2025 (6) TMI 569 - AT - Income Tax

Addition u/s 50C - difference between the sale consideration declared by the assessee and the stamp duty valuation of the immovable property - tolerance band of /- 10% between the declared sale consideration and the stamp duty valuation - as submitted that the 3rd Proviso to Section 50C of the Act was inserted by Finance Act 2018 and is effective from AY.2019-20 and tolerance limit of 10% was subsequently inserted by Finance Act 2020 w.e.f. AY.2021-22 hence case of the appellant for AY.2014-15 is not covered by the said insertion by the Finance Act 2020 HELD THAT - ITAT Mumbai in case of Maria Fernandes Cheryl 2021 (1) TMI 620 - ITAT MUMBAI and M/s John Fowler (India) Pvt. Ltd. 2017 (1) TMI 1682 - ITAT MUMBAI decided the issue in favour of the assessee by elaborate discussion on the subject issue of tolerance band of 10% in valuations of property. It was held that similar situation needs to be addressed in entirety for the entire period in which the legal provisions had effect and not for a specific time period only. ITAT Mumbai Tribunal further held that the tolerance band for variation between the stated sale consideration vis- -vis stamp duty valuation to 10% is curative in nature and therefore the provisions even though stated to be prospective must be held to relate back to the date when the related statutory provisions of Section 50C of the Act i.e. 01.04.2003 was brought into the statute. We have noted that as against the sale consideration of Rs. 69, 00, 000/- the DVO has arrived at the FMV at Rs. 72, 00, 000/-. Therefore the difference of Rs. 3, 00, 000/- is within the tolerance band of 10%. Grounds raised by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the addition made under section 50C of the Income-tax Act, 1961, on account of difference between the sale consideration declared by the assessee and the stamp duty valuation of the immovable property, is justified.

(b) Whether the proviso to section 50C, which allows a tolerance band of +/- 10% between the declared sale consideration and the stamp duty valuation, applies retrospectively to Assessment Year 2014-15, even though it was introduced by Finance Act, 2018 and effective from AY 2019-20.

(c) Whether the valuation of the property by the Departmental Valuation Officer (DVO) should be adopted as the full value of consideration for the purpose of section 50C, or the value declared by the assessee should be accepted when the difference is within the tolerance band.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification of addition under section 50C on difference between declared sale consideration and stamp duty valuation

The legal framework under section 50C of the Income-tax Act mandates that if the consideration received on transfer of immovable property is less than the value adopted or assessed by the stamp valuation authority, the value so adopted or assessed shall be deemed to be the full value of consideration for computing capital gains. The purpose is to curb under-reporting of sale consideration and consequent tax evasion.

In the present case, the assessee sold immovable property for Rs. 69,00,000/-, whereas the stamp duty valuation was Rs. 83,74,189/-, resulting in a difference of Rs. 14,74,189/-. The Assessing Officer (AO) made an addition of this difference under section 50C. The assessee did not initially respond to the show cause notice, leading to confirmation of the addition.

The CIT(A) initially confirmed the addition, but on remand from the Tribunal, reconsidered the valuation after obtaining DVO's report, which fixed the fair market value (FMV) at Rs. 72,00,000/-. This reduced the difference to Rs. 3,00,000/-, which was less than 10% of the DVO valuation.

The AO was directed to adopt the DVO valuation as the full value of consideration, rejecting the assessee's declared sale consideration.

Issue (b): Applicability and retrospective effect of the proviso to section 50C allowing tolerance band of +/- 10%

The proviso to section 50C was introduced by the Finance Act, 2018, effective from 01.04.2019 (AY 2019-20), and subsequently amended to increase the tolerance limit to 10% from 5% w.e.f. 01.04.2021 (AY 2021-22). The proviso provides that if the stamp duty valuation does not exceed 105% (later 110%) of the consideration received, the consideration received shall be deemed to be the full value of consideration for capital gains computation.

The CIT(A) held that since the assessment year in question is 2014-15, prior to the insertion of the proviso, the tolerance band cannot be applied retrospectively. Therefore, the addition under section 50C could not be avoided merely on the basis of the tolerance band.

The assessee contended, relying on decisions of coordinate benches of the ITAT Mumbai, that the tolerance band is curative in nature and should be applied retrospectively to all assessment years from the date section 50C was introduced (01.04.2003). The learned Authorized Representative cited decisions in Maria Fernandes Cheryl and M/s John Fowler (India) Pvt. Ltd. which held that the tolerance band applies retrospectively and protects the assessee from additions where the difference is within 10%.

The Revenue argued that the proviso is a statutory amendment effective prospectively and cannot be applied retrospectively to AY 2014-15.

Issue (c): Whether the DVO valuation or the declared sale consideration should be accepted when difference is within tolerance band

The AO and CIT(A) relied on the DVO valuation of Rs. 72,00,000/- as the full value of consideration, rejecting the declared sale consideration of Rs. 69,00,000/- on the ground that the difference of Rs. 3,00,000/- was not acceptable under section 50C for AY 2014-15.

The assessee argued that since the difference is within 10% tolerance band, the declared sale consideration should be accepted, and no addition under section 50C should be made. The DVO's valuation was higher than the declared sale consideration but within 10% difference.

The Tribunal examined the precedents cited by the assessee, which held that when the difference between stamp duty valuation and declared sale consideration is within 10%, the declared sale consideration should be accepted for capital gains computation. These decisions emphasized that the tolerance band is curative and should be applied retrospectively to avoid penalizing the assessee for minor valuation differences.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"We find no reason to deviate from the decisions cited supra. We have noted that as against the sale consideration of Rs. 69,00,000/-, the DVO has arrived at the FMV at Rs. 72,00,000/-. Therefore, the difference of Rs. 3,00,000/- is within the tolerance band of 10%. Following the decisions of Tribunals cited supra, the order of CIT(A) is set aside, and AO is directed to accept the value adopted by the assessee."

The Tribunal relied on the following core principles established by the precedents:

(i) The tolerance band of 10% between the declared sale consideration and the stamp duty valuation under section 50C is curative in nature.

(ii) The proviso to section 50C, although inserted prospectively, must be held to relate back to the date when section 50C was originally introduced (01.04.2003), thereby applying retrospectively to earlier assessment years.

(iii) When the difference between the declared sale consideration and the stamp duty valuation (or DVO valuation) is within the tolerance band, the declared sale consideration should be accepted as the full value of consideration for capital gains computation.

(iv) The DVO valuation, while relevant, cannot override the declared sale consideration if the difference is within the tolerance band.

Accordingly, the Tribunal allowed the appeal, set aside the addition of Rs. 3,00,000/- under section 50C, and directed the AO to adopt the declared sale consideration of Rs. 69,00,000/- for computation of capital gains for AY 2014-15.