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?
With section 49(4). The Ahmedabad Bench dismissed the assessee's appeal, holding that section 49(4) clearly provides that the benefit of the inflated cost of acquisition arising from the deeming provision in section 56(2)(vii)(b)(ii) will be available at the time of sale of the asset, so the capital gain will be reduced to that extent. The Bench also held that section 56(2)(vii)(b)(ii) applies from AY 2014-15 and therefore governs transactions of FY 2013-14.
Decided by the ITAT (Shri Rajpal Yadav, Judicial Member and Shri Pradip Kumar Kedia, Accountant Member) on 2019-09-11, reported as I.T.A. No. 2849/Ahd/2017 (ITAT Ahmedabad). It bears on section 56(2)(vii)(b), section 49(4), section 54B, section 2(14), section 50C, section 150(1), section 153(6) of the Income Tax Act 1961, in Capital Gains, Gifts, Shares & Angel Tax and Evidence & Burden of Proof matters.
Carry this one because it is the Revenue side of the same coin as Ravi Ramakrishnan, and because it shows what a hardship or double-taxation argument is actually worth against section 56(2)(x): nothing, once the officer points to section 49(4). It also disposes of the recurring commencement argument — that a clause inserted 'with effect from 1 April 2014' should only reach transactions after that date — by holding that a provision applicable from AY 2014-15 applies to the previous year 2013-14. Two further practical lessons: the assessee's late attempt to argue that the land was rural agricultural land, and so outside the definition of capital asset, failed only because it was raised for the first time before the Tribunal with no findings below (para 10) and the Rule 29 petition to admit evidence was refused (para 7) — that same argument, properly taken before the Assessing Officer, is what succeeds in the agricultural-land line of cases.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For AY 2014-15 the assessee purchased agricultural land. The Assessing Officer compared the purchase price with the stamp duty valuation and added the difference under section 56(2)(vii)(b)(ii) in proportion to the assessee's share in the land holding. Before the Assessing Officer the assessee had argued that the addition under section 56(2)(vii) has a direct linkage with the cost of the asset and that his exemption under section 54B against land sold should therefore be increased to that extent by force of section 49(4) read with section 54B (para 2.3). The CIT(A) dismissed the first appeal, holding that the amount added under section 56(2)(vii)(b) would be available in a later year under section 49(4) when the land purchased is transferred, and refusing any enhanced section 54B deduction in the year under appeal. Before the Tribunal the assessee filed a petition under Rule 29 of the ITAT Rules with an affidavit to admit additional evidence in support of a wholly new plea that the lands purchased were rural agricultural lands excluded from the definition of capital asset under section 2(14), and also argued that section 56(2)(vii)(b)(ii) came into force with effect from 1 April 2014 and so operated only prospectively, and that part of the land was purchased in July 2014 falling in AY 2015-16.
The appeal was dismissed. The Rule 29 petition was refused for want of any cogent reason why the facts were not placed before the lower authorities and because the plea required factual verification after more than five years (para 7). On the merits, no infirmity was found in the CIT(A)'s order: section 49(4) provides that the benefit of the inflated cost of acquisition arising from the deeming provision in section 56(2)(vii)(b)(ii) will be available at the time of sale of the asset and the capital gain will be reduced accordingly, and the CIT(A) had given appropriate relief in that regard. The new plea that the land was rural land was declined for want of findings below, and the contention that the clause did not apply to FY 2013-14 was rejected — the provision applies from AY 2014-15 and therefore to transactions of FY 2013-14 as the legislature intended (para 10). The further plea that one parcel was bought in the following financial year was also declined as new (para 11).
The Tribunal reproduced the CIT(A)'s appellate order in full at its paragraph 2, and it is the CIT(A), at his own paragraph 2.4 as reproduced there, who sets out sub-section (4) of section 49 and reasons that the cost step-up is available to the buyer only when the property is later transferred as a capital asset. The Tribunal's own reasoning is at para 10. Against that, an assessee taxed under section 56(2)(vii)(b)(ii) is not taxed twice: the deemed value becomes his cost, and the capital gain on a later sale falls to the same extent. That reasoning, together with the CIT(A) having already given effect to it, disposed of the merits. The commencement point was decided on the ordinary rule that a provision applicable from an assessment year governs the previous year corresponding to it. The two new pleas were shut out on the Rule 29 threshold rather than on their substance.
Section 49(4) of the Act clearly provides that the benefit of the inflated cost of acquisition in view of the deeming provisions under s. 56(2)(vii)(b)(ii) of the Act would be available at the time of sale of the asset and capital gains will be accordingly reduced to the extent of such increase in deemed consideration.
