 2014-15)
Mahmood Hussain Syed, Vs. The Assistant Commissioner
R/o.Hyderabad. of Income-tax,
Circle 6(1),
PAN : AZFPM1346M Hyderabad.
(अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent)
करदाता का प्रतततितित्व/ : Shri Palivela Santosh Kranthi,
Assessee C.A.
Represented by
राजस्व का प्रतततितित्व/ : Ms. V. Koteshwaramma, Sr.
Department Represented by A.R.
सुिवाई समाप्त होिे की ततति/ : 18.02.2026
Date of Conclusion of Hearing
घोर्णध की तधरीख/ : 13.03.2026
Date of Pronouncement
ORDER
PER MANJUNATHA G., A.M :
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National 2 ITA No.541/Hyd/2023 Mahmood Hussain Syed Faceless Appeal Centre [in short "NFAC"], Delhi, dated 03.10.2023, pertaining to the assessment year 2014-15.
2. The grounds raised by the assessee read as under :
"1. The learned AO has erred in facts and law while e passing the assessment order u/s 143(3).
2. 69 Unexplained Investment: The learned AO erred in adding Rs. 2,37,92,4 44/-as unexplained investment ignoring the fact that the mismatch in capital account was due to the mistake committed by assessee's assistant while preparing the account who missed considering few document having impact on financials.
3. 50C Deemed Sale Consideration: The learned AO erred in considering the sale value arrived by applying the deeming provision s of section 50C, ignoring the peculiarity of the case and true nature of asset. and made an addition of Rs. 97,76,424/-.
4. 56(2)(vii) (b) Deemed income - The learned AO erred in making an addition of Rs. 2,03,87,170/- by considering the fair mark et value of business asset forming part of stock in trade by applying the deeming provisions of section 56(2) (vii) (b) and also ignoring the circumstances involved at the time of purchase where seller had malafide intentions.
5. For these and other ground which may be raised during or before the appeal is heard. It is prayed that the relief be granted."
3. The additional ground raised by the assessee read as under :
"1. The learned CIT(A)/A.O. erred in making an addition of Rs.2,03,87,170/- by applying the provisions of Section 50C when the property was referred to the Valuation Cell and the report was not received till the completion of the assessment proceedings."
4. The brief facts of the case are that, the assessee is an individual, derives income from house property and real estate business, filed his return of income for AY 2014-15 on 13.09.2014, declaring a total 3 ITA No.541/Hyd/2023 Mahmood Hussain Syed income of Rs. 1,24,51,960/-. The case was selected for scrutiny and the assessment was completed under Section 143(3) of the Income Tax Act, 1961, and determined the total income at Rs. 6,69,47,580/- by inter alia making addition towards disallowance of excess claim of interest against income from house property for Rs. 5,39,579/- and addition of Rs. 2,37,92,244/- towards difference in capital account of the proprietor, addition of Rs. 97,76,424/- under the head 'income from capital gains' towards difference between sale consideration as per the registered sale deed and fair market value of the property, as per the provisions of Section 50C of the Income Tax Act, 1961 and addition of Rs. 2,03,87,170/- under Section 56(2)(vii)(b) of the Income Tax Act, 1961 towards the difference between purchase consideration and the stamp duty value of the property as on the date of registration as income from other sources.
5. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee challenged various additions made by the A.O., including the addition towards difference in capital account of the proprietor, addition under the head capital gains towards difference between sale consideration and fair market value of the property as on the 4 ITA No.541/Hyd/2023 Mahmood Hussain Syed date of registration under Section 50C of the Act, and also addition under Section 56(2)(vii)(b) of the Act, towards purchase consideration paid for property and fair market value of the property as on the date of registration. The assessee had furnished various evidences and argued that, the difference in capital account of the proprietor has been reconciled and explained to the A.O. that the amount of loan received from wife of the assessee, namely, Ms. Saleha Shaheen has not been shown in the balance sheet, which resulted in increase in closing of the capital balance of the assessee and the same has been reconciled after filing relevant evidences. The assessee further claimed that, the property sold by the assessee does not have valid title, because of which the assessee sold the property for a consideration which is below the stamp duty value as on the date of registration and the same has been explained by filing relevant details. The A.O. referred the valuation of the property to the District Valuation Officer (DVO) and the DVO determined the valuation of the property at Rs. 1,47,93,000/- without considering the relevant objections filed by the assessee and also the valuation report obtained by the assessee from the registered valuer. The assessee had also contended that, he has purchased property and 5 ITA No.541/Hyd/2023 Mahmood Hussain Syed paid entire sale consideration before 31.03.2013 and the amended provisions of Section 56(2)(vii)(b) of the Act, came into statute by the Finance Act, 2013 w.e.f. 2014-15 and thus, the provisions of Section 56(2)(vii)(b) of the Act, cannot be applied. The assessee further claimed that, he is into the business of real estate and the property purchased by the assessee has been treated as stock-in-trade and the provisions of Section 56(2)(vii)(b) of the Act, does not apply to stock-in-trade, because it only applies to immovable property being 'capital asset'.
