10% Section 56(2)(x) Tolerance Limit for Property Valuation Retrospective: ITAT Mumbai

NFAC Vs NRB Developers (ITAT Mumbai)

Income Tax Appellate Tribunal (ITAT) Mumbai has issued a significant ruling, affirming that the 10% tolerance limit stipulated under Section 56(2)(x) of the Income-tax Act, 1961, for assessing the difference between a property’s declared sale value and its stamp duty value, is applicable retrospectively. This decision, pronounced on February 25, 2025, came in response to cross-appeals filed by the National Faceless Appeal Centre (NFAC) and NRB Developers for the assessment year 2018-19. The Tribunal’s order effectively reduces the addition made in NRB Developers’ property valuation case and remits the matter back to the Assessing Officer (AO) for a precise recalculation based on this retrospective application.

The core of the dispute revolved around NRB Developers’ acquisition of a commercial property in the “Lotus Link Square” building, measuring approximately 6,180 sq. ft., for a total consideration of ₹8.19 crore. The transaction’s genesis dates back to March 30, 2010, when an allotment letter was issued to the assessee following an initial payment of ₹3.5 crore through banking channels. However, at the time of the property’s registration, a substantial discrepancy of ₹9,04,37,500 was identified between the stated purchase value and the stamp duty valuation. This significant difference triggered a reference to the Departmental Valuation Officer (DVO) for an independent valuation. Despite this referral, the DVO’s report was not made available during the initial assessment proceedings. Consequently, the National Faceless Assessment Centre, in its order dated September 30, 2021, proceeded to make an addition of the entire difference of ₹9,04,37,500 to NRB Developers’ income under the provisions of Section 56(2)(x) of the Act.

Aggrieved by this addition, NRB Developers filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. During the CIT(A)’s review, the DVO’s valuation report, dated March 23, 2022, finally surfaced. This report determined the property’s value as pertaining to the financial year 2009-10, aligning with the March 30, 2010, allotment date. Based on the DVO’s revised valuation, the difference between the DVO’s assessed value and the declared value was significantly reduced to ₹81,19,625. The CIT(A), acknowledging this new valuation, restricted the addition under Section 56(2)(x) to this reduced amount, thereby partially allowing the assessee’s appeal. Dissatisfied with this partial relief, both the revenue department and NRB Developers subsequently filed appeals before the ITAT.

Before the ITAT, the revenue, represented by the Ld. Departmental Representative (DR), argued that the CIT(A) had erred in considering the allotment letter as equivalent to an agreement for sale, and thus, the valuation should not have been pegged to the financial year 2009-10. The DR’s arguments primarily rested on upholding the original assessment order. Conversely, the Ld. Authorized Representative (AR) for NRB Developers maintained that the CIT(A)’s decision to consider the valuation based on the allotment letter’s date was appropriate. More critically, the AR introduced the argument concerning the 10% tolerance limit under Section 56(2)(x)(b)(B) of the Act. This provision, introduced by the Finance Act, 2020, with an effective date of April 1, 2021, increased the permissible difference between the consideration and stamp duty value from 5% to 10%. The assessee’s counsel contended that this amendment, being clarificatory or curative in nature, should be applied retrospectively to the assessment year 2018-19. To substantiate this, a detailed chart was presented, illustrating the differences for each of the three units comprising the property. For Unit No. 101, the difference was 9.31%, and for Unit No. 102, it was 9.94%, both falling within the 10% tolerance. However, Unit No. 103 showed a marginal excess at 10.01%.

The assessee’s argument for retrospective application was bolstered by several judicial precedents from various ITAT benches. The Ld. AR cited the Mumbai ITAT’s co-ordinate bench decision in Balkrishna Venkappa Bhandary v. DICT (2024) 169 taxmann.com 76 (Mumbai Trib.), which had already addressed this issue. Further reliance was placed on other Mumbai ITAT decisions, including Maria Fernandes Cheryl vs. Income Tax Officer, Aaeshka Riddhi Realty, Mumbai vs. CIT(A)-NFAC, and Glory Shipmanagement Private Limited vs CIT (Appeals) (2024). The Kolkata ITAT’s ruling in Sandeep Kumar Poddar v. ITO (2023) was also presented as supporting authority. These judgments consistently established that amendments which are clarificatory or curative in nature, such as the increase in the tolerance limit, should be given retrospective effect to rectify existing ambiguities or hardships.

After a thorough review of the rival submissions, the documentary evidence, and the cited judicial precedents, the ITAT Mumbai bench concurred with the assessee’s position. The Tribunal explicitly held that the provision of Section 56(2)(x)(b)(B), which introduced the 10% tolerance limit, indeed has retrospective effect and is applicable to the impugned assessment year 2018-19. Consequently, the ITAT upheld the CIT(A)’s decision to reduce the addition under Section 56(2)(x). However, for Unit No. 103, where the difference marginally exceeded the 10% limit (10.01%), the ITAT directed the Assessing Officer to consider only the incremental excess over 10% for the addition. This means that for the units where the difference was within the 10% tolerance band, no addition should be made, aligning with the retrospective application of the beneficial amendment. In its final order, the ITAT dismissed the revenue’s appeal and allowed the assessee’s appeal, remitting the case to the Assessing Officer for a precise recalculation of the addition in accordance with the principles laid down, ensuring that the retrospective application of the 10% tolerance limit is duly implemented.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This cross appeals filed by the assessee and the revenue challenge the order of the National Faceless Appeal Centre, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2018-19, date of order14.08.2024.The impugned order was emanated from the order of the National Faceless Assessment Centre, Delhi, passed under section 143(3) read with section 144B of the Act, date of order 30/09/2021.

