Stamp duty valuation corrected for factual error defeats deeming substitution, preserving reinvestment relief and negating penalty consequences.

Deeming provision substituting declared consideration with stamp duty value is inapplicable where the stamp authority has revised the valuation for a fundamental factual error, and the revised lower valuation negates reliance on the original figure - deletion of the 50C addition follows. For under construction purchases, qualifying reinvestment is determined by substantive completion, staged payments and receipt of possession within the statutory period rather than the initial booking date, and the new under construction asset is excluded when applying the ownership proviso - exemption under 54F allowed. Penalty based solely on deleted additions and on interpretational controversy with full disclosure is deleted.

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Issues: (i) Whether the addition under section 50C based on an original stamp duty valuation which was subsequently revised by the stamp valuation authority is sustainable; (ii) Whether exemption under section 54F is maintainable where the assessee entered into an agreement for an under-construction flat prior to the one-year pre-transfer period but received possession within two years after transfer and whether the proviso regarding ownership of other residential houses is attracted; (iii) Whether penalty under section 271(1)(c) can be sustained when the quantum additions forming its basis are deleted and the controversy is one of interpretation and bona fide disclosure.

Issue (i): Whether the addition under section 50C based on the original stamp duty valuation was sustainable.

Analysis: The original stamp duty valuation was revised by the competent stamp valuation authority by a Supplementary/Clarification Deed which excluded an approach road wrongly included earlier and reduced the stamp duty value. The revised valuation was lower than the declared consideration. A deeming provision that substitutes declared consideration with stamp duty value operates only where the stamp duty value represents a legally valid and factually correct market value. A valuation which has been rectified by the stamp authority for a fundamental factual error loses its evidentiary and statutory relevance for invoking the deeming fiction.

Conclusion: The addition under section 50C is deleted; decision in favour of the assessee on this issue.

Issue (ii): Whether the assessee is entitled to exemption under section 54F though the agreement for the new house predates one year before transfer, and whether the proviso barring exemption because of ownership of another residential house applies.

Analysis: For under-construction properties purchased from builders, the relevant consideration is the substance of the transaction - completion, substantial payment, and receipt of possession - rather than the mere date of the initial agreement. The assessee made staged payments over years, took possession within two years of transfer of the original asset, and the investment was restricted to the extent of capital gains. The statutory proviso requires excluding the new asset from the count of residential houses; excluding the new asset, the assessee owned only one other residential house on the date of transfer.

Conclusion: The disallowance of exemption under section 54F is deleted and the exemption is allowed; decision in favour of the assessee on this issue.

Issue (iii): Whether penalty under section 271(1)(c) can be sustained.

Analysis: The penalty was levied solely on the basis of the quantum additions which have been deleted. Additionally, the dispute involved legal and interpretational questions supported by documentary evidence and precedent, with full disclosure by the assessee. Where the foundational quantum additions are deleted and the controversy is not one warranting penal consequences, penalty cannot survive.

Conclusion: The penalty under section 271(1)(c) is deleted; decision in favour of the assessee on this issue.

Final Conclusion: The appeals are allowed in part on quantum and in entirety on penalty, resulting in deletion of the section 50C addition, allowance of the section 54F exemption, and deletion of the penalty.

Ratio Decidendi: A deeming provision substituting declared consideration with stamp duty value cannot be applied where the stamp valuation is shown to be factually erroneous and has been revised by the competent stamp authority; for under-construction purchases from builders, the date for qualifying reinvestment is determined by substantial completion and possession within the statutory period rather than by the initial agreement date, and the new asset is excluded when applying the proviso on ownership for section 54F.

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