Section 56(2)(vii)’s Effect on Property Bought Above Circle Rate

Fact and issue of the case

These are appeals by two assessees directed against the respective orders of the Ld. CIT(A), Kanpur, both dated 22.11.2021 pertaining to the Assessment Year 2017-18.

Since, the issues are common and connected and the appeals were heard together, these are being consolidated and disposed of together for the sake of convenience by this common order.

For the sake of reference, we are referring to grounds of appeal in ITA No.26/Del/2022 reads as under

That on the facts and circumstances of the case and under the law, the Commissioner of Income Tax (Appeal) -4, Kanpur erred in confirming the action of the assessing officer to make addition of Rs.7,97,500/- to the income of the appellant by referring to the alleged report from DVO in respect of all the four different properties purchased by the appellant at the market value under four different documents. The addition made is based on surmises, conjectures and on hypothetical observations, the same is bad in law.

That on the facts and in law and under the circumstances, the Commissioner of Income Tax (Appeal)-4, Kanpur erred in confirming the action of the assessing officer to make addition on the plea that the DVO has worked out higher value, while the report is a mere estimate by the DVO. The report of the DO used by the assessing officer to make addition is not only unjustified, unwarranted and bad in law.

That on the facts and in law and under the circumstances, the assessing officer erred in making addition by using the report of the DO which was never confronted to the appellant. No specific notice was issued nor any opportunity was allowed to submit explanations. The addition is based on surmises, conjectures and on hypothetical reasonings.

That the penalty initiated under section 271AAB(1) and thus interest charged under section 234A/B/C is thus illegal and bad in law.

The assessee has raised additional grounds which read as under

The Assessing Officer has erred in law and in facts in invoking the provisions of section 56(2)(vii) of the Act without considering the fact that the property was purchased at the circle rate and there was no understatement whatsoever. Hence, the section, which triggers only if the property is purchased at less than the circle rate, has been wrongly invoked, therefore, the addition of Rs.7,97,500/- deserves to be deleted.

Observation of the court

We have heard both the parties and perused the records. Referring to the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs CIT (229 ITR 383), we admit the additional grounds. Since, the additional grounds goes to the root of the matter, we adjudicate the same first.

Brief facts of the case are that in this case the assessee has purchased four properties at circle rates with his brothers and has 1/4th share in all four properties. The Ld. AO has referred the valuation of the property purchased by the assessee to the Department Valuation Officer and assessed the difference between the purchase price i.e. circle rate/stamp duty value and the value determined by the DVO amounting to Rs.7,97,500/- treated as income of the assessee u/s 56(2)(vii) r.w.s. 69 of the Act.

Now, the additional ground raised by the ld. Counsel for the assessee states that the purchase has been done at circle rate and there is no understatement whatsoever. It is the submission of the ld. Counsel for the assessee that the section i.e. 56(2)(vii) triggers only of the property is purchased at less than the circle rate.