The increased 10% safe harbour limit for the difference between the stamp duty value and the actual consideration of a property is curative and applies retrospectively.

By | October 14, 2025
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The increased 10% safe harbour limit for the difference between the stamp duty value and the actual consideration of a property is curative and applies retrospectively.

Issue

Is the amendment to Section 56(2)(x) of the Income-tax Act, 1961, which increased the permissible tolerance limit between the stamp duty value and the sale consideration from 5% to 10%, applicable retrospectively to past assessment years?

Facts

  • An assessee had booked a flat in 2014 for a consideration of ₹8.01 crores. The sale agreement for this property was formally registered on September 27, 2019.
  • The stamp duty value of the property on the date of registration was ₹11.32 crores.
  • The Assessing Officer (AO) made an addition under Section 56(2)(x) for the difference between these two amounts, as it exceeded the 5% tolerance limit that was in force at the time.
  • The law was later amended by the Finance Act, 2020, to increase this tolerance limit from 5% to 10%. This amendment has been held by various judicial forums to be curative in nature and therefore applicable retrospectively.

Decision

The court ruled in favour of the assessee.

  • It held that the amendment to increase the safe harbour limit to 10% is curative and should be applied retrospectively.
  • It was found as a matter of fact that the difference between the stamp duty value and the actual purchase consideration in the assessee’s case was less than the new, retrospectively applicable 10% limit.
  • Therefore, the very basis for making the addition did not exist, and the addition was directed to be deleted.

Key Takeways

  1. Curative Amendments are Retrospective: An amendment to the law that is “curative” in nature—meaning it is intended to cure an unintended hardship or a defect in the existing law—is generally given a retrospective effect by the courts, even if the law itself does not explicitly state so.
  2. Increased Tolerance Limit for Fairness: The increase in the tolerance band to 10% was a legislative recognition that minor differences between the agreement value and the stamp duty value are common and should not automatically lead to a tax liability. Applying this logic retrospectively ensures fairness for past transactions as well.
  3. The Law as on the Date of Decision: In such cases, the law that is applied is the one that is in force at the time the final decision is being made by the appellate authority, including any beneficial amendments that have been made in the interim.

A depreciation claim was remanded for verification of when the assessee took possession.

Issue

Is a taxpayer entitled to claim depreciation on a property from the date of purchase if it is not immediately used for business but is undergoing interior work, and what is the effect of the department accepting the Written Down Value (WDV) in a subsequent transaction?

Facts

  • An assessee purchased a flat and, immediately after the registration, began carrying out interior work. They claimed depreciation at 5% on the property in their tax return.
  • The Assessing Officer (AO) disallowed this depreciation claim, arguing that the property was not yet “put to use” for the business, as it was only under renovation (“passive use”).
  • However, in a later assessment year, the assessee sold this same flat. In their capital gains calculation for that sale, they correctly used a Written Down Value (WDV) that was reduced by the depreciation they had claimed in the disputed year. The department accepted this WDV without any objection in the later year’s assessment.

Decision

The court remanded the matter back to the Assessing Officer.

  • It noted the contradictory stand of the department—disallowing the depreciation in one year but effectively accepting it in another year by not challenging the WDV in the capital gains computation.
  • To resolve this, the matter was sent back to the AO for the limited purpose of verifying the exact date the assessee had taken possession of the property and how it was treated in their books thereafter.

Key Takeways

  1. “Put to Use” vs. “Ready to Use”: There is a legal distinction between an asset being “ready to use” and being “put to use.” An asset can be considered “put to use” from the day it is installed and ready for its intended function, even if it is not actively used for business on that very day.
  2. Consistency in the Department’s Stand: The tax department cannot take two contradictory stands on the same issue for the same assessee. If they accept a WDV in a later year’s assessment that is based on a depreciation claim from an earlier year, it implicitly weakens their case for disallowing that very depreciation.
  3. Remand for Factual Verification: When there is a need for a clear factual verification that the lower authorities have failed to conduct (in this case, checking the possession date), the standard judicial remedy is to remand the case for a proper factual inquiry.

