2021 (7) TMI 1098 - AT - Income Tax

Tribunal rules in favor of assessee, deletes addition under Section 56 due to circle rate variance

The Tribunal allowed the appeal, ruling in favor of the assessee by deleting the addition of Rs. 1,61,740 under Section 56 due to the variance between the ... Addition u/s 56 - difference between the circle rate and actual consideration received - Whether the learned CIT (A) as well as assessing officer was justified in not referring the property in question to the department valuation officer as demanded by the assessee and as per the provision of section 43CA read with section 50C? - HELD THAT:- Undoubtedly, the flat sold by M/s Techmen Buildwell (P) Ltd. for ₹ 55,16,000/- was less than the circle rate since the stamp duty was to be paid by the purchaser at ₹ 59,78,115/-. The difference between the circle rate and the actual sale consideration comes to ₹ 7.73% of the circle rate which is less than 10%. Mumbai bench of the Tribunal in the case of M/s John Flower (India) Pvt. Ltd. [2017 (1) TMI 1682 - ITAT MUMBAI] while considering an identical issue has deleted the addition made by the AO u/s 50C on the ground that such difference is less than 10% of the stamp duty valuation. Since the difference between circle rate and the actual sale consideration in the instant case is about 7.7% of the circle rate, which is less than 10% of the stamp duty valuation, therefore, respectfully following the decision of the Mumbai Bench of the Tribunal, hold that the ld.CIT(A) was not justified in sustaining the addition made by the AO. Accordingly, the order of the CIT(A) is set aside and the grounds raised by the assessee are allowed. Issues:1. Addition of Rs. 1,61,740 under Section 56 for the difference between circle rate and actual consideration received.2. Justification for not referring the property valuation to the department valuation officer as per Section 43CA and Section 50C.Analysis:1. The appeal was against the addition of Rs. 1,61,740 made by the AO under Section 56 due to the variance between the circle rate and actual consideration received. The assessee contended that the difference was only 7.5%, citing a Mumbai Tribunal decision where no addition was made for variances less than 10%. The CIT(A) upheld the addition, stating that Section 43CA mandates adopting the value assessed by the stamp valuation authority for computing capital gains. The Tribunal noted that the difference was less than 10% and, following the Mumbai Tribunal precedent, ruled in favor of the assessee, deleting the addition.2. The second issue revolved around the requirement to refer the property valuation to the department valuation officer, as demanded by the assessee. The CIT(A) did not find it mandatory to refer the valuation officer as Section 43CA uses the term 'may' instead of 'shall.' The Tribunal agreed with the CIT(A) that the AO was justified in not referring the valuation to the officer, as the case fell under Section 43CA. The Tribunal upheld the AO's decision, confirming the addition of Rs. 1,61,740, ruling against the appellant.3. The assessee's counsel argued that the Finance Act increased the permissible difference to 10%, making the 7.73% variance in this case acceptable. Citing the Mumbai Tribunal's decision, the counsel contended that no addition should be made for differences below 10%. The Tribunal concurred, noting that the difference was within the acceptable limit and, following the precedent, allowed the appeal, setting aside the CIT(A)'s decision and deleting the addition.4. In conclusion, the Tribunal allowed the appeal, emphasizing that the difference between the circle rate and actual consideration fell below the 10% threshold, aligning with the Mumbai Tribunal's precedent. The decision highlighted the importance of adhering to statutory provisions and relevant case law in determining additions based on property valuations, ultimately ruling in favor of the assessee.