SHRI GURUDEV CHANDRASHEKHAR KARANTH,PUNE vs. INCOME TAX DEPARTMENT CIT(DRP-3), MUMBAI

3. The appellant craves leave to add, alter, delete, amend, withdraw, modify, change or substitute any ground or grounds of appeal

or to add any new ground or grounds of appeal during or before the hearing of the appeal.” Findings and Analysis :

2. We have heard both the parties and perused the documents filed.As per the Assessment Order Assessee Gurudev Chandrashekar Karanth is an individual residing in California, United States of America during the year. The Assessee had stayed in India for 21 days during F.Y.2017-18, hence as per Section 6 of the Income Tax Act, the assessee’s status is Non Resident for AY 2018-19. 2.1 The assessee had purchased along with his wife Smt.Isha Bhatt Flat Number 4101, Building Alpine, Thakur Village Road, Phase-1, Samata Nagar Kandivali Mumbai, which was registered on 09/01/2018. The Purchase consideration paid was Rs.1,82,91,500/- but the Valuation as decided by Stamp Authority was Rs.2,11,35,810/-. The Assessing Officer(AO) in the Assessment Order noted that Assessee had not filed Return of Income u/s.139 of the Act. Hence, the AO issued notice u/s.148A(b) of the Act, however, assessee failed to comply the notice. Then the AO passed an Order u/s.148A(d) of the Act.Then, the AO issued Notice u/s.148 dated 28/04/2022. In response to notice u/s.148 of the Act, the Assessee filed Return of Income declaring Total Income at NIL. The AO issued notice u/s.143(2) and 142, the assessee filed reply. The assessee submitted to the AO that Assessee had entered in Agreement to Sale with the developer on 30/12/2015 and substantial payments have been made in F.Y.2015-16 only. During the [A] reassessment proceedings, the Assessee objected to the Valuation made by Stamp Authority. Accordingly, the AO referred the issue for valuation to the Departmental Valuation Officer(DVO). The Assessee also relied on certain decisions of ITAT. The DVO vide Valuation Report dated 21/05/2024 arrived at the Value of the impugned flat at Rs.1,90,67,000/- as on 25/08/2015. The Assessee submitted before the AO that the difference between Value Arrived by the DVO and the price paid is less than 5% hence no addition can be made. The AO passed a Draft Assessment Order. In the Draft Assessment Order the AO proposed an addition of Rs.7,75,500/- (which was the difference between the Value of the impugned Flat as per DVO and price paid by the assessee), u/s.56(2)(x) of the Act. Aggrieved by the Draft Assessment Order the Assessee filed Objections before the Dispute Resolution Panel. The DRP held as under : “5.3. Discussion of the Issue by DRP: 5.3.1 In this case, the AO has proposed an addition of Rs.7,75,500/- u/s 56(2)(x) of the Act being the difference in the difference in the Fair Market Value (FMV) determined by the Valuation Officer, Valuation Cell. Mumbai and the actual purchase consideration of the immovable property ETAX DEPAR 5.3.2 The applicant assessee has argued that the FMV determined by the Valuation Officer was Rs.1,90,67,000/- and the actual purchase consideration was Rs.1,82,91,500/-. According to the applicant the difference being Rs.7,75,500/- was less than 5% of the consideration, no addition could be made in his case u/s 56(2)(x) of the Act. The applicant has also relied on certain case laws. 5.3.3 The Panel notes that the stamp duty value of the impugned property was Rs.2,11,35,810/-. The difference in the stamp duty value and the purchase consideration of Rs.1,82,91,500/- was Rs. 17,53,990/- and no such tolerance band of 5% was available u/s 56(2)(x) as the position of the law stood in AY 2018-19. The AO had referred the case to the Valuation Officer and has in any case restricted the addition to Rs.7,75,500/- u/s 56(2)(x) of the Act, being the difference in FMV determined by the Valuation Officer and the actual purchase consideration. The case laws cited by the applicant are not applicable to the facts of the present case and in this case a reference was made to the Valuation Officer and FMV as determined by the Valuation Officer has been duly considered by the AO. Thus, the addition proposed by the AO is as per the prevailing law and no interference is called for. The proposed addition is sustained.” 2.2 Then, the AO passed an Order u/s.147 r.w.s. 144C(13) of the Act, assessing the Total Income of the Assessee at Rs.7,75,500/-.

3.1 Thus, in this case it is an admitted fact that the Assessee was NRI and source of funds for purchase of flat number 4101, Building Alpine, Kandivali Mumbai was Income earned outside India. During the Assessment proceedings the Assessee had submitted Copies of his Passport, bank statements, employment details which has been accepted by the AO.

(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

(b) any immovable property,—

(A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

(B) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: Following item (B) shall be substituted for the existing item (B) of sub-clause (b) of clause (x) of sub-section (2) of section 56 by the Finance Act, 2018, w.e.f. 1-4-2019 :

(B) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:—

(i) the amount of fifty thousand rupees; and (ii) the amount equal to five per cent of the consideration: Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of [A] registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause : 6. Thus, as per the amendment if the difference between the Stamp Duty Value and the Actual cost is less than 5%, then, no addition can be made. This amendment is with effect from 01/04/2019. 6.1 The relevant paragraph of the Finance Bill 2018 explaining the impugned amendment is reproduced here as under to understand the intention of the Hon’ble legislators: Quote, “Rationalization of section 43CA, section 50C and section 56. At present, while taxing income from capital gains (section 50C), business profits (section 43CA) and other sources (section 56) arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted. The difference is taxed as income both in the hands of the purchaser and the seller. It has been pointed out that this variation can occur in respect of similar properties in the same area because of a variety of factors, including shape of the plot or location. In order to minimize hardship in case of genuine transactions in the real estate sector, it is proposed to provide that no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration is not more than five percent of the sale consideration. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.” Unquote.

7.1 ITAT Mumbai Bench in the case of Tushar R Shetty Vs. ITO for AY 2018-19 has held as under : Quote, “9. Therefore, respectfully following the decision of the coordinate bench of the Tribunal cited supra, since in the present case, excess of stamp duty value over the purchase consideration is less than 10% of the consideration, we are of the considered view that the provisions of section 56(2)(x)(b) of the Act are not applicable to the present case. Since on this short ground only the assessee is entitled to relief, the other contentions raised in the present appeal become academic at this stage and therefore are left open. Thus, the addition made under section 56(2)(x) of the Act is deleted. As a result, the impugned order is set aside and grounds raised by the assessee are allowed.” Unquote.

7.2 ITAT Mumbai Bench in the case of Glory Shipmanagement Pvt. Ltd. Vs. CIT for A.Y.2018-19 vide order dated 30/01/2024 held as under : Quote, “10. Consistent with the view taken by the Tribunal in the above decisions, we hold that the benefit of tolerance band of 10% shall be available to the Appellant for the Assessment Year 2018-19. Since, in the present case, admittedly the variation is purchase consideration and the fair market value is 9.14%, no addition was warranted in terms of Section 56(2)(x)(b)(B)(ii) of the Act. Accordingly, addition of INR 3,86,000/- made by the Assessing Officer, which was confirmed by the CIT(A), is deleted. Accordingly, Ground No. 1 raised by the Appellant is allowed. ” Unquote.

8.1 Therefore, respectfully following the judicial precedence, we hold that the addition made of Rs.7,75,500/- is non maintainable as the difference between Amount paid by the assessee and the value determined by DVO is only 4% which is less than 5%.