Section 56(2)(vii)(b)(ii) Not Applicable Before 2014: ITAT Ruling

The Income Tax Appellate Tribunal (ITAT), Lucknow Bench, has delivered a crucial judgment on the scope of Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961. The Tribunal clarified that the provision is prospective in nature and applies only to property transactions made on or after 1 April 2014.

Accordingly, the ITAT set aside the addition of ₹29.65 lakh made to the income of the assessee, Smt. Vimla Tripathi, in relation to a land purchase made before the provision’s effective date.

Case Background

• The assessee, Smt. Vimla Tripathi, filed her return of income for AY 2013-14 declaring ₹1,93,140.

• She and Shri Siddha Kumar Tripathi jointly purchased agricultural land for ₹12,00,000.

• The stamp duty value of the land was ₹71,30,000.

• The Assessing Officer (AO) treated the difference (₹59,30,000) as deemed income under Section 56(2)(vii)(b)(ii).

• Half of this difference (₹29.65 lakh) was added to the assessee’s taxable income.

The CIT(A), NFAC upheld this addition. The assessee then appealed before the ITAT, Lucknow Bench.

Arguments Before the Tribunal

Assessee’s Arguments

1. Prospective Law: Section 56(2)(vii)(b)(ii) was inserted with effect from 1 April 2014 and could not apply retrospectively to her purchase made in August 2012.

2. Agricultural Land Exclusion: Agricultural land is not a capital asset under certain provisions and should not be covered.

3. Valid Consideration Paid: ₹6 lakh was paid from her bank account, and the registered sale deed supported the transaction, disproving the claim of “no consideration.”

Revenue’s Arguments

1. Supported the orders of the AO and CIT(A).

2. Claimed that the addition was valid under Section 56(2)(vii)(b)(ii).

ITAT’s Observations

• Provision Prospective, Not Retrospective: The Tribunal held that Section 56(2)(vii)(b)(ii) is applicable only to transactions on or after 1 April 2014. Since the assessee purchased land on 1 August 2012, the addition had no legal basis.

• Proof of Payment: The sale deed and bank statements confirmed that consideration was paid. The Revenue’s allegation of “without consideration” was invalid.

• Deletion of Addition: The ITAT directed the deletion of the addition of ₹29.65 lakh.

Thus, the appeal was partly allowed in favour of the assessee.

Key Takeaways

1. Section 56(2)(vii)(b)(ii) is not retrospective – it applies only from 1 April 2014.

2. Agricultural land transactions with valid payment before this date cannot be taxed under this provision.

3. Documentary evidence like sale deeds and bank records are critical to defend against arbitrary additions.

4. The ruling brings clarity and relief for taxpayers who purchased property before the law came into force.

FAQs

Q1. What does Section 56(2)(vii)(b)(ii) cover?
It taxes immovable property received for less than its stamp duty value, treating the difference as income for the buyer.

Q2. Is the section retrospective?
No, it applies only to transactions on or after 1 April 2014.

Q3. Why was the addition of ₹29.65 lakh deleted?
Because the land was purchased in 2012 (before the law came into effect) and valid consideration was proved through documents.

Q4. What is the significance of this ruling?
It safeguards taxpayers from retrospective tax applications and ensures fairness in property transaction taxation.

Q5. Does this apply to all types of land?
The judgment was specifically on agricultural land, but the principle applies broadly to immovable property purchased before 1 April 2014.

Conclusion

The ITAT Lucknow Bench’s decision in the case of Smt. Vimla Tripathi is a landmark ruling clarifying that Section 56(2)(vii)(b)(ii) cannot be applied retrospectively. The judgment highlights that property purchases before 1 April 2014 are outside its scope, ensuring protection for taxpayers against unfair additions.

By emphasizing the importance of documentary evidence and fair interpretation of tax law, this ruling brings much-needed relief and sets a precedent for similar disputes.