The DRP has refused my client's alternative plea for the section 49(4) cost step-up because it was not made in the return, citing Goetze. Is that the end of it?
No. The Tribunal directed the Assessing Officer to recompute the capital gain in accordance with section 49(4), notwithstanding that the DRP had rejected the same plea on the footing that additional cost of acquisition could only be claimed through the return of income. Where the officer has taken a particular value into account for the section 56(2)(vii)(b) addition, that value is the deemed cost of acquisition and the capital gain must be recomputed on it.
Decided by the ITAT (Smt Beena Pillai, Judicial Member and Ms Padmavathy S, Accountant Member) on 2025-01-17, reported as I.T.A. No. 5990/Mum/2024 (ITAT Mumbai, 'I' Bench). It bears on section 49(4), section 56(2)(vii)(b), section 147, section 148, section 144C(13), section 234A, section 234B, section 234C of the Income Tax Act 1961, in Capital Gains, Gifts, Shares & Angel Tax and Assessment & Scrutiny matters.
This is the working authority for the section 49(4) claim, and it is useful precisely because the taxpayer lost every other point. The assessee did not press the challenge to the section 56(2)(vii)(b) addition itself; grounds 1 to 3 were dismissed as not pressed. What he got was the arithmetic correction, and he got it although the plea had been rejected once by the DRP on Goetze grounds and then again on a rectification petition. The facts are also the cleanest possible illustration of the double-tax problem: the flat was bought and sold in the same financial year, so the same Rs 45,62,270 would otherwise have been taxed once as income from other sources and once inside the short-term capital gain. Practitioners should note the limit — this is a Tribunal order, the reasoning is short, and the Bench did not discuss Goetze at all, so the Revenue may still argue the point in a case where the claim is made for the first time before the Tribunal rather than before the DRP.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, an individual assessed by the Income Tax Officer (International Taxation), did not file a return for AY 2014-15. On information about financial transactions the Assessing Officer issued a notice under section 148, and the assessee filed a return declaring Rs 51,67,901. During the year the assessee had purchased Flat No. 1501, Aspean Mahindra Eminente, Goregaon (West), Mumbai for Rs 1,76,98,200 when the stamp duty value was Rs 2,22,60,470, and had sold the same flat during the same year for Rs 2,33,00,000, offering a short-term capital gain of Rs 44,58,300 after a cost of acquisition of Rs 1,88,41,700 including stamp duty and registration charges. The Assessing Officer added the difference of Rs 45,62,270 under section 56(2)(vii)(b). The assessee's contention that the stamp duty value at the time of booking, five years earlier, should be taken was rejected. Before the DRP the assessee raised a without-prejudice objection that if the addition stood, the same amount should be added to the cost of acquisition under section 49(4). The DRP upheld the addition and gave no finding on the alternative plea; on a rectification petition (directed by the Tribunal's earlier order of 26 September 2023 in ITA No. 646/Mum/2023) the DRP dismissed it, holding that additional cost of acquisition could be claimed only through the return of income, relying on Goetze (India) Ltd. v. CIT. Grounds 1 to 3 were dismissed as not pressed; only ground 4, the section 49(4) plea, was argued.
The alternative plea was allowed and the appeal partly allowed. The value of Rs 2,22,60,470 having been taken into account by the Assessing Officer for the addition under section 56(2)(vii)(b), that amount is to be considered as the cost of acquisition, and the Assessing Officer was directed to recompute the capital gain in accordance with section 49(4) (para 8). Ground 5 on interest under sections 234A, 234B and 234C was consequential (para 9), and the appeal was partly allowed (para 10).
The Bench set out section 49(4) in terms at para 7 and decided the point on its plain reading (para 8): where a value has been subjected to income-tax under clause (vii) of section 56(2) — which includes sub-clause (b) — that value is to be taken as the cost of acquisition. Since the officer had used Rs 2,22,60,470 to make the addition, there was merit in the plea that the same amount be treated as the cost of acquisition against the sale consideration, and the recomputation was directed. The Bench did not address the DRP's reliance on Goetze (India) Ltd.
We therefore, direct the AO to recomputed the capital gain in the hands of the assessee in accordance with provisions of section 49(4) of the Act.