6. The Ld. CIT(A) after considering relevant submissions of the assessee and also taking note of reason given by the A.O. to make addition towards difference between capital account balance of the proprietor, sustained additions made by the A.O. by holding that, the assessee could not reconcile the difference with relevant evidences, although claims that it is due to incorrect accounting treatment given by the accountant in respect of rental income received by the assessee and his wife, Ms. Saleha Shaheen in a joint account. The Ld. CIT(A) also rejected the explanation of the assessee with regard to the additions made towards capital gain in terms of Section 50C of the Act, on the ground that, the A.O. has rightly 6 ITA No.541/Hyd/2023 Mahmood Hussain Syed adopted value of the property determined by the DVO. Similarly, the Ld. CIT(A) rejected the explanation of the assessee with regard to the addition made towards difference between property under Section 56(2)(vii)(b) of the Act, on the ground that, the provisions of Section 56(2)(vii)(b) were introduced to curb the menace and to tax the difference between the sale consideration and the amount mentioned in the registered document as per government record. The assessee had failed to justify the reason for difference in the sale consideration and registration of the property, as per the amount fixed by the registration department. Therefore, the Ld. CIT(A) rejected the explanation of the assessee and upheld the additions made by the A.O.
7. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
8. The first issue that came for our consideration from ground No.1 of assessee's appeal is addition of Rs. 2,37,92,244/- under Section 69A of the Income-tax Act, 1961, as unexplained investment towards difference in capital account of the proprietor. The facts with regard to the impugned dispute are that, during the course of assessment 7 ITA No.541/Hyd/2023 Mahmood Hussain Syed proceedings, the A.O. noticed that, there is a difference in closing balance of capital account of the proprietor and if we consider opening balance of capital account plus additions during the year and minus deletions during the year, there is a difference to the extent of Rs.2,37,92,244/-. The A.O. called upon the assessee to explain the difference. In response, the assessee filed a reconciliation between balance sheet filed along with return of income and the corrected balance sheet indicating the correct amount of capital account balance and claimed that, the assessee along with his wife, Ms. Saleha Shaheen jointly received a rental income and the same has been credited to joint account maintained by the assessee and his wife, Ms. Saleha Shaheen. Further, the assessee has invested rental income received by himself and his wife, Ms. Saleha Shaheen and credited to the joint bank account for purchase of the property, however, while preparing the balance sheet by an inadvertent error, the amount received from wife of assessee in respect of rental income credited to the joint bank account has not been considered in the books of accounts. The above discrepancy has been noticed while reconciling the difference and found that, a difference of Rs. 2,37,92,244/- has been adjusted in the closing balance of capital 8 ITA No.541/Hyd/2023 Mahmood Hussain Syed account. This has been explained to the A.O. and Ld. CIT(A). The assessee has also furnished relevant details, including the joint bank account held by the assessee and his wife and the ITR filed by his wife to prove the receipt of rental income. The A.O. without considering the relevant reconciliation, made addition towards difference in capital account as unexplained investment.
9. The learned counsel for the assessee, Shri Palivela Santosh Kranthi, C.A., referring to corrected balance sheet filed before the A.O., submitted that, the assessee has reconciled the difference in capital account and explained that, the rental income received by his wife, Ms. Saleha Shaheen credited into joint bank account was not considered as loan received from the wife, even though the entries into the bank account and corresponding investment made for purchase of property by using the above rental income has been accounted in the books of accounts of the assessee. At the time of preparing balance sheet, the accountant could not notice the discrepancy and the difference in rental income received on behalf of his wife, Ms. Saleha Shaheen has been adjusted in the capital account, and the same has been explained by filing revised balance sheet along with ITR filed by his wife. The A.O. and Ld. CIT(A), 9 ITA No.541/Hyd/2023 Mahmood Hussain Syed without appreciating the relevant facts, simply sustained the addition made by the A.O. Therefore, he submitted that, the addition made by the A.O. should be deleted.
