Gurudev Chandrashekhar Karanth Vs Income Tax Department (ITAT Pune)
SEO Title : ITAT Deletes Section 56(2)(x) Addition as DVO Value Difference Was 4%
SEO Description : ITAT Pune deleted a Section 56(2)(x) addition of Rs.7.75 lakh, holding the DVO value difference was only 4% of the purchase value.
Summary : The ITAT Pune considered an appeal filed by Gurudev Chandrashekhar Karanth against the assessment order passed under Section 147 read with Section 144C(13) of the Income Tax Act, 1961 for AY 2018-19. The assessment order dated 23 December 2024 emanated from the Dispute Resolution Panel’s directions dated 20 December 2024. The dispute concerned an addition of Rs.7,75,500 under Section 56(2)(x) in respect of the purchase of an immovable property.
The assessee was residing in California, United States of America during the relevant year and had stayed in India for 21 days during FY 2017-18. The Tribunal recorded that he was a Non-Resident for AY 2018-19. He had purchased, jointly with his wife Smt. Isha Bhatt, Flat No. 4101, Building Alpine, Thakur Village Road, Phase-1, Samata Nagar, Kandivali, Mumbai, which was registered on 9 January 2018. The purchase consideration was Rs.1,82,91,500, while the Stamp Authority valued the property at Rs.2,11,35,810.
The assessee had not filed a return under Section 139, following which the Assessing Officer issued notice under Section 148A(b). After the assessee failed to comply, an order under Section 148A(d) was passed and notice under Section 148 was issued on 28 April 2022. The assessee subsequently filed a return declaring NIL income and responded to notices issued under Sections 143(2) and 142.
During reassessment proceedings, the assessee stated that an Agreement to Sale had been entered into with the developer on 30 December 2015 and that substantial payments had been made during FY 2015-16. He also objected to the Stamp Authority valuation. The Assessing Officer referred the matter to the Departmental Valuation Officer (DVO), who, through a valuation report dated 21 May 2024, determined the value of the flat at Rs.1,90,67,000 as on 25 August 2015.
The assessee submitted that the difference between the DVO value and the purchase consideration was less than 5% and therefore no addition should be made. The Assessing Officer nevertheless proposed an addition of Rs.7,75,500 under Section 56(2)(x), representing the difference between the DVO value and the purchase price. The DRP sustained the proposed addition, observing that the 5% tolerance band was not available under Section 56(2)(x) for AY 2018-19 and that the Assessing Officer had duly considered the DVO valuation.
The Tribunal noted that the assessee was an NRI and that the source of funds for the purchase was income earned outside India. The assessee had furnished his passport, bank statements and employment details, which had been accepted by the Assessing Officer. The Tribunal identified the only substantive dispute as the Rs.7,75,500 addition, observing that the difference between the DVO value and the purchase price was 4% of the value determined by the DVO.
The Tribunal considered the amendment to Section 56(2)(x) made by the Finance Act, 2018, which substituted the relevant provision with effect from 1 April 2019 and provided for a tolerance where the excess of stamp duty value over consideration did not exceed the higher of Rs.50,000 or 5% of the consideration. The Finance Bill, 2018 explanation reproduced in the order stated that the amendment was intended to minimise hardship in genuine real estate transactions where variations between stamp duty value and sale consideration could occur.
The Tribunal also noted that the DVO had considered comparable flats on the 47th, 43rd and 52nd floors, whereas the assessee’s flat was on the 41st floor. The order records that, in Mumbai, price increases with the floor and that the flats on the higher floors would therefore have higher values.
The Tribunal relied on the decisions in Tushar R Shetty Vs. ITO and Glory Shipmanagement Pvt. Ltd. Vs. CIT, concerning the applicability of tolerance bands for AY 2018-19. It noted that no contrary decision of a High Court had been brought to its notice. Following the judicial precedents, the Tribunal held that the Rs.7,75,500 addition was not maintainable because the difference between the amount paid by the assessee and the DVO-determined value was only 4%, which was less than 5%.
