Property purchase variation of 9.14% falls within 10% tolerance limit under Section 56(2)(x)

ITAT Mumbai ruled in favor of the appellant regarding addition under Section 56(2)(x) for difference between purchase value and District Valuation Officer's valuation. The tribunal held that a 10% tolerance limit applies when comparing declared consideration with stamp duty authority valuation. Since the variation was 9.14%, falling within the 10% tolerance band, no addition was warranted. The tribunal followed precedent from Joseph Mudaliar case and deleted the addition made by Assessing Officer and confirmed by CIT(A) for Assessment Year 2018-19.

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Issues Involved:
1. Legality of the addition made under Section 56(2)(x) of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the addition made under Section 56(2)(x) of the Income Tax Act, 1961:

The Assessee challenged the order dated 24/07/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi, which partly allowed the appeal against the Assessment Order dated 14/09/2021, passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961, for the Assessment Year 2018-19. The primary issue was the addition of INR 3,86,000/- made by the Assessing Officer under Section 56(2)(x) of the Act due to the difference between the purchase value and the value determined by the District Valuation Officer (DVO).

The Appellant filed a return of income for the Assessment Year 2018-19, declaring a total income of INR 12,33,870/-. During scrutiny, the Assessing Officer noted that the Appellant purchased an immovable property for INR 41,00,000/-, while the stamp duty valuation was INR 66,64,200/-. A reference was made to the DVO, who determined the fair market value as INR 44,86,000/-, resulting in a difference of INR 3,86,000/-. Consequently, the Assessing Officer invoked Section 56(2)(x)(b) to add this difference as income.

In appeal, the Appellant argued that the difference, though exceeding 5%, was below 10% of the purchase consideration. However, the CIT(A) rejected this contention, stating that the 10% tolerance limit was effective from 01/04/2021 and not applicable retrospectively to the Assessment Year 2018-19.

The Tribunal examined the issue and found that the Mumbai Bench of the Tribunal in the case of Joseph Mudaliar Vs. Deputy Commissioner of Income Tax held that the permissible limit of variation in value specified in the third proviso to Section 50C(1) and Section 56(2)(x)(b)(B) of the Act, enhanced to 10% from 5% by the Finance Act, 2018, with effect from 01/04/2019, should apply retrospectively. This view was supported by other decisions, including Assistant Commissioner of Income Tax Vs. Sunil B Dalal, where the Tribunal held that the 10% tolerance band applies retrospectively as it is curative and beneficial in nature.

The Tribunal concluded that the benefit of the 10% tolerance band should be available for the Assessment Year 2018-19. Since the variation in the present case was 9.14%, no addition was warranted under Section 56(2)(x)(b)(B)(ii). Consequently, the addition of INR 3,86,000/- made by the Assessing Officer and confirmed by the CIT(A) was deleted, and the appeal was allowed.

Conclusion:

The Tribunal allowed the appeal, holding that the benefit of the 10% tolerance band should apply retrospectively, thus deleting the addition of INR 3,86,000/- made under Section 56(2)(x) for the Assessment Year 2018-19.

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