A disallowance of rent paid to a director was remanded for proper verification.

Issue

Can an Assessing Officer disallow an increase in the rent paid to a related party (a director) under Section 40A(2) of the Income-tax Act, 1961, without conducting any independent inquiry or bringing any evidence on record to prove that the rent paid is excessive compared to the fair market value?

Facts

  • An assessee was paying an annual rent of ₹1 lakh to one of its directors.
  • During the year, a supplementary agreement was made, and the rent was increased to ₹1.20 lakhs per annum.
  • The Assessing Officer (AO) disallowed the incremental rent of ₹20,000 by invoking Section 40A(2). The AO’s entire reasoning was that the rent was excessive when compared to the old agreement.
  • The crucial flaw was that the AO did not conduct any independent examination or bring any comparative evidence on record to demonstrate that the new rent of ₹1.20 lakhs was actually excessive when compared to the fair market rent of a similar property in the same area.

Decision

The court remanded the matter back to the Assessing Officer.

  • It held that a disallowance under Section 40A(2) cannot be made on a subjective basis or by simply comparing a payment to a past payment.
  • The law requires the AO to make an objective determination that the payment is excessive or unreasonable. This requires some form of independent verification.
  • The case was sent back to the AO with a clear direction to first conduct a proper inquiry, gather evidence, and then objectively arrive at a conclusion as to whether any part of the rent paid was in fact excessive.