10. The learned Senior A.R. for the Revenue, Ms. V. Koteshwaramma, on the other hand, supporting the order of the A.O. and Ld. CIT(A), submitted that, although the assessee claims to have reconciled the difference in capital account, but the A.O. and Ld. CIT(A) noted that, the assessee has not explained the credits into the capital account with relevant details. Further, the assessee has also failed to offer any explanation with regard to non-consideration of rental income of the wife while preparing financial statements. In the absence of a proper explanation, the A.O. has rightly assessed the difference in capital account, as unexplained investment. The Ld. CIT(A), after considering the relevant facts, has rightly sustained the additions made by the A.O. Therefore, she submitted that, the additions made by the A.O. should be upheld.
11. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, if we consider the 10 ITA No.541/Hyd/2023 Mahmood Hussain Syed opening balance of capital account, additions during the year towards various incomes and deletions during the year towards drawings and other expenditure, including tax payment, the closing balance works out to Rs. 19,83,40,014/-. But, in the capital account filed along with the return of income, the assessee had shown closing balance of capital account of Rs. 22,21,32,258/-, which resulted in difference in capital account of Rs. 2,37,92,244/-. The assessee explained the difference and claimed that, the rental income from a joint property held by the assessee and his wife, Ms. Saleha Shaheen has been credited to a joint bank account and the said bank account has been considered in the books of accounts of the assessee. However, while considering the rental income, the assessee has claimed 50% of rental income which was at Rs. 1,85,73,044/- and remaining 50% was considered in the hands of assessee's wife, Ms. Saleha Shaheen, but the entire rental income including his wife's share has been credited to a joint bank account which has been considered in the books of accounts of the assessee. Since the assessee has considered only 50% of rental income in the capital account and considered the entire credit of rental income, including the remaining 50% of assessee's wife, there is a difference 11 ITA No.541/Hyd/2023 Mahmood Hussain Syed of Rs. 2,37,92,244/- in the liability side of the balance sheet and the same has been adjusted in the capital account, which is evident from relevant capital account filed by the assessee, where the total credits of the assessee from the bank account comes to Rs. 21,63,19,285/-, but the accountant, by inadvertent mistake, arrived at a total of Rs. 24,01,11,529/-, which resulted in excess amount of Rs. 2,37,92,244/- in the closing balance of capital account. Since the entire rental income has been considered in the books of accounts of the assessee without giving any effect to the account of assessee's wife, Ms. Saleha Shaheen, the difference has been adjusted in capital account which resulted in excess balance in capital account of Rs. 2,37,92,244/- and the same has been reconciled by the assessee. Although the assessee has reconciled the difference and explained the difference, the A.O. made addition under Section 69 of the Income Tax Act, 1961. The Ld. CIT(A), without appreciating the relevant facts, simply sustained the additions made by the A.O. Thus, we reverse the findings of the Ld. CIT(A) on this issue and direct the A.O. to delete the addition made towards difference in capital account of Rs. 2,37,92,244/- under Section 69 of the Income Tax Act, 1961.
12ITA No.541/Hyd/2023
Mahmood Hussain Syed
12. The next issue that came up for our consideration from ground no. 2 of assessee's appeal is addition under Section 50C of the Income-tax Act, 1961, of Rs. 97,76,424/-.
13. The learned counsel for the assessee submitted that, during the financial year relevant to the assessment year under consideration, the assessee has sold a property for a consideration of Rs. 25,00,000/- on 05.07.2013 and the stamp duty value of the property has been determined at Rs. 1,97,61,000/-. The assessee explained the reasons for the difference in sale consideration and stamp duty value to the A.O. and claimed that, the property sold by the assessee was not having a valid title, because of dispute in the ownership of the property and there are no proper approach roads. The assessee submitted that, the land ownership was claimed by the State Government of Telangana and however, the assessee had purchased the land from the previous seller without ascertaining the correct legal title and also constructed a building without any sanction plan from the municipal authorities. Later, the assessee came to know that the property in question is not having valid title, sold the property for a consideration of Rs. 25,00,000/- and received 13 ITA No.541/Hyd/2023 Mahmood Hussain Syed consideration through proper banking channel. Although all these facts have been explained to the A.O., who determined the fair market value by referring the matter to the DVO and the DVO has determined the value of the property at Rs. 1,41,93,000/- and the A.O. has adopted the stamp duty value and worked out capital gain at Rs. 97,76,424/- as against the capital gain declared by the assessee. The assessee has also justified the value by obtaining an independent valuation report from registered valuer and as per which, the registered valuer has determined the value of the property at Rs. 42,30,000/- on rental income method plus land and building method and by averaging both the values arrived at fair market value of the property at Rs. 42,30,000/-. Although these evidences have been furnished before the A.O. and Ld. CIT(A), but both the authorities have ignored the valuation and determined the value as per DVO report and made addition. Therefore, he submitted that, the addition made by the A.O. should be deleted.
