Retrospective Application of the 5% Safe Harbour Rule under Section 50C

Facts

The Transaction: The Assessee, a joint owner of an immovable property, sold their share during the financial year relevant to AY 2017-18.
The Valuation Gap:
- Actual Consideration: The Assessee received ₹42 lakhs (representing their 50% share of a ₹84 lakh total sale).
- Stamp Duty Value (SDV): The Stamp Valuation Authority valued the Assessee’s share at ₹42.50 lakhs (based on a total property value of ₹85 lakhs).
The Dispute: The Assessee computed capital gains using the actual receipt of ₹42 lakhs. However, the Assessing Officer (AO) invoked Section 50C and substituted it with the higher SDV of ₹42.50 lakhs, as the law at the time (pre-Finance Act, 2018) did not explicitly provide a tolerance band for minor variations.
The Legal Question: Whether the “Safe Harbour” proviso (allowing a 5% variation), introduced by the Finance Act, 2018, could be applied retrospectively to older cases like this one.

Decision

Final Verdict: In favour of the Assessee.
Ratio Decidendi:
- Retrospective Effect: The Tribunal/Court held that the third proviso to Section 50C(1) is remedial and curative in nature. Therefore, it operates retrospectively from April 1, 2003—the date Section 50C was originally enacted.
- Legislative Intent: The proviso was introduced to mitigate the undue hardship faced by taxpayers due to minor, non-fraudulent variations between market price and stamp duty rates, which are often based on broad circle rate averages.
- Application to Facts: The difference in this case was ₹50,000, which is approximately 1.19% of the actual consideration. Since this is well within the 5% safe harbour limit (which was later increased to 10% in subsequent years), the actual consideration must be accepted as the “Full Value of Consideration.”

Key Takeaways

Defending Past Assessments: This ruling is a powerful tool for defending pending assessments or appeals for years prior to 2018. It establishes that the safe harbour limit is a “legal fiction” that has always been part of the equitable spirit of Section 50C.
Margin of Tolerance: Professionals should calculate the percentage of difference immediately upon receiving a Section 50C notice. If the gap is within the prescribed limit, the addition is legally unsustainable.
Avoiding DVO References: While Section 50C(2) allows a reference to a Valuation Officer (DVO), utilizing the “Safe Harbour” rule is a faster, purely legal argument that can resolve the dispute without an unpredictable valuation report.
IT Act 2025 Alignment: Under the renumbered Section 78 of the 2025 Act, this principle of a tolerance band remains a cornerstone for property transactions, ensuring that taxpayers are not penalized for minor fluctuations in local rates.

IN THE ITAT INDORE BENCH

Rasmeet Singh Malhotra

Deputy Commissioner of Income-tax^*

Paresh M. Joshi, Judicial Member
and B.M. Biyani, Accountant Member

IT Appeal No. 979 (Ind) OF 2025
[Assessment year 2017-18]

APRIL 17, 2026

Satyanarayan Agrawal, AR for the Appellant. Ashish Porwal, Sr. DR for the Respondent.

ORDER

B.M. Biyani, Accountant Member. – Feeling aggrieved by order of first appeal dated 23.09.2025 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“CIT(A)”], which in turn arises out of assessment-order dated 06.12.2019 passed by learned DCIT, Central Circle-2, Bhopal [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal on following grounds:

“1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Assessing Officer in computing the share of the appellant in sale consideration at Rs. 42,50,000/- (Rs. 85,00,000/2) as against actual share of the appellant in sale consideration of Rs. 42,00,000/ – (Rs. 84,00,000/2) without properly appreciating the facts of the case and submissions made before him. “

2. The grievance of assessee in present case is very small and so also the underlying facts. The assessee, as joint owner having % share, sold an immovable property during the year. The actual sale consideration received from purchaser was Rs. 84,00,000/- (assessee’s % share – Rs. 42,00,000/-) whereas the valuation done by stamps authority was Rs. 85,00,000/-(assessee’s % share – Rs. 42,50,000/-). While the assessee computed taxable capital gain by taking Rs. 42,00,000/- as full value of consideration, the lower authorities invoked section 50C and adopted Rs. 42,50,000/-. The assessee is aggrieved by action of lower authorities.

3. Ld. AR for assessee made a straightforward submission that the assessee is entitled to the benefit of 3^rd Proviso to section 50C(1) introduced by Parliament through Finance Act, 2018 w.e.f. 01.04.2019, reading as under:

“Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purpose of section 48, be deemed to be the full value of the consideration. “

4. Ld. AR submitted that the difference in present case is just Rs. 50,000/- which is very much within the safe harbour limit of 5% permitted in above Proviso. In so far as the applicability of above Proviso to AY 2017-18, with which we are concerned in this appeal, Ld. AR relied upon following decisions wherein it has been held that the Proviso, though introduced subsequently through Finance Act, 2018, would apply retrospectively from 01.04.2003 i.e. when the section 50C itself was introduced in statute:

(i)

ITAT, Mumbai in Maria Fernandes Cheryl v. ITO (International Taxation) (Mum-Trib).

(ii)

ITAT, Mumbai in Asstt. CIT. v. Sunil B Dalal (Mum-Trib).

(iii)

ITAT, Surat in Girdharbhai Haribhai Gajera v. ITO (Surat-Trib).

5. We have carefully considered submissions of Ld. AR and facts of case in the light of provision of section 50C and above-mentioned case laws. In above mentioned decisions, it has been held that the 3rd Proviso to section 50C(1), as introduced by the Finance Act, 2018, operates retrospectively with effect from 01.04.2003, i.e., the date on which section 50C itself was brought on the statute. The legislative intent behind the said Proviso is to provide a safe harbour to assessee where the difference between the actual sale consideration and the stamp duty valuation does not exceed 5% of the actual sale consideration. In present case, the actual sale consideration (assessee’s % share) was Rs. 42,00,000/- whereas the stamp duty valuation (assessee’s % share) was Rs. 42,50,000/-. The difference of Rs. 50,000/-works out to approximately 1.19% of the actual sale consideration, which is well within the safe harbour limit of 5% prescribed under the said Proviso. Therefore, in the light of decisions, we agree that the invocation of section 50C by the lower authorities and adoption of Rs. 42,50,000/- as the full value of consideration, is not sustainable in law. Accordingly, we direct the AO to adopt Rs. 42,00,000/- as the full value of consideration for computing the capital gains in the hands of the assessee. Necessary computation shall be done by AO. The ground of appeal raised by the assessee is thus allowed.

6. Resultantly, this appeal is allowed.