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Facts
The assessee, an individual engaged as a designing and marketing consultant, sold a residential flat. The Assessing Officer (AO) made additions under Section 50C by adopting the stamp duty valuation as the full value of consideration instead of the actual sale consideration. The AO also disallowed stamp duty and registration charges paid by the assessee.
Held
The Tribunal held that the 10% tolerance limit under Section 50C(1) has retrospective effect from April 1, 2003, and therefore, the addition made by the AO was not sustainable. The Tribunal also held that the stamp duty and registration charges incurred by the assessee as per the sale agreement were allowable expenses.
Key Issues
Whether the 10% tolerance limit under Section 50C(1) is applicable retrospectively, and whether stamp duty and registration charges paid by the seller are allowable expenses.
Sections Cited
143(3), 144B, 50C, 48
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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI ARUN KHODPIA
आदेश / ORDER PER ARUN KHODPIA, AM:
The present appeal filed by the assessee is directed against the order passed by the Ld.CIT(Appeals)/NFAC, Delhi dated 20.06.2025, for the assessment year 2020-21 as per the following grounds of appeal:
“1. On the facts and circumstances of case and in law, the Ld. CIT has erred in confirming the Assessment Order passed by the Ld. AO under section 143(3) of Income Tax Act which is passed against the principal of natural justice.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the addition of Rs.71,35,268/- made by the Ld. AO being the difference between the stamp duty value of Rs.14,34,35,268/- and the agreement value of Rs.13,63,00,000/-.
On the facts and in the circumstances of the case and In law, the Ld. CIT has erred in confirming the Limit of the benefit of tolerance limit to 5% of the actual consideration but as per 50C wherein the third proviso to section 50C(1) provides that if the stamp duty value does not exceed 110% of the actual consideration, the actual consideration is deemed the full value of consideration received. However, the tolerance band of 10 percent should be applicable retrospectively as it is a beneficial provision for the assessee as per various judicial precedents.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the disallowance of the stamp duty and registration charges made by the Ld. AO of Rs. 86,06,200/- and Rs.30,000/- respectively, paid by the Assessee on sale of flat as per the terms of the Sale Agreement.
5. On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the addition made by the Ld. AO of Rs.1,50,31,929/- as long-term capital gain and raising a demand of Rs.45,72,796/-.
6. The Appellant craves leave to add amend and or delete any of the above grounds of Appeals.”
2. The brief facts in this case are that the assessee is an individual engaged as designing and marketing consultant. The return of income for the year under consideration was filed on 26.12.2020, declaring total income at Rs.5,06,580/-. Subsequently, the case of the assessee was picked up for limited scrutiny which was culminated on 28.09.2022 after framing assessment u/s. 143(3) r.w.s. 144B of the Income Tax Act, 1961 (for short ‘the Act’), wherein following additions/disallowances were made:
(i) Addition u/s. 50C of the Act : Rs.71,35,268/- by adopting the stamp duty valuation of Rs.14,34,35,268/- as the full value of consideration instead of the actual sale consideration of Rs.13,63,00,000/- for the sale of a residential flat; (ii) Disallowance of expenses: Rs.86,36,200/- comprising stamp duty of Rs.86,06,200/- and registration charges of Rs.30,000/- incurred by the appellant as per the sale agreement.
3. Aggrieved with the aforesaid additions/disallowances, the assessee preferred an appeal before the Ld.CIT(Appeals)/NFAC. However, contentions raised by the assessee were not accepted by the Ld. CIT(Appeals)/NFAC and accordingly, appeal of the assessee has been dismissed, with confirming the disallowances/additions made by the A.O. For the sake of completeness, observations of the Ld. CIT(Appeals)/NFAC are culled out as follows:
“6. Observation and Decision: I have carefully considered the contentions of the appellant and the submission filed in regard to the addition made Addition under Section 50C of the Act, the third proviso to section 50C(1) provides that if the stamp duty value does not exceed 110% of the actual consideration, the actual consideration is deemed the full value of consideration. For A.Y. 2020-21, the applicable tolerance limit is 5%, as per the Finance Act, 2018, effective from 01-04-2019.The stamp duty value (Rs.14,34,35,268/-) is 105.23% of the actual consideration (Rs.13,63,00,000/-), exceeding the 5% tolerance limit applicable for A.Y.2020-21.The appellant's claim that the 10% tolerance limit (effective from 01-04-2021) is retrospective is not acceptable. The Hon’ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala (60 ITR 262 (SC)] held that the Act, as amended on the first day of April of a financial year, applies to that year's assessments. Amendments effective after that date do not apply.The appellant's reliance on Maria Fernandes Cheryl v. ITO Is distinguishable, as the Tribunal's view on retrospectively lacks binding precedent, and the Finance Act, 2020, explicitly states the 10% tolerance applies from A.Y. 2021-22. Curative amendments require clear legislative intent for retrospectively, which is absent here.Therefore, the A.O. correctly adopted the stamp duty value of Rs.14,34,35,268/-, and the addition of Rs.71,35,268/- is upheld. The appellant claimed that the stamp duty value exceeded the FMV, necessitating a DVO reference under section 50C(2) of the Act. However, the A.D. provided adequate opportunity via show-cause notice dated 22-09-2022 and video conference on 27-09-2022, where the appellant failed to substantiate the FMV claim with credible evidence.The word "may" in section 50C(2) grants discretion to the A.O. Judicial precedents like S. Muthuraja v. CIT mandate DVO reference only when substantive evidence supports the FMV claim. In the absence of such evidence, the A.O.'s decision not to refer is justified. Thus, the addition under section 50C is valid on this ground as well. In regard to the Disallowance of Stamp Duty and Registration Charges and the allowability under Section 48, Section 48(i) allows deduction of expenses incurred wholly and exclusively in connection with the transfer. The appellant incurred stamp duty (Rs.86,06,200/-) and registration charges (Rs.30,000/-) as per clause 18 of the sale agreement .However, as noted by the A.O., such expenses are conventionally borne by the buyer. The mutual agreement shifting this liability to the appellant appears to be a tax avoidance mechanism, reducing the taxable capital gains.The appellant's reliance on CIT v. Dhanrajgirji Raja Narasingirji is misplaced, as it pertains to commercial prudence, not tax avoidance. The Hon'ble ITAT decision in the case of Kishore Bhagwandas Ramnani is not binding and contradicts the A.O.'s finding that such arrangements are tax-driven.The A.O. rightly observed that the appellant, as purchaser in the Permanent Alternate Accommodation Agreement, bore stamp duty, but as seller, assumed the same liability, indicating inconsistency suggestive of tax avoidance. As held in McDowell & Co. Ltd. v. CTO [154 ITR 148 (SC)], tax planning crossing into avoidance is impermissible.Therefore, the disallowance of Rs.86,36,200/- is upheld. In view of the above, I am of the considered view that the Assessing officer was justified in making addition of in the assessment order, and accordingly, the grounds of appeal raised by the appellant are dismissed".”
Being aggrieved with the aforesaid order of the Ld. CIT(Appeals)/NFAC, the assessee preferred an appeal before the Tribunal which is under consideration.
At the very outset, the Ld. Counsel representing the assessee submitted that the assessee had sold flat on 30.01.2020 during the relevant year for actual consideration of Rs.13,63,00,000/-, whereas the valuation by the stamp authority was Rs.14,34,35,268/-. It was submitted by the Ld. Counsel that as per the “third proviso” to Section 50C(1) of the Act, as amended vide the Finance Act, 2020, the tolerance limit for difference in actual consideration and stamp duty value has been enhanced to 10% from earlier limit of 5%. It was submitted that such beneficial provision has retrospective effect being curative in nature. The Ld. Counsel in support of his aforesaid contention has placed reliance on the following judicial pronouncements:
“1. KETAN HIMATLAL MEHTA V. DEPUTY COMMISSIONER OF INCOME-TAX (ITA NO. 2497/MUM/2024)
MARIA FERNANDES CHERYL V. INCOME TAX OFFICER, (INTERNATIONAL TAXATION), 2(3)(1), MUMBAI (ITA NO. 4850 /MUM/2019) 3. HAWARE INFOTECH LTD V/S ACIT (ITA NO. 395 AND 396/MUM/2024) 4. SMT. REKHA AGRAWAL VS ACIT ITA NO. (282/RPR/2024) 5. AMRAPALI CINEMA VS ACIT (ITA NO. 282/DEL/2017) 6. JIVRAJBHAI KALUBHAI MIYANI VS ITO (ITA NO. 245 AND 246/SRT/2018) 7. JOSEPH MUDALIAR VS D.C.I.T. (ITA NO.6912/ MUM/2019)”
Accordingly, it was submitted by the Ld. Counsel that since the difference in the actual consideration and stamp duty value of the property is only 5.23%, which is less than 10%, therefore, no addition on account of such difference would be warranted.
5.1 Apropos the second issue regarding payment of stamp duty by the assessee being seller, the Ld. Counsel drew our attention to the registered sale agreement dated 30.01.2020, between the assessee and the buyer of the property, wherein at Para 18, it is agreed between the parties, that the stamp duty and registration charges would be paid by the vendor i.e. the assessee. For the sake of clarity, Para 18 of the sale agreement is culled out as follows:
“18. The stamp duty and registration charges upto Rs: 86,06,200 + Rs.30,000/- payable on this Agreement shall be borne and paid by the vendor. Any further amount with respect to the stamp duty and registration charges, if any shall be borne and paid by the Purchasers. However, any Advocates/Solicitors fees shall be borne and paid by the respective parties alone.” After clarifying the aforesaid fact, corroborated with the registered sale agreement dated 30.01.2020, the Ld. Counsel contended that since the stamp duty and registration charges are borne by the assessee being vendor of the property, the same is an allowable expenditure, socannot be disallowed. In support of his aforesaid contention, the Ld. Counsel relied on the following judicial pronouncements:
“1. KISHORE BHAGWANDAS RAMNANI V. INCOME-TAX OFFICER (ITA NO. 3460/MUM/2023) 2. PRAVEEN GUPTA VS A.C.I.T. (ITA NO.2558/ DEL/ 2010) 3. BHUPENDRA SITAPCHAND ZAVERI V. INCOME TAX OFFICER, INTERNATIONAL TAXATION (ITA NO.2558/DEL/ 2010) 4. COMMISSIONER OF INCOME-TAX V. SMT. SHAKUNTALA KANTILAL (IT REFERENCE NO.261 OF 1977)
5.2 In the backdrop of the aforesaid submission, it was submitted by the Ld. Counsel that both the aforesaid additions/disallowances made by the A.O and confirmed by the Ld. CIT(Appeals) are liable to be deleted.
Per contra, the Ld. Sr. DR vehemently supported the order of the revenue authorities.
We have heard the rival contentions of the parties herein and perused the material available on record a/w. case laws relied upon by the assessee. Regarding the first issue about the disallowance u/s. 50C of the Act, as per the facts on record, the difference between the stamp duty value and actual consideration was worked out at 5.23%, whereas the tolerance limit is enhanced by the amendment in “third proviso” to Section 50C(1) of the Act vide Finance Act, 2020 upto 10%. Further, such amendment would have retrospective effect is fortified by the decision of the ITAT, Mumbai in the case of Maria Fernandes Cheryl Vs. Income TaxOfficer (IT) 2(3)(1), Mumbai, (2021) 123 taxmann.com 252 ( Mumbai-Trib), wherein it has been held that amendment made in scheme of section 50C(1), by inserting third proviso thereto and by enhancing tolerance band for variations between stated sale consideration vis-à-vis stamp duty valuation from 5 percent to 10 percent are effective from the date on which section 50C, itself was introduced i.e. 01.04.2003. Similar findings are given in the other decisions also, relied upon by the assessee referred to supra.
Respectfully following the aforesaid decision, it is held that the enhancement in tolerance limit to 10% will have retrospective effect from 01.04.2003 and the case of the assessee pertain to AY 2020-21, therefore, we agree with the contention raised by the Ld. Counsel. Accordingly, the addition made by the A.O u/s. 50C of the Act of Rs.71,35,268/- found to be in contraventions to provisions of section 50C, the same accordingly cannot sustain. Thus, the Grounds of appeal No.2 & 3 raised by the assessee are allowed as per our aforesaid observations.
9. Apropos the second issue regarding disallowance of stamp duty and registration charges of Rs.86,36,200/- paid by the assessee since those are incurred in terms of the sale agreement between the parties dated 30.01.2020, which is placed before us and the assessee had borne such expenses, therefore, such expenses would be allowable expenditure in computing the capital gain from the transaction of sale of property by the assessee. On this issue, the ITAT, Mumbai in the case of Kishore Bhagwandas Ramnani Vs. ITO (2024) 161 taxmann.com 43 (Mumbai- Trib) has held that where assessee sold a flat and claimed deduction of stamp duty and registration charges and society transfer fees but the A.O denied the same, since the said expenses were incurred as per terms of agreement, the A.O was to be directed to allow claim of assessee after verification of copy of agreement and copy of bank statement by the assessee.
In the present case as the copy of agreement as well as copy of bank statement are placed before us at Pages 90 & 136 of the paper book, it is clearly verifiable that payment of stamp duty and registration charges were to be borne by the vendor i.e. the assessee, which were duly paid by the assessee vide entry in his HFDC Bank account on 28.01.2020 for Rs.86,36,200/-, therefore, there is no ambiguity on the fact that onus of payment was on the assessee and the assessee only had made such payment. In such circumstances, we do not find any merit in the disallowance of expenses on stamp duty and registration charges made by the A.O and confirmed by the Ld. CIT(Appeals)/NFAC. Accordingly, we direct the A.O to delete such disallowance. Thus, the Ground of appeal No.4 is allowed as per our aforesaid observations.
Grounds of appeal No.1, 5 and 6 being general in nature, requires no adjudication.
In the result, appeal of the assessee is allowed as per our aforesaid observations.