14. The learned Senior A.R. for the Revenue, on the other hand, supporting the order of the Ld. CIT(A), submitted that, there is no dispute with regard to the fact that, there is a difference between the fair market value of the property as determined by the DVO, which 14 ITA No.541/Hyd/2023 Mahmood Hussain Syed was at Rs. 1,41,93,000/-, and the sale consideration as per the registered sale deed, which was at Rs. 25,00,000/-. The arguments of the assessee that the property in question is unauthorized and does not have a valid legal title, is not supported by necessary evidence. The A.O., after considering the relevant facts and also taking into account the DVO report, has rightly adopted the fair market value at Rs. 1,41,93,000/- and computed long-term capital gain at Rs. 97,76,424/-. The Ld. CIT(A), after considering the relevant facts, has rightly sustained the additions made by the A.O. Therefore, she submitted that, the additions made by the A.O. should be upheld.
15. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, there is a difference between sale consideration as per registered sale deed and fair market value of the property as on the date of registration. The A.O. applied provisions of Section 50C of the Act, and has determined the net sale consideration of Rs. 1,41,93,000/- by considering the value of the property determined by the DVO. The DVO has determined the fair market value of the property at Rs. 1,41,93,000/-. The 15 ITA No.541/Hyd/2023 Mahmood Hussain Syed assessee claimed that, the DVO, while determining the fair market value of the property at Rs. 1,41,93,000/-, has not considered certain vital points, including dispute in title of the property and unauthorized construction of the building. The assessee further claimed that, he has obtained a valuation report from registered valuer for Income Tax Department and as per the valuation report, the fair market value of the property has been determined at Rs. 42,30,000/- on rental income method plus land and building method and while arriving at fair market value, the registered valuer has considered the vital points like dispute in title in the property and also unauthorized building construction without sanctioned plan. Therefore, the A.O. ought not to have adopted the higher value as per the DVO report.
16. We find that, the assessee has furnished certain evidences to prove that, the impugned property sold by the assessee does not have a valid title for which the assessee has furnished certain pending disputes. The assessee has also furnished a valuation report from registered valuer of the Income Tax Department where the valuer had considered the point of dispute in property and unauthorized construction in the building and claimed that, the 16 ITA No.541/Hyd/2023 Mahmood Hussain Syed property in question does not have any value as determined by the stamp duty authorities. If we consider the valuation report submitted by the DVO and the valuation report of the registered valuer, we find that, the DVO has considered the cost of land as per stamp duty authorities and cost of building as per CPWD rate without considering the location of the property, dispute in title and unauthorized construction of the building without any sanctioned plan. However, the registered valuer of the Income Tax Department had considered all these points, including the dispute in title, location of the property and unauthorized construction of the building and claimed that, the valuation officer has not taken the actual land area, but gone by the plot area, as per sale deed and the purchaser will give the value as per actual land area and not as per sale deed. If actual plot area, as per the sale deed is less, the purchaser will give the value as per actual land area and not as per the sale deed. Since the actual land area is less than the sale deed area, this point, the DVO should have considered. The registered valuer further observed that, the DVO has not given source of land rate taken at Rs. 22,000/- per square yard against the Sub- Registrar's rate of Rs. 40,000/- per square yard. Similarly, the DVO 17 ITA No.541/Hyd/2023 Mahmood Hussain Syed has not observed whether the building construction is having sanctioned plan or not. Therefore, considering all these aspects, the registered valuer has arrived at the value on two methods, one on the basis of municipal valuation method, which works out at Rs. 26.80 lakhs and another on land and building method, which works out at Rs. 57.80 lakhs and by taking both the valuations, arrived at an average value of Rs. 42,30,000/-.
