Has your client got scrutiny notice for assessment year 2014-15 ? There is great chance that the basis of CASS (Computer Aided Scrutiny Selection) for scrutiny is AIR information about registration of property during FY 2013-14 . One the reason, the government might have selected the case of any property registered in FY 2013-14 is an amendment brought in the Income Tax Act which became effective from 01/04/2014 i.e assessment year 2014-15 under which there is chance for government to garner some revenue from buyers of property .
What is the new law effective from 01/04/2014 ( Asst .Yr 2014-15)?
The new law is provided under section 56(2)(vii)(b) was brought in from assessment year 2014-15 to provide that if you receive a property during the year , its stamp value , if more than the cost price shown in the registries document, will be the deemed as income from other source u/s 56(2)(vii)(b). The provision is given below :
56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :—
……………………
(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—
(a) …………………..
(b) any immovable property,—
(i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:
……..……………………….
So , as an example , if you bought the property in Fy 2011-12 for Rs 50 lakhs and registered the document in Fy 2013-14 , on which the respective state government taook stamp duty valuing your property for Rs 75 lakhs. Then as per section 56(2)(vii)(b) , RS 25 lakhs ( RS 75 lakh minus Rs 50 Lakhs ) will be added as income in your hand for the assessment year 2014-15 .
My property is valued in assessment year 2014-15 when I am registering the document. But I actually bought /booked the flat three years back . At that time the stamp duty was low . Should it not ben considered ?
Yes, the provisio under section 56(2)(vii)( b) provides that in case the buying date is earlier than the registration date , stamp valuation has to be done on the date on which it was bought . But that benefit is allowed to only to that buyer who had paid the amount of consideration or the part thereof by any mode other than cash i.e paid by cheue /draft/ or online transfer.
The relevant proviso is as under :
Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:
Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;
So , for example , you booked the flat with a builder in Fy 2011-12 for Rs 45 Lakh. The first booking amount was paid in Fy 2011-12 Ts 4 lakh by cheque . Say the flat was registered in Fy 2013-14 ( assessment year 2014-15). But the stamp duty valuation in the year Fy 2013-14 was Rs 1.2 Crore.
In this case, as per law , you can claim before A.O that the valuation for the year 2011-12 is applicable because you had made part payment in the year 2011-12 by cheque ( i.e not by cash).
So, the A.O will have to know the stamp duty valuation of property for the year 2011-12 and apply only that.[/infobox]
However , this is highly controversial issue .
If you desire to fight with the department, in my considered opinion , you can win your case if you prove following facts :
(i) you got possession of flat before 01/04/2013 ,
(ii)You made substantial amount of payment of agreed purchase value before possession of flat .
In that case , the condition given in section 2(47) which defines “transfer” is fulfilled . Therefore section 56(2)(vii)(b) which is effective for transfer of capital asset after 01/04/2013 is not applicable to your case .
I have am going to posted a detailed article on this issue alone .
Okay , but the stamp duty valuation , still is much higher than the purchase price . Can I challenge the valuation of the registrar ?
Yes, the provision u/s 56(2) (vii)(b) provides that if you , the buyer , challenges the valuation of the registrar , the A.O will have to seek the valuation from departmental valuer. This is provided under the third proviso to section 56(2)(vii)(b)
Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections
You can request the A.O for referring the valuation of the on the ground that the value adopted or assessed or assessable by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer;
If the higher stamp duty valuation is adopted and certain amount is added as Income From Other Sources, will you get benefit of its deduction from sale value , when you actually sale the property ?
Yes, it is provided under section 49(4) of the Income Tax Act that whatever value is adopted for the purpose of section 56(2)(vii) , shall be deemed as cost of the capital asset . Read the excerpt:
[infobox style=”alert-info”]For example , if you bought the flat for Rs 50 lakh and stamp valuation is Rs 70 Lakh . Say, in your assessment Rs 20 Lakh was added u/s 56(2)(vii)(b) . Then the property was sold in FY 2019-2020, then In FY 2019-20 , the capital gains will be computed by taking Rs 70 lakhs as cost as per section 49(4) . Appropriate indexation is done on that price .(4) Where the capital gain arises from the transfer of a property, the value of which has been subject to income-tax under clause (vii) or clause (viia)of sub-section (2) of section 56, the cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of the said clause (vii) or clause (viia).
Is this provision u/s 56(2)(vii)(b) of adding difference between stamp value and actual price taking deemed consideration applicable to company ?
No , section 56(2)(vii) only affects Individual and HUF . This is clear from the start of the provision which says 56(2)(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—
So, neither company nor trust or firm are affected by this bizarre law. Individual and HUF are unfortunate persons who are affected because of this law.
Say I booked the flat by payment by cheque in Fy 2011-12 (assessment year 2012-13) and the flat was registered in Fy 2013-14 (asst. year 2014-15) . If the valuation of FY 2011-12 is adopted and difference is added , in which year the addition will be made-in asst. yr 2014-15 or assessment year 2012-13) ?
The provision u/s 56(2)(vii)(b) has been brought in statute in Fy 2013-14 and it provides that for the purpose of determining the deemed consideration as stamp value, the year in which part payment by cheque was made can be taken.
So, the assessment year of addition is the one in which registration of property was done .