ITAT Deletes Addition Under Section 56(2)(vii)(b) Based on Prior Agreement Date

ITAT Ahmedabad deleted an addition under Section 56(2)(vii)(b) for property purchased below Market value, as the agreement and initial payment predated the valuation date.

The present appeal has been filed by Himmatbhai (Appellant) against the Income Tax Officer, Ward, Ahmedabad (Respondent) in the Income Tax Appellate Tribunal (ITAT) “A” Bench, Ahmedabad, before Dr. B.R.R. Kumar (Vice-President) and Shri Siddhartha Nautiyal (Judicial Member). The case is related to the assessment year 2015-16 and was decided on December 12, 2025. The appeal is filed by the assessee against the order dated July 16, 2025, passed by the CIT(A).

The assessee filed the return of income for A.Y. 2015-16 on October 30, 2025, declaring a total income of Rs 11,04,230. The case was selected for investigation under CASS for verifying “large investment in property as compared to total income.” However, the AO has passed an order under section 143(3) of the Act on August 22, 2017, by accepting the returned income without making any addition.

Later, the Principal Commissioner of Income Tax reviewed this assessment and felt that the AO had not properly examined the property purchase. According to the Commissioner, the property was bought at a value much lower than the value fixed by the stamp duty authority (Jantri rate). Therefore, in December 2019, the Commissioner cancelled the earlier assessment and ordered a fresh assessment.

During the fresh assessment, the AO found that the assessee had jointly purchased land, and his share was 15%, amounting to about Rs. 73,95,000. It was also noticed that the property was purchased for a price lower than the government-determined market value, and part of the payment was made in cash. Accordingly, the Assessing Officer added Rs. 41,40,000 as “income from other sources” under section 56(2)(vii)(b)(ii) and recomputed the assessee’s total income for the year.

Aggrieved by the AO’s addition, the assessee filed an appeal before the CIT(A). The CIT(A) rejected the assessee’s appeal and upheld the addition of Rs. 41,40,000. CIT(A) added that although an agreement was signed in 2007 and a small amount was paid, the major payment and possession of the property were given only in 2014. Since a property transfer is considered complete only when a substantial payment is made and possession is handed over, the transfer was treated as having taken place on March 5, 2014. Therefore, the stamp duty value as of that date was rightly applied, and the addition under section 56(viib)(ii) was confirmed against the assessee.

The assessee then approached the ITAT. The Tribunal held that since the assessee had entered into a written agreement to purchase the property on June 26, 2007, and had already paid part of the consideration (Rs. 100,000) through a banking channel in the same year, the case does not attract Section 50C or Section 56(vii)(b)(ii) of the Income-tax Act. However, as per the CIT(A), these sections apply because most of the payment was made later, and possession was not given on the agreement date was found to be contrary to the law. Therefore, the addition made by the Assessing Officer was deleted by the ITAT, and the assessee’s appeal was allowed.