S M Enclave Pvt. Ltd. Vs ITO (ITAT Kolkata)
Summary: The ITAT Kolkata allowed the appeal of S M Enclave Pvt. Ltd. and deleted the addition of ₹9,94,312/- made under section 50C of the Income Tax Act, 1961. The assessee had declared total income of ₹16,78,118/- for AY 2014-15 and disclosed short-term capital gains of ₹16,45,796/- and long-term capital gains of ₹26,592/- on sale of land. Since the stamp duty values were higher than the sale consideration, the Assessing Officer referred the matter to the DVO at the assessee’s request but completed the assessment without awaiting the valuation report, adopting the stamp duty value and making additions under section 50C. During appellate proceedings, the DVO valued the property at ₹1,26,93,188/-, resulting in a difference of ₹9,94,312/-, or 8.50%, compared with the assessee’s declared value. The Addl/JCIT(A) held that the applicable tolerance limit for the relevant period was 5% and restricted the addition to ₹9,94,312/-. Before the Tribunal, the assessee contended that the 10% tolerance limit introduced by the Finance Act, 2020 should apply retrospectively and relied upon various coordinate Bench decisions, including Maria Fernandes Cheryl, Chandra Prakash Jhunjhunwala, Joseph Mudaliar and other decisions. The Tribunal held that since the difference was only 8.5% and the amendment enhancing the tolerance margin to 10% had been held to be retrospective, the addition could not be sustained. The Tribunal accordingly directed the Assessing Officer to delete the addition and allowed Ground Nos. 1 and 2. Ground No. 3, being general in nature, required no separate adjudication.
Core Issue: The core issue before the Tribunal was whether an addition under Section 50C could survive when the difference between the sale consideration declared by the assessee and the value determined by the DVO was only 8.50%, which was within the subsequently enhanced 10% tolerance margin prescribed under the third proviso to Section 50C(1).
Facts: The assessee filed its return for AY 2014-15 declaring total income of ₹16,78,118. The case was selected for limited scrutiny because the sale consideration declared in respect of land sold was lower than the value adopted by the stamp valuation authority. The assessee had declared short-term and long-term capital gains on the sale of land. At the assessee’s request, the Assessing Officer referred the valuation to the DVO but completed the assessment without waiting for the valuation report and adopted the stamp duty value, resulting in additions under Section 50C. Subsequently, during the appellate proceedings, the DVO valued the property at ₹1,26,93,188 as against the declared consideration of ₹1,16,98,876, resulting in a difference of ₹9,94,312, being approximately 8.50%.
AO/CIT(A) Finding: The Assessing Officer completed the assessment under Section 143(3) by adopting the stamp duty value and made additions of ₹12,38,130 and ₹6,00,184 towards short-term and long-term capital gains respectively. The Addl./JCIT(A), after receiving the DVO’s report during appellate proceedings, held that the DVO’s valuation should substitute the stamp duty valuation. However, since the difference of 8.50% exceeded the then applicable tolerance limit of 5%, the appellate authority restricted the addition to ₹9,94,312 and directed proportionate computation between the long-term and short-term capital gains.
ITAT Finding: The Tribunal held that the difference between the declared consideration and the DVO’s valuation was only 8.50%. It accepted the assessee’s contention that the amendment providing for a 10% tolerance margin under the third proviso to Section 50C(1) had been held to be retrospective by several coordinate Benches. Consequently, since the difference was within the permissible 10% margin, the Tribunal held that no addition under Section 50C was warranted and directed the Assessing Officer to delete the addition sustained by the Addl./JCIT(A).
Cases Relied Upon: The assessee relied upon several decisions holding the enhanced 10% tolerance margin to be retrospective, including DCIT v. Santosh Promoters (P.) Ltd., DCIT v. Tirupati Niryat (P.) Ltd., Chandra Prakash Jhunjhunwala v. DCIT, Maria Fernandes Cheryl v. ITO, Joseph Mudaliar v. DCIT, Girdharbhai Haribhai Gajera v. ITO, Rajpal Mehra (HUF) v. ACIT, Ketan Himatlal Mehta v. DCIT, and K.S. Akhilesh Babu v. ACIT.