17. In our considered view, while determining the fair market value of the property, the valuation fixed by the stamp duty authorities is not a reasonable market value and it can be only a guiding factor for fixing the value by considering other parameters like location of the property, approach road if any available to the property and the title of the property. Since the DVO has not considered all these points while arriving at fair market value of Rs. 1,41,93,000/-, in our considered view, the fair market value determined by the DVO cannot be accepted. Further, since the registered valuer of the Income Tax Department has also arrived at fair market value of the property by considering various aspects, including defects in title and unauthorized construction of the building, in our considered view, the value determined by the registered valuer should be 18 ITA No.541/Hyd/2023 Mahmood Hussain Syed adopted. The A.O. and the Ld. CIT(A), without appreciating the relevant facts, simply considered the fair market value of the property as determined by the DVO, even though there is difference in valuation of the property arrived at by the DVO. Thus, we set aside the order of the Ld. CIT(A) and direct the A.O. to adopt fair market value determined by the registered valuer, which was at Rs. 42,30,000/- and compute the capital gains, if any, from transfer of property.
18. The next issue that came up for our consideration from ground No.3 of assessee's appeal is addition of Rs. 2,03,87,170/- under Section 56(2)(vii)(b) of the Act, towards difference in fair market value of the property and amount paid for purchase of the property.
19. The learned counsel for the assessee submitted that, during the previous year relevant to the assessment year under consideration, the assessee has purchased a property (Milan Theatre), from Nizar Dhanani for a consideration of Rs. 5,03,12,830/-, vide sale agreement dated 06.01.2012 and also paid an advance of Rs. 50,00,000/-. Further, the assessee has also paid full consideration of Rs.5,03,12,830/- on or before 31.03.2013 and also requested the 19 ITA No.541/Hyd/2023 Mahmood Hussain Syed seller for execution of sale deed. However, the seller of the property has disputed the sale transaction and the assessee has filed a petition before the Court of law for part performance of the contract and finally the sale deed has been executed on 21.12.2013 during the assessment year 2014-15. Since the assessee has paid entire consideration of Rs. 5,03,12,830/- before 31.03.2013, the A.O. ought not to have applied provisions of Section 56(2)(vii)(b) which came into statute with effect from 01.04.2013 and from A.Y. 2014-
15.
20. The learned counsel for the assessee further submitted that, the provisions of Section 56(2)(vii)(b) of the Act, cannot be applied for the present case, because the assessee has purchased the property in the course of business and has treated the property as stock-in- trade. The assessee has also converted the property into plotted lands and sold certain plots during the year under consideration and also declared the income from business. Since the property in question is a stock-in-trade, the provisions of Section 56(2)(vii)(b) of the Act, is not applicable, because the above provisions are applicable to capital asset being immovable property or land and building. The A.O., without appreciating the relevant facts, simply 20 ITA No.541/Hyd/2023 Mahmood Hussain Syed made addition towards difference between fair market value and consideration paid for purchase of the property. In this regard, he relied upon the decisions of ITAT, Jaipur Bench in the case of CIT Vs. Ashok Agarwal, HUF 207 TTJ 0608, and Prem Chand Jain Vs. ACIT, 183 ITD 0372. The assessee has also relied upon the decisions of ITAT, Surat Bench in the case of Parinda Bhaveshkumar Borda Vs. ITO, 2021 TaxPub (DT) 4826 and also ITAT, Mumbai Bench in the case of Kiran R. Sawlani Vs. ITO, 193 ITD 0852.
21. The learned Senior A.R. for the Revenue, on the other hand, supporting the order of the A.O. and Ld. CIT(A) submitted that, it is an admitted fact that there is a difference between the purchase consideration as per the registered sale deed for purchase of the property and the stamp duty value of the property as determined by the stamp duty authorities as on the date of registration. As per the provisions of Section 56(2)(vii)(b) of the Act, which is applicable from AY 2014-15 onwards, if there is a difference between consideration paid for purchase of property and stamp duty valuation, then the difference will be treated as income of the assessee and assessable under the head income from other sources. The A.O., after considering relevant facts and also date of sale of property, has 21 ITA No.541/Hyd/2023 Mahmood Hussain Syed rightly assessed the difference under Section 56(2)(vii)(b) of the Act. The Ld. CIT(A), after considering relevant facts, has rightly sustained the addition made by the A.O. Therefore, she submitted that, the additions made by the A.O. should be upheld.
