SURESH KHAIRAJANI,MUMBAI vs. PR. CIT - 20, MUMBAI

1. The appeal is filed by the assessee against the order of Principal Commissioner of Income Tax (Pr.CIT)-20, Mumbai passed under Section 263 of the Act.

The learned Principal Commissioner of Income Tax (Pr. CIT-20) failed to appreciate that the impugned assessment order dated 27th December,2017 was completed after adequate enquires by the AO and that the AO was fully satisfied on the captioned matter with replies filed or explained and consequently the impugned assessment order is neither erroneous nor prejudicial to the interests of the revenue. This fact can be verified by Para 8 of the Assessment Order which is reproduced below for your ready reference. "Reply from valuation officer is received vide letter No. DVO~ II/MUM/CGT- 414/2017-18/445 dated 26.12.2017. In the report submitted by the DVO-II, Mumbai the fair market: value of the property under discussion is estimated at /?s. 7,72,81,000/- as on 05.08.2014. The value of the property as shown in the purchase deed is Rs.7f28,77,5QQ/- which is less than the fair market value by Rs, 44,03,5QQ/-. Considering the submission of the assessee on this issue, return is accepted."

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. The assessee has filed detailed explanations on the rate of purchase, the applicability of provisions of Section 56(2)(vii)(b) of the IT Act and the valid reasons for difference in the market value and judicial decisions. The Assessing Officer based on the submissions and the request of the assessee has referred the matter for valuation u/s 55A of I T Act vide letter dated 27.11.2017.The District Valuation Officer (DVO) has submitted the report valuing the fair market value(FMV)of the property at Rs.7,72,81,000/- as on 05.08.2014. Whereas the said property was purchased as per the registered sale deed for Rs.7,28,77,500/- which is less than the fair market value by Rs.44,03,500/-.The Assessing Officer considering the submissions, provisions and the information has accepted facts of valuation of property and the income as per the return of income filed and assessed the total income of Rs.28,82,528/- and passed the order u/s 143(3) of the Act dated 27.12.2017.

Aggrieved by the order of the Pr.CIT, the assessee has filed an appeal before the Hon’ble Tribunal. At the time of hearing, the Ld. Authorized Representative submitted that the Pr. CIT has observed and directed the Assessing Officer to frame the fresh assessment on the basis that the Assessing Officer has not considered the DVO report and has not made the addition in the assessment proceedings. Whereas the Ld. AR emphasized that the Assessing Officer has referred to valuation report, and considered the explanations and passed the assessment order. Further, the Ld. AR submitted that the order of the Assessing Officer does not satisfy the twin conditions of erroneous and prejudicial to the interest of

We have heard the rival submissions and perused the materials on record. The Ld.AR contentions are on the sole crux of the disputed issue that the order passed by the A.O. does not satisfy the twin conditions that (i) erroneous and (ii) prejudicial to the interest of the revenue. The Pr.CIT has only considered the fact that the AO has not conducted enquiry and not applied the mind and further there are no specific reasons and findings are recorded in the revision order. The Ld.AR referred to revision notice and emphasized that the Pr. CIT has overlooked the facts and information and passed the order with the directions to Assessing Officer to

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. frame the fresh assessment. The Ld.AR contentions are that the District valuation officer (DVO) has determined the fair market value (FMV) of the property at Rs.7,72,81,000/- . Whereas the assessee has acquired the said property for a consideration of Rs.7,28,77,500/- and hence there is a difference of Rs.44,03,500/- which cannot be a part of the purchase consideration as it was not actually paid for acquisition of the property. The Ld.AR emphasized that the difference between two valuations is worked out to @6.04% of purchase consideration. The Ld. AR made elaborate submissions on the applicability of provisions of section 50C of the Act and the Revision proceedings u/s section 263 of the Act and supported the submissions with the judicial decisions in the legal paper book as under:

