2025 (5) TMI 1483 - AT - Income Tax

Addition u/s 56(2)(x)(b) - difference in the stamp duty value and the actual consideration paid by the assessee on account of purchase of land - HELD THAT - As rightly pointed out by the assessee CIT(A) has upheld the addition ignoring the plea of the assessee that the addition was not sustainable since the ITAT had deleted identical addition made in the hands of the 3rd co-owner of the impugned land itself. We have gone through the order of the ITAT in the case of Shri Dilip Manibhai Prajapati 2024 (9) TMI 267 - ITAT AHMEDABAD and we have noted that the ITAT had deleted the addition noting that the difference between fair market value and the purchase consideration is approximately 10% of the purchase consideration of the property which is not a material difference. DR was unable to distinguish the case of the assessee with that of the other co-owner already adjudicated. Appeal filed by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal were:

• Whether the addition made under Section 56(2)(x)(b) of the Income Tax Act, 1961, on account of the difference between the stamp duty value and the actual consideration paid for the purchase of land, is sustainable in the hands of the assessee.
• Whether the fair market value (FMV) determined by the District Valuation Officer (DVO) can be substituted for the stamp duty value for the purpose of invoking Section 56(2)(x)(b) and making an addition.
• Whether the difference between the FMV as determined by the DVO and the actual consideration paid, being approximately 10% of the purchase price, constitutes a material difference warranting addition under Section 56(2)(x)(b).
• Whether the addition made in the hands of the assessee should be deleted following the precedent set by the ITAT in the case of a co-owner of the same property, where a similar addition was deleted.
• Whether the principles of natural justice were violated by the CIT(A) in upholding the addition without considering the assessee's submissions and relevant precedents.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of addition under Section 56(2)(x)(b) based on difference between stamp duty value and actual consideration

Relevant legal framework and precedents: Section 56(2)(x)(b) of the Income Tax Act provides for taxation of the difference between the fair market value of an immovable property and the consideration paid, where the consideration is less than the FMV. The stamp duty value is ordinarily considered as the FMV unless the assessee proves otherwise. The proviso to this section allows for substitution of FMV determined by a valuer or DVO where applicable.

Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer (AO) initially invoked Section 56(2)(x)(b) based on the difference between the stamp duty value (Rs. 3.32 crores) and the actual consideration paid (Rs. 2.01 crores). However, the AO accepted the FMV determined by the DVO (Rs. 2.25 crores) for one of the co-owners, which was significantly lower than the stamp duty value.

Key evidence and findings: The DVO's valuation was a crucial piece of evidence accepted by the AO for one co-owner and hence relevant for the assessee as well. The difference between the DVO's FMV and actual consideration was approximately Rs. 24.46 lakhs in total, with the assessee's share amounting to Rs. 11.61 lakhs.

Application of law to facts: Since the DVO's FMV was accepted as the correct valuation, the Tribunal held that the addition should be computed on the difference between the DVO's FMV and the actual consideration, not the stamp duty value. The proviso to Section 56(2)(x)(b) supports this substitution.

Treatment of competing arguments: The Revenue relied on the stamp duty value to justify the addition, while the assessee argued for substitution with the DVO's FMV. The Tribunal found the assessee's argument more consistent with the legal provisions and factual matrix.

Conclusion: The addition based on the stamp duty value was not sustainable; the FMV determined by the DVO was the relevant benchmark.

Issue 2: Materiality of the difference between FMV and actual consideration

Relevant legal framework and precedents: The Tribunal referred to the decision in the case of the third co-owner, where it was held that a difference of approximately 10% between FMV and actual consideration is not a material difference warranting addition under Section 56(2)(x)(b).

Court's interpretation and reasoning: The Tribunal observed that the difference of Rs. 24.46 lakhs (approx. 10% of Rs. 2.01 crores) was not a material difference. The ITAT in the co-owner's case had deleted a similar addition on this ground.

