2026 (1) TMI 1538 - AT - Income Tax

Immovable property valuation, bank interest and capital gains: valuation tolerance applied; additions deleted and one income issue remanded for verification

Addition under the tax provision for difference between agreement value and stamp duty valuation is deleted because the disparity (4.87%) falls within the ... Addition u/s 56(2)(vii)(b) - difference between the agreement value and the stamp duty valuation of the immovable property - as per AR difference between the agreement value and the stamp duty valuation works out to only 4.87 percent, which is well within the permissible tolerance limits recognised under the Act - HELD THAT:-As in Sri Sandeep Patil [2020 (10) TMI 923 - ITAT BANGALORE] has clearly laid down the principle that section 50C and section 56(2)(vii)(b) operate on the same transaction, there cannot be two different fair market values for the same property, and the tolerance proviso, though introduced subsequently, is curative and must be applied retrospectively to avoid absurd and inequitable results. CIT(A) has confirmed the addition without addressing this settled legal position and without distinguishing the binding co-ordinate Bench decision relied upon by the assessee. Such confirmation, in our considered view, is unsustainable. Thus, in view of the undisputed fact that the difference between the agreement value and stamp duty valuation is only 4.87 percent, we hold that no addition is warranted under section 56(2)(vii)(b) of the Act. Accordingly, the addition is directed to be deleted. Addition of difference in savings bank interest - AO noted interest credited in the bank statement and compared the same with the interest income declared in the return and there was a difference which was added - HELD THAT:- As per the explanatory chart placed by the assessee, the assessee had received total savings bank interest of Rs. 17,062/-. Interest expenditure of Rs. 14,195/- was incurred and net interest income of Rs. 9,661/- was offered to tax. The Assessing Officer ignored the netting of interest and made the addition merely on the basis of gross figures. The computation placed on record clearly shows that interest income was offered after adjusting interest expenditure. The Assessing Officer has not disputed the incurrence of interest expenditure nor has he shown that netting was impermissible. Once the net interest income has been offered, making an addition on the basis of gross credit results in incorrect computation. Therefore, the addition on account of difference in savings bank interest is deleted. Omission of Long Term Capital Gain - AO treated sale of shares as taxable income and computed Long Term Capital Gain holding that the assessee had omitted to offer the same - HELD THAT:- As per the details submitted by the assessee and noted by the AO in his order, the assessee furnished demat statements and holding period details, the shares were held for more than twelve months and the resulting Long Term Capital Gain was exempt under section 10(38).The records shows that the shares were acquired in earlier years and sold after a holding period exceeding twelve months. The exemption under section 10(38), as applicable to the relevant year, is available. Neither the AO nor the CIT(A) has recorded any finding to show that the conditions of section 10(38) were not fulfilled. Therefore, the addition of Rs. 80,639/- on account of Long Term Capital Gain is deleted. Omission of interest income - According to the AO the said interest income was not disclosed by the assessee in the return of income filed for the year under consideration and, therefore, the same was proposed to be added to the total income - HELD THAT:- It is evident that the core contention of the assessee is that the interest income of Rs. 17,789/- has either already been offered to tax in the immediately preceding assessment year or has otherwise been duly accounted for, and that the addition made in the year under consideration results in double taxation. This claim rests on factual verification of the return of income, computation, and Form 26AS of A.Y. 2016–17, which has not been examined either by the AO or by the learned CIT(A).At the same time, the AO has proceeded to make the addition primarily on the basis that the interest receipts were reflected in the bank account during the year and were not disclosed in the return of income for A.Y. 2017–18, without undertaking a verification as to whether the said income had already been taxed in an earlier year, as specifically claimed by the assessee. We are of the considered view that the issue requires limited factual verification. The interest income cannot be brought to tax twice, and if the assessee’s claim that the said amount has already been included in the total income of the earlier assessment year is found to be correct, the addition would not survive. Accordingly, in the interest of justice, we deem it appropriate to restore this issue to the file of the Assessing Officer for the limited purpose of verifying whether the interest income has already been offered to tax in the return of income for the earlier assessment year, as claimed by the assessee. Issues: (i) Whether addition of Rs. 1,26,730/- under section 56(2)(vii)(b) on account of difference between agreement value and stamp duty valuation is sustainable; (ii) Whether addition of Rs. 7,401/- on account of difference in savings bank interest is sustainable; (iii) Whether addition of Rs. 80,639/- for alleged omission of Long Term Capital Gain is sustainable given claim of exemption under section 10(38); (iv) Whether addition of Rs. 17,789/- for alleged omission of interest income requires adjudication or verification regarding prior-year taxation.Issue (i): Whether addition of Rs. 1,26,730/- under section 56(2)(vii)(b) on account of difference between agreement value and stamp duty valuation is sustainable.Analysis: The Tribunal examined the undisputed figures showing a difference of 4.87% between agreement value and stamp duty valuation. It considered the co-ordinate Bench decision addressing the interplay between section 56(2)(vii)(b) and section 50C and the operation of the tolerance proviso, treating the proviso as curative and applicable to avoid inequitable results. The CIT(A) confirmed the addition without distinguishing the binding co-ordinate Bench decision relied upon by the assessee.Conclusion: The addition of Rs. 1,26,730/- under section 56(2)(vii)(b) is deleted; conclusion in favour of the assessee.Issue (ii): Whether addition of Rs. 7,401/- on account of difference in savings bank interest is sustainable.Analysis: The assessees computation demonstrated that gross interest receipts were netted against interest expenditure, yielding net interest income offered to tax. The Assessing Officer made the addition based on gross credits without disputing the incurrence of interest expenditure or the permissibility of netting.Conclusion: The addition of Rs. 7,401/- is deleted; conclusion in favour of the assessee.Issue (iii): Whether addition of Rs. 80,639/- for alleged omission of Long Term Capital Gain is sustainable given claim of exemption under section 10(38).Analysis: The record showed demat statements and holding period details establishing that shares were held for more than twelve months and that conditions for exemption under section 10(38) for the relevant year were satisfied. Neither the Assessing Officer nor the CIT(A) recorded findings negating those conditions.Conclusion: The addition of Rs. 80,639/- is deleted; conclusion in favour of the assessee.Issue (iv): Whether addition of Rs. 17,789/- for alleged omission of interest income requires adjudication or verification regarding prior-year taxation.Analysis: The assessee contended that portions of the interest receipts related to an earlier year and were already offered to tax, supported by Form 26AS and prior year records. The Assessing Officer and CIT(A) did not verify the assessees factual claim of prior-year taxation and proceeded to make the addition based solely on bank credits. The Tribunal found that the question of double taxation requires limited factual verification of the earlier years return, computation and Form 26AS.Conclusion: The issue is restored to the Assessing Officer for limited verification and fresh decision in accordance with law; the ground is allowed for statistical purposes, resulting in a procedural remand in favour of the assessee.Final Conclusion: Three substantive additions (under section 56(2)(vii)(b), savings bank interest difference, and alleged LTCG) are deleted in favour of the assessee, while one addition (interest Rs. 17,789/-) is remitted to the Assessing Officer for limited factual verification; overall the appeal is partly allowed.Ratio Decidendi: Where a difference between agreement value and stamp duty valuation falls within the recognized tolerance and a binding co-ordinate bench decision applies, no addition under section 56(2)(vii)(b) is warranted; additions based on gross bank credits without accounting for permissible netting or prior-year taxation cannot be sustained without factual verification.