The Ld. AR submitted that the valuation is always a matter of estimation,where some degree of difference is bound to occur and the normal margin of error can be accepted up to 10%, The Ld.AR substantiated the submissions with the legal decisions which are binding on the revenue authorities and has referred to decision of the Co-ordinate Bench of the Honble Tribunal in the case of Stalwart Impex Pvt. Ltd. vs. ITO-15(3)(4) in for Asst. Year 2016-17 dated 02.07.2021.The observations of the Hon’ble Tribunal at page 3 of para-4 to 9 of the order read as under: “ 4. Both sides heard, orders of authorities below examined. The solitary issue assailed by the assessee is addition made u/s 43CA of the Act in respect of difference between agreement value of the flats and market value determined by the DVO. The value of flats as per assessee, Stamp Duty Value and value as determined by the DVO are tabulated herein under: Sr. Flat Agreement Stamp Duty Fair Market Value Difference No. No. value Value as determined by (in Rs.) (in Rs.) (in Rs.) DVO (in Rs.) 1. E- 30,92,250 34,04,000 32,27,000 1,34,750 1/404 2. D- 32,24,750 40,40,000 37,36,000 5,11,250 2/702 3. F-1/502 33,94,500 35,39,000 34,30,000 35,500 Total 97,11,500 1,09,83,000 1,03,93,000 6,81,500

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. The difference between agreement value and value determined by DVO is Rs.6,81,500/-. In terms of percentage the difference is 7% approximately. The short contention of the assessee is that where the difference between the agreement value and the market value is less than 10% no addition should be made. 5. Similar issue had come up before the Tribunal in the case of Radhika Sales Corporation (supra). The Tribunal deleted the addition by observing as under: “5. We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The solitary issue raised in the appeal by the assessee is against the addition of Rs.10,38,000/- on account of difference in Long Term Capital Gain declared by the assessee and computed by the Assessing Officer after considering the DVO’s valuation report. It is an undisputed fact that the assessee has disclosed sale consideration of the land as Rs.1,10,00,000/-. During the scrutiny assessment proceedings reference was made to DVO for the valuation of property. The DVO vide report dated 30-12-2013 determined the fair market value of the property as Rs.1,20,38,000/-. The difference between actual sale consideration declared by the assessee and the fair market value determined by the DVO is approximately 9.43%. We find that the Co- ordinate Bench of the Tribunal in the case of Dattatraya Kerba Lonkar Vs. Deputy Commissioner of Income Tax (supra) after considering various decisions including the decision rendered in the case of Rahul Constructions Vs. Deputy Commissioner of Income Tax (supra) and the judgment of Hon’ble Patna High Court in the case of Bimla Singh Vs. Commissioner of Income Tax (supra) has held as under: “8. We find merit in the submission of Ld. A.R. The difference between the fair market value determined by the DVO and actual sale consideration is Rs.7,14,530/-i.e slightly more than 2 per cent of the sale consideration. The co-ordinate Bench of the Tribunal in the case of Rahul Construction V/s. DCIT (supra) has held that where difference between the sale consideration declared by the assessee and fair market value as determined by the DVO u/s 50C is less than 10 percent, the Assessing Officer was not justified in substituting the value