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Handle my notice → Ask a CA on WhatsAppWith section 49(4). The Ahmedabad Bench dismissed the assessee's appeal, holding that section 49(4) clearly provides that the benefit of the inflated cost of acquisition arising from the deeming provision in section 56(2)(vii)(b)(ii) will be available at the time of sale of the asset, so the capital gain will be reduced to that extent. The Bench also held that section 56(2)(vii)(b)(ii) applies from AY 2014-15 and therefore governs transactions of FY 2013-14. This was decided by the ITAT (Shri Rajpal Yadav, Judicial Member and Shri Pradip Kumar Kedia, Accountant Member) and bears on section 56(2)(vii)(b), section 49(4), section 54B, section 2(14), section 50C, section 150(1), section 153(6) of the Income Tax Act 1961. It is reported as I.T.A. No. 2849/Ahd/2017 (ITAT Ahmedabad). Carry this one because it is the Revenue side of the same coin as Ravi Ramakrishnan, and because it shows what a hardship or double-taxation argument is actually worth against section 56(2)(x): nothing, once the officer points to section 49(4). It also disposes of the recurring commencement argument — that a clause inserted 'with effect from 1 April 2014' should only reach transactions after that date — by holding that a provision applicable from AY 2014-15 applies to the previous year 2013-14. Two further practical lessons: the assessee's late attempt to argue that the land was rural agricultural land, and so outside the definition of capital asset, failed only because it was raised for the first time before the Tribunal with no findings below (para 10) and the Rule 29 petition to admit evidence was refused (para 7) — that same argument, properly taken before the Assessing Officer, is what succeeds in the agricultural-land line of cases. If it applies to you, the first step is this: Do not run 'double taxation' as a standalone ground against a section 56(2)(x) or 56(2)(vii)(b) addition; it is answered by section 49(4) and costs credibility.
For AY 2014-15 the assessee purchased agricultural land. The Assessing Officer compared the purchase price with the stamp duty valuation and added the difference under section 56(2)(vii)(b)(ii) in proportion to the assessee's share in the land holding. Before the Assessing Officer the assessee had argued that the addition under section 56(2)(vii) has a direct linkage with the cost of the asset and that his exemption under section 54B against land sold should therefore be increased to that extent by force of section 49(4) read with section 54B (para 2.3). The CIT(A) dismissed the first appeal, holding that the amount added under section 56(2)(vii)(b) would be available in a later year under section 49(4) when the land purchased is transferred, and refusing any enhanced section 54B deduction in the year under appeal. Before the Tribunal the assessee filed a petition under Rule 29 of the ITAT Rules with an affidavit to admit additional evidence in support of a wholly new plea that the lands purchased were rural agricultural lands excluded from the definition of capital asset under section 2(14), and also argued that section 56(2)(vii)(b)(ii) came into force with effect from 1 April 2014 and so operated only prospectively, and that part of the land was purchased in July 2014 falling in AY 2015-16. The matter was decided on 2019-09-11 by the ITAT (Shri Rajpal Yadav, Judicial Member and Shri Pradip Kumar Kedia, Accountant Member). On those facts the ITAT held as follows. The appeal was dismissed. The Rule 29 petition was refused for want of any cogent reason why the facts were not placed before the lower authorities and because the plea required factual verification after more than five years (para 7). On the merits, no infirmity was found in the CIT(A)'s order: section 49(4) provides that the benefit of the inflated cost of acquisition arising from the deeming provision in section 56(2)(vii)(b)(ii) will be available at the time of sale of the asset and the capital gain will be reduced accordingly, and the CIT(A) had given appropriate relief in that regard. The new plea that the land was rural land was declined for want of findings below, and the contention that the clause did not apply to FY 2013-14 was rejected — the provision applies from AY 2014-15 and therefore to transactions of FY 2013-14 as the legislature intended (para 10). The further plea that one parcel was bought in the following financial year was also declined as new (para 11).
