The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the assessee failed to prove property as stock in trade with Corroborative Evidence and upheld the applicability of 56(2)(vii)(b) of the Income Tax Act,1961.
Ranjit Shivram Raut, the assessee, engaged in the business of undertaking small civil construction work. For the year under consideration, the assessee filed a return of income on 16/11/2015, declaring a total income of ₹11,43,220/-.
The CIT(A) has noted that the assessee had shown to have income from salary and income from house property. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (‘the Act’) were issued and complied with.
During the assessment proceeding, the Assessing Officer observed that as per the Annual Information Return (AIR) filed by the office of the Sub-Registrar, Vasai, the assessee purchased three plots of land, at Navghar, Talika Vasai, District Vasai (Maharashtra) for total consideration of ₹9 lahks (₹3lahks for each plot) against the fair market value of ₹1,70,91,000/- (₹56,97,000/- foreach plot).
According to the Assessing Officer, the difference amount of ₹1,61,91,000/- was taxable under section 56(2)(vii)(b) of the Income Tax Act. The contention of the assessee that Section 56(2)(vii)(b) of the Act was not applicable being plots purchased were not a capital asset, was rejected by the Assessing Officer.
The Assessing Officer also rejected the contention of the assessee that payments of ₹66 lahks paid by one Shri Rajeev Patil to the seller of the property i.e. M/s United in cash, should be considered as payment made in cash by the assessee for purchase of the property.
The CIT(A) the assessee contested the addition made under section 56(2)(vii)(b) of the Act and also challenged the merit of the addition. It was submitted by the assessee that there was a lot of unauthorized encroachment on the plot of land therefore the market value of the plots was lower and Departmental Valuation Officer did not take those factors into account while determining the fair market value of the three plots at ₹1,25,51,000/-.
The CIT(A) considered the fair market value of the plots determined by the Departmental Valuation Officer (DVO) at ₹1,25,51,000/- and after subtracting the value of ₹9 lakhs declared by the assessee in the registered agreement, sustained the difference amount of ₹1,16,51,000/- as an addition u/s 56(2)(vii)(b) of the Act.
A Coram comprising of Shri Amit Shukla (Judicial Member) and Shri Om Prakash Kant (Accountant Member) viewed that the assessee,before this transaction of purchasewas never engaged in trading plots of land.
The assessee has not demonstrated whether he fulfills the criteria for treating the purchase of three plots as stock in the trade of his business. Merely presumption by the assessee that those three plots were intended for further sale and therefore those were stock in trade is insufficient and has to be proved by way of evidence.
While dismissing the appeal, the Tribunal upheld the order of CIT(A) on the issue in dispute in upholding the applicability of section 56(2)(vii)(b) of the Act in the case of the assessee.
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