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. determined for sale consideration disclosed by the assessee. The Co-ordinate Bench after considering the provisions of Section 50C of the Act and the provision of section 23A and 24(5) of the Wealth Tax Act held as under :- “13. A combined reading of the above provisions shows that the valuation adopted by the DVO is subject to appeal and the same is not final. In the instant case we find that as Aagainst the value of Rs. 28,73,000/- adopted by the stamp valuation authorities, the DVO has determined the FMV on the date of transfer at Rs. 20,55,000/- . This itself shows that there is wide variation between the two values. Further, the value adopted by the DVO is also based on some estimate. We find that the difference between sale consideration shown by the assessee at Rs.19,00,000/- and the FMV determined by the DVO at Rs.20,55,000/- is only Rs. 1,55,000 which is less than 10 per cent. The Courts and Tribunals are consistently taking a liberal approach in favour of the assessee where the difference between the value adopted by the assessee and the value adopted by the DVO is less than 10 per cent. 14. We find that the Pune Bench of the Tribunal in the case of Asstt. CIT V/s. Harpreet Hotels (p) Ltd. vide and relied on by the learned counsel for the assessee had dismissed the appeal filed by the Revenue where the CIT(A) had deleted the unexplained investment in house construction on the ground that the difference between the figure shown by the assessee and the figure of the DVO is hardly 10 percent. 15. Similarly, we find that the Pune Bench of the Tribunal in the case of ITO V/s. Kaaddu Jayghosh Appasaheb, vide ITA No.441/PN/2004 for the asst. yr 1992-1993 and relied on by the learned counsel for the assessee following the decision of the J&K High Court in the case of Honest Group of Hotels (P) Ltd. V/s CIT (2002) 177 CTR (J&K) 232 had held that when the margin between the value as given by the assessee and the Departmental valuer was less than 10 per cent , the different is liable to be ignored and the addition made by the A.O cannot be sustained.

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. 16. Since in the instant case such difference is less than 10 per cent and considering the fact that valuation is always a matter of estimation where some degree of difference bound to occur, we are of the considered opinion that the A.O. in the instant case is not justified in substituting the sale consideration at Rs.20,55,000 as Against the actual sale consideration of Rs.19,00,000/- disclosed by the assessee. We, therefore, set aside the order of the CIT(A) and direct the A.O. to take Rs.19,00,000/- only as the sale consideration of the property. The grounds raised

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. It would be relevant to mention here that the aforementioned decision was rendered with reference to provisions of Section 50C of the Act. The addition in the instant case is made u/s 43CA of the Act. I find that the provisions of both the sections are pari materia, except that the provisions of section 43CA operate in respect of consideration received on transfer of an asset (other than capital asset) being land or building or both and provisions of section 50C are attracted on transfer of capital assest being land or building or both. Hence, the decision rendered u/s.50C of the Act giving leverage of minor variation, in the value declared by the assessee and the stamp duty value would equally hold good for variation in the value u/s 43CA of the Act. Thus, from the above decision it can be safely deduced that where the difference between sale consideration declared by the assessee and stamp duty value of an asset (other than capital asset) being land or building or both is less than 10%, no addition under section 43CA of the Act is warranted. 6. Here, it would be relevant to mention that the Finance Act 2018 has inserted a proviso to sub-section (1) of section 43CA providing 5% tolerance limit in variation between declared sale consideration vis-a-vis stamp duty value for making no addition. Similar proviso was inserted by the Finance Act 2018 to sub- section (1) to section 50C of the Act. The said tolerance limit band was enhanced from 5% to 10% by the Finance Act 2020 w.e.f. 01/4/2021. The Tribunal in the case of Maria Fernandes