Key Takeways

  1. The “Fair Market Value” is the Correct Benchmark: The test for an excessive payment under Section 40A(2) is not whether it is more than what was paid in the past. The correct test is whether the payment is more than the fair market value of the goods, services, or facility for which the payment is being made.
  2. The Onus is on the AO to Prove Excessiveness: The burden of proof to show that a payment to a related party is excessive or unreasonable lies with the Assessing Officer. The AO must provide some credible evidence or a rational basis for their conclusion. A disallowance made without any such basis is arbitrary and will not be sustained.
  3. An Independent Inquiry is a Must: To discharge their burden, the AO must conduct some form of independent inquiry. In the case of rent, this could involve looking at comparable lease agreements in the same locality, consulting a valuer, or bringing some other form of market data on record.
IN THE ITAT MUMBAI BENCH ‘D’
Assistant Commissioner of Income-tax
v.
Deluxe Recycling India (P.) Ltd.
Sandeep Gosain, Judicial Member
and Girish Agrawal, Accountant Member
IT Appeal Nos. 1969 and 2046 (MUM.) of 2025
[Assessment year 2020-21]
SEPTEMBER  22, 2025
Rahul Hakani, Adv. for the Appellant. Annavaram Kosuri, Sr. DR for the Respondent.
ORDER
Girish Agrawal, Accountant Member.- These two appeals filed by Revenue and assessee are against the order of ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2024-25/1072735549(1), dated 30/01/2025 passed against the assessment order by MUM-C-(441)(1), u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 22.09.2022 for Assessment Year 2020-21.
2. Grounds taken by the Revenue are reproduced as under:
i.Whether on the facts and the circumstances of the case and in law, the CIT(A) erred in relying on the preliminary valuation report of the DVO In adjudicating the appeal of the assessee without appreciating the fact the preliminary valuation report cannot be regarded as final report of the DVO
ii.Whether on the facts and the circumstances of the case and in law, the CIT(A) erred in holding that the variation in the stamp duty valuation and value adopted by the DVO in the preliminary valuation is within the 10% of the variation provided by law without appreciating the fact that as per provisions of the section 56/2)|(x(b) of the Act as existed prior to its amendment by the Finance Act, 2020 w.e.f. 01.04.202 1, the permissible variation was 5o und not 10% he decision of Ld. CIT(A) is not acceptable.
2.1 Grounds taken by the assessee are reproduced as under:
i.The Learned CIT Appeals erred in assessing the income at Rs 65,35,037/- instead of Rs 15,83,900/- as represented by the assessee.
ii.The Learned CIT Appeals erred in disallowing depreciation u/s 32 of the Act of Rs 49,31,137/- without appreciating the fact that the asset was ready for its independent use and thus depreciation at 5% was allowable
iii.The Learned CIT Appeals erred in disallowing rent paid of Rs 20,000/-without appreciating the fact that the payment of rent was not found bogus and thus disallowance of expenditure u/s 40A(2)(b) is not warranted as laid down in the case of Rajesh Bajaj v. Dy. CIT   69/187 ITD 230 (Allahabad – Trib.)/MANU/IW/ 0008/2020.
3. These two appeals are one by the revenue and one by the assessee on two different issues. We first take up appeal by the revenue whereby relief was granted by ld. CIT(A) in respect of addition made towards difference in valuation arrived at by ld. District Valuation Officer (DVO) and the actual consideration. Brief facts of the case are that assessee had booked a flat bearing No. A-2, 3212 at India Bulls Sky Forest, Mumbai in the year 2014 for a consideration of Rs.8,01,61,000/-. Sale agreement for this was registered on 27.09.2019 for which the stamp duty value on the date of registration was Rs.11,32,76,000/-. Assessee disputed this stamp duty valuation before the ld. Assessing Officer and the matter was referred to ld. DVO at the request of the assessee. Since the assessment was getting time barred, ld. Assessing Officer completed the assessment pending receipt of report from ld. DVO, by making an addition of Rs.3,31,15,000/- u/s. 56(2)(x), being difference between the purchase consideration and the stamp duty value. The impugned assessment was completed by order dated 22.09.2022.
3.1. Subsequent to this report, by the ld. DVO was issued on 31.10.2022 determining the total value at Rs.8,73,87,000/-. These facts were brought by the assessee before the ld. CIT(A) by placing the copy of valuation report. It is important to note that the preliminary valuation assigned by ld. DVO was at Rs.8,73,87,000/- which was affirmed by the ld. DVO himself in his final valuation report, there being no difference in the valuation in the preliminary report and the final report. The difference between the stamp duty value as per the ld. DVO and the actual purchase consideration comes to Rs.72,26,000/- which is less than the prescribed limit of 10% u/s. 56(2)(x)(b)(B).
3.2. Ld. CIT(A) took note of the valuation report of ld. DVO and considering the difference within the tolerance band of 10%, allowed the ground of the assessee, deleting the addition thereof. However, while giving his findings inadvertently, he referred to the preliminary report for which Revenue has raised its ground that reliance has been placed the ld. CIT(A) on preliminary valuation report while giving the relief.
3.3. To this effect, we have already taken note of the factual position about there being no difference in the valuation arrived at by the ld. DVO in both the reports, wherein the valuation amount stated is Rs.8,73,87,000/-. It is a verifiable fact and admittedly there is no variation in the two reports. In this given set of facts, ground no.1 raised by the Revenue does not survive.