Outcome: The appeal of the assessee was allowed and the addition of ₹9,94,312 sustained under Section 50C was directed to be deleted. The Tribunal reaffirmed that where the variation between the actual sale consideration and the valuation adopted for Section 50C purposes falls within the 10% tolerance margin, the declared sale consideration must be accepted for computing capital gains.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Addl/JCIT(A)- Panchkula [hereinafter referred to as Ld. ‘Addl/JCIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2014-15 dated 09.09.2025.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. That the learned CIT(A) has erred in law and in for non-consideration of ten per cent tolerance limit where the estimated value of sale of land computed by the DVO and the actual value of sale consideration and making addition of Rs. 9,94,312/- under section 50C of the Act.
2. That the learned CIT(A) has erred in law by considering five per cent tolerance limit instead of ten percent where the estimated value of sale of land computed by the DVO and the actual value of sale consideration is within the limit of ten per cent and therefore the difference is to be ignored.
3. That the appellant cause leave, to add, alter, amend or modify and or all of the above Grounds of Appeal at or before the time of hearing of the appeal.“
3. Brief facts of the case are that the assessee had filed the return of income for AY 2014- 15 on 27.09.2014 declaring the total income at ₹16,78,118/-. The case was selected for limited scrutiny as the sale consideration of property was less than the value as per the stamp duty authority. The assessee had shown short-term capital gains of ₹16,45,796/- and long-term capital gains of ₹26,592/- on the sale of land, whereas the stamp duty values of the properties were higher. The Assessing Officer (hereinafter referred to as Ld. ‘AO’) referred the matter to the valuation cell at the assessee’s request but completed the assessment u/s 143(3) of the Act on 29.12.2016 without awaiting the valuation report. The Ld. AO determined the total income at ₹35,16,430/- by adopting the stamp duty value and made additions u/s 50C of the Act of ₹12,38,130/- and ₹6,00,184/- towards short- term and long- term capital gains respectively. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. Addl/JCIT(A). During the appellate proceedings, the DVO’s valuation report was received who valued the property at ₹1,26,93,188/-, leading to a difference of ₹9,94,312/- (8.50%) when compared to the assessee’s declared value. The Ld. Addl/JCIT(A) noted that this 8.50% difference exceeded the then applicable tolerance limit of 5% and also observed that the 1 0% limit became applicable only with effect from 01.04.2021. Consequently, the Ld. Addl/JCIT(A) held that the DVO’s valuation must ₹9,94,312/-. Accordingly, the Ld. Addl/JCIT(A) modified the action of the Ld. AO and partly allowed the appeal of the assessee vide his findings as under:
“7. Decision
7.1 This appeal has been preferred against the order passed u/s 143(3) of the Income Tax Act, 1961 dated 29.12.2016 by the Learned Assessing Officer (“AO”), whereby the total income of the appellant was assessed at Rs 35,16,430/- as against the returned income of Rs. 16,78,118/- . The dispute primarily relates to addition made on account of adoption of deemed sale consideration under section 50C of the Act in respect of land sold during the year.
7.2 Section 50C (2) of the Act requires the AO to refer the matter to the DVO when the assessee objects to adoption of stamp duty value. In the present case, the AO did make such reference but proceeded to complete the assessment without awaiting the DVO’s determination. Even if the assessment order was passed earlier, the appellate authority must consider the DVO’s report as part of the record. The DVO valued the property at Rs.1,26,93,188/- as against assessee’s declared value of Rs.1,16,98,876/- showing a difference of Rs.9,94,312/- which is 8.50% as against 7.83% calculated by the appellant. This difference is in respect of both type of assets on which the appellant has declared Long Term Capital Gains and Short Term Capital Gains. Although AO should ideally have waited for the DVO’s report, the subsequent report shows that the difference of 8.50% exceeds the then applicable tolerance of 5% and not 10% as this limit was applicable (w.e.f. 01-04-2021). Since the Dvo’s valuation report has since been received, the same must substitute stamp duty valuation. Accordingly, the additions made by the AO is restricted to Rs. 9,94,312/- . Accordingly, the AO is directed to calculate the amounts proportionately in respect of Long Term Asset and Short Term Asset as per Valuation report of the DVO.