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. Cheryl vs. ITO (International Taxation) reported as 123 taxmann.com 252 (Mumbai) after considering various decision and the CBDT Circular No. 8 of 2018 dated 26-12-2018 held, that the amendment is retrospective in nature and relates back to the date of insertion of statutory section to the Act. The relevant extract of the observations made by the Bench reads as under: “ 7. ………………… The insertion of the third proviso to Section 50C(1) provides for this tolerance band with respect to a certain degree of variations between the stamp duty valuation and the stated consideration of an immovable property. In other words, as long as the variations are within the permissible limits, the anti-avoidance provisions of Section 50C do not come into play. As we have noted earlier, the CBDT itself accepts that there could be various bonafide reasons explaining the small variations between the sale consideration of immovable property as disclosed by the assessee vis-à-vis the stamp duty valuation for the said immovable property. Obviously, therefore, disturbing the actual sale consideration, for the purpose of computing capital gains, and adopting a notional figure, for that purpose, will not be justified in such cases. On a conceptual note, an estimation of market price is an estimation nevertheless, even if by a statutory authority like the stamp duty valuation authority, and such a valuation can never be elevated to the status of such a precise computation which admits no variations. The rigour of Section 50C(1) was thus relaxed, and very thoughtfully so, to take these bonafide cases of small variations between the stated sale consideration vis-à-vis stamp duty valuation, out of the scope of adjustments contemplated in the computation of capital gains under this anti-avoidance provision. In our humble understanding, it is a case of a curative amendment to take care of unintended consequences of the scheme of Section 50C. It makes perfect sense, and truly reflects a very pragmatic approach full of compassion and fairness, that just because there is a small variation between the stated sale consideration of a property and stamp duty valuation of the same property, one cannot proceed to draw an inference against the assessee, and subject the assessee to practically prove his being truthful in stating the sale consideration. Clearly, therefore, this insertion of the third proviso to Section 50C(1) is in the nature of a remedial measure to address a bonafide situation where there is little justification for invoking

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. an anti-avoidance provision. Similarly, so far as enhancement of tolerance band to 10% by the Finance Act 2020, is concerned, as noted in the CBDT circular itself, it was done in response to the representations of the stakeholders for enhancement in the tolerance band. Once the Government acknowledged this genuine hardship to the taxpayer and addressed the issue by a suitable amendment in law, the next question was what should be a fair tolerance band for variations in these values. As a responsive Government, which is truly the hallmark of the present Government, even though the initial tolerance band level was taken at 5%, in response to the representations by the stakeholders, this tolerance band, or safe harbour provision, was increased to 10%. There is no particular reason to justify any particular time frame for implementing this enhancement of tolerance band or safe harbour provision. The reasons assigned by the CBDT, i.e., "the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location," was as much valid in 2003 as it is in 2021. There is no variation in the material facts in this respect in 2021 vis-à-vis the material facts in 2003. What holds good in 2021 was also good in 2003. If variations up to 10% need to be tolerated and need not be probed further, under section 50C, in 2021, there were no good reasons to probe such variations, under section 50C, in the earlier periods as well. We are, therefore, satisfied that the amendment in the scheme of Section 50 C(1), by inserting the third proviso thereto and by enhancing the tolerance band for variations between the stated sale consideration vis-à-vis stamp duty valuation to 10%, are curative in nature, and, therefore, these provisions, even though stated to be prospective, must be held to relate back to the date when the related statutory provision of Section 50C, i.e. 1st April 2003. In plain words, what is means is that even if the valuation of a property, for the purpose of stamp duty valuation, is 10% more than the stated sale consideration, the stated sale consideration will be accepted at the face value and the anti-avoidance provisions under section 50C will not be invoked. 8. Once legislature very graciously accepts, by introducing the legal amendments in question, that there were lacunas in the provisions of section 50C in the sense that even in the cases of genuine variations between the stated consideration and the stamp duty valuation, anti-avoidance provisions under section 50C could be pressed into service, and thus remedied the law, there is no escape

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. from holding that these amendments are effective with effect from the date on which the related provision, i.e., Section 50C, itself was introduced. These amendments are thus held to be retrospective in effect. In our considered view, therefore, the provisions of the third proviso to Section 50C (1), as they stand now, must be held to be effective with effect from 1st April 2003. We order accordingly. Learned Departmental Representative, however, does not give up. Learned Departmental Representative has suggested that we may mention in our order that "relief is being provided as a special case and this decision may not be considered as a precedent". Nothing can be farther from a judicious approach to the process of dispensation of justice, and such an approach, as is prayed for, is an antithesis of the principle of "equality before the law," which is one of our most cherished constitutional values. Our judicial functioning has to be even-handed, transparent, and predictable, and what we decide for one litigant must hold good for all other similarly placed litigants as well. We, therefore, decline to entertain this plea of the assessee.” [Emphasis added now] As has been aptly explained above, the rational for holding newly inserted proviso to sub-section (1) to section 50C of the Act as curative in nature, hence, having retrospective application, the same analogy would apply to the provisions of Section 43CA of the Act. Both the sections are similarly worded except that both the sections have application on different sets of assessee. As has been pointed earlier, Section 43CA gets attracted where the consideration received or accrues as a result of transfer of an asset (other than a capital asset) being land or building or both. Whereas, provisions of section 50C operates where the consideration received or accrues as a result of transfer of a capital asset being land or building or both. Both the sections induce deeming fiction to substitute actual sale consideration with

