Section 56(2)(x) Not Attracted If Property Held As Stock-in-Trade: ITAT Mumbai Remands ₹18.48 Cr Addition

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has set aside an income tax addition of over ₹18.48 crore made under Section 56(2)(x) of the Income Tax Act, 1961, and remanded the matter back to the Assessing Officer to verify whether the disputed immovable property was held as stock-in-trade by the assessee. A Bench comprising Judicial Member Rahul Chaudhary and Accountant Member Om Prakash Kant was hearing the appeal filed by an individual assessee for Assessment Year 2020-21 against an order of the National Faceless Appeal Centre (NFAC), which had upheld the addition made by the Assessing Officer. The case in hand arose from the purchase of land situated at Dahisar, Mumbai. The Assessing Officer noted that while the conveyance deed executed in September 2019 recorded consideration of about ₹8.70 crore, the stamp duty value of the property was ₹27.19 crore. Treating the difference as income, the Assessing Officer added ₹18.48 crore under Section 56(2)(x). The assessee contended that the land had originally been acquired through a partnership firm engaged in real estate development and was consistently reflected as stock-in-trade in the books. It was argued that Section 56(2)(x), being an anti-abuse provision, does not apply to business assets held as stock-in-trade. However, the CIT(A) rejected these submissions and confirmed the addition, holding that the benefit of earlier agreements and business characterization could not be extended to the present transaction. The ITAT noted that coordinate benches have consistently held that Section 56(2)(x) cannot be invoked where immovable property is held as stock-in-trade, and relied on earlier decisions to that effect. On examining the balance sheet, the Bench found that the property in question was reflected under “Other Current Assets” and not as a capital asset. The Bench also observed that neither the Assessing Officer nor the CIT(A) had recorded a clear factual finding on whether the property was indeed held as stock-in-trade. The Bench remanded the issue to the Assessing Officer with specific directions to verify the assessee's financial statements and determine the true nature of the asset. The Bench clarified that if, upon verification, the property is found to be stock-in-trade, no addition under Section 56(2)(x) can be made. Accordingly, the addition of ₹18.48 crore was set aside. In view of the above, the Bench partly allowed the appeal for statistical purposes, with the matter sent back to the Assessing Officer for fresh adjudication limited to the issue of characterization of the property. Case Title: Ketan Himatlal Mehta Vs. Deputy Commissioner of Income Tax 1(1)(!), Mumbai Case Title: ITA No. 2499/Mum/2024 A.Y. 2020-21 Appearance for Assessee: Shri Rakesh Joshi Appearance for Department: Shri Pravin Salunkhe Click Here To Read/Download Order

Section 56(2)(x) Not Attracted If Property Held As Stock-in-Trade: ITAT Mumbai Remands ₹18.48 Cr Addition

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Section 56(2)(x) Not Attracted If Property Held As Stock-in-Trade: ITAT Mumbai Remands ₹18.48 Cr Addition

Rajnandini Dutta

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