The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹6,27,499 arising from the difference between the purchase price of a residential flat and its stamp duty value, holding that the enhanced 10% tolerance band under Section 56(2)(x)(b)(B) of the Income-tax Act was available for assessment year 2018-19.
The Bench of Sandeep Gosain (Judicial Member) and Jagadish (Accountant Member) has observed that the valuation difference of approximately 6.34% fell within the permissible 10% margin. Following earlier coordinate bench decisions, it treated the enhancement as curative and beneficial, notwithstanding its introduction by the Finance Act, 2020 with effect from April 1, 2021.
Buy Now: Direct tax (Income Tax) E-Magazine September 2026
The tribunal also condoned a 135-day delay in filing the appeal, accepting that serious medical circumstances had prevented the taxpayer from attending to legal and tax compliances.
The dispute concerned a residential flat purchased for a stated consideration of ₹99 lakh. The formal agreement was registered on May 31, 2017, when the Stamp Valuation Authority adopted a value of ₹1,05,27,499.
The Assessing Officer treated the difference of ₹6,27,499 as taxable income under the deeming provisions of Section 56(2), under the head “Income from Other Sources”.
The Commissioner of Income Tax (Appeals) sustained the addition through an order dated September 12, 2025. The taxpayer subsequently approached the ITAT.
The taxpayer submitted that the property had originally been booked and allotted during financial year 2015-16 for an agreed consideration of ₹99 lakh. According to the submissions recorded in the order, more than 93% of the consideration had already been paid through banking channels during that financial year.
The taxpayer argued that the stamp duty value prevailing on the date of agreement or allotment should therefore be considered instead of the value on the subsequent registration date.
The grounds of appeal also attributed the valuation difference to normal market appreciation during the intervening period.
As an independent ground for relief, the taxpayer contended that the difference represented only approximately 6.34% of the purchase consideration and was covered by the enhanced 10% tolerance band.
The departmental representative supported the lower authorities’ orders and argued that the provisions applicable to the relevant assessment year should be applied as they stood during that period.
According to the Revenue, the enhanced 10% tolerance limit was introduced prospectively and could not be applied to assessment year 2018-19.
The central issue before the tribunal was consequently whether the later enhancement of the tolerance band could protect the taxpayer against the disputed addition.
The ITAT clarified that Section 56(2)(x) was the applicable provision governing receipt of immovable property for inadequate consideration in the transaction under examination.
Although the Assessing Officer had referred to Section 56(2)(vii), the Bench held that this reference did not alter the substantive issue concerning the tolerance band under Section 56(2)(x)(b)(B).
The tribunal relied on earlier coordinate bench decisions, including ACIT v. Sunil B. Dalal, Glory Shipmanagement Private Limited, NFAC v. NRB Developers, and M/s. Padmavati Developers v. ITO.
It placed particular reliance on Padmavati Developers, decided on May 22, 2026, which had considered an identical issue for assessment year 2018-19. In that case, the coordinate bench treated the enhancement of the tolerance band from 5% to 10% as curative and beneficial and deleted an addition where the valuation difference was 7.44%.
Adopting that reasoning, the Bench explained that Section 56(2)(x)(b)(B) contains a deeming provision concerning the difference between the consideration paid and the stamp duty valuation of immovable property.
The subsequent enhancement of the tolerance band recognised that marginal variations could arise for bona fide reasons and should not, by themselves, attract the deeming fiction.
The reasoning reproduced from Padmavati Developers also recognised that stamp duty valuation is a presumptive benchmark that may not represent the true market value with mathematical precision. The enhanced margin relaxed the operation of the deeming provision rather than imposing a fresh tax burden.
Following the coordinate bench decisions, the ITAT held that the taxpayer was entitled to the benefit of the 10% tolerance band for assessment year 2018-19. Since the difference was only 6.34%, the deeming provision was not attracted.
Having granted relief on the tolerance-band issue, the tribunal expressly declined to adjudicate the alternative contention concerning the date of allotment or agreement and the payments made during financial year 2015-16.
That issue was left open.
The deletion of the addition therefore rested on the application of the enhanced tolerance band, rather than a finding that the earlier allotment-date valuation had to be adopted.
Before examining the merits, the Bench considered an affidavit explaining the 135-day delay in filing the appeal.
The taxpayer had suffered from severe and uncontrolled diabetes, with significantly elevated blood sugar and HbA1c levels, and had undergone an MRCP procedure shortly before the relevant period.
The order records that the taxpayer remained under medical supervision and was advised complete bed rest, medication and continuous monitoring. The resulting physical incapacity prevented timely attention to legal and tax-related compliances.
The tribunal accepted that the delay was neither deliberate nor attributable to negligence and that the appeal was filed promptly upon recovery.
Referring to the Supreme Court’s decision in Collector, Land Acquisition, Anantnag & Anr. v. Mst. Katiji & Ors., the Bench applied a liberal construction of “sufficient cause” and admitted the appeal for hearing on merits.
The ITAT deleted the addition of ₹6,27,499 made by the Assessing Officer and sustained by the CIT(A), and allowed the taxpayer’s appeal.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