Accordingly, Grounds 1 and 2 raised by the assessee were allowed. Ground 3, being general in nature, was dismissed. The appeal was therefore partly allowed. The order was pronounced on 2 June 2025.
Cases Discussed
- Tushar R Shetty Vs. ITO (ITAT Mumbai), ITA No.3074/Mum/2024
- Glory Shipmanagement Pvt. Ltd. Vs. CIT (ITAT Mumbai), ITA No.3149/Mum/2023
FULL TEXT OF THE ORDER OF ITAT PUNE
This is an appeal filed by the Assessee against the Assessment Order under section 147 r.w.s 144C(13) of the Income Tax Act, 1961 dated 23.12.2024 for the A.Y.2018-19, emanating from the order of the Dispute Resolution Panel u/s.144C(5) of the Act, dated 20.12.2024. The Assessee has raised the following grounds of appeal :
“1. On the facts and in the circumstances of the case and in law the Hon’ble Dispute Resolution Panel (DRP), Mumbai erred in upholding the proposed addition made by the Ld. Income Tax Officer (IT) Ward-2, Pune (hereinafter called as the Assessing Officer) of Rs.7,75,000/-u/s.56(2)(x) of the I.T. Act, 1961in the Draft Order passed by her u/s.144C(1) of the Act dated 04/07/2024 in the Directions given by the DRP u/s.144C(5) of the said Act dated 20/12/2024 ignoring and without appreciating the facts that such addition made in the Draft Order by the Assessing Officer was against the factual and legal genuine claim made by the appellant that in view of the detailed submissions made both before the Assessing Officer and the DRP, Mumbai by the appellant, no such addition u/s.56(2)(x) of the Act was warranted. The direction therefore so given upholding the addition made by the Assessing Officer in the Draft Order of Rs.7,75,000/- being arbitrary, illegal and bad-in-law, the said order be quashed/set-aside.
2. On the facts and in the circumstances of the case and in law the Hon’ble Dispute Resolution Panel (DRP), Mumbai erred in upholding the proposed addition made by the Ld. Income Tax Officer (IT) Ward-2, Pune (hereinafter called as the Assessing Officer) of Rs.7,75,000/-u/s.56(2)(x) of the LT. Act, 1961in the Draft Order passed by her u/s.144C(1) of the Act dated 04/07/2024 in the Directions given by the DRP u/s.144C(5) of the said Act dated 20/12/2024 ignoring and without appreciating the facts that the said amount of Rs.7,75,000/- was within the permitted limit of 5% of the difference between the Stamp Duty Value and the Sale/Purchase Deed executed by the appellant and therefore in pursuance to the various judicial decisions relied upon by the appellant both before the Assessing Officer and the Hon’ble DRP, Mumbai, no such direction could be given by the DRP upholding the addition made by the Assessing Officer in the Draft Order passed u/s.144C(1) of the Act. The addition made by the Ld. Assessing Officer and upheld by the Hon’ble DRP, Mumbai being arbitrary, illegal and bad-in-law be deleted.
3. The appellant craves leave to add, alter, delete, amend, withdraw, modify, change or substitute any ground or grounds of appeal or to add any new ground or grounds of appeal during or before the hearing of the appeal.”
Findings and Analysis :
2. We have heard both the parties and perused the documents filed. As per the Assessment Order Assessee Gurudev Chandrashekar Karanth is an individual residing in California, United States of America during the year. The Assessee had stayed in India for 21 days during F.Y.2017-18, hence as per Section 6 of the Income Tax Act, the assessee’s status is Non Resident for AY 2018-19.