22. We have heard both parties, perused the material available on record and had gone through the orders passed by the authorities below. There is no dispute with regard to the fact that, the assessee has purchased the property vide sale deed dated 21.12.2013 for a consideration of Rs. 5,03,12,830/- and the fair market value of the property as on the date of registration was at Rs. 7,07,00,000/-. It is also not in dispute that, the assessee has agreed to purchase the property vide agreement of sale dated 06.01.2012 for a consideration of Rs. 5,00,00,000/- and also paid advance of Rs. 50,00,000/- on the date of agreement. The assessee has also entered into a supplementary agreement dated 21.01.2012 and paid further consideration of Rs. 50,00,000/- and agreed to pay balance consideration of Rs. 4,00,00,000/- to clear the bank debt. The assessee has paid entire sale consideration of Rs. 5,03,12,830/- as per the agreement on or before 31.03.2013, which is evident from the relevant sale deed copy, which is available in the paper book 22 ITA No.541/Hyd/2023 Mahmood Hussain Syed filed by the assessee. In fact, there is no dispute on these facts, and the A.O. and Ld. CIT(A) accepted the fact that, the assessee has paid entire sale consideration before 31.03.2013 and registered the property on 21.12.2013. Further, it is also an admitted fact that, the assessee treated the property as stock-in-trade in the business of real estate, which is evident from relevant financial statements filed by the assessee along with the return of income. Therefore, it is necessary for us to examine the reasons given by the A.O. to make addition of Rs. 2,03,87,170/- under Section 56(2)(vii)(b) of the Act, in light of various arguments of the counsel for the assessee.
23. The first and foremost argument of the counsel for the assessee is that since the entire consideration for purchase of the property has been paid before 31.03.2013 and the amended provisions of Section 56(2)(vii)(b) came into statute by way of amendment by the Finance Act, 2013 w.e.f. 01.04.2013, no addition can be made u/s 56(2)(vii)(b) of the Act. The provisions of Section 56(2)(vii)(b) of the Act, deals with any immovable property which has been received for consideration which is less than stamp duty value of the property by an amount exceeding Rs. 50,000/-, the stamp duty value of the property as exceeds such consideration shall be treated as income of 23 ITA No.541/Hyd/2023 Mahmood Hussain Syed the assessee under the head 'income from other sources'. The provisions of Section 56(2)(vii)(b) of the Act, has been amended by the Finance Act, 2013 w.e.f. 01.04.2014 and inserted clause (ii) for the purpose of assessing deemed income in respect of difference between sale consideration and stamp duty value. As per the said provision, if there is any difference between sale consideration and stamp deed value in excess of Rs. 50,000/-, then the difference shall be treated as income of the assessee. In other words, before 01.04.2013, any property is purchased by any individual or HUF, the provisions of Section 56(2)(vii)(b) of the Act, is not applicable. In the present case, there is no dispute with regard to the fact that, the assessee had entered into an agreement dated 06.01.2012 and also paid the entire sale consideration of Rs. 5,03,12,830/- on or before 31.03.2013 before the provisions of Section 56(2)(vii)(b) of the Act, came into statute. Since the entire sale consideration has been paid on or before the said provisions came into statute, in our considered view, merely because the property has been subsequently registered after the provisions came into statute, it cannot be said that, the assessee has purchased the property after the provisions of Section 56(2)(vii)(b) of the Act, came into statute and the difference can be 24 ITA No.541/Hyd/2023 Mahmood Hussain Syed assessed as income from other sources. Further, the assessee had also furnished reasons for not registering the property even though the entire consideration has been paid on or before 31.03.2013 and as per the assessee, because of the dispute by the seller, the matter finally went into court and after intervention of the court, the seller agreed to register the property in favour of the assessee and in that process, there was a delay. Otherwise, the assessee would have registered the property on or before 31.03.2013. In the present case, going by the evidences available on record, the provisions of Section 56(2)(vii)(b) of the Act, is not applicable for two reasons i.e. (i) the assessee has paid the entire sale consideration before the provisions came into statute and (ii) the delay in registration of the property is due to dispute between the seller and the assessee. Thus, in our considered view, the A.O. ought not to have applied the provisions of Section 56(2)(vii)(b) of the Act, in the case of the assessee. This view is supported by the decision of the Coordinate Bench of the Tribunal, Surat Bench, in the case of Parinda Bhaveshkumar Borda Vs. ITO (supra) and ITAT, Mumbai Bench in the case of Kiran R. Sawlani Vs. ITO (supra), wherein it has been clearly held that, where the assessee entered into agreement with the seller and paid 25 ITA No.541/Hyd/2023 Mahmood Hussain Syed substantial consideration and obtained possession, the provisions under Section 56(2)(vii)(b) of the Act, was not on the statute book as on the date of agreement for purchase of the property, the A.O. was not entitled to make addition under Section 56(2)(vii)(b) of the Act. Therefore, in our considered view, the A.O. ought not to have made additions towards the difference in sale consideration and fair market value of the property under Section 56(2)(vii)(b) of the Act.