8. In the result, the appeal is partly allowed.”
4. Aggrieved with the order of the Ld. Addl/JCIT(A), assessee has filed the appeal before the Tribunal.
5. Rival contentions were heard and the submissions made have been examined. The Ld. AR submitted that the only issue relates to the application of section 50C of the Act. The Ld. AO had substituted sale value by the value adopted for the purpose of stamp duty. The valuation was referred to the DVO and since the report was not received before the Ld. AO completed the assessment, the assessment was made by making the addition on account of difference between the value for the purpose of stamp duty and the sale consideration received. Before the Ld. Addl/JCIT(A) and during the pendency of the appeal, the Ld. AO collected the valuation report of the DVO and the capital gain was reduced by the appellate authority. It was submitted that since the difference was only 8.50%, therefore, no addition should be made in view of the third proviso to sub-section (1) of section 50C of the Act which states as under:
“50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed [or assessable] by any authority of a State Government (hereafter in this section referred to as the “stamp valuation authority” for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed [or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer:
[Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:
Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received b y way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], on or before the date of the agreement for transfer:]
[Provided also t hat where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and [ten] per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration.]”
6. The Ld. AR submitted that t he difference being less than 10%, no addition was liable to be made. The assessee relied upon the following decisions of the coordinate Benches of the Tribunal in support of the claim that the amendment relating to the difference between the sale consideration and the value adopted or assessed or assessable by the stamp valuation authority not exceeding 110% of the consideration received or accruing as a result of the transfer has been held to be retrospective as per the following orders of the coordinate Benches and therefore, no addition was liable to be made:
i) Deputy Commissioner of Income- tax v. Santosh Promoters (P.) Ltd.; [2025] 180 taxmann.com 770 (Kolkata – Trib.)
ii) Deputy Commissioner of Income- tax v. Tirupati Niryat (P.) Ltd.; [2025] 175 taxmann.com 1069 (Kolkata – Trib.)
iii) Chandra Prakash Jhunjhunwala v. DCIT; [2020] 113 taxmann.com 246 (Kolkata – Trib.) / [2020] 181 Income Tax Department
iv) Maria Fernandes Cheryl v. Income Tax Officer; [2021] 123 taxmann.com 252 (Mumbai – Trib.) / [2 021] 85 ITR (T) / 187 ITD 738
v) Joseph Mudaliar v. DCIT; [2021] 130 taxmann.com 250 (Mumbai – Trib.) / [2021] 191 ITD 7
vi) Girdharbhai Haribhai Gajera v. ITO; [2023] 149 taxmann.com 463 (Surat – Trib.) / [2023] 200 ITD 485
vii) Rajpal Mehra (HUF) v. ACIT; [2024] 159 taxmann.com 1587 (Mumbai – Trib.)
viii) Ketan Himatlal Mehta v. DCIT; [2025] 176 taxmann.com 703 (Mumbai – Trib.)
ix) K.S. Akhilesh Babu v. ACIT; [2025] 181 taxmann.com 293 (Bangalore – Trib.)
7. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. Addl/JCIT(A). Since the difference was only 8.5% and the amendment in the third proviso relating to the margin of 10% has been held to be retrospective, we allow the appeal and direct the Ld. AO to delete the addition which had been confirmed by the Ld. Addl/JCIT(A). Hence, the Ground Nos. 1 and 2 of appeal raised by the assessee are allowed while Ground No. 3 is general in nature and does not require any separate adjudication.
8. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 1st September, 2026.
