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2025 (4) TMI 1210 - AT - Income TaxAddition made u/s 56(2)(x) - variance between the Stamp Duty Value of the Property purchase and Purchase consideration - AO regarding the assessee s half-share calculated as 5% of the consideration - whether the assessee is entitled to the benefit of the tolerance limit of 6.56%? - HELD THAT - We find that the amendment in question is curative in nature and is retrospectively applicable for impugned assessment year. Consequently the assessee is eligible for the 10% tolerance limit under section 56(2)(x)(b)(B) of the Act and the impugned addition is deleted. Furthermore AO has adopted a view that limits the tolerance threshold to 5% of the total consideration. This view is wholly unjustified and contrary to the correct interpretation of section 56(2)(x)(b)(B) of the Act. Therefore the addition made on this account is directed to be deleted. Appeals filed by the assessee are allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were: - Whether the addition made under section 56(2)(x) of the Income Tax Act, 1961, on account of the difference between the stamp duty valuation and the declared purchase consideration of a property, is justified when the variance falls within the tolerance band specified under the Act. - Whether the tolerance limit of 10%, introduced by the Finance Act, 2020, applicable from 01.04.2021, can be applied retrospectively to assessment years prior to its effective date. - Whether the addition made by the Assessing Officer (AO) by considering 5% of the total consideration as the threshold for addition under section 56(2)(x) is legally sustainable. - Whether the ex parte order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] in one of the appeals without considering the merits is valid. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Tolerance Limit under Section 56(2)(x) for Addition on Difference Between Stamp Duty Value and Purchase Consideration Legal Framework and Precedents: Section 56(2)(x) of the Income Tax Act deals with taxation of income arising from receipt of property without adequate consideration. The Finance Act, 2020, amended the proviso to section 50C, increasing the tolerance band from 5% to 10%, effective from 01.04.2021. This amendment was intended to reduce hardship caused by strict valuation rules. The Tribunal referred to coordinate bench decisions, notably ACIT v. Sunil B Dalal and Maria Fernandes Cheryl, which held that the tolerance band amendment is curative and applies retrospectively. The Supreme Court ruling in CIT v. Alom Enterprises Ltd. was cited to support retrospective application of amendments that remove undue hardship or apparent incongruity. Court's Interpretation and Reasoning: The Tribunal noted that the difference between the stamp duty valuation and declared consideration was 6.56%, which falls within the 10% tolerance limit introduced by the Finance Act, 2020. Following the precedent that the tolerance band amendment is retrospective, the Tribunal concluded that the assessee was entitled to the benefit of the 10% tolerance limit despite the amendment's effective date being after the relevant assessment year. Key Evidence and Findings: The property was jointly purchased by the assessees with declared consideration of Rs. 2,71,11,500 and stamp duty valuation of Rs. 2,88,91,540, yielding a difference of Rs. 17,80,040 or 6.56%. The AO attributed 50% of this differential to the assessee's share and made an addition accordingly. Application of Law to Facts: Since the difference was within the 10% tolerance band, the addition under section 56(2)(x) was not sustainable. The Tribunal applied the retrospective interpretation of the amendment to allow the assessee the benefit of the tolerance limit. Treatment of Competing Arguments: The Revenue argued that the 10% tolerance limit was not applicable for the impugned assessment year as the amendment was effective only from 01.04.2021, and the earlier 5% limit applied. However, the Tribunal distinguished this by relying on authoritative precedents holding the amendment curative and retrospective. The Revenue's contention was rejected. Conclusions: The addition under section 56(2)(x) on account of the difference between stamp duty value and purchase consideration was deleted as the variance was within the retrospectively applicable 10% tolerance band. Issue 2: Legality of AO's Addition Based on 5% of Total Consideration in ITA No. 85/Mum/2025 Legal Framework and Precedents: Section 56(2)(x) requires addition of income where property is acquired for inadequate consideration. The AO's approach of adding 5% of total consideration as income was challenged as inconsistent with the statutory provisions. The Tribunal referred to the correct interpretation of section 56(2)(x)(b)(B), which does not support such an addition. Court's Interpretation and Reasoning: The Tribunal found the AO's calculation erroneous and contrary to the correct application of the provision. The addition on this basis was directed to be deleted. Key Evidence and Findings: The AO added Rs. 13,55,575 (5% of total consideration) and then attributed 50% to the assessee's share, adding Rs. 6,77,787 to income. The Tribunal found this approach unjustified. Application of Law to Facts: The addition was not in accordance with the provisions of section 56(2)(x) and was therefore unsustainable. Treatment of Competing Arguments: The Revenue maintained the addition was justified; however, the Tribunal rejected this view based on statutory interpretation and precedent. Conclusions: The addition made on the basis of 5% of total consideration was deleted. Issue 3: Validity of Ex Parte Order by CIT(A) in ITA No. 84/Mum/2025 Legal Framework and Precedents: Principles of natural justice require that a party is heard before adverse orders are passed. Ex parte orders without considering merits are generally vulnerable. Court's Interpretation and Reasoning: The Tribunal observed that the CIT(A) had passed an ex parte order without considering the merits in one of the appeals. Given that both assessees were co-owners and the issues were common, the Tribunal found it appropriate to decide both appeals on merit in favor of the assessees. Key Evidence and Findings: The ex parte order was noted, and the Tribunal applied the principle of mutatis mutandis to decide both appeals together. Application of Law to Facts: The Tribunal set aside the ex parte order by deciding the appeal on merits. Treatment of Competing Arguments: No specific competing arguments were recorded on this point. Conclusions: The ex parte order was effectively overruled by the Tribunal's decision on merits in favor of the assessee. 3. SIGNIFICANT HOLDINGS "We find that the amendment in question is curative in nature and is retrospectively applicable for impugned assessment year. Consequently, the assessee is eligible for the 10% tolerance limit under section 56(2)(x)(b)(B) of the Act and the impugned addition is deleted." "The view adopted by the AO limiting the tolerance threshold to 5% of the total consideration is wholly unjustified and contrary to the correct interpretation of section 56(2)(x)(b)(B) of the Act. Therefore, the addition made on this account is directed to be deleted." "Since both assessees are co-owners of the property and the issue involved is common, the principle of mutatis mutandis applies, and accordingly, the grounds raised in both appeals are allowed." Core principles established include:
Final determinations were that both appeals filed by the assessees were allowed, the additions under section 56(2)(x) were deleted, and the retrospective benefit of the 10% tolerance band was granted.
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