Stamp Duty Value Adopted for Property Transfer Income Under Section 56(2)(x)(b); No Capital Gains Addition Under Section 50C

The ITAT Mumbai held that the assessee's consideration for the transfer of immovable property, evidenced by a valid agreement and adjustment entries in the partnership firm's books, could not be disregarded. The AO was directed to adopt the stamp duty value as on the date of the Declaration Deed for determining income under Section 56(2)(x)(b), deleting the addition made by the AO. Regarding long-term capital gains under Section 50C, the tribunal found the difference between stamp duty value and consideration was less than 10%, negating the need for any addition. Consequently, the CIT(A)'s order was overturned, and all additions were deleted, allowing the assessee's grounds.

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ISSUES:

Whether additions under Section 56(2)(x)(b) of the Income Tax Act, 1961 are justified where immovable properties were purchased at consideration less than stamp duty value, and whether the proviso to Section 56(2)(x)(b) regarding stamp duty value on the date of agreement applies.Whether there is an arithmetical error in the additions made under Section 56(2)(x)(b) of the Act.Whether enhancement of Long Term Capital Gains (LTCG) under Section 50C of the Act is justified where the difference between the stamp duty value and sale consideration is less than 10%.Whether the order confirming the additions is bad in law and contrary to the provisions of the Act.

RULINGS / HOLDINGS:

On the applicability of Section 56(2)(x)(b), the Court held that the stamp duty value as on the date of the Declaration Deed (25/12/2008) shall be adopted for determining the income under Section 56(2)(x)(b), as the Assessee had an agreement fixing consideration and payment through prescribed banking channels, satisfying the Proviso to Section 56(2)(x)(b). Accordingly, the addition of INR 1,35,17,669/- was deleted.The alleged arithmetical error in the addition under Section 56(2)(x)(b) was dismissed as infructuous after the primary addition was deleted.Regarding enhancement of LTCG under Section 50C, the Court held that no addition was warranted where the difference between the stamp duty value and declared sale consideration was less than 10%, relying on coordinate bench decisions interpreting the third proviso to Section 50C(1) as applicable retrospectively and harmoniously with Section 56(2)(x)(b). Therefore, the addition of LTCG of INR 6,30,873/- was deleted.Since Grounds No. 1 and 3 were allowed, the ground challenging the legality of the order was dismissed as academic.

RATIONALE:

The Court applied the statutory framework of Section 56(2)(x)(b) of the Income Tax Act, 1961, particularly its provisos which allow adoption of stamp duty value on the date of agreement if consideration is paid through specified banking channels, thereby excluding additions where these conditions are met.The Court relied on the Declaration Deed and audited financial statements to establish that the Assessee had received the property consideration through proper banking channels and that the agreement fixing consideration existed prior to the relevant assessment year, thereby invoking the Proviso to Section 56(2)(x)(b).In addressing the enhancement of LTCG under Section 50C, the Court followed precedents from coordinate benches which held that the 10% tolerance band introduced by the Finance Act, 2018, operates retrospectively and applies equally to buyers and sellers, preventing additions when the difference between stamp duty value and consideration is within 10%.The Court harmonized the provisions of Sections 50C, 43CA, and 56(2)(x), interpreting them to ensure legislative intent is fulfilled and to avoid contradictory valuations for the same property between buyer and seller.No dissenting or concurring opinions were recorded.

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