Tolerance Band under Section 43CA Applies Retrospectively and Valuation Objections Warrant DVO Reference

By | November 2, 2026
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Tolerance Band under Section 43CA Applies Retrospectively and Valuation Objections Warrant DVO Reference

Issue

  1. Whether the 10% tolerance band under Section 43CA / Section 53 of the Income-tax Act, 2025 is curative in nature and applicable retrospectively to Assessment Year 2016-17.
  2. Whether the Assessing Officer is required to examine allotment/agreement dates and refer the matter to the Departmental Valuation Officer (DVO) under Section 43CA(2) read with Section 50C(2) when the assessee disputes the stamp duty valuation.

Facts

  • Real Estate Business & Reassessment: The assessee, a private limited company engaged in real estate development, was subjected to reassessment for AY 2016-17 on the ground that three flats in its project “Kashish Park” were sold below stamp duty valuation, resulting in a total addition of ₹22.35 lakhs under Section 43CA.
  • Tolerance Band Claim (Flats A-804 & A-1103):
    • Flat A-804 had a variance of ₹2,29,610 against a stamp duty value of ₹45,92,000 (5.00%).
    • Flat A-1103 had a variance of ₹1,79,582 against a stamp valuation of ₹47,75,000 (3.76%).
    • Revenue/CIT(A) rejected the tolerance band benefit, stating the 10% tolerance band was introduced with effect from 01.04.2021 and not applicable to AY 2016-17.
  • Objection & Historical Allotment Claim (Flat A-702):
    • The sale agreement was registered on 10/03/2016 for ₹16.94 lakhs against a stamp value of ₹35.20 lakhs.
    • The assessee claimed the flat was allotted on 23.05.2011 at ₹16.94 lakhs, with part consideration (₹0.51 lakh) received through banking channels at the time of allotment.
    • The assessee objected to the stamp duty valuation and sought a reference to the DVO, which the AO rejected without invoking statutory machinery under Section 50C(2).

Decision

  • Retrospective Application of Tolerance Band:
    • The insertion and enhancement of the tolerance band under Section 50C and Section 43CA are curative amendments designed to relieve unintended hardship under deeming provisions, thereby relating back to 01.04.2003.
    • Since the variance for Flat A-804 (5.00%) and Flat A-1103 (3.76%) fell within the permissible 10% tolerance band, additions aggregating ₹4,09,192 were deleted [In favour of assessee].
  • Mandate to Examine Allotment Date & Refer to DVO:
    • The claim that consideration was fixed at the time of allotment in 2011 with banking channel advance requires proper factual verification under Section 43CA(3)/(4).
    • An objection to stamp valuation cannot be dismissed merely for lack of a private valuation report; the AO must examine statutory machinery under Section 43CA(2) read with Section 50C(2).
    • The issue regarding Flat A-702 was remanded to the AO for fresh verification and reference to the DVO if warranted [Matter remanded].

Key Takeaways

  • Tolerance Band Retrospectivity: The 10% tolerance band under Section 43CA and Section 50C is curative in nature and applies retrospectively to prior assessment years to protect taxpayers from minor variations between market value and stamp duty value.
  • Relevance of Allotment Date: Where the sale agreement date and allotment date differ, the stamp duty value on the allotment date applies, provided consideration or part thereof was received via banking channels on or before the allotment date.
  • Mandatory DVO Reference: When an assessee objects to the adoption of stamp valuation, the Assessing Officer is statutorily obligated to consider referring the valuation to a Departmental Valuation Officer under Section 50C(2) / Section 43CA(2).
IN THE ITAT MUMBAI BENCH ‘A’
Ladam Homes (P.) Ltd.
v.
ACIT
Siddhartha Nautiyal, Judicial Member
and Om Prakash Kant, Accountant Member
IT Appeal No. 5788 (MUM) of 2026
[Assessment year 2016-17]
SEPTEMBER  29, 2026
Subodh Ratnaparkhi, CA for the Appellant. Surendra Mohan, Sr. DR for the Respondent.
ORDER
Om Prakash Kant, Accountant Member.- This appeal by the assessee is directed against order dated 28/03/2026 passed by the learned Commissioner of Income-tax (Appeals)- National Faceless Appeal Centre, Delhi (in short, ‘the CIT(A)’) for A.Y. 2016-17, raising following grounds:
“1. The Hon CIT(A) erred in upholding the addition of Rs. 22,34,982/- u/s 43CA of the 1.T. Act 1961, on account of difference between the actual sale consideration and the value as per stamp valuation authority in respect of three flats booked by customers in the real estate project Kashish Park undertaken by appellant company at Kalyan, which addition being unjustified by facts and in law may please be deleted.
2. Without prejudice to ground no.1 above, the Hon CIT(A) erred in upholding the addition of Rs. 22,34,982/- u/s 43CA of the I.T. Act 1961, by imposing the values as per stamp valuation authority to be the deemed sale consideration in respect of three flats booked by customers in the real estate project Kashish Park undertaken by appellant company at Kalyan, without reference to the valuation officer as provided u/s 43CA(2) of the I. T. Act 1961 and for this reason the addition bears to be deleted unless the valuation is referred to the valuer in terms of section 43CA (2) of the I.T. Act, 1961.
3. The appellant craves leave to add, alter, amend and/or vary any of the above grounds of appeal at any time before the decision of the appeal.”
2. Briefly stated, the facts of the case are that the assessee, a private limited company, is engaged in the business of real estate development. The original return of income for the assessment year under consideration was filed on 14/10/2016, declaring total income of Rs. 3,72,96,480/-. Subsequently, information was received by the Assessing Officer that the assessee had transferred certain immovable properties for consideration lower than the value adopted by the Stamp Valuation Authority.
2.1 In view of the above information, he recorded reasons to believe that income to the extent of Rs. 26,33,536/- had escaped assessment within the meaning of section 147 of the Income-tax Act, 1961 [in short ‘the Act’]. Accordingly, he issued notice under section 148 of the Act on 31/03/2021, directing the assessee to file the return of income. In response, the assessee filed return of income on 5/04/2021, declaring total income, which was declared in the original return of income. Subsequently, a notice under section 143(2) of the Act was issued. The objections filed by the assessee against reopening of assessment were disposed of by the Assessing Officer.
2.2 In the course of reassessment proceedings, the Assessing Officer noticed that three flats in the assessee’s project “Kashish Park” at Kalyan, had been transferred for consideration lower than the respective stamp duty values. The aggregate difference between stamp duty and sale consideration was computed at Rs.22,34,982/- and added to the income of the assessee by invoking section 43CA of the Act. The relevant particulars are as under:
Date of Agreement Market Value Sale Consideration Amount u/s 43CA Property Name of the Purchaser PAN of the Purchaser
15/02/20 16 45,92,000 43,62,390 2,29,610 A-804, Building E, Kashish Park, Gandare Kalyan Priyanka Vishal Shringarpure & Vrishal Nitin Shringarpure AFIPT3987N & BJOPS7656E
26/02/20 16 47,75,000 45,95,418 1,79,582 A-1103 Building E, Kashish Park, Gandare Kalyan Sanjay Prabhakar Mishra AHKPM914 7M
10/03/20 16 35,19,500 16,93,710 18,25,790 A-702 Building E, Kashish Park, Gandare Kalyan Ashwinkumar Sharma & Sarita Ashwin Sharma BGXPS4398R & DQVPS2832C
Total 22,34,982

 

2.3 In view of the above information, the ld Assessing officer issued show-cause to the assessee as to why said difference of Rs. 22,34,982/- be added to the income of the assessee invoking provisions of the section 50C of the Act. The ld Assessing Officer noted that assessee submitted the detail in respect of the value adopted by the stamp valuation authority for the above said 3 properties in the form of an Annexure, but did not offer any explanation for not adding the difference amount of Rs. 22,34,982/-to the business income. Accordingly, the ld Assessing Officer vide order dated 21/03/2022 made the said addition and assessed the total income at Rs. 3,95,31,462/-.
3. Aggrieved, the assessee carried the matter before the learned CIT(A), who dismissed the appeal. The learned CIT(A), inter-alia, held that the tolerance band of 10% was introduced by the Finance Act, 2020 with effect from 01.04.2021 and was, therefore, not applicable to A.Y. 2016-17. In this regard, reliance was placed upon CIT (Central) v. Vatika Township (P.) Ltd.   121/367 ITR 466 (SC)) andPr. CIT v. Vembu Vaidyanathan  413 ITR 248 (Bombay). The learned CIT(A) further held that reference to the Valuation Officer under section 43CA(2) was not automatic and that the assessee had not substantiated its claim regarding the correctness of the stamp duty valuation. As regards Flat No. A-702, the learned CIT(A) did not accept the assessee’s contention that the stamp duty value prevailing on the date of allotment in 2011 ought to be considered, holding that the conditions prescribed under section 43CA(3) and (4) had not been satisfactorily established. The relevant finding of ld CIT(A) is reproduced as under:
“7.4 I don’t find force in the grounds taken by the appellant for the following reasons:
7.4.1 The main contention of the appellant against the addition of Rs. 22,34,982/