ITAT Deletes Section 43CA Addition as DVO Valuation Difference Was Within 10% Safe Harbour Limit

Shreem Properties Vs DCIT (ITAT Mumbai)

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal filed by a partnership firm engaged in the business of building construction and development against the addition made under Section 43CA of the Income Tax Act for Assessment Year 2018-19.

The assessee had filed its return of income declaring total income of Rs. 9.22 crore. During scrutiny assessment, the Assessing Officer observed that four immovable properties had been sold at values lower than the values adopted by the stamp valuation authorities for stamp duty purposes. Although the assessee submitted valuation reports prepared by an approved valuer, the Assessing Officer rejected those reports and referred the matter to the Departmental Valuation Officer (DVO). Since the DVO report was not available before completion of assessment, the Assessing Officer invoked Section 43CA and made an addition of Rs. 1.91 crore, being the difference between the stamp duty valuation and the sale consideration disclosed by the assessee.

Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee argued that once the matter had been referred to the DVO and the DVO valuation was available, the comparison under Section 43CA should be made with reference to the DVO valuation and not the stamp duty valuation. The assessee further contended that the difference between the DVO valuation and the agreement value was within the permissible tolerance band of 10 percent and therefore no addition could be made.

The CIT(A) rejected this contention. According to the CIT(A), the safe harbour tolerance contemplated under the proviso to Section 43CA applied only with reference to the value adopted by the stamp valuation authority and not to the value determined by the DVO. The CIT(A) observed that the stamp duty valuation exceeded 110 percent of the sale consideration in all four cases. However, since the DVO valuation was lower than the stamp duty value, the CIT(A) restricted the addition to Rs. 20.20 lakh, being the difference between the DVO valuation and the sale consideration.

The valuation details recorded by the CIT(A) showed that the differences between the DVO valuation and the sale consideration for the four properties were Rs. 6.08 lakh, Rs. 6.87 lakh, Rs. 69,500, and Rs. 6.56 lakh respectively, aggregating to Rs. 20.20 lakh.

The CIT(A) further held that the proviso to Section 43CA specifically referred to the value adopted or assessed by the stamp valuation authority and not to the valuation determined by the DVO. Therefore, according to the CIT(A), the benefit of the safe harbour provision could not be extended by comparing the DVO valuation with the sale consideration.

Before the Tribunal, the assessee relied on the Special Bench decision in Shreyas Naynesh Modi vs ITO dated 23.01.2026. The assessee submitted that the Special Bench had authoritatively held that once the DVO valuation substitutes the stamp duty valuation, the benefit of the safe harbour tolerance band is equally applicable with reference to the DVO valuation.

The Tribunal noted that the assessee had transferred four immovable properties at consideration disclosed in the registered agreements, whereas the stamp valuation authority had adopted higher values for stamp duty purposes. The matter was referred to the DVO after the assessee disputed the stamp duty valuation, and the DVO determined values substantially lower than the stamp duty valuation.

The Tribunal framed the principal issue as whether the benefit of the tolerance band prescribed under the proviso to Section 43CA should be tested with reference to the value determined by the DVO once such valuation substitutes the stamp duty valuation.

Relying on the Special Bench decision in Shreyas Naynesh Modi, the Tribunal observed that the controversy had already been conclusively settled. The Special Bench had held that once the valuation determined by the DVO replaces the stamp duty valuation, the deeming fiction in the statute must be carried to its logical conclusion and the tolerance band must be applied with reference to the DVO valuation itself. The Special Bench further held that the safe harbour provisions are remedial and curative in nature and therefore deserve purposive and liberal interpretation to mitigate hardship arising from marginal valuation differences in genuine transactions.

The Tribunal reproduced substantial portions of the Special Bench ruling. The Special Bench had observed that the safe harbour provisions under Sections 43CA, 50C and 56 were introduced to minimise hardship in genuine real estate transactions where variation between stamp duty value and actual consideration could occur because of factors such as shape or location of the property.

The Special Bench also observed that valuation of an asset always involves some degree of estimation and guesswork and that different valuers may arrive at different figures for the same property. It further noted that once the assessee disputes the stamp duty valuation and seeks a reference to the DVO, the DVO valuation replaces the stamp duty value for all practical purposes. Therefore, the safe harbour rule should apply equally to the value determined by the DVO.

The Tribunal then examined the comparative chart furnished by the assessee showing the difference between the agreement value and the DVO valuation. The figures showed that the percentage variation in all four transactions was below 10 percent, namely 7.30 percent, 7.62 percent, 9.06 percent, and 0.80 percent respectively.

After verification, the Tribunal held that since the variation between the agreement consideration and the DVO valuation was below the prescribed tolerance band of 10 percent in all cases, no addition under Section 43CA could survive in view of the ratio laid down by the Special Bench in Shreyas Naynesh Modi. Accordingly, the Tribunal set aside the order of the CIT(A) and directed deletion of the addition sustained under Section 43CA. Since the addition itself was deleted, the remaining grounds raised by the assessee were treated as academic and were not separately adjudicated. The appeal of the assessee was allowed.