NAYANA SAMIR DESAI,MUMBAI vs. ITO-WARD 20(3)(1), MUMBAI

The relevant facts giving rise to this appeal are that the assessee, an individual, filed her return of income for Assessment Year 2018-19 on 25.07.2018 declaring total income of Rs. 7,43,440/-. During Financial Year 2017-18 relevant to the assessment year under consideration, the assessee, jointly with her husband Shri Samir Desai (holding a 50% undivided share each), entered into a registered agreement dated 15.06.2017 for purchase of an immovable property for a total stated consideration of Rs. 6,79,41,225/-, the assessee’s 50% share being Rs. 3,39,70,612/-. The stamp duty value determined for the said property was Rs. 6,97,15,803/-, the assessee’s 50% share being Rs. 3,48,57,902/-. The differential between the assessee’s 50% share of the stamp duty valuation and her 50% share of the purchase consideration worked out to Rs. 8,87,290/-.

The case was selected for scrutiny pursuant to information received from the Jt. Sub-Registrar, Mumbai City-4. The Assessing Officer held that the 5% tolerance band introduced in section 56(2)(x)(b) of the Act by the Finance Act, 2018 was effective only from Assessment Year 2019-20 (i.e. w.e.f. 01.04.2019) prospectively and had no application to Assessment Year 2018-19. Consequently, the Assessing Officer invoked the deeming provisions of section 56(2)(x)(b) and added the entire difference of Rs. 8,87,290/- to the returned income of the assessee as ‘Income from Other Sources’, determining the total assessed income at Rs. 16,30,730/-.

Aggrieved, the assessee preferred a first appeal before the Ld. CIT(A). The Ld. CIT(A), vide the impugned order dated 16.03.2026 passed under section 250 of the Act, dismissed the assessee’s appeal and confirmed the addition, observing that the issue was debatable and placing sole reliance on the decision in Benudhar Gokulanand Biswal v. National e-Assessment Centre [(2023) 153 taxmann.com 112 (Mum-Trib)], while not following the coordinate Bench precedents cited on behalf of the assessee.

Through the written submissions placed on record, the assessee submitted that the difference of Rs. 8,87,290/- represents merely 2.61% of the purchase consideration attributable to the assessee, which falls well within both the 5% tolerance band introduced by the Finance Act, 2018 and the enhanced 10% tolerance band introduced by the Finance Act, 2020. It was contended that the tolerance-band proviso to section 56(2)(x)(b) is curative, remedial, and clarificatory in nature, aimed at mitigating hardship arising from genuine valuation differences as explained in CBDT Circular No. 8/2018 dated 26.12.2018. Reliance was placed on the decision of the Division Bench of this Tribunal in Maria Fernandes Cheryl v. ITO [ITA No. 4850/Mum/2019, order dated 15.01.2021; (2021) 123 taxmann.com 252 (Mum-Trib)], as well as decisions directly rendered under section 56(2)(x) for Assessment Year 2018-19 itself, notably Saggar Parimmal v. ITO [IT Appeal Nos. 84 & 85/Mum/2025, order dated 21.03.2025], and further coordinate Bench rulings in ACIT v. Sunil B. Dalal, Ashutosh Sinha v. ITO [ITA No. 643/Mum/2023], Vipul Otarmal Jain v. ITO, Joseph Mudaliar v. DCIT [ITA No. 6912/Mum/2019], and Lakhdhir Virji Gala v. ITO [ITA No. 4301/Mum/2025]. It was further urged that the decision in Benudhar Gokulanand Biswal (supra) dealt with the prospective operation of the substantive charging provision of section 56(2)(x) to transactions executed prior to 01.04.2017, and not with the retrospective applicability of the curative tolerance-band proviso.

The Ld. DR, on the other hand, while relying upon the orders of the Revenue Authorities below submitted that the Finance Act, 2018 specifically provided an effective date of 01.04.2019 for the tolerance proviso, and therefore the AO and the Ld. CIT(A) were justified in not extending its benefit to Assessment Year 2018-19.

