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.
Arguments Before the Tribunal
Before the Tribunal, the assessee confined his arguments principally to the tolerance-band issue. Reliance was placed on the Mumbai Tribunal’s decision in Padmavati Developers v. ITO, where a difference of 7.44% between the stamp duty value and the stated consideration was held to fall within the protected 10% band.
In that decision, the Tribunal had held that the enhancement of the tolerance limit to 10% was curative and remedial in nature. It was intended to prevent genuine property transactions from being taxed merely because of marginal differences arising from different valuation methods. Consequently, the amendment was held to apply retrospectively, even though the legislation formally made it effective from AY 2021-22.
The assessee submitted that the variation in the present case was only about 6.2% of the stamp duty value, or approximately 6.6% of the actual consideration. Under either method of computation, the difference was comfortably below 10%. If the 7.44% variation in Padmavati Developers was protected, the lower variation in the assessee’s case necessarily deserved the same treatment.
The Department relied upon the orders of the AO and the CIT(A).
ITAT’s Findings
The Tribunal identified the short question as whether an addition of ₹3,77,840 u/s 56(2)(vii)(b) could survive when the difference between the stamp duty value and the actual consideration was approximately 6.2% to 6.6%.
Following Padmavati Developers and the consistent line of Tribunal decisions on the issue, the Bench held that the enhanced tolerance limit of 10% was intended to cure the hardship caused by marginal and bona fide valuation differences. Such differences routinely arise because the stamp valuation authority and parties to a transaction may employ different valuation methods.
The 10% tolerance provision did not create a new tax burden. On the contrary, it relaxed the rigour of an existing deeming provision. It was therefore beneficial and curative and deserved retrospective application. The principle of retrospective application of the enhanced tolerance band has also been considered in Maria Fernandes Cheryl v. ITO.
The Tribunal also explained that the presumption against retrospective operation recognised by the Supreme Court in CIT v. Vatika Township (P) Ltd. primarily applies where an amendment imposes a fresh liability or creates a new burden. That principle does not prevent retrospective application of a beneficial provision introduced to remove unintended hardship.
Since the variation in the present case was below 10%, the Tribunal held that it fell squarely within the protected tolerance band. There was no material distinction between the case before it and Padmavati Developers. Indeed, the variation here was even lower than the 7.44% accepted in that case. Judicial consistency therefore required the same relief.
The CIT(A)’s order was set aside and the AO was directed to delete the entire addition of ₹3,77,840.
Other Grounds
Once the entire addition was deleted on the tolerance-band issue, the question whether the allotment letter should determine the relevant stamp duty value became academic and was not separately adjudicated. The issue of using the agreement/allotment date for stamp duty valuation under section 56(2)(vii)(b) has also been considered in Ruchita Jindal v. DCIT.
The challenge to the validity of reassessment u/s 147 r.w.s. 148A was not supported by specific submissions during the hearing. In view of the complete relief granted on merits, that ground was dismissed as infructuous without expressing any opinion on its merits. The statutory framework governing assessment and reassessment under sections 147, 148 and 148A is discussed in TaxGuru’s assessment and reassessment overview.
Decision
The assessee’s appeal was allowed.
Key Takeaway
The 10% tolerance band governing differences between stamp duty value and actual consideration is curative and can apply retrospectively. A marginal valuation difference of 6.2% to 6.6% cannot trigger an addition u/s 56(2)(vii)(b), even for AY 2017-18. A deeming fiction designed to address understatement of consideration cannot be stretched to tax ordinary and bona fide valuation variations.
Cases Discussed
- Padmavati Developers v. ITO, ITA No. 2616/Mum/2026, dated 25.02.2026.
- ACIT v. Sunil B. Dalal [2022], 145 taxmann.com 313.
- Glory Shipmanagement Private Limited, ITA No. 3149/Mum/2023.
- Balkrishna Venkappa Bhandary v. DCIT, 169 taxmann.com 76.
- NFAC v. NRB Developers, 172 taxmann.com 385.
- Shri Sandeep Patil v. ITO, ITA No. 924/Bang/2019.
- Chandraprakash Jhunjhunwala v. DCIT, ITA No. 2351/Kol/2017.
- Maria Fernandes Cheryl v. ITO, 123 Taxmann.com 252.
- CIT v. Vatika Township (P) Ltd., 367 ITR 466.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI
This appeal has been filed by the assessee challenging the order dated 29.04.2026 passed by the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [“CIT(A)”], Delhi, for Assessment Year 2017-18, whereby the Ld. CIT(A) confirmed the addition of Rs.3,77,840/- made by the Assessing Officer (“AO”) under section 56(2)(vii)(b) of the Income-tax Act, 1961 (“the Act”), arising from reassessment proceedings under section 147 r.w.s. 144B of the Act.
2. The assessee has raised the following grounds of appeal:
“1. The Ld. CIT(Appeals) has erred in confirming the additions made by Ld. Assessing Officer on account of difference between stamp duty value and purchase price as income of the assessee u/s 56(2)(vii)(b) of the Act even when the difference was mere 6.21%.
2. The Ld. CIT(Appeals) has erred in affirming with the Ld. Assessing Officer in not considering the date of allotment as date of agreement for stamp duty valuation.
3. In the facts and circumstances of the case and in law, the initiation of reassessment proceeding by invoking the provisions of section 147 r.w.s. 148A r.w.s. 144 of the Act is bad in law.”
3. The brief facts of the case are that, the assessee is an individual, filed his return of income for A.Y. 2017-18 declaring total income of Rs.10,82,520/-. On the basis of information that the appellant had purchased immovable property during F.Y. 2016-17 for a consideration of Rs.57,00,000/-, against which the stamp duty valuation authority had valued the property at Rs.60,77,840/-, the case was reopened under section 147 of the Act by issue of notice under section 148. The reassessment was completed under section 147 r.w.s. 144B of the Act, and the difference of Rs.3,77,840/- between the stamp duty value and the actual consideration was added to the appellant’s income under section 56(2)(vii)(b) as “income from other sources”.
4. Before the Ld. CIT(A), the appellant contended, inter alia, (i) that the allotment letter dated prior to the registered agreement ought to have been taken as the date of agreement for stamp duty valuation, in view of the first proviso to section 56(2)(vii)(b); and (ii) that the variation between the stamp duty value and the consideration did not exceed the tolerance band and hence no addition was warranted. The Ld. CIT(A) rejected both contentions and confirmed the addition, holding that the allotment letter was an unregistered, self-serving document that could not be treated as the “agreement fixing the consideration”, and that the tolerance band introduced by the Finance Act, 2018 (5%) and enhanced by the Finance Act, 2020 (10%) applied only prospectively from A.Y. 2019-20 and A.Y. 2021-22 respectively, and hence had no application to A.Y. 2017-18.
5. During the course of hearing before us, the learned Authorised Representative (“ld. AR”) for the assessee, at the outset, confined his arguments to Ground No. 1, and placed strong reliance on the decision of the coordinate Bench of this Tribunal in Padmavati Developers v. ITO, ITA No. 2616/Mum/2026, dated 25.02.2026, for A.Y. 2018-19. It was submitted that in the said case, on identical facts, addition under section 56(2)(x)(b)(B) on account of difference between stamp duty value of Rs.1,61,16,500/- and consideration of Rs.1,50,00,000/-, being a variation of 7.44%, this Tribunal held that the enhanced tolerance limit of 10% introduced by the Finance Act, 2020 is curative in nature and therefore retrospective in operation, notwithstanding that it was made statutorily effective only from A.Y. 2021-22. The Tribunal in that case followed its own consistent line of decisions in the following cases:-
- ACIT v. Sunil B. Dalal [2022], 145 taxmann.com 313.
- Glory Shipmanagement Private Limited, ITA No. 3149/Mum/2023.
- Balkrishna Venkappa Bhandary v. DCIT, 169 taxmann.com 76.
- NFAC v. NRB Developers, 172 taxmann.com 385
- Shri Sandeep Patil v. ITO (ITA No.924/Bang/2019)
- Chandraprakash Jhunjhunwala V. DCIT (ITA No.2351/Kol/2017)
- Maria Fernandes Cheryl v. ITO (123 Тахmann.com 252)
The Tribunal also distinguished the judgment of the Hon’ble Supreme Court in the case of CIT v. Vatika Township (P) Ltd. 367 ITR 466 on the ground that the presumption against retrospective operation applies to provisions imposing a new burden, and not to beneficial or curative provisions intended to remove hardship.
6. It was submitted that in the present case, the variation between the stamp duty value of Rs.60,77,840/- and the consideration of Rs. Rs.57,00,000/- is Rs.3,77,840/-, which works out to approximately 6.2% of the stamp duty value (and about 6.6% of the consideration), in either view, well within the 10% tolerance band. It was submitted that if a variation of 7.44% was held to fall within the protected band in Padmavati Developers (supra), the marginally lower variation in the present case must, a fortiori, be entitled to the same relief. Judicial discipline and consistency required this Bench to follow the ratio of the coordinate Bench.
7. The learned Departmental Representative (“ld. DR”), on the other hand, relied on the orders of the authorities below and supported the addition.
8. We have heard the rival contentions and perused the material on record, including the order of the Ld. CIT(A) and the decision of the coordinate Bench in Padmavati Developers v. ITO (supra).
9. The short question for consideration is whether the addition of Rs.3,77,840/- made under section 56(2)(vii)(b) of the Act is sustainable, having regard to the quantum of variation between the stamp duty value and the actual consideration paid by the appellant. It is not in dispute that the said variation, expressed as a percentage, is approximately 6.2%-6.6%, and thus falls well within the tolerance band of 10% introduced by the Finance Act, 2020.
10. The coordinate Bench of this Tribunal, in Padmavati Developers v. ITO, ITA No. 2616/Mum/2026, dated 25.02.2026, on facts materially identical to those before us, has held that the enhanced tolerance limit of 10% is curative in nature and is intended to remove the hardship caused to genuine purchasers on account of marginal, bona fide variations between stated consideration and stamp duty valuation that routinely arise from differing methods of valuation. Following its earlier decisions in Sunil B. Dalal, Glory Shipmanagement Private Limited, Balkrishna Venkappa Bhandary, NRB Developers, Sandeep Patil, Chandraprakash Jhunjhunwala and Maria Fernandes Cheryl, the coordinate Bench held that a curative amendment of this nature must be given retrospective effect, and that the ratio of the Hon’ble Supreme Court in CIT v. Vatika Township (P) Ltd., which raises a presumption against retrospectivity, is confined to provisions that impose a fresh liability and has no application to a beneficial provision that merely relaxes an existing deeming fiction.
11. Respectfully following the aforesaid ratio of the coordinate Bench, and applying it to the facts of the present case, we hold that the variation of approximately 6.2%-6.6% between the stamp duty value and the consideration paid by the appellant falls squarely within the protected 10% band, and consequently no addition under section 56(2)(vii)(b) of the Act is sustainable in law. We find no material distinction between the facts of Padmavati Developers (supra) and the facts of the present case that would warrant a departure from the ratio laid down therein; on the contrary, the variation in the present case is lower than that considered and accepted by the coordinate Bench. Judicial propriety and consistency require us to follow the same view. We accordingly set aside the order of the Ld. CIT(A) and direct the AO to delete the addition of Rs.3,77,840/-. Ground Nos. 1 is allowed.
12. Since relief has been granted to the appellant on Ground No. 1 on the quantum/tolerance-band issue, resulting in deletion of the entire addition, Ground No. 2 relating to the date to be adopted for stamp duty valuation in cases where the date of agreement fixing the amount of consideration for transfer of immovable property and the date of registration are not the same, is rendered academic and is not separately adjudicated.
13. Ground No. 3, challenging the validity of the initiation of reassessment proceedings under section 147 r.w.s. 148A of the Act, was not pressed with any specific submissions at the time of hearing, and in view of the relief already granted on merits, has also become academic. This ground is accordingly dismissed as infructuous, without expressing any opinion on the merits thereof.
14. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 08.09.2026.
