Jawaharlal Devidas Chhabria Vs ITO (ITAT Mumbai)
Tolerance Band Benefit Allowed Even After DVO Valuation – Sec 56(2)(x) Addition Deleted – ITAT Mumbai
The assessee purchased property at a price lower than stamp duty value, leading to addition u/s 56(2)(x). After DVO reference, valuation difference reduced to ₹5.76 lakh and CIT(A) restricted addition to ₹1.92 lakh (assessee’s 1/3rd share).
Before ITAT, the assessee argued that once DVO value falls within permissible tolerance range under proviso to sec 50C(1), no addition should survive. Tribunal held that DVO valuation u/s 50C(2) and tolerance band under proviso to sec 50C(1) operate independently and are not mutually exclusive. Even after reference to DVO, assessee remains entitled to safe-harbour benefit.
Since variation between declared consideration and DVO value fell within permissible limits, ITAT directed deletion of entire addition u/s 56(2)(x) and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal filed by the assessee arises out of the order dated 22/09/2025 passed by the NFAC, Delhi [hereinafter the “Ld.CIT(A)”] for A.Y. 2018-19 on the following grounds of appeal:-
“1. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, erred in sustaining the addition of Rs.1,92,000 under section 56(2) (x) without appreciating that the difference between the agreement value and the DVO-determined value represents only an estimated variation arising from a technical valuation exercise and does not reflect any real income accruing to the appellant. Further, the Legislature has subsequently recognised permissible valuation variations by introducing safe-harbour limits of 5% and 10% under section 56(2) (x) in later years, thereby acknowledging that minor differences between stated consideration and valuation do not warrant taxation.
Relief Claimed: The appellant prays that the addition of Rs. 1,92,000 made under section 56(2)(x) may kindly be deleted in full.
2. The learned CIT (Appeals), NFAC, failed to appreciate that the variation between the agreement value and the stamp-duty valuation was only marginal. The Legislature has subsequently introduced 5% and 10% safe-harbour limits under section 56(2)(x). recognising that such minor valuation differences should not attract tax. The same principle ought to have been applied in the appellant’s case.
Relief Claimed: The appellant prays that, in view of the subsequent legislative recognition of permissible tolerance under section 56(2)(x), the addition sustained by the CIT (A) be deleted.
3. The learned CIT (Appeals), NFAC, erred in upholding the DVO-determined value as the absolute fair value and in holding that the safe-harbour principle has no relevance once a DVO reference is made. This view is contrary to section 56(2) (x) read with section 50C (2). under which the DVO’s valuation only substitutes the stamp-duty value for comparison and does not exclude the application of tolerance principles or the need to ignore insignificant valuation differences.
Relief Claimed: The appellant prays that, in view of the incorrect rejection of the application of tolerance principles in cases involving DVO valuation under section 56(2)(x) read with section 50C(2), the addition sustained by the CIT (A) be deleted.
The appellant craves leave to add, alter, amend or withdraw any of the above grounds at the time of hearing.”
2. Brief facts of the case are as under:
