Property bought for ₹1.23 crore, its market value rose to ₹1.46 crore: Why ITAT Kolkata gave homebuyer ₹11.35 lakh tax relief

If you agree to buy a property years before it is registered, the stamp duty value may increase by the time of registration. But does this higher value automatically decide how much tax the buyer has to pay?

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) recently examined this issue, where a property was agreed to be purchased in 2021, but the registered conveyance deed was executed in 2023. The Assessing Officer (AO) had treated the difference between the property's stamp duty value and the purchase consideration as taxable income in the buyer's hands.

Why did the property purchase lead to a tax dispute?

The taxpayer and her husband entered into a registered agreement for purchase of an immovable property on 22 January 2021 for a total consideration of Rs 1.235 crore.

“This consideration was in line with the prevailing circle rate at that time. Importantly, they also paid a substantial amount of Rs 91 lakh as advance consideration through banking channels at or before the time of the agreement,” says CA (Dr.) Suresh Surana.

The parties eventually executed the registered conveyance deed on September 18, 2023, while retaining the original agreed consideration of Rs 1.235 crore, he adds.

The case was selected for scrutiny. By the time the property was finally registered in September 2023, its stamp duty/circle value had increased to approximately Rs. 1.462 crore.

According to Surana, the Assessing Officer (AO) compared this higher stamp duty value with the actual purchase consideration of Rs. 1.235 crore and treated the difference as a benefit arising to the purchasers.

Under Section 56(2)(x), such a difference can become taxable in the buyer's hands when the stamp duty value exceeds the purchase consideration by more than the higher of ₹50,000 or 10% of the consideration. In this case, the gap of about ₹22.71 lakh was higher than 10% of the ₹1.235 crore purchase price.

Since the taxpayer held a 50% share in the property, the AO added approximately Rs 11.35 lakh to her income under the head “Income from Other Sources” under section 56(2)(x).

The ₹11.35 lakh addition represented her 50% share of the difference between the ₹1.462 crore stamp duty value and the ₹1.235 crore purchase consideration.

Why did the taxpayer challenge the tax addition?

The taxpayer challenged the assessment before the CIT(A). Her case was that the AO had used the wrong valuation date.

She pointed out that the purchase price had already been fixed through a registered agreement in January 2021, and a substantial portion of the consideration had also been paid through banking channels at that time, explains Surana.

However, the CIT(A) upheld the addition and dismissed her appeal on March 31, 2026. She therefore approached the Kolkata ITAT.

Before the Tribunal, the taxpayer relied on the specific protection contained in the provisos to section 56(2)(x).

According to Surana, these provisions recognise that where the agreement fixing the consideration and the final registration take place on different dates, the stamp duty value on the date of the agreement may be considered instead of the value on the later registration date.

This protection applies where the taxpayer has paid at least part of the consideration through the prescribed banking or electronic modes on or before the agreement date.

What did the ITAT say about the property valuation?

The ITAT examined the registered agreement and the subsequent conveyance deed.

“The taxpayer had entered into a registered agreement on January 22, 2021, the consideration of Rs 1.235 crore reflected the circle value prevailing at that time, and Rs 91 lakh had already been paid through banking channels,” says Surana.

The subsequent execution of the conveyance deed in September 2023 did not justify substituting the increased 2023 circle rate for the value applicable when the parties had originally fixed the price, he adds.

According to Surana, thus, section 56(2)(x) itself provides protection against precisely this type of situation. Property values and circle rates may increase between the date on which parties enter into a binding agreement and the date on which they finally register the property. Where the taxpayer can establish a genuine earlier agreement and payment through the prescribed banking channels, the law permits the stamp duty value on that earlier agreement date to be used.

The AO had incorrectly adopted the higher stamp duty value prevailing on 18 September 2023. The ITAT therefore deleted the Rs. 11.35 lakh addition, reversed the CIT(A)'s decision and allowed the taxpayer's appeal.

What does the ITAT ruling mean for property buyers?

The case highlights an important tax point for buyers who enter into a property agreement well before the final registration.

A rise in the property's stamp duty value between the agreement date and registration date does not necessarily mean that the buyer will automatically face a tax addition based on the later, higher value.

“So, if someone is buying property, paying advance money under an agreement to sell, they should always pay through banking channels and get it recorded in the registered agreement. This will protect the buyers from being taxed later if circle rates increase before the sale deed is registered and property is transferred,” says B. Shravanth Shanker, Managing Partner, B. Shanker Advocates LLP.

According to Surana, taxpayers should maintain documentation such as:

• the agreement fixing the purchase price;
• evidence of payment made on or before that date through prescribed modes; and
• documents establishing the stamp duty/circle value prevailing on the agreement date.

These records can help establish that the transaction meets the conditions for considering the earlier valuation date.