Key evidence and findings: The DVO's valuation was Rs. 2.25 crores, the purchase consideration was Rs. 2.01 crores, and the stamp duty value was Rs. 3.32 crores. The DVO's FMV was substantially lower than the stamp duty value, reinforcing the non-materiality of the difference.

Application of law to facts: The Tribunal applied the principle that minor differences within a reasonable range (here, 10%) do not trigger the deeming provisions of Section 56(2)(x)(b).

Treatment of competing arguments: The Revenue's argument for addition based on stamp duty value was rejected due to the accepted lower FMV and the non-materiality of the difference.

Conclusion: The difference was not material; therefore, no addition under Section 56(2)(x)(b) was warranted.

Issue 3: Precedential value of ITAT decision in the case of co-owner and its applicability

Relevant legal framework and precedents: The Tribunal considered the ITAT's decision in the case of the third co-owner, where identical facts and legal issues were involved, and the addition under Section 56(2)(x)(b) was deleted.

Court's interpretation and reasoning: The Tribunal emphasized that the CIT(A) erred in ignoring the assessee's submission regarding the co-owner's ITAT decision. The Tribunal found no factual or legal distinction between the present case and the co-owner's case.

Key evidence and findings: The order of the ITAT in the co-owner's case was placed on record, showing deletion of the addition on the basis of FMV and materiality of difference.

Application of law to facts: The principle of consistency and judicial precedent was applied. Since the co-owner's identical addition was deleted, the same treatment was warranted for the assessee.

Treatment of competing arguments: The Revenue failed to distinguish the present case from the co-owner's case either on facts or law.

Conclusion: The addition in the assessee's hands was not sustainable and was deleted following the co-owner's ITAT decision.

Issue 4: Alleged violation of principles of natural justice by CIT(A)

Relevant legal framework and precedents: Principles of natural justice require that all relevant submissions and precedents brought to the appellate authority's notice must be duly considered.

Court's interpretation and reasoning: The Tribunal noted that the CIT(A) upheld the addition without addressing the assessee's submission regarding the co-owner's ITAT decision, which was a significant precedent.

Key evidence and findings: The assessee's written submissions explicitly cited the co-owner's ITAT decision and argued for deletion of the addition on identical grounds.

Application of law to facts: Ignoring such a critical submission amounted to non-application of mind and violation of natural justice.

Treatment of competing arguments: The Revenue did not dispute the failure of the CIT(A) to consider the co-owner's ITAT order.

Conclusion: The CIT(A)'s order was flawed for not considering relevant submissions and precedent, justifying interference and deletion of the addition.

3. SIGNIFICANT HOLDINGS

"In view of the above facts, since on a valid reference made to the DVO for the valuation of the fair market value of the impugned property/land in terms of provisions of law in this regard, the FMV has been found to be in excess of approximately Rs. 20 lakhs only, i.e within 10% range of the purchase consideration of Rs. 2.01 crores, there is no material difference between the FMV of the property and the purchase consideration for which it was purchased."

"Further in the light of the fact that the DVO has found the FMV of the land to be far less than its stamp duty value being Rs. 2.23 crores as opposed to its stamp duty value of Rs. 3.32 crores, there is no case with the Revenue for considering the stamp duty value of the land for computing the addition to be made to the income of the assessee in terms of section 56(2)(x) of the Act."

"Therefore, there is no occasion for making any addition in the hands of the assessee for receiving immovable property for consideration which is less than its stamp duty value/FMV for the above reasons."

The Tribunal established the core principle that where the FMV determined by a competent authority (DVO) is accepted and the difference between the FMV and actual consideration is within a reasonable threshold (approximately 10%), no addition under Section 56(2)(x)(b) is warranted. It further held that the stamp duty value cannot be mechanically applied if the FMV is lower and accepted.

Finally, the Tribunal concluded that the addition of Rs. 11,61,850/- made in the hands of the assessee under Section 56(2)(x)(b) was not sustainable and directed its deletion, following the precedent set in the co-owner's case and correcting the CIT(A)'s failure to consider relevant submissions and precedents.