Nandkishor Shantaram Kadam Vs ITO (ITAT Mumbai)
A 6.2% Valuation Gap Is Too Small For A Deeming-Fiction Tax – 10% Safe Harbour Applies Retrospectively U/s 56(2)(Vii)(b)
Facts
The assessee, an individual, filed his return of income declaring a total income of ₹10,82,520. During the relevant financial year, he purchased an immovable property for ₹57 lakh. The stamp valuation authority, however, valued the property at ₹60,77,840.
Based on this information, the AO reopened the assessment u/s 147 and completed reassessment u/s 147 r.w.s. 144B. The difference of ₹3,77,840 between the stamp duty value and the actual purchase consideration was treated as income from other sources and added u/s 56(2)(vii)(b). The statutory background concerning taxation of immovable property received for inadequate consideration under section 56(2)(vii)(b) is relevant to the dispute.
The assessee challenged the addition before the CIT(A). He argued that the earlier allotment letter should be treated as the agreement fixing the consideration for applying the first proviso to section 56(2)(vii)(b). He further contended that the difference between the stamp duty value and the actual consideration was merely 6.21%, which was within the permissible tolerance band and could not justify an addition.
The CIT(A) rejected both contentions. According to the CIT(A), the allotment letter was an unregistered and self-serving document and could not be regarded as the agreement fixing the consideration. The CIT(A) also held that the 5% tolerance band introduced by the Finance Act, 2018 and the subsequently enhanced 10% tolerance band introduced by the Finance Act, 2020 operated prospectively from AYs 2019-20 and 2021-22 respectively. Since the case related to AY 2017-18, the CIT(A) confirmed the addition.
