Tribunal Remands Case to Assessing Officer for Verification of Asset Classification in Financial Statements
The Income Tax Appellate Tribunal (ITAT) Mumbai Bench "F" has issued a significant ruling concerning the applicability of Section 56(2)(x) of the Income Tax Act, 1961, in the case of Ketan Himatlal Mehta v. Deputy Commissioner of Income Tax, Mumbai. The Tribunal, comprising Accountant Member Shri Om Prakash Kant and Judicial Member Shri Rahul Chaudhary, delivered the judgment on December 16, 2025.
The appeal arose from an addition made by the Assessing Officer under Section 56(2)(x) for the difference between the stamp duty value and the transaction value of a property purchased by the appellant, Ketan Himatlal Mehta. The property, acquired through a partnership firm initially and later as an individual, was recorded as "Other Current Assets" in the financial statements, rather than as a "Capital Asset."
The Tribunal highlighted that the provisions of Section 56(2)(x) cannot be invoked for transactions where the asset is held as stock-in-trade. This interpretation aligns with previous Tribunal decisions, notably in the cases of Commercial Development Corporation v. NFAC/ITO and Mubarak Gafur Korabu v. ITO, where similar conclusions were reached regarding properties held as stock-in-trade.
The ITAT remanded the issue to the Assessing Officer for a fresh examination of the financial statements to determine the asset's classification. The Tribunal instructed that if the asset is confirmed as stock-in-trade, no additions under Section 56(2)(x) should be made. The appellant is expected to cooperate by providing the necessary financial documentation.
This decision underscores the importance of accurately classifying assets in financial records and the implications of such classifications on tax liabilities. It also reiterates the Tribunal's stance that anti-avoidance provisions in tax laws are not intended to apply to transactions conducted in the ordinary course of business.
Bottom Line:
Provisions under Section 56(2)(x) of the Income Tax Act, 1961 cannot be invoked for transactions of purchase of stock-in-trade. Asset classification in financial statements as 'Other Current Assets' rather than 'Capital Assets' holds significance for determining applicability of Section 56(2)(x).
Statutory provision(s): Section 56(2)(x) of the Income Tax Act, 1961