2. The brief facts of the case are as follows. During the alleged assessment year, the assessee registered a property from M/s Lotus Griha Nirman Pvt Ltd, covering approximately 6,180 sq. ft. in the proposed commercial building “Lous Link Square,” for a total consideration of Rs.8,19,00,000/-. The assessee booked the property by paying Rs.3,50,00,000/- through banking channels, and a letter of allotment was issued in favor of the assessee on 30/03/2010.At the time of registration, there was a difference of Rs.9,04,37,500/- between the set forth value and the stamp duty value. The issue was referred to the DVO for valuation of the alleged property; however, no valuation report was provided to the assessee during the assessment proceedings. Consequently, the assessment was completed on 30/09/2021, with an addition of Rs.9,04,37,500/- made under section 56(2)(x).The assessee then filed an appeal before the Ld. CIT(A). The Ld. CIT(A) received a valuation report dated 23/03/2022 (No. DVO-1/mum/CGT/2021-22/402) and, in accordance with section 56(2)(x), the DVO valued the property as pertaining to the financial year 2009-10 since the property was allotted on 30/03/ 2010, and payment was made through banking channels. The difference between NRB Developers the DVO’s valuation and the set forth value, amounting to Rs.81,19,625/-, was considered for addition. The Ld. CIT(A) restricted the addition to this amount, and the assessee’s appeal was partially allowed. Both the revenue and the assessee, being aggrieved by the appeal order, have filed appeals before this court.

3. We have heard the rival submissions and considered the documents on record. The Ld. DR contended that the Ld. CIT(A) erred in treating the allotment letter as an agreement for sale, and that, accordingly, the value should not be deemed as at the financial year 2009-10. The Ld. DR relied entirely on the impugned assessment order.

In contrast, the Ld. AR argued that the Ld. CIT(A) correctly considered the valuation in relation to the allotment letter issued on 30/03/2010, and that the property should accordingly be valued as at that date. With respect to the valuation difference of Rs.81,19,625/-, the Ld. AR further contended that, as this difference is less than 10%, the assessee is entitled to the benefit under section 56(2)(x)(b)(B) of the Act, thereby necessitating the deletion of the differential value confirmed by the Ld. CIT(A). The Ld. AR submitted achart which is extracted below:

4. The Ld.AR further argued that the issue is squarely covered by the order of the co-ordinate bench of ITAT, Mumbai Bench in the case of Balkrishna Venkappa Bhandary v. DICT (2024) 169 taxmann.com 76 (Mumbai Trib.). The relevant paragraphs 7.3 to 7.5 are reproduced as below:-

“7.3. It is submission of the Ld.AR that, the receipt placed at page 130 of the paper book also reveals the first booking amount having paid on 20/06/2016 issued by the builder and therefore the value as on the date of making the first payment is to be considered for the purpose of computation of income u/s. 56(2)(X)b of the Act. The Ld.AR also emphasized that as on the date of first payment the stamp duty valuation was Rs.5,67,18,369/- as against the agreement value of Rs.5,30,87,707/-. He submitted that by way of amendment w.e.f. 01.04.2021 the tolerance level was increased to 10% u/s. 56(2)(X)(b)(ii). It is submitted by the Ld.AR that, the authorities duly did not consider these documents including the allotment letter and receipt of the first booking amount.

7.4. He submitted that the said amendment was held to be applicable retrospectively by various decisions of coordinate bench of this Tribunal as under: –

i. Maria Fernandes Cheryl vs. Income Tax Officer- Mumbai ITAT

ii. Aaeshka Riddhi Realty, Mumbai vs. CIT(A)- NFAC – ITO – 19(1)- Mumbai ITAT

iii. Chandra Prakash Jhunjhunwala vs. DCIT ITA- Kolkata ITAT

7.5. He also place reliance on following decisions in support of his arguments: –

i. Sulochana Saijan Modi vs. ITO, Mumbi- Mumbai ITAT

ii. Gurukrupa Developers D N Nagar vs. Pr. CIT- 32, Mumbai- Mumbai ITAT

iii. Ms. Shilpa Gautam vs. The Income Tax Officer- Mumbai ITAT”

5. The Ld.AR also submitted that amendment to section 56(2)(x) of the Act brought in Finance Act, 2020 of increasing tolerance limit from 5% to 10% with effect from 01/04/2021 under section 56(2)(X)(b)(B). The point of consideration before us that the application of the section in impugned assessment year whether it is treated as clarificatory/curative in nature having retrospective application or otherwise. The issue is squarely covered by the order of the co­ordinate bench of ITAT-Mumbai in the case of Glory Shipmanagement Private Limited vs CIT (Appeals) ITA No.3149/MUM/2023, date of pronouncement 30/01/2024and also the decision of the co-ordinate bench of ITAT-Kolkata in the case of Sandeep Kumar Poddar v. ITO, Wared-44(1), Kolkata ITA No.484/Kol/2022date of pronouncement 13/03/2023.

6. Upon reviewing the said chart, we find that, with respect to Unit No. 103, the incremental difference exceeds 10%, i.e. 10.01%. The Ld. AR contended that any excess over 10% should be added. In our considered view, we hold that the provision of section 56(2)(x)(b)(B) has retrospective effect and is applicable to the impugned assessment year. Accordingly, we uphold the view adopted by the Ld. CIT(A) in reducing the addition under section 56(2)(x). However, with respect to section 56(2)(x)(b)(B), we remit the matter to the file of the Ld. AO for allowing the assessee the incremental differences as per the said Act for the alleged properties. In the case of Unit No. 103, the excess over 10% shall be considered for addition. Consequently, the appeal of the assessee is allowed.

7. In the result, the appeal of the revenue bearing ITA No.5352/Mum/2024 is dismissed and the appeal of the assessee bearing ITA No.5218/Mum/2024 is allowed.

Order pronounced in the open court on 25^th day of February 2025.