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Facts
Two assessees, co-owners of a residential flat, purchased it for Rs. 2,71,11,500, while the stamp duty valuation was Rs. 2,88,91,540. The difference of Rs. 17,80,040 was subject to addition under Section 56(2)(x) of the Income Tax Act.
Held
The Tribunal held that the amendment increasing the tolerance limit for stamp duty valuation difference to 10% is curative and applicable retrospectively. Therefore, the additions made under Section 56(2)(x) were deleted for both assessees.
Key Issues
Whether the increased tolerance limit of 10% under Section 56(2)(x) for the difference between sale consideration and stamp duty value is applicable retrospectively. Whether the addition made by the AO on account of such difference is justified.
Sections Cited
56(2)(x), 143(3), 143(3A), 143(3B), 144B, 50C, 56(2)(vii)
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Both the appeal of two different assesses werefiled against the order of theNational Faceless Appeal Centre (NFAC) Delhi (for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for A.Y. 2018- 19, date of order 6/06/2024 in the case of assessee/petitioner no-1 and 21/11/2024 in the case of assessee/petitioner no-2. The impugned orders were emanated from the order of the National e-assessment Centre, Delhi, order passed under section 143(3) read with section 143(3A) and 143(3B) of the Act, date of order 26/02/2021 in the case of assessee/petitioner no-1 and under section 143(3) read with section 144B of the Act, date of order 28/09/2021 in the case of assessee/petitioner no-2.
Both the appeals have same nature of fact and common issue. Therefore, both the appeals are heard together and are disposed of by this common order. is taken as lead case.
2.1 The assessee has taken the following grounds of appeal: -
“1. Under the facts and in law, the learned CIT(A) erred in confirming addition u/s 56(2)(x) of the Income Tax Act, 1961 of Rs 8,90,020/-. 1.1. Under the facts and in law, the learned CIT(A) failed to appreciate the fact that variance between the Stamp Duty Value of the Property purchase and Purchase consideration is less than the tolerance band of 10% and hence the 85/Mum/2025 Saggar Parimmal / Ketan Kumar Sagar provisions of Section 56(2)(x) cannot be invoked in the present case of the appellant.”
The assessee filed this appeal with a delay of 5 months. The Ld.AR submitted a condonation petition and explained that the assessee mentioned the communication address in the email “hotelsagar@ymail.com” in form 35 during the filing of appeal. Whereas the Ld.CIT(A) communicated all the hearing notices and the appellate order in the email “cakishoredomadia@yahoo.co.in”. The said email is related to the earlier Chartered Accountant of the assessee and the assessee has no connection with the said CA. As a result, theassessee was unable to get all the hearing notices and the impugned appellate order issued by the Ld.CIT(A). Finally, the assessee was intimated by the other petitioner and after verification of the record, the assessee came to know about the alleged appellate order. After that the assesseehadtaken action and filed the appeal against the order of the CIT(A) before the ITAT with a delay of 5 months. The reason of delay is duly explained, and delay is unintentional in filing the appeal. The Ld.DR had not made any objection for condonation of delay. Accordingly, the delay for 5 months in filing appeal before the ITAT is condoned and the appeal is taken for adjudication.
The brief facts of the case are that both assessees, as co-owners, jointly purchased a residential flat in Kandivali West, Mumbai. The registration of the said flat was completed on 01.09.2017. The declared value of the property was Rs.2,71,11,500/-, whereas the stamp duty valuation, as determined by the stamp duty authorities, stood at Rs.2,88,91,540/-. Consequently, the difference amounted to Rs.17,80,040/-.
The Ld. AO considered 50% of the differential amount attributable to the assessee's share, which came to Rs.8,90,020/-, and added the same to the assessee’s income by invoking the provisions of Section 56(2)(x) of the Act.
The Ld. AR contended that the percentage difference between the declared value and the stamp duty valuation was merely 6.56%. Referring to the provisions of Section 56(2)(x)(b)(B) of the Act, the Ld. AR submitted that, with effect from 01.04.2021, pursuant to the Finance Act, 2020, the permissible tolerance limit was increased to 10%. Earlier, the prescribed tolerance limit was 5%, which was subsequently enhanced to 10% as per the Finance Act, 2020, effective from 01.04.2021.The Ld. AR argued that, although the assessee did not fall within the tolerance limit specified under the Act for the relevant assessment year, various rulings of the ITAT have recognized that the increased tolerance limit of 10% should be considered curative in nature and, therefore, applicable retrospectively. Accordingly, it was submitted that the addition made on account of the differential amount ought to be deleted. for petitioner no-2, the Ld.AR placed that the Ld.AO has added back the 5% of the total consideration ofRs.2,71,11,500/- which comes to Rs.13,55,575/-. The Ld. AO considered 50% of the differential amount attributable to the assessee's share, which came to Rs.6,77,787/-, and added the same to the assessee’s income by invoking the provisions of Section 56(2)(x) of the Act. The said findings of the Ld.AO is erroneous and against the section 56(2)(x) of the Act.But the same finding of the Ld. AO is duly upheld by the
The Ld. DR vehemently argued and submitted that the said amendment, introduced by the Finance Act, 2020, became effective only from 01.04.2021. Accordingly, the tolerance limit of 10% would not be applicable to the impugned assessment year.The Ld. DR further pointed out that, in the observation made by the Ld. AO regarding the assessee’s half-share, calculated as 5% of the consideration amounting to Rs.2,71,11,500/-, which comes to Rs.6,77,787/was erroneous and contrary to the correct application of Section 56(2)(x) of the Act.
