No Addition Under Section 56(2)(x) if Sale Price Differs Less Than 5% from Stamp Duty Value

The ITAT Ahmedabad held that an addition under section 56(2)(x) for the difference between the sale consideration and the stamp duty value was not justified as the difference was less than 5%. The AO's addition, confirmed by the CIT(A), was set aside since the provision mandates addition only if the difference exceeds 5%. The tribunal also noted ongoing litigation on the title and specific performance at the time of sale, explaining the lower sale price. Consequently, the addition was deleted and the assessee's appeal allowed.

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ISSUES:

Whether an addition under section 56(2)(x) of the Income Tax Act can be made on the difference between the sale consideration as per registered deed and the stamp duty valuation when the difference is less than 5%.Whether the existence of a title dispute and possession by a third party at the time of sale justifies a sale consideration lower than the circle rate, thereby negating the applicability of section 56(2)(x) addition.Whether valuation by the District Valuation Officer (DVO) exceeding the circle rate (stamp duty valuation) can be used for making additions under section 56(2)(x).

RULINGS / HOLDINGS:

The addition under section 56(2)(x) is not warranted where the difference between the sale consideration and the stamp duty valuation is less than 5%, as per the express provision of section 56(2)(x)(B)(ii) which requires the difference to be more than 5% for addition.The presence of a bona fide title dispute and possession by a third party at the time of sale justifies a sale consideration lower than the circle rate, and therefore, the addition under section 56(2)(x) on account of difference in valuation is not sustainable.A valuation report by the DVO that exceeds the circle rate (stamp duty valuation) cannot be used to justify an addition under section 56(2)(x), since the DVO valuation cannot be made more than the circle rate prevailing on the date of registry.

RATIONALE:

The Court applied the statutory framework of section 56(2)(x) of the Income Tax Act, 1961, which governs the taxation of income from property transactions where the consideration is less than the stamp duty value.The Court emphasized the specific threshold condition under section 56(2)(x)(B)(ii) that additions can only be made if the difference exceeds 5% of the consideration mentioned in the sale deed.The Court relied on judicial findings from the Hon'ble Gujarat High Court regarding the title dispute and the legal invalidity of prior agreements affecting the property, establishing factual justification for the lower sale price.The Court rejected the use of DVO valuation exceeding the circle rate as it contradicts the principle that DVO valuation cannot surpass the stamp duty valuation prevailing on the date of registry.No dissent or doctrinal shift was noted; the decision follows established statutory interpretation and judicial precedent concerning valuation and taxation under section 56(2)(x).

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