ITAT Grants Retrospective Benefit of 10% Tolerance Band under Section 50C And Deletes Capital Gain Addition

The Income Tax Appellate Tribunal (ITAT) Hyderabad has held that the AO has to accept the actual sale consideration for the computation of capital gains and deleted the addition made on account of the substitution of stamp duty value.

The assessee is an individual who had filed his return of income for assessment year 2016-17 declaring a total income of Rs 8.14 crore. The assessment was completed under Section 143(3) of the Income Tax Act, 1961 but reassessment proceedings were initiated under Section 147 and a notice under Section 148 was issued. During the reassessment proceedings, the AO noticed that the assessee had sold a property for Rs 13.99 crore and had offered long-term capital gains after claiming the cost of acquisition and improvement. However, the stamp duty valuation of the property was determined at Rs 15.25 crore.

The AO substituted the actual sale consideration with the stamp duty value using Section 50C and also disallowed the cost of improvement, resulting in an addition of Rs 4.59 crore. The reassessment was completed under Section 147 read with Section 144B. In appeal, the CIT(A) allowed the cost of improvement but upheld the substitution of sale consideration under Section 50C.

The Tribunal observed that the actual sale consideration adopted by the assessee amounted to Rs 13.99 crore, while 110% of such consideration worked out to Rs 15.39 crore. The Tribunal noted that the Mumbai Tribunal in Padmavati Developers v. ITO had held that the amendments increasing the tolerance band are beneficial in nature and are intended to remove hardship arising from variations between actual consideration and stamp duty value. Such amendments, therefore, deserve retrospective application. According to the Tribunal, Section 50C and Section 56(2)(x) operate on similar valuation mechanisms and are pari materia in nature.

Accordingly, following the principle of judicial consistency and relying upon the decision in Padmavati Developers v. ITO, the Tribunal held that the tolerance band of 105% and the enhanced tolerance band of 110% under Section 50C are beneficial provisions and are applicable retrospectively. The Tribunal directed the AO to adopt the actual sale consideration of Rs 13.99 crore for computation of capital gains and deleted the addition made under Section 50C. The appeal of the assessee was allowed.