SUDHA KRISHNAKUMAR THAKUR,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 41 1 1 MUMBAI, MUMBAI

The brief facts borne out from the assessment records are that during the course of reassessment proceedings, the Assessing Officer noticed that the assessee, along with her husband, had acquired a residential flat pursuant to a redevelopment arrangement. The property was registered for a consideration of Rs.68,00,920/-, whereas the stamp duty valuation adopted by the Stamp Valuation Authority was Rs.73,65,000/-. According to the Assessing Officer, the difference of Rs.5,64,080/- represented inadequate consideration within the meaning of section 56(2)(vii)(b) and since the assessee held 50% share in the property, an amount of Rs.2,82,040/- was brought to tax in her hands as income from other sources. During the assessment proceedings, the assessee had explained in detail that the property in question had arisen out of a redevelopment scheme under which certain area was received in lieu of the old flat together with car parking rights and that the stamp duty valuation of Rs.73,65,000/- was not relatable merely to the additional

Before us, the learned counsel submitted that even assuming the figures adopted by the Assessing Officer are accepted in entirety, the difference between the agreement value and the stamp duty value works out to only Rs.5,64,080/-, which is approximately 8.29% of the actual consideration of Rs.68,00,920/-. It was submitted that the Legislature itself has recognized that marginal variations between actual consideration and stamp duty valuation are inevitable and therefore a tolerance band of 10% has been incorporated in the deeming provisions governing such transactions. It was thus argued that once the variation is admittedly below 10%, no addition can survive under a deeming fiction which is itself intended only to tax notional benefits arising from substantial undervaluation. The learned Departmental Representative, on the other hand, relied upon the orders of the lower authorities.

In our considered opinion, the answer has to be in the negative. The provisions of section 56(2)(vii)(b), like sections 50C and 43CA, create an artificial mechanism whereby a stamp duty valuation is substituted for the actual consideration for the limited purpose of taxation. Such provisions, being deeming provisions, have to be construed reasonably and in a manner that advances the object of the enactment. The Legislature itself, after noticing the hardships caused by adoption of stamp duty valuations which are often based on broad estimation techniques and may not accurately reflect actual market realities, introduced a safe harbour tolerance band. The rationale behind the amendment was to acknowledge that minor variations between actual consideration and stamp duty value do not necessarily

In the present case, not only is the variation less than 10%, but the factual matrix itself demonstrates that the stamp duty value of Rs.73,65,000/- included valuation attributable to the area received under the redevelopment entitlement as well as car parking area, whereas the consideration of Rs.68,00,920/- represented the amount agreed to be paid for the additional area purchased from the developer. The valuation report placed on record and even referred to by the Assessing Officer shows that the value attributable to the additional purchased area was quantified separately. Thus, even on facts, the comparison adopted by the Assessing Officer is not entirely free from doubt. However, we need not delve further into that controversy because even proceeding on the basis of the figures adopted by the Assessing Officer himself, the variation remains below the statutory tolerance threshold.

The learned CIT(A) has declined relief primarily on the ground that the safe harbour provisions were introduced from a subsequent assessment year. Such an approach, in our

Considering the totality of the facts and circumstances of the case, we are of the considered opinion that the difference between the stamp duty valuation of Rs.73,65,000/- and the actual consideration of Rs.68,00,920/- being only 8.29%, which is less than the recognized tolerance limit of 10%, deserves to be ignored. Consequently, the addition of Rs.2,82,040/- made in the hands of the assessee under section 56(2)(vii)(b) is directed to be deleted. Since the assessee succeeds on merits, the grounds challenging the validity of reopening are left open and are not being adjudicated as the same have become merely academic. Accordingly, the appeal of the assessee stands allowed.

In the result, appeal of the assessee is allowed.