2.1 The assessee had purchased along with his wife Smt.Isha Bhatt Flat Number 4101, Building Alpine, Thakur Village Road, Phase-1, Samata Nagar Kandivali Mumbai, which was registered on 09/01/2018. The Purchase consideration paid was Rs.1,82,91,500/-but the Valuation as decided by Stamp Authority was Rs.2,11,35,810/-. The Assessing Officer(AO) in the Assessment Order noted that Assessee had not filed Return of Income u/s.139 of the Act. Hence, the AO issued notice u/s.148A(b) of the Act, however, assessee failed to comply the notice. Then the AO passed an Order u/s.148A(d) of the Act. Then, the AO issued Notice u/s.148 dated 28/04/2022. In response to notice u/s.148 of the Act, the Assessee filed Return of Income declaring Total Income at NIL. The AO issued notice u/s.143(2) and 142, the assessee filed reply. The assessee submitted to the AO that Assessee had entered in Agreement to Sale with the developer on 30/12/2015 and substantial payments have been made in F.Y.2015-16 only. During the reassessment proceedings, the Assessee objected to the Valuation made by Stamp Authority. Accordingly, the AO referred the issue for valuation to the Departmental Valuation Officer(DVO). The Assessee also relied on certain decisions of ITAT. The DVO vide Valuation Report dated 21/05/2024 arrived at the Value of the impugned flat at Rs.1,90,67,000/- as on 25/08/2015. The Assessee submitted before the AO that the difference between Value Arrived by the DVO and the price paid is less than 5% hence no addition can be made. The AO passed a Draft Assessment Order. In the Draft Assessment Order the AO proposed an addition of Rs.7,75,500/- (which was the difference between the Value of the impugned Flat as per DVO and price paid by the assessee), u/s.56(2)(x) of the Act. Aggrieved by the Draft Assessment Order the Assessee filed Objections before the Dispute Resolution Panel. The DRP held as under :
“5.3. Discussion of the Issue by DRP:
5.3.1 In this case, the AO has proposed an addition of Rs.7,75,500/- u/s 56(2)(x) of the Act being the difference in the difference in the Fair Market Value (FMV) determined by the Valuation Officer, Valuation Cell. Mumbai and the actual purchase consideration of the immovable property ETAX DEPAR
5.3.2 The applicant assessee has argued that the FMV determined by the Valuation Officer was Rs.1,90,67,000/- and the actual purchase consideration was Rs.1,82,91,500/-. According to the applicant the difference being Rs.7,75,500/- was less than 5% of the consideration, no addition could be made in his case u/s 56(2)(x) of the Act. The applicant has also relied on certain case laws.
5.3.3 The Panel notes that the stamp duty value of the impugned property was Rs.2,11,35,810/-. The difference in the stamp duty value and the purchase consideration of Rs.1,82,91,500/- was Rs. 17,53,990/-and no such tolerance band of 5% was available u/s 56(2)(x) as the position of the law stood in AY 2018-19. The AO had referred the case to the Valuation Officer and has in any case restricted the addition to Rs.7,75,500/- u/s 56(2)(x) of the Act, being the difference in FMV determined by the Valuation Officer and the actual purchase consideration. The case laws cited by the applicant are not applicable to the facts of the present case and in this case a reference was made to the Valuation Officer and FMV as determined by the Valuation Officer has been duly considered by the AO. Thus, the addition proposed by the AO is as per the prevailing law and no interference is called for. The proposed addition is sustained.”
2.2. Then, the AO passed an Order u/s.147 r.w.s. 144C(13) of the Act, assessing the Total Income of the Assessee at Rs.7,75,500/-.
3. Aggrieved by the Assessment Order, the Assessee filed appeal before this Tribunal.
3.1 Thus, in this case it is an admitted fact that the Assessee was NRI and source of funds for purchase of flat number 4101, Building Alpine, Kandivali Mumbai was Income earned outside India. During the Assessment proceedings the Assessee had submitted Copies of his Passport, bank statements, employment details which has been accepted by the AO.
4. The only dispute is addition of Rs.7,75,500/- which was the difference in the Value decided by DVO and the purchase price paid by the assessee as per the Registered Agreement. The difference of Rs.7,75,500/- is 4 % only of the Value Decided by DVO.