3.4. As far as ground no.2 is concerned, it is a settled position of law that the tolerance limit was increased from 5% to 10% in section 56(2)(x) by Finance Act, 2020 w.e.f. 01.04.2021 which is held to be applicable retrospectively, it being curative in nature and therefore would apply retrospectively from AY 2018-19.
3.5. Reliance is placed on the following judicial precedents which dealt with similar issues:
a.Maria Fernandes Cheryl v. ITO  252/187 ITD 738 (Mumbai – Trib.)/ITA No. 4850/Mum/2019 A.Y 11-12 Dated 15.01.2021
b.Rajeev Kumar Agarwal v. Addl. CIT  555 (Agra – Trib.)
c.CIT v. Ansal Landmark Township (P.) Ltd.  825 (Delhi)
3.6. In the case of Maria Fernandes Cheryl (supra), it was held that amendment made by introducing proviso for tolerance band of 5% and later on increased to 10% applied w.e.f. 01.04.2003 when the provisions of section 50C were introduced.
3.7. It is also noted that third proviso to section 56(2)(vii) provides reference to section 50C for determining the valuation of the property by Valuation Officer. The third proviso to section 50C provides that where the value adopted or assessed or assessable by the Stamp valuation Authority does not exceed 10% of the consideration received shall be taken as full value of consideration, i.e., if the difference is less than 10%, the same can be taken as fair market value. Though this provision is brought in the statute w.e.f. 01.04.2019, however, Courts have consistently held that the same is a beneficial provision and therefore benefit should be given with retrospective effect.
4. Thus, in the given set of facts and considering judicial precedents as well as provisions of the Act, we find that assessee is eligible for 10% tolerance limit u/s.56(2)(x)(b)(B). Accordingly, the addition made by the ld. Assessing Officer is deleted and we uphold the findings arrived at by ld. CIT(A) to this effect. Accordingly, grounds raised by the Revenue are dismissed.
5. In the result, appeal of the Revenue is dismissed.
6. We now take up the appeal by the assessee, where the issue relates to disallowance of depreciation u/s.32 of Rs.49,31,137/- as ld. Assessing Officer held that the asset was not put to use, since it was under a passive use for carrying out interior work by the assessee.
6.1. Fact of the matter is that assessee started the interior work of the flat purchased by it, details of which are already discussed above while adjudication the appeal by the Revenue. Assessee undertook the interior work post registration of the sale agreement for which it had taken the possession. Assessee claimed depreciation on this property at the rate of 5% in its rectified return. However, ld. Assessing Officer disallowed the same as according to him, the property was under passive use for carrying out interior work. Ld. CIT(A) sustained the disallowance so made, though ld. CIT(A) made an observation that if possession is taken then, the depreciation should be granted. He took an adverse view on account of the fact that no letter of possession was produced by the assessee.
7. Claim of the assessee is that subsequently this flat has been sold in AY 2023-24. While reporting capital gain on this transaction in AY 2023-24, assessee has taken the Written Down Value (WDV) at a lower figure, i.e., after the claim of depreciation in the year under consideration which has been accepted by the Department. We note that in the course of assessment proceedings, ld. Assessing Officer made an attempt to enquire about the details of transaction of purchase of flat by the assessee from India Bulls Properties Pvt. Ltd. by issuing notice u/s.133(6) to which ld. Assessing Officer did not receive any response. No further verifications were undertaken by the ld. Assessing Officer in this respect. Also, the acceptance of capital gain on sale transaction in the subsequent year of AY 2023-24 by the Department is not in consonance with the stance taken by ld. Assessing Officer while making the disallowance of the depreciation in the year under consideration.
7.1. In these given set of facts, we find it appropriate to remit this particular issue back to the file of ld. Assessing Officer for the limited purpose of verification about possession taken by the assessee and treatment thereof. Needless to say, assessee be given reasonable opportunity of being heard and to make any further submission, if so required. Accordingly, ground no.2 raised by assessee is allowed for statistical purposes.
8. In ground no.3, assessee has challenged the addition made towards disallowance of rent paid of Rs.20,000/- by invoking provisions of section 40A(2)(b). Fact relating to this issue is that assessee has being paying yearly rent of Rs.1 lakh to its Director, Shri Lakhamshi Malshi Shah. In the year under consideration, a supplementary agreement was entered into to increase the payment of rent from Rs.1 lakh to Rs.1,20,000/- as claimed by the assessee. This incremental rent of Rs.20,000/- was disallowed by the ld. Assessing Officer by treating it as excess rent paid vis-a-vis the old agreement which was confirmed by ld. CIT(A).
8.1. There is nothing brought on record to demonstrate that the rent paid has been in excess as required u/s. 40A(2)(b) without making any independent examination/verification by the ld. Assessing Officer. In the given set of facts, we find it appropriate to remit the matter back to the file of ld. Assessing Officer for the limited purpose of verification of documentary evidences, so as to objectively arrive at any excess payment of rent u/s.40A(2)(b). Needless to say, assessee be given reasonable opportunity of being heard and to make any further submission, if so required. Accordingly, ground no.3 raised by assessee is allowed for statistical purposes.
9. In the result, appeal of the assessee is allowed for statistical purposes.