We have heard the counsels for both the parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. Ground Nos. 1 and 2 challenge the confirmation of the addition of Rs. 8,87,290/- made under section 56(2)(x)(b) of the Act by denying the benefit of the statutory tolerance band. The primary facts are undisputed: the assessee’s 50% share in the stated purchase consideration is Rs. 3,39,70,612/-, whereas the 50% share in the stamp duty valuation is Rs. 3,48,57,902/-, resulting in a differential of Rs. 8,87,290/-. The said variance between the declared consideration and the stamp duty valuation constitutes only 2.61% of the purchase consideration.

The core issue before us is whether the tolerance band inserted under section 56(2)(x)(b)(B) by the Finance Act, 2018 (5%) and subsequently expanded to 10% by the Finance Act, 2020, is curative and retrospective in operation so as to apply to Assessment Year 2018-19.

We find that the coordinate Bench of this Tribunal in Maria Fernandes Cheryl v. ITO (supra) had an occasion to consider the legislative intent behind the insertion of the safe harbour / tolerance band in the third proviso to section 50C(1) of the Act. Drawing support from CBDT Circular No. 8/2018, the Tribunal observed that the tolerance margin was enacted to address unintended hardships caused to taxpayers due to marginal differences between the actual agreement value and the circle rates, which may arise on account of local market conditions, shape, location, or subjective factors in valuation. It is well-settled law that when an amendment is introduced to cure an unintended hardship or anomaly, it is remedial and clarificatory in character and relates back to the inception of the statutory provision it seeks to cure.

The provisions of section 56(2)(x)(b) are in pari materia with the provisions of section 50C(1) and section 43CA(1) of the Act. We observe that this Tribunal in Saggar Parimmal v. ITO (supra) specifically dealt with the very same issue for Assessment Year 2018-19 itself and held that the tolerance band is curative and retrospectively applicable to Assessment Year 2018-19, thereby deleting the addition made under section 56(2)(x) of the Act. A similar view has been consistently taken by coordinate Benches of this Tribunal in ACIT v. Sunil B. Dalal, Ashutosh Sinha v. ITO (supra), Vipul Otarmal Jain v. ITO (supra), Joseph Mudaliar v. DCIT (supra), and Lakhdhir Virji Gala v. ITO (supra).

Insofar as the reliance placed by the Ld. CIT(A) on the decision in Benudhar Gokulanand Biswal v. National e-Assessment Centre (supra) is concerned, we find substance in the contention of the assessee that the said decision was rendered in the context of the prospective applicability of the substantive charging provision of section 56(2)(x) itself to transactions concluded prior to 01.04.2017. It did not deal with the curative character or retrospective applicability of the tolerance-band proviso to section 56(2)(x)(b). Therefore, the reliance placed on the said decision by the Ld. CIT(A) to deny relief to the assessee is misplaced.

In the present case, the difference between the stamp duty value and the actual purchase consideration is merely 2.61%, which is well within the 5% tolerance band introduced by the Finance Act, 2018, as also the 10% band enhanced by the Finance Act, 2020. Respectfully following the consistent view taken by the coordinate Benches of this Tribunal cited supra, we hold that the tolerance-band proviso to section 56(2)(x)(b) is curative and clarificatory in nature and applies to Assessment Year 2018-19. Since the marginal variance of 2.61% is comfortably within the statutory tolerance margin, no addition under section 56(2)(x)(b) of the Act is warranted in law.

Accordingly, the addition of Rs. 8,87,290/- confirmed by the Ld. CIT(A) is directed to be deleted. Ground Nos. 1 and 2 raised by the assessee are allowed.

Ground Nos. 3 and 4 being general in nature, do not require separate adjudication.

In the result, the appeal of the assessee stands allowed.