Thiruchangodu Ramasamy Khannaiyann Sarasuwathi Vs DCIT (ITAT Chennai)
ITAT Chennai: No Addition u/s 56(2)(vii) Where Valuation Difference Within 10% Tolerance Band
The assessee purchased four immovable properties, where the stamp duty values exceeded the purchase consideration, leading the AO to make addition of ₹3.86 crore u/s 56(2)(vii). The AO had also made addition of ₹40 lakh u/s 50C on sale of property and disallowed part of agricultural income. The assessment was completed without awaiting the valuation reports from the Departmental Valuation Officer (DVO), even though reference had already been made.
During appellate proceedings, valuation reports were received for three properties and the CIT(A) restricted the additions based on DVO values, but sustained addition of ₹2.97 crore for one property where valuation report had not been received at that stage.
Before the Tribunal, the assessee produced the valuation report and argued that:
- The DVO value should replace stamp duty value for comparison.
- The difference between actual consideration and DVO valuation in all cases was within the 10% tolerance band.
- The tolerance band under section 50C is retrospective and applies to section 56(2)(vii) as well.
The Tribunal held that:
- Once valuation reports are available, DVO value substitutes the stamp duty value.
- The 10% tolerance band applies retrospectively from introduction of section 50C.
- Since the variation between purchase price and DVO valuation was within 10%, no addition u/s 56(2)(vii) was warranted.
Accordingly, the Tribunal deleted the addition made for purchase of properties.
Regarding addition u/s 50C on sale of property, the Tribunal held that the AO should have referred the property to the DVO, even if the assessee had not expressly requested it, since the AO has a duty to act fairly. The matter was remanded to the AO to obtain DVO valuation and apply the 10% tolerance band if applicable.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