24. Coming back to another argument of the Ld. AR for the assessee in light of accounting treatment of property purchased by the assessee. The learned counsel for the assessee submitted that, the assessee purchased the property in the course of his real estate business and treated the property as stock-in-trade. Once the property purchased by the assessee is stock-in-trade in his business, then the provisions of Section 56(2)(vii)(b) of the Act cannot be applied. We find that, the assessee is in the business of real estate development. The assessee has also treated the property purchased for the year under consideration as stock-in-trade, which is evident from the relevant financial statements of the assessee for the year under consideration, where the impugned property has 26 ITA No.541/Hyd/2023 Mahmood Hussain Syed been shown as stock-in-trade in his business. We further noted that, the assessee has also divided the property into residential plots and sold certain plots for the year under consideration. Since the property purchased by the assessee is a stock-in-trade, in our considered view, the provisions of Section 56(2)(vii)(b) of the Act, are not applicable, because as per the provisions of Section 56(2)(vii)(b), where any individual or HUF receives in any previous year any immovable property for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs. 50,000/-, the stamp duty value of such property as exceeds such consideration shall be deemed to be income of the assessee. The property has been defined in Explanation (b), which includes immovable property being land or building or both. However, it does not include stock-in-trade in a business carried on by the assessee. Since the property purchased by the assessee is a stock-in-trade in his business, in our considered view, the A.O. was erred in applying the provisions of Section 56(2)(vii)(b) of the Act, to make addition towards the difference between consideration paid for purchase of property and the stamp duty value of the property as on the date of registration. This principle is supported by the decision of ITAT, Jaipur Bench in 27 ITA No.541/Hyd/2023 Mahmood Hussain Syed the case of CIT Vs. Ashok Agarwal (HUF) (supra), wherein it has been clearly held that the term "property" used in sub-clause (b) of clause (vii) of sub-section (2) of Section 56 refers to 'capital asset' and that too specified property as per Explanation (b). The term "capital asset" has been defined under Section 2(14) of the Act and as per clause (a) of Section 2(14), any stock-in-trade, consumable stores or raw materials held for the purpose of business or profession are excluded from the definition of 'capital asset'. A similar view has been taken in the case of Prem Chand Jain Vs. ACIT (supra). Therefore, in our considered view, the addition made by the A.O. towards difference between sale consideration paid for purchase of property and fair market value of the property as on the date of registration, as deemed income in terms of Section 56(2)(vii)(b) of the Act, cannot be upheld. Thus, we direct the A.O. to delete the addition made for Rs. 2,03,87,170/- under Section 56(2)(vii)(b) of the Act.
28ITA No.541/Hyd/2023
Mahmood Hussain Syed
25. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the Open Court on 13th March, 2026.
Sd/- Sd/-
श्री विजय पाल राि (मंजन
ू ाथ जी)
(VIJAY PAL RAO) (MANJUNATHA G.)
उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER
Hyderabad, dated 13.03.2026.
TYNM/sps
आदे शकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:-
1. निर्धाररती/The Assessee :
Mahmood Hussain Syed, R/o.8-2-695/B, Road No.12, Banjara Hills, Telangana - 500034.
2. रधजस्व/ The Revenue : The Assistant Commissioner of Income Tax, Circle
- 6(1), Hyderabad.
3. The Principal Commissioner of Income Tax, Hyderabad.
4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad
5. गधर्ा फ़धईल / Guard file आदे शधिुसधर / BY ORDER TIRUPATI Digitally signed by TIRUPATI YAMINI NAGA YAMINI NAGA MALLESWARI Date: 2026.03.13 15:49:05 MALLESWARI +05'30' Sr. Private Secretary ITAT, Hyderabad