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Handle my notice → Ask a CA on WhatsAppNo. The Tribunal directed the Assessing Officer to recompute the capital gain in accordance with section 49(4), notwithstanding that the DRP had rejected the same plea on the footing that additional cost of acquisition could only be claimed through the return of income. Where the officer has taken a particular value into account for the section 56(2)(vii)(b) addition, that value is the deemed cost of acquisition and the capital gain must be recomputed on it. This was decided by the ITAT (Smt Beena Pillai, Judicial Member and Ms Padmavathy S, Accountant Member) and bears on section 49(4), section 56(2)(vii)(b), section 147, section 148, section 144C(13), section 234A, section 234B, section 234C of the Income Tax Act 1961. It is reported as I.T.A. No. 5990/Mum/2024 (ITAT Mumbai, 'I' Bench). This is the working authority for the section 49(4) claim, and it is useful precisely because the taxpayer lost every other point. The assessee did not press the challenge to the section 56(2)(vii)(b) addition itself; grounds 1 to 3 were dismissed as not pressed. What he got was the arithmetic correction, and he got it although the plea had been rejected once by the DRP on Goetze grounds and then again on a rectification petition. The facts are also the cleanest possible illustration of the double-tax problem: the flat was bought and sold in the same financial year, so the same Rs 45,62,270 would otherwise have been taxed once as income from other sources and once inside the short-term capital gain. Practitioners should note the limit — this is a Tribunal order, the reasoning is short, and the Bench did not discuss Goetze at all, so the Revenue may still argue the point in a case where the claim is made for the first time before the Tribunal rather than before the DRP. If it applies to you, the first step is this: Raise the section 49(4) relief as an express, separately numbered ground before the DRP or the CIT(A) — here it survived because it had been raised there, even though it was rejected.
The assessee, an individual assessed by the Income Tax Officer (International Taxation), did not file a return for AY 2014-15. On information about financial transactions the Assessing Officer issued a notice under section 148, and the assessee filed a return declaring Rs 51,67,901. During the year the assessee had purchased Flat No. 1501, Aspean Mahindra Eminente, Goregaon (West), Mumbai for Rs 1,76,98,200 when the stamp duty value was Rs 2,22,60,470, and had sold the same flat during the same year for Rs 2,33,00,000, offering a short-term capital gain of Rs 44,58,300 after a cost of acquisition of Rs 1,88,41,700 including stamp duty and registration charges. The Assessing Officer added the difference of Rs 45,62,270 under section 56(2)(vii)(b). The assessee's contention that the stamp duty value at the time of booking, five years earlier, should be taken was rejected. Before the DRP the assessee raised a without-prejudice objection that if the addition stood, the same amount should be added to the cost of acquisition under section 49(4). The DRP upheld the addition and gave no finding on the alternative plea; on a rectification petition (directed by the Tribunal's earlier order of 26 September 2023 in ITA No. 646/Mum/2023) the DRP dismissed it, holding that additional cost of acquisition could be claimed only through the return of income, relying on Goetze (India) Ltd. v. CIT. Grounds 1 to 3 were dismissed as not pressed; only ground 4, the section 49(4) plea, was argued. The matter was decided on 2025-01-17 by the ITAT (Smt Beena Pillai, Judicial Member and Ms Padmavathy S, Accountant Member). On those facts the ITAT held as follows. The alternative plea was allowed and the appeal partly allowed. The value of Rs 2,22,60,470 having been taken into account by the Assessing Officer for the addition under section 56(2)(vii)(b), that amount is to be considered as the cost of acquisition, and the Assessing Officer was directed to recompute the capital gain in accordance with section 49(4) (para 8). Ground 5 on interest under sections 234A, 234B and 234C was consequential (para 9), and the appeal was partly allowed (para 10).
The Bench set out section 49(4) in terms at para 7 and decided the point on its plain reading (para 8): where a value has been subjected to income-tax under clause (vii) of section 56(2) — which includes sub-clause (b) — that value is to be taken as the cost of acquisition. Since the officer had used Rs 2,22,60,470 to make the addition, there was merit in the plea that the same amount be treated as the cost of acquisition against the sale consideration, and the recomputation was directed. The Bench did not address the DRP's reliance on Goetze (India) Ltd. In the words reproduced by the source cited on this page: "We therefore, direct the AO to recomputed the capital gain in the hands of the assessee in accordance with provisions of section 49(4) of the Act."
It was decided by the ITAT on 2025-01-17 and is reported as I.T.A. No. 5990/Mum/2024 (ITAT Mumbai, 'I' Bench). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 49(4), section 56(2)(vii)(b), section 147, section 148, section 144C(13), section 234A, section 234B, section 234C, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The alternative plea was allowed and the appeal partly allowed. The value of Rs 2,22,60,470 having been taken into account by the Assessing Officer for the addition under section 56(2)(vii)(b), that amount is to be considered as the cost of acquisition, and the Assessing Officer was directed to recompute the capital gain in accordance with section 49(4) (para 8). Ground 5 on interest under sections 234A, 234B and 234C was consequential (para 9), and the appeal was partly allowed (para 10). It arises in Capital Gains, Gifts, Shares & Angel Tax and Assessment & Scrutiny matters, on section 49(4), section 56(2)(vii)(b), section 147, section 148, section 144C(13), section 234A, section 234B, section 234C of the Income Tax Act 1961, and was decided by Smt Beena Pillai, Judicial Member and Ms Padmavathy S, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Set out in the ground itself the exact figure the officer 'took into account' for the section 56 charge, and the recomputed capital gain, so the direction to the Assessing Officer is capable of being executed without a further round. Where the purchase and sale fall in the same previous year, plead the double taxation expressly — the Tribunal's direction here followed from the plain reading of section 49(4) against those facts. Do not rely on this order to resist the section 56(2)(vii)(b) addition itself; that ground was not pressed and the order decides nothing about it.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later decision citing this order has been found, and no other record under the assessee's name. The alternative plea allowing a cost step-up under s.49(4) has not been taken up, approved or questioned anywhere since, and no High Court appeal has been traced. That silence matters more than usual, because the order is short and the point was not fully argued. The Bench set out s.49(4) at paragraph 7 and decided the point on its plain reading at paragraph 8: where a value has been subjected to income-tax under clause (vii) of s.56(2), that value is to be taken as the cost of acquisition. Since the officer had used Rs 2,22,60,470 to make the addition, the same amount was directed to be treated as the cost of acquisition and the capital gain recomputed. The Bench did not address the Dispute Resolution Panel's reliance on Goetze (India) Ltd., which is the objection the Revenue will make again, so a Bench faced with that argument squarely is not answered by this order. Two further limits. This is a Tribunal order and it binds nobody outside the case. And it decides nothing about the s.56(2)(vii)(b) addition itself: grounds 1 to 3 were dismissed as not pressed, so the assessee lost or abandoned every other point and what he obtained was an arithmetic correction. For a year governed by the Income-tax Act 2025 the successors of s.49(4) and of the charge now in s.56(2)(x) should be identified before the plea is taken; that correspondence has not been established here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
ON THE ORDER. It runs to ten numbered paragraphs and ends with the disposal at paragraph 10. The reasoning is at paragraphs 7 and 8; paragraph 9 records that the ground on interest under ss.234A, 234B and 234C is consequential. ON ONE SENTENCE THAT IS NOT QUOTED. The sentence in paragraph 8 recording what the assessee sought exists in two renderings - one reading 'the said amount should be considered as the cost of acquisition to be claimed as a deduction against the sale consideration' and the other 'to be claimed against the sale consideration'. Because the two differ, that sentence is not quoted on this page. The sentence used as the quotation, the direction to the Assessing Officer, is identical in both. ON THE CLAUSE. The year is assessment year 2014-15, so the charge is under clause (vii)(b) of s.56(2) and not under clause (x). Section 49(4) covers clauses (vii), (viia) and (x) alike, so the reasoning carries to a clause (x) case, but the order itself is about clause (vii)(b) and should be cited as such. WHY THE FACTS ARE UNUSUALLY CLEAN, and why that matters to how far the order travels. The flat was bought and sold in the same financial year: purchased for Rs 1,76,98,200 when the stamp duty value was Rs 2,22,60,470, and sold during the same year for Rs 2,33,00,000, with a short-term capital gain of Rs 44,58,300 offered after a cost of acquisition of Rs 1,88,41,700 including stamp duty and registration charges. The addition of Rs 45,62,270 under s.56(2)(vii)(b) would otherwise have been taxed twice over - once as income from other sources and once inside the capital gain. A case where the purchase and the sale fall in different years raises the same point but not the same vividly double charge in one assessment. HOW THE PROCEEDING AROSE, because it explains the posture. The assessee, an individual assessed in international taxation, filed no return for the year. On information about financial transactions the Assessing Officer issued a notice under s.148 and the assessee then filed a return declaring Rs 51,67,901. The contention that the stamp duty value at the time of booking, five years earlier, should be taken was rejected, and that rejection was not carried further. So the only live question by the time the Tribunal heard the appeal was the cost step-up. ON WHAT SAVED THE PLEA. It had been raised before the Dispute Resolution Panel as a without-prejudice objection, even though it was rejected there and again on a rectification petition. Raise it as an express, separately numbered ground at the first opportunity. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The alternative plea was allowed and the appeal partly allowed. The value of Rs 2,22,60,470 having been taken into account by the Assessing Officer for the addition under section 56(2)(vii)(b), that amount is to be considered as the cost of acquisition, and the Assessing Officer was directed to recompute the capital gain in accordance with section 49(4) (para 8). Ground 5 on interest under sections 234A, 234B and 234C was consequential (para 9), and the appeal was partly allowed (para 10).
TaxSphere, “Ravi Ramakrishnan v ITO (International Taxation) — the section 56(2)(vii)(b) addition must be added back as cost under section 49(4), even though it was never claimed in the return”, https://taxnotice.vittsphere.com/caselaw/case/ravi-ramakrishnan-v-ito-49-4-cost-step-up-allowed-as-alternative-plea/ (validity last checked 2026-09-08)
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I am arguing that a section 56(2)(vii)(b) addition on land my client bought below circle rate produces double taxation. How is the department going to answer that?
The Assessing Officer has charged my client under section 56(2)(x) on the stamp-duty difference. When he sells the property, does he pay capital gains on that same amount all over again?
My client, a farmer, bought agricultural land well below circle rate with his land-acquisition compensation. The officer has added the difference under section 56(2)(vii)(b). Is agricultural land within the charge at all?
Property came to me under a family settlement but the instrument was a gift deed. Is that taxable under s.56(2)?
