Tax tips: Rules of Circle Rate applicability

Q.I had purchased a residential flat jointly with my wife for a sum of Rs 24 lakh. The payment was to be made in instalments and the possession of the flat was to be given in 2016, but the same was delayed and the possession  was given in the 2019. The Sale Deed was registered for the said sum of Rs 24 lakh and the possession was handed over to me in 2019. During the course of assessment proceedings for the Assessment Year 2020-21, the Income-Tax Officer raised a query as to why the circle rate prevailing in the year 2019 may not be substituted for the sale consideration of Rs 24 lakh. It was explained to him that the purchase was effected in 2014 and the prevailing circle rate at that time was less than the consideration of Rs 24 lakh agreed to be paid by him to the builder. The Income-Tax Officer did not agree with my contention and has made an addition of Rs 15 lakh on the basis of the circle rate prevailing  in 2019. I have filed an appeal against the assessment.  Could you please guide me as to the pleadings before the Commissioner (Appeals)?

sanjeev goyal, chandigarh

It seems the addition has been made under Section 56(2)(x) of the Act. My reply to your query is based on the said presumption. I hope you have a copy of the Sale Agreement which was entered into with the builder in 2014. The Agreement would clearly indicate the date of purchase, and therefore, according to the provisions of the aforementioned Section, the Stamp Duty rate prevailing as on the date of the Agreement is to be considered for the purpose of compliance with the aforesaid  section. Apart from this, you should be able to support your case by providing the  details of payments made in accordance with the said Sale Agreement. The Section does not require that such an agreement should be a registered document. The only requirement of the law is that the agreement should be followed by payments through a banking channel  so that the veracity of such payments is proved. You may also invite the attention of the Commission (Appeals) to a recent decision of Kolkata Tribunal in the case of TAMOJIT v. ITO in ITO No. 1200/CALCUTTA/2024. In this case  on similar circumstance, the Tribunal held that the benefit of proviso appended to section 56(2)(x)(B) would be applicable and the circle rate as on the date of such Agreement should be considered for compliance with the aforesaid Section.

Q.I had paid rent to my wife for the residential accommodation owned by her. In assessment year 2022-23, eligible exemption under Section 10(13A) of the Income-Tax Act had not been allowed to me by the Assessing Officer on the contention that my wife had income which was below the taxable limit. Further, the house had been acquired by her from funds provided by me. The Assessing Officer on the basis of said contention clubbed the rental income of my wife with my income. The assessment has, thus, been framed by clubbing the rental income with my income. The deduction under Section 24(a) of the Act to the extent of 30% of the rental income has been allowed in my hands. The Assessing Officer had been explained during the course of assessment proceedings that my wife had investment in mutual funds and fixed deposits which were due for exemption after March 31, 2022. The loan raised by her from me for the acquisition of the house has been fully repaid out of the funds received on maturity of the mutual fund investment and fixed deposits. However, the Assessing Officer did not accept the above contention and has framed the assessment as explained above. The matter is pending before the CIT. Could you please guide me as to whether there is any decision of the Appellate Court in my favour?

ashutosh khanna, ambala

The Income-Tax Appellate Tribunal in the case of Abhay Kumar Mittal vs. DCIT (136)Taxmann.com(78)(Delhi) in similar circumstances, accepted the contention of the assessee. The Tribunal found that the assessee’s wife who had filed her return of income which was below the taxable limit had substantial investment in various mutual funds and fixed deposits which were due for redemption after March, 2022. The loan received from assessee has been repaid from the redeemed amount of mutual fund investment and liquidation of her fixed deposits. As per the Tribunal, there is no bar on the part of the assessee in extending loan to his wife out of his declared sources of income.  Further, there is no bar on the assessee’s wife to repay such loan from her investments. The Tribunal also noted that the assesse’s wife had declared the rental income in her return which has been accepted by the authorities.  The sources for the acquisition of the house having been proved, the addition made by the Assessing Officer in the case  of assessee was deleted. You can, thus, base your arguments on the basis of the aforesaid ITAT order.