The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ) invalidated the deemed gift addition made under Section 56(2)(vii)(b)(ii) of the Income Tax Act,1961, emphasizing that an allotment letter issued by a developer constitutes a valid agreement for the purpose of assessing such gifts.
Tamojit Das,the appellant-assessee,had filed his return of income on August 31, 2015, declaring a total income of ₹7,27,020. His case was selected for scrutiny, during which the Assessing Officer discovered that he had purchased a residential flat jointly with his wife, declaring a value of ₹24,05,715 against a stamp duty valuation of ₹38,74,500. The difference of ₹14,68,785 was treated as a deemed gift.
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Despite the appellant-assessee presenting evidence, including a booking receipt and allotment letter from Greenfield City Project LLP, the Assessing Officer(AO) dismissed this as an agreement. Following an unsuccessful application under Section 154 to rectify the assessment, the assessee appealed to the Commissioner of Income Tax(Appeals)[ CIT(A)], which was also dismissed.
Upon review by the tribunal, it was emphasized that the allotment letter should indeed be treated as an agreement. It noted that the assessee had made payments through account payee cheques, thus establishing the legitimacy of the allotment. Furthermore, it pointed out that the valuation date for any deemed gift should be when the first payment was made, which occurred in June 2010, rather than the registration date of October 28, 2014.
The bench referenced Central Board of Direct Taxes(CBDT) Circular No. 872, which clarified that allotment letters issued by developers or cooperative societies should be recognized as agreements for purchase purposes. This circular established that such letters were considered valid for determining capital gains and other tax implications, promoting fairness in taxation for homebuyers.
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The two-member bench comprising Rajpal Yadav (Vice-President) and Rakesh Mishra (Accountant Member) concluded that the allotment letter in this case constituted a valid agreement, aligning with the provisions of the Income Tax Act. Thus, the addition made under Section 56(2)(vii)(b)(ii) was invalidated, and the appeal was allowed, resulting in the deletion of the addition.
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