In the case of Tarun Mohan Jani vs ACIT, the Income Tax Appellate Tribunal ( ITAT ) Mumbai ruled in favor of the appellant, granting him relief from an addition of ₹3, 92,000 made under Section 56(2) (x) of the Income Tax Act, 1961. The dispute arose over the purchase of an industrial warehouse in Mumbai, where the transaction value was lower than the stamp duty valuation. The ITAT concluded that when the difference between the market value determined by the Valuation Officer and the actual transaction value is within this 10% margin, no addition should be made to the assessee’s income. The Tribunal directed the deletion of the addition, allowing the appeal in favor of Tarun Mohan Jani.
The Assessing Officer added the difference to the assessee’s income, rejecting the claim that the property’s lower value was due to distress sale conditions and location issues. Although the initial appeal to the CIT (A) was dismissed, ITAT Mumbai accepted the appellant’s argument, supported by precedents, that the difference fell within the 10% tolerance limit as per Section 56(2)(x).
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The assessee has filed his return of income on 29.08.2020 at Rs. 43,97,100/- which was selected for limited scrutiny for the reason that purchase value of property is less than the value of stamp authority. The assessee was granted the opportunity of hearing.
The transaction in dispute is that Assessee has purchased an immovable property at Industrial Warehouse Gala at Govandi, Mumbai on 18.04.2019 for consideration of Rs. 1,20,00,000/- whereas the stamp value of the said property is Rs. 1,64,99,934/-. Notice under Section 143(2) of the Income Tax Act was issued on 29.06.2021.
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The assessee submitted that the difference in the property value compared to stamp duty valuation is because of distress sale and in the absence of any Co-op Housing Society as well as the location. It is the claim of the assessee that nobody was ready to buy the property as the property is in a low lying water logging area. The assessee also submitted that identically in the case of the wife of the assessee, AO has referred the matter for valuation cell.
AO referred to the Valuation Officer under Section 55A of the Income Tax Act on 29.03.2022 wherein the market value of the property is determined at Rs. 1,23,92,000/-. Subsequently that assessee submits that DVO valued property at Rs. 1,23,92,000/- which is within the tolerance limit of 5% therefore no addition is required to be made.
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The Assessing Officer rejected the contention of the assessee and made the addition of Rs. 3, 92,000/- under Section 56(2)(x) of the Income Tax Act.
The assessment order was passed under Section 143(3) r.w.s. 144B of the Income Tax Act on 29.09.2022 at the total income of Rs. 43,97,100/-.
Assessee aggrieved with the same preferred appeal before the CIT (A). The assessee reiterated his submissions before the CIT (A). The CIT(A) rejected the contention of the assessee stating that tolerance is prescribed under Section 50C(2) of the Income Tax Act but does not apply to section 56(2)(x) of the Income Tax Act. Accordingly, the appeal of the assessee was dismissed.
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Mr. Bharat B Raichandani representing the assessee relied on the decision of Chennai Bench wherein the benefit of tolerance limit was granted under Section 56(2)(x) of the Income Tax Act, in the case of Maria Fernandes Cheryl vs. ITO dated 15.01.2021 and decision of the Kolkata Bench in the case of Dulari Devi Hetamsaria (L/H of Shyam Sundar Hetamsaria) vs ACIT The claim of the assessee is that assessee should be granted the benefit of tolerance limit. If the same is granted the addition does not survive.
The bench has carefully considered the rival contentions and perused the orders of lower authorities. Further found that where any person receives any immovable property for a consideration less than the stamp duty value of such property, then the said excess consideration is the income of the assessee. However, as per clause (ii) of that sub-section amount equal to 10% of the consideration is not chargeable to tax.
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In the present case, the amount of difference between the value determined by the DVO and the transaction value is less than 10% of the consideration. Therefore, no addition is required to be made in the hands of the assessee.
Accordingly, the single member bench of the tribunal comprising Prashanth Maharishi (Accountant member) directed the Assessing Officer to delete the addition of Rs. 3, 92,000/- made in the hands of the assessee. Accordingly, the appeal filed by the assessee was allowed.
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