Introduction
The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, delivered a significant ruling in ITA No. 2616/Mum/2026 for Assessment Year 2018-19, addressing the retrospective applicability of the enhanced tolerance limit under section 56(2)(x)(b)(B) of the Income Tax Act, 1961. The case involved M/s. Padmavati Developers, a partnership firm, against the addition of ₹11,16,500/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals). The core dispute revolved around the difference between the purchase consideration of ₹1,50,00,000/- and the stamp duty valuation of ₹1,61,16,500/- – a variation of merely 7.44%. The ITAT, relying on a consistent line of its own coordinate bench decisions, held that the amendment introduced by the Finance Act, 2020 (increasing the tolerance band from 5% to 10%) is curative and retrospective, thereby deleting the addition. This commentary examines the facts, judicial reasoning, and the broader implications for taxpayers and revenue authorities.
Facts of the Case
The assessee, a partnership firm, filed its return of income for AY 2018-19 on 25.08.2018 declaring nil income. The case was selected for scrutiny under CASS, and statutory notices under sections 143(2) and 142(1) were issued. During assessment, the AO observed that the stamp duty value of the immovable property purchased by the assessee (₹1,61,16,500/-) exceeded the actual consideration paid (₹1,50,00,000/-). The difference of ₹11,16,500/- was treated as deemed income under section 56(2)(x)(b)(B). The assessee contended that the tolerance limit of 10% (introduced by Finance Act, 2020) should apply retrospectively, as the amendment was curative. The AO rejected this, holding the amendment prospective from AY 2021-22. The CIT(A) (National Faceless Appeal Centre, Delhi) upheld the AO’s order, noting that the statute did not provide retrospective operation. Aggrieved, the assessee appealed before the ITAT.
Reasoning of the ITAT
The ITAT’s reasoning forms the crux of this commentary, as it delves into the retrospective application of a beneficial fiscal amendment. The Tribunal first noted that the difference between the stamp duty value and the actual consideration was only 7.44%, which falls within the enhanced tolerance band of 10% introduced by the Finance Act, 2020. The key question was whether this amendment applied to AY 2018-19.
The ITAT, following a consistent line of its own decisions – Sunil B. Dalal, Glory Shipmanagement, Balkrishna Venkappa Bhandary, and NRB Developers – held that the amendment is curative and retrospective. The Tribunal distinguished the Supreme Court’s decision in Vatika Township (which laid down the presumption against retrospective effect of taxing statutes), reasoning that the principle does not apply to beneficial provisions intended to remove hardship. The ITAT emphasized that the tolerance limit of 10% was introduced to address marginal differences arising from valuation variations, which are common in real estate transactions. Since the assessee’s variation was only 7.44%, no addition was warranted.
The Tribunal further observed that the purpose of section 56(2)(x) is to tax under-stated transactions, not to penalize genuine purchases where the difference is minimal. The AO and CIT(A) erred in applying the 5% tolerance limit (as originally enacted) without considering the curative nature of the subsequent amendment. The ITAT also noted that the assessee had relied on decisions of the Tribunal (e.g., Shri Sandeep Patil v. ITO, Chandraprakash Jhunjhunwala v. DCIT, and Maria Fernandes Cheryl v. ITO) which had similarly held that the amended tolerance limit is retrospective. The revenue’s argument that the effective date (01.04.2021) was expressly provided in the statute was rejected, as the ITAT found that the amendment was not a new levy but a relaxation of an existing rule.
Conclusion
By allowing the appeal, the ITAT set aside the addition of ₹11,16,500/- and granted relief to the assessee. The decision reinforces a taxpayer-friendly interpretation of section 56(2)(x)(b)(B), holding that the enhanced tolerance limit of 10% applies retrospectively to all pending assessments where the difference is within that band. This ruling provides clarity for similar disputes and underscores the ITAT’s consistency in applying beneficial amendments to avoid undue hardship.