Homebuyer Wins Tax Relief as ITAT Mumbai Rejects Rs 18 Lakh Income Addition

On December 16, 2025, the Income Tax Appellate Tribunal (ITAT) Mumbai granted relief to Mr. Naik from Bhandup, regarding an income addition made by the tax department under Section 56(2)(vii)(b). The tax department had added Rs 18.95 lakh to his income due to a significant difference between the agreement value and stamp duty value of the property purchased by Naik.

To summarize the case, the Income Tax Department received specific information from their risk management system that Mr. Naik had purchased a property in Bhandup for Rs 81.8 lakh but no income tax return (ITR) was filed by him. Subsequently, Mr. Naik was sent a tax notice under Section 148 on March 13, 2023, under the new regime of reassessment introduced by the Finance Act, 2021.

When the tax department asked him to explain the details of this property purchase, Mr. Naik provided a copy of the purchase agreement and bank statements. From the documents he submitted, the income tax officer noted that the agreement value of the property is Rs 62,88,500, while the stamp duty value is recorded at Rs 81,80,500. Therefore, the difference of Rs 18,95,000 was proposed to be added under Section 56(2)(x) through a draft order under Section 144C(1).

Naik decided to fight against this income addition, and on December 16, 2025, the ITAT Mumbai ruled in Naik’s favor. He was represented by Chartered Accountant Manisha Thakkar.

Chartered Accountant Suresh Surana explained to ET Wealth Online, 'The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT/Tribunal) has allowed the appeal filed by the assessee (Mr. Naik) for Assessment Year (AY) 2016–17 and deleted an addition of Rs 18.95 lakh made under Section 56(2)(vii)(b) of the Income-tax Act, 1961, relating to the purchase of a residential flat in Mumbai.'

Section 56(2)(vii)(b) provides that where an individual or a HUF acquires immovable property for a consideration lower than the stamp duty value by more than Rs 50,000, the difference is taxable. However, if the agreement date and registration date differ, the stamp duty value as on the agreement date may be adopted, provided the consideration, wholly or partly, is paid through non-cash modes on or before the agreement date.

Surana noted that the assessee had booked a flat pursuant to an allotment letter dated September 29, 2010, issued by the builder, which fixed the consideration at Rs. 62.88 lakhs and set out a detailed payment schedule. Part consideration was paid through account-payee cheques prior to the date of the allotment letter. The registered sale deed, however, was executed much later on March 18, 2016, by which time the stamp duty value had increased to Rs 81.8 lakh. The AO treated the difference of Rs 18.95 lakh as taxable income under Section 56(2)(vii)(b), contending that only the registered sale deed constituted a valid agreement.

According to Surana, the Tribunal examined the allotment letter, bank statements evidencing non-cash payments, and other supporting documents, and held that the allotment letter satisfied all the essential elements of a valid and binding contract under the Indian Contract Act, 1872, including offer and acceptance, mutual consent, consideration, legal capacity, and lawful object. It was observed that the allotment letter specifically identified the flat, fixed the consideration, prescribed payment terms, and conferred enforceable rights on the assessee (Mr. Naik).

The Tribunal further held that the provisos to Section 56(2)(vii)(b) are intended to mitigate hardship arising from a time gap between the agreement fixing consideration and the subsequent registration, particularly in under-construction properties. Since the assessee had entered into an agreement fixing the consideration on September 29, 2010, and had paid part consideration through non-cash modes on or before that date, the stamp duty value as on the date of the allotment letter was required to be adopted.

S. Sriram, Executive Partner at Lakshmikumaran & Sridharan attorneys, explained to ET Wealth Online, 'Broadly, where any immovable property is purchased at a price less than the Ready Reckoner value maintained for the purpose of collection of stamp duty, the purchaser of the property is liable to tax on the difference between the (A) Reckoner value, and (B) actual consideration paid.'

According to Sriram, disputes often arise as to the date on which Reckoner value has to be considered for the purpose of this comparison. The statute itself provides that the Reckoner value on the date of the agreement to purchase the property is to be compared with the actual consideration. The next level of litigation then started on what is the date of agreement—where immovable properties take more than 5 years sometimes to be constructed, the parties enter into various agreements. The initial agreement would be to decide the flat (area and dimensions), then on the price and payment schedule, then a formal agreement that would be registered with the stamp authorities, then a formal conveyance of the property.

The ITAT Mumbai has, in this judgment, indicated that, for the purpose of Sec. 56(2)(x), one has to look at the date of the agreement by which the consideration for the property was agreed to (the allotment letter in this case), and not the date on which the formal agreement to purchase was executed between the parties. The only learning from the facts around this judgment is that, to the extent possible, execute a formal agreement and have it registered as close as possible to the date on which the consideration for the property is agreed to between the parties.

ITAT Mumbai in its judgment (ITA No. 2027/MUM/2025) dated December 16, 2025, said that from the Dispute Resolution Panel (DRP) order, they note that DRP observed that the allotment letter issued by the builder is not an agreement in terms of proviso to Section 56(2)(x)/56(2)(vii)(b) and thus, concluded that the allotment letter cannot be claimed to be an agreement. DRP thus rejected Naik’s objections and directed the addition of Rs 18,95,000 under Section 56(2)(vii)(b), since, according to DRP, the only agreement in existence is the registered sale agreement dated March 17, 2016.

ITAT Mumbai said that they have carefully reviewed the documentary evidence placed on record, which includes the allotment letter, bank statements, evidencing the part payments made by Naik at the time of booking and prior to the registered sale agreement executed in the year 2016.

The proviso to Section 56(2)(x)/56(2)(vii)(b) in explicit terms mentions the value which needs to be considered where an agreement is entered into by the assessee for an immovable property which fixes the amount of consideration and is registered subsequently at a later date. These provisos mitigate the hardship which may arise for the assessee on account of an increase in the stamp duty value owing to the passage of time, required for the construction of the immovable property or for such other similar reasons which lead to a time gap between the agreement entered into by the assessee and the actual registration taking place in the name of the assessee.

In the present case before ITAT Mumbai, Naik has evidentially demonstrated by placing bank statements and other relevant documents that all these requirements in the provisos to the said Section have been duly complied with.

The DRP observed that the letter of allotment issued by the builder is not an 'agreement' in terms of the proviso to the said Section. ITAT Mumbai, however, said that they have gone through the allotment letter which prescribed all the terms and conditions agreed upon by the builder and Mr. Naik and also fixes the amount of consideration and the payment schedule.