5. Section 56(2)(x) was amended by Finance Act, 2018, the amended section is reproduced here as under :
“56(2)(x) where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,—
(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
(b) any immovable property,—
(A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(B) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:
Following item (B) shall be substituted for the existing item (B) of sub-clause (b) of clause (x) of sub-section (2) of section 56 by the Finance Act, 2018, w.e.f. 1-4-2019 :
(B) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:—
(i) the amount of fifty thousand rupees; and
(ii) the amount equal to five per cent of the consideration:
Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause :
6. Thus, as per the amendment if the difference between the Stamp Duty Value and the Actual cost is less than 5%, then, no addition can be made. This amendment is with effect from 01/04/2019.
6.1 The relevant paragraph of the Finance Bill 2018 explaining the impugned amendment is reproduced here as under to understand the intention of the Hon’ble legislators:
Quote, “Rationalization of section 43CA, section 50C and section 56. At present, while taxing income from capital gains (section 50C), business profits (section 43CA) and other sources (section 56) arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted. The difference is taxed as income both in the hands of the purchaser and the seller. It has been pointed out that this variation can occur in respect of similar properties in the same area because of a variety of factors, including shape of the plot or location. In order to minimize hardship in case of genuine transactions in the real estate sector, it is proposed to provide that no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration is not more than five percent of the sale consideration. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.” Unquote.
In this case, to arrive at the Fair market value, the DVO has considered prices of so-called similar flats but actually all the flats considered by the DVO are on 47, 43, 52 floors whereas, the flat of the Assessee is on 41st Floor. It is a common knowledge that in Mumbai price increases with floor. Therefore, the value of Flat at 52,47 floors will be definitely higher than that of flat at 41 floors.
7.1 ITAT Mumbai Bench in the case of Tushar R Shetty Vs. ITO ITA No.3074/Mum/2024 for AY 2018-19 has held as under :
Quote, “9. Therefore, respectfully following the decision of the coordinate bench of the Tribunal cited supra, since in the present case, excess of stamp duty value over the purchase consideration is less than 10% of the consideration, we are of the considered view that the provisions of section 56(2)(x)(b) of the Act are not applicable to the present case. Since on this short ground only the assessee is entitled to relief, the other contentions raised in the present appeal become academic at this stage and therefore are left open. Thus, the addition made under section 56(2)(x) of the Act is deleted. As a result, the impugned order is set aside and grounds raised by the assessee are allowed.” Unquote.
7.2 ITAT Mumbai Bench in the case of Glory Shipmanagement Pvt. Ltd. Vs. CIT ITA No.3149/Mum/2023 for A.Y.2018-19 vide order dated 30/01/2024 held as under :
Quote, “10. Consistent with the view taken by the Tribunal in the above decisions, we hold that the benefit of tolerance band of 10% shall be available to the Appellant for the Assessment Year 2018-19. Since, in the present case, admittedly the variation is purchase consideration and the fair market value is 9.14%, no addition was warranted in terms of Section 56(2)(x)(b)(B)(ii) of the Act. Accordingly, addition of INR 3,86,000/- made by the Assessing Officer, which was confirmed by the CIT(A), is deleted. Accordingly, Ground No. 1 raised by the Appellant is allowed. ” Unquote.
8. No contrary decision of Hon’ble High Court has been brought to our notice.
8.1 Therefore, respectfully following the judicial precedence, we hold that the addition made of Rs.7,75,500/- is non maintainable as the difference between Amount paid by the assessee and the value determined by DVO is only 4% which is less than 5%.
9. In the result, Grounds Number 1 and 2 raised by the Assessee are allowed.
11. Ground Number 3 raised by the assessee is general, no ground was altered, amended, hence, Ground Number 3 is dismissed.
12. In the result, Appeal of the Assessee is Partly Allowed.
Order pronounced 02nd June, 2025.
