ITAT Holds 10% Tolerance Limit u/s 56(2)(x) Applicable Retrospectively, Cuts Addition in Property Valuation Case [Read Order]

NRB Developers, who had purchased a property from Lotus Griha Nirman Pvt Ltd, covering around 6,180 square feet in a commercial building called “Lous Link Square” for a total consideration of Rs. 8.19 crore. The property was booked in March 2010, and payment was made through banking channels. At the time of registration, there was a significant difference of Rs. 9.04 crore between the value declared by the parties and the stamp duty value.

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The matter was referred to the Departmental Valuation Officer (DVO), but the valuation report was not shared with the assessee during the assessment proceedings. As a result, the Assessing Officer made an addition of Rs. 9.04 crore to the income of NRB Developers under section 56(2)(x).

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] received the DVO’s report, which valued the property as of the financial year 2009-10, based on the date of allotment and payment. The difference as per the DVO’s valuation was Rs. 81.19 lakh, and the CIT(A) restricted the addition to this amount. Both the revenue and the assessee challenged this order before the ITAT.

During the hearing, the revenue argued that the allotment letter should not be treated as an agreement for sale, while NRB Developers contended that the valuation should be considered as of the date of allotment, and that the difference was within the 10% tolerance limit now allowed under section 56(2)(x)(b)(B).

The assessee relied on the ITAT Mumbai decision in Balkrishna Venkappa Bhandary v. DICT (2024), where it was held that the 10% tolerance limit, introduced by the Finance Act, 2020, applies retrospectively.

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The ITAT bench, comprising Amarjit Singh (Accountant Member) and Anikesh Banerjee (Judicial Member), agreed with the assessee. The Tribunal held that the provision increasing the tolerance limit from 5% to 10% is clarificatory and applies to earlier years as well. Accordingly, the ITAT directed that only the excess amount over the 10% limit should be added to the income, and the rest should be deleted.

The appeal of NRB Developers was allowed, and the revenue’s appeal was dismissed.