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. notional value of asset based on Stamp Duty valuation. Further, a perusal of Circular 8 of 2018 (supra) would show that identical reasons have been given in Para 16 for ‘Rationalization of Sections 43CA and 50C’. The proviso has been inserted and subsequently tolerance band limit has been enhanced to mitigate hardship of genuine transactions in the real estate sector. Ergo, in the light of reasoning given for insertion of the proviso and exposition by the Tribunal for retrospective application of the said proviso, I have no hesitation in holding that the proviso to sub- section (1) to section 43CA and the subsequent amendment thereto relates back to the date on which the said section was made effective i.e. 01/4/2014. 7. In light of above findings, the Assessing Officer is directed to delete the addition of Rs.6,81,500/- under section 43CA of the Act. The impugned order is quashed and appeal of the assessee is allowed.” 9. We considered the provisions of the Act and ratio of the judicial decisions are of the opinion that the amendment of section 50C(1) of the Act as discussed in the above judicial decisions of the Co-ordinate Bench of the Honble Tribunal is applicable for earlier years retrospectively and the variation in FMV between 5% to 10% is acceptable. Whereas in the present case as per the assessee explanations before the Assessing officer, there is only a difference @ 6.04% of purchase consideration and was

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. accepted by the Assessing officer based on the judicial decisions and application of mind on the facts. The Ld.AR submitted that the provisions of law itself allows @10% difference margin and retrospective applicability and relied on the Co-ordinate Bench of Honble Tribunal decision Maria Fernandes Cheryl Vs ITO In ITA.no. The Ld.AR 4850/Mum/2019 dated 15-01-2021. submitted that the Pr.CIT has only directed the A.O to make enquiries and frame the fresh Assesseement. Whereas the A.O in the notice u/s 142(1) of the Act has called for the information and discussed on the issues. The emphasizes of the Ld.AR that the assessee has submitted the explanations on the disputed issue incorporated in the Assesseement order and on the request of the Assessee , the A.O. has referred to the valuation officer u/sec55A of the Act and DVO report was received and the Assesseement order was passed. The Ld. AR also submitted that the Pr.CIT has not considered these facts that the A.O has called for the information and the case was discussed and there cannot be any non application of mind by the A.O. We find that the A.O has considered one of the possible view based on the information and it is not necessary that the A.O

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. should put all the discussions/observations in the assessment order, as per explanations (2) to sec 263 of the Act the authority has to invoke provisions only when there is no verification and enquiry conducted by the A.O. Whereas the A.O has applied his mind and verified the facts. We find the Hon’ble High Court Bombay in CIT Vs. Gabriel India Ltd.203 ITR 108.(Bom) has observed as under:

Suresh Chanchaldas Khairajani v. Pr.CIT ITA.No.193/Mum/2021. submitted in the course of hearing are of the view that the if any query is raised in the assessment proceedings and it was responded by the assessee and the A.O. has taken a possible view, further the mere fact that it is not dealt with by the A.O. in the order cannot implied that there is no application of mind. Hence, the Pr.CIT action/ directions cannot be acceptable as the order passed by the A.O. does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. Accordingly, we set aside the order of the Pr.CIT and allow the grounds of appeal in favour of the assessee.

In the result, the appeal filed by the assessee is allowed.