The Tribunal reproduced the CIT(A)'s appellate order in full at its paragraph 2, and it is the CIT(A), at his own paragraph 2.4 as reproduced there, who sets out sub-section (4) of section 49 and reasons that the cost step-up is available to the buyer only when the property is later transferred as a capital asset. The Tribunal's own reasoning is at para 10. Against that, an assessee taxed under section 56(2)(vii)(b)(ii) is not taxed twice: the deemed value becomes his cost, and the capital gain on a later sale falls to the same extent. That reasoning, together with the CIT(A) having already given effect to it, disposed of the merits. The commencement point was decided on the ordinary rule that a provision applicable from an assessment year governs the previous year corresponding to it. The two new pleas were shut out on the Rule 29 threshold rather than on their substance. In the words reproduced by the source cited on this page: "Section 49(4) of the Act clearly provides that the benefit of the inflated cost of acquisition in view of the deeming provisions under s. 56(2)(vii)(b)(ii) of the Act would be available at the time of sale of the asset and capital gains will be accordingly reduced to the extent of such increase in deemed consideration."
It was decided by the ITAT on 2019-09-11 and is reported as I.T.A. No. 2849/Ahd/2017 (ITAT Ahmedabad). 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 56(2)(vii)(b), section 49(4), section 54B, section 2(14), section 50C, section 150(1), section 153(6), 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 department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed. The Rule 29 petition was refused for want of any cogent reason why the facts were not placed before the lower authorities and because the plea required factual verification after more than five years (para 7). On the merits, no infirmity was found in the CIT(A)'s order: section 49(4) provides that the benefit of the inflated cost of acquisition arising from the deeming provision in section 56(2)(vii)(b)(ii) will be available at the time of sale of the asset and the capital gain will be reduced accordingly, and the CIT(A) had given appropriate relief in that regard. The new plea that the land was rural land was declined for want of findings below, and the contention that the clause did not apply to FY 2013-14 was rejected — the provision applies from AY 2014-15 and therefore to transactions of FY 2013-14 as the legislature intended (para 10). The further plea that one parcel was bought in the following financial year was also declined as new (para 11). It arises in Capital Gains, Gifts, Shares & Angel Tax and Evidence & Burden of Proof matters, on section 56(2)(vii)(b), section 49(4), section 54B, section 2(14), section 50C, section 150(1), section 153(6) of the Income Tax Act 1961, and was decided by Shri Rajpal Yadav, Judicial Member and Shri Pradip Kumar Kedia, 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. Take the 'not a capital asset' point (rural agricultural land, or property held as stock-in-trade) at the assessment stage with the distance certificate and revenue records on file — raising it first before the Tribunal will fail on Rule 29 of the ITAT Rules, 1963. Where the officer has applied a clause said to be inserted 'w.e.f. 1 April' of a year, check whether it is an assessment-year commencement; if it is, it reaches the whole of the preceding previous year. Do not expect the section 49(4) step-up to be given in the year of the addition — here the CIT(A) refused an enhanced section 54B deduction in that year and the Tribunal endorsed him; the step-up falls due in the year the property is transferred, which is where it must be claimed.
Validity check could not be completed. Validity check could not be completed. I did not search for any appeal against this order or for later decisions considering it. Nothing in the order turns on a provision since amended, and section 49(4) was independently verified on three departmental section pages. 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.
Read paragraphs 6 to 12; the order ends with the disposal at para 12. The ?type=print rendering carries OCR word-splitting throughout ('an y' for 'any', 'clearl y' for 'clearly'); the sentence used as key_quote came back with clean spacing on the /docfragment/ reading and word for word identically on both passes, and is reproduced here in its clean form. Paragraphs 1 to 5 were not transcribed on this build, so the description of the assessment and first-appeal stages is taken from paras 2.3, 2.4 and 10 as they were returned. Paragraph numbers 2.3 and 2.4 are the CIT(A)'s own paragraph numbers inside his appellate order, which the Tribunal reproduces verbatim within its paragraph 2; nothing in that stretch is the Tribunal speaking. The addition in issue was Rs 9,50,946, the assessee's proportionate share. The observation in para 11 about revenue neutrality under section 150(1) read with section 153(6) is expressly not pursued ('We, however, do not seek to delineate') and should not be cited as a holding. 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 appeal was dismissed. The Rule 29 petition was refused for want of any cogent reason why the facts were not placed before the lower authorities and because the plea required factual verification after more than five years (para 7). On the merits, no infirmity was found in the CIT(A)'s order: section 49(4) provides that the benefit of the inflated cost of acquisition arising from the deeming provision in section 56(2)(vii)(b)(ii) will be available at the time of sale of the asset and the capital gain will be reduced accordingly, and the CIT(A) had given appropriate relief in that regard. The new plea that the land was rural land was declined for want of findings below, and the contention that the clause did not apply to FY 2013-14 was rejected — the provision applies from AY 2014-15 and therefore to transactions of FY 2013-14 as the legislature intended (para 10). The further plea that one parcel was bought in the following financial year was also declined as new (para 11).
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