Query on section 56(2)(viib) of IT Act, 1956

Share This Thread
  1. Mayank Bohra

    Mayank Bohra New Member


    My client is an INDIVIDUAL purchased a commercial property in the FY 15-16 for which the consideration was paid in CASH and agreement done on 27.5.15. During filing of return of income for AY 16-17 (due on 17.10.2016), I have raised this point that stamp duty value of teh agreement is more than actual consideration paid so difference needs to be considered as deemed income u.s 56(2)(viib).

    Here the client don't mind treating difference as income as per section 56(2)(viib) and pay taxes however here is a catch.

    The stamp duty value as taken in agreement (on which stamp duty is paid) is just double the actual circle rate. We don't know how the land registration department had come to value double the actual circle rate. While signing the agreement client overlooked the stamp value as taken by the department and no protest was done. In such scenario, what's the right way to proceed from income tax point of view.

    Option A) don't disclose difference as deemed income u/s 56(2)(viib) while filing return of income. If thats the case whether in assessment if the differrence is treated as income, whether cost of acquisition of the property will be revised to actual consideration paid plus difference on account of deemed income now assessed ? Also what will the accounting treatment of such deemed income in normal books of accounting and in which year?

    Option B) If we treat the differnece between the ACTUAL circle rate (substantiated by valuation certificate from local assessor) and consideration paid as income, than the case will for sure be selected for assessment. In such case what are the chances that the no further additions made as ACTUAL circle rate is still lessor than the stamp duty value of the agreement.

    Option 3) What's the best thing to do now when we have to file the return of income for AY 16-17 due on 17.10.16.

    Your replies are really appreciated. Thanking you all in advance. Regards
  2. sai tejesh(ca.final)

    sai tejesh(ca.final) Active Member

    If assessing officer take up this file for scrutiny,then obviously he required the assessee to present the copy of purchase deed.There based on this document, he can invoke S.56(2)(viib) and add the difference amount to income.
    Iam strictly saying we should not go with option - 1 by not offering the difference amount to tax, thinking that let A.O tax this difference amount. Assessing officer will not only tax this amount but also he can invoke S.271(1)(c) and impose concealment penalty on the assessee.
    The best thing we can do is,since the SDV Is much higher than the fair market value we can proceed by obtaining valid certificate from valuation officer and with this certificate assessee can file returns by adopting fair market value and let him pay tax on the difference amount u/s 56(2)(viib).
    Even after,if it is taken up for scrutiny we can convince the A.O by showing this certificate. Of course if A.O do not convince, he can refer this matter to departmental valuation officer U/s 142A.

    Yes,once if FMV is treated as cost of acquisition and paid tax thereon, assessee for the purpose of taxation, he can take this FMV as cost of acquisition at the time of transfer.
    But we will not pass any entries in the books of accounts for this deemed consideration.
Draft saved Draft deleted
Similar Threads Forum Date
Query regarding_Section 54F of Income tax act Income Tax Aug 12, 2017
Query Regarding Section 44AD Income Tax Feb 6, 2017
Section 80DDB query: Depression Income Tax Oct 1, 2016
Query on Section 80CCC and 80CCD Income Tax Feb 11, 2016
Query on section 80CCC & 80CCD Income Tax Jan 31, 2016