Property purchase exempted from deemed income when circle rate difference below 10% under Section 56(2)(vii)(b)

ITAT Chandigarh held that Section 56(2)(vii)(b) read with Section 50C cannot be invoked when the difference between purchase value and circle rate is less than 10%. The assessee purchased property where the difference between fair market value determined by DVO and stated purchase consideration was 5.32%, which is below the 10% threshold. Following the Mumbai Bench precedent in Maria Fernandes Cheryl, the tribunal ruled that the third proviso to Section 50C applies retrospectively from 01/04/2003, exempting transactions where the difference is under 10%. The assessee's appeal was allowed.

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Issues Involved:
1. Ex-parte order passed by the Commissioner of Income Tax (Appeals) without proper opportunity of hearing.
2. Addition of Rs. 23,57,085/- under Section 56(2)(vii)(b) of the Income Tax Act.
3. Rectification of the addition reducing it to Rs. 5,30,791/- and its implications under Section 56(2)(vii)(b) read with Section 50C.
4. General arbitrariness and opposition to the facts of the case by the Commissioner of Income Tax (Appeals).

Detailed Analysis:

1. Ex-parte Order:
The Assessee contended that the Commissioner of Income Tax (Appeals) erred in passing an ex-parte order without affording a proper opportunity of hearing, which is against the Principles of Natural Justice. However, this ground was not pressed during the hearing and hence was dismissed as not pressed.

2. Addition under Section 56(2)(vii)(b):
The Assessee challenged the addition of Rs. 23,57,085/- made by applying the provisions of Section 56(2)(vii)(b), arguing that it was arbitrary and unjustified. The Assessing Officer (AO) had initially made this addition based on the difference between the purchase value of a property and its circle rate valuation. The AO had added the difference of Rs. 23,57,085/- to the Assessee's income under Section 56(2)(vii)(b).

3. Rectification and Implications under Section 56(2)(vii)(b) read with Section 50C:
The Assessee submitted that a rectification order was passed on 09/04/2019, reducing the addition from Rs. 23,57,085/- to Rs. 5,30,791/- after the District Valuation Officer (DVO) determined the Fair Market Value (FMV) of the property to be Rs. 1,05,05,791/-. The revised difference between the purchase value and the circle rate was less than 10% of the stated sale consideration. The Assessee argued that according to the proviso to Section 56(2)(vii)(b) read with the third proviso to Section 50C, which has been held applicable retrospectively from 01/04/2003, the provisions of Section 56(2)(vii)(b) cannot be invoked if the difference is less than 10%.

The Tribunal referenced the decision of various Coordinate Benches and the CBDT circular 8 of 2018, which acknowledged that variations between stamp duty value and actual consideration can occur due to various bona fide factors. The Tribunal noted that the third proviso to Section 50C(1) was a curative amendment meant to address unintended consequences and should be applied retrospectively. The Tribunal concluded that since the difference in FMV as determined by the DVO and the stated purchase consideration was 5.32%, which is less than 10%, the provisions of Section 56(2)(vii)(b) could not be invoked.

4. General Arbitrariness:
The Assessee argued that the order of the Commissioner of Income Tax (Appeals) was arbitrary, opposed to the facts of the case, and thus untenable. The Tribunal, after hearing the rival contentions and perusing the material on record, found that the addition sustained by the Commissioner of Income Tax (Appeals) was not justified given the retrospective application of the proviso to Section 50C.

Conclusion:
The Tribunal allowed the appeal of the Assessee, deleting the addition made under Section 56(2)(vii)(b) and sustained by the Commissioner of Income Tax (Appeals). The order was pronounced in the open Court on 28/08/2024.

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