While we acknowledge the fair findings of the Ld. DR in this regard. The Ld. DR nonetheless prayed for the upholding of the addition of the difference between the declared value and the stamp duty valuation of the property, as the said difference exceeds the permissible tolerance limit of 5% under Section 56(2)(x)(b)(B) of the Act.
We have heard the rival submissions and examined the documents available on record. The issue presented before the Bench pertains to whether the assessee is entitled to the benefit of the tolerance limit of 6.56%. Specifically, the question is whether this tolerance limit applies to both assessees in the impugned assessment years, considering the decision of the Co-ordinate Bench of the ITAT-Mumbai Bench "G" in ACIT v. Sunil B Dalal, (2022) 145 taxmann.com 313 (Mum Trib). The relevant paragraphs are extracted as below: - 85/Mum/2025 Saggar Parimmal / Ketan Kumar Sagar “18. We have carefully considered the rival contentions and perused the orders of the lower authorities. Referred facts shows that Assessee has purchased 7 properties. Sale consideration in all the properties is 28,78,28,500/- and stamp duty value is Rs. 26,96,75,300/-. Thus difference of Rs. 1,81,53,200/- was made by the LD AO u/s 56(2) (x) of The Act. The LD CIT found that out of 7 properties in case of 6 properties the difference between the agreed consideration and stamp duty value is approximately 6%. In the 7th property, such difference was 14.50 %. Therefore, he confirmed the addition of 7th properties and deleted the addition with respect to 6 properties holding that Proviso to section 50C inserted with effect from 1-4-2019 by the Finance Act 2018 allowed the tolerance band of 5%. It was held to be applicable retrospectively. Further, by the Finance Act 2020 with effect from 1-4-2021 in the same proviso the tolerance band is replaced by increasing it to 10%. Therefore, when there is no change in the wording of the proviso but only tolerance band is increased it should also apply retrospectively.
Coordinate bench in case of Maria Fernandes Cheryl (supra) has already held that the amendment made by Introducing proviso [Introduction of tolerance band of 5 % and later on 10%] applies with effect from 1-4-2003 when the provision of section 50C were introduced.
Further introduction of tolerance band is for removing the hardship in the section. once a statutory amendment is being made to remove an undue hardship to the assessee or to remove an apparent incongruity, such an amendment has to be treated as effective from the date on which the law, containing such an undue hardship or incongruity, was introduced as held by Hon Supreme Court in CIT v. Alom Enterprises Ltd. [2009] 185 Taxman 416/319 ITR 306/227 CTR 417.
In view of above, respectfully following the decision of the coordinate bench in Maria Fernandes Cheryl (supra) we do not find any infirmity in the orders of the ld CIT (A) in applying the tolerance band limit of 10 % in the impugned assessment year also and thereby deleting the addition of Rs. 1,51,20,900/-. Accordingly, Ground no 2 is dismissed.
In the result, Appeal of Theld AO is dismissed.” The same view was taken by the ITAT-Mumbai bench in the case ofShri Ashutosh Sinha v. ITO, Order dated 29/08/2023in favour of the assessee. The relevant paragraph is reproduced as below: - “14. On perusal of the relevant material placed on record, we find that at the very first instance, assessee had filed Valuation Report by the Registered Valuer, who after detailed examination and reasoning has valued the fair market value of the property at Rs.6,07,68,000/- which was Rs.2,68,000/- more than the actual sale consideration shown by the assessee. Once the matter 85/Mum/2025 Saggar Parimmal / Ketan Kumar Sagar was referred to the DVO he has taken various sale instances of similar property in the same area and has taken an average of sale instances would derive at the valuation at Rs.6,65,90,250/-. We agree with the contention of the ld. Counsel that if the difference is less than 10% between fair market value and the sale consideration shown, then no addition should be made. This is so because third proviso to Section 56(2)(vii) provides reference to Section 50C for determining the valuation of the property of valuation officer. The third proviso to Section 50C provides that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed 10% of the consideration received shall be taken as full value consideration i.e. if the difference is less than 10%, the same can be taken as share market value. Though this provision has been brought in the statute w.e.f. 01/04/2019, however, Courts have held that the same is beneficial provision, therefore, benefit should be given with retrospective effect. Thus, we hold that if the difference between the actual sale consideration & FMV determined by the valuation officer is less than 10%, then no addition should be made u/s.56(2)(vii)(b).” In light of these decisions, we find that the amendment in question is curative in nature and is retrospectively applicable for impugned assessment year. Consequently, the assessee is eligible for the 10% tolerance limit under section 56(2)(x)(b)(B) of the Act and the impugned addition is deleted. the Ld. AO has adopted a view that limits the tolerance threshold to 5% of the total consideration. This view is wholly unjustified and contrary to the correct interpretation of section 56(2)(x)(b)(B) of the Act. Therefore, the addition made on this account is directed to be deleted. we note that the CIT(A) has passed an ex parte order without considering the merits of the case. Since both assessees are co-owners of the property and the issue involved is common, we find it appropriate to decide both appeals in favor of the assessees. The principle of mutatis mutandis applies, and accordingly, the grounds raised in both appeals are allowed.