2020 (10) TMI 923 - AT - Income Tax

Addition u/s 56 (2)(vii)(b) - difference in purchase consideration between sub-registrar value and purchase price - difference between fair market value of the property and actual consideration - whether the third proviso to section 50C(1) can be applied to section 56(2)(vii)(b) in the absence of such proviso in that section? - HELD THAT - Parliament has introduced third proviso in section 50C(1) of the Act, as per which the difference in stamp duty valuation and actual consideration should be ignored, if it is less than 5%/10%. Even though the said provision has come into effect from 1.4.2019/1.4.2021, we notice that the Kolkata Bench of Tribunal has held it to be curative in nature in the case of Chandra Prakash Jhunjhunwala 2019 (8) TMI 1192 - ITAT KOLKATA and accordingly held that the proviso shall apply since the date of insertion of sec.50C of the Act. Accordingly, the above said reasoning given by the Kolkata bench of ITAT also supports the contentions of the assessee. We find merit in the prayer of the assessee. We notice that the addition sustained by Ld CIT(A) works out to less than 10% of the actual consideration paid by the assessee. Accordingly, we modify the order passed by Ld. CIT(A) and direct the A.O. to ignore the difference between fair market value determined by CIT(A) and the actual consideration as the same is less than 10% of the actual consideration. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 56(2)(vii)(b) of the Income Tax Act, 1961 regarding the difference in purchase consideration and stamp valuation.
2. Discrepancies in the District Valuation Officer (DVO) report.
3. Consideration of distress sale factors.
4. Applicability of third proviso to Section 50C(1) to Section 56(2)(vii)(b).
5. Interpretation of provisions and precedents regarding the permissible difference between stamp value and actual consideration.

Detailed Analysis:

1. Applicability of Section 56(2)(vii)(b):
The assessee purchased a flat for ?2,33,00,000 while the stamp valuation was ?3,11,16,000 at the agreement time. The Assessing Officer (A.O.) assessed the difference of ?78,16,000 as income under Section 56(2)(vii)(b). Later, upon receiving the DVO's valuation of ?2,68,86,400, the A.O. rectified the addition to ?35,86,400.

2. Discrepancies in DVO Report:
The assessee disputed the DVO's valuation, citing discrepancies and arguing that the DVO did not consider negative factors like loss of original title deeds and the property being mortgaged. The CIT(A) reduced the addition to ?15,92,800 after considering these factors and the DVO's methodology.

3. Distress Sale Consideration:
The assessee claimed the purchase was a distress sale due to the seller losing the original title deeds. The DVO's report and CIT(A)'s decision partially acknowledged this by reducing the valuation but did not fully accept the assessee's arguments.

4. Applicability of Third Proviso to Section 50C(1):
The assessee argued that the third proviso to Section 50C(1), which allows ignoring differences up to 10%, should apply to Section 56(2)(vii)(b). The CIT(A) rejected this, but the Tribunal found merit in the assessee's argument, noting that similar principles should apply to both sections as they relate to the same transaction.

5. Interpretation and Precedents:
The Tribunal considered various precedents, including decisions from ITAT benches in Bangalore, Mumbai, and Kolkata, which held that differences less than 10% should be ignored. The Tribunal also noted the curative nature of the third proviso to Section 50C(1), supporting its retrospective application.

Conclusion:
The Tribunal concluded that the addition of ?15,92,800 sustained by CIT(A) was less than 10% of the actual consideration. Therefore, it directed the A.O. to ignore this difference, allowing the appeal in favor of the assessee. The Tribunal's decision was based on the principle that there should not be two different fair market values for the same property in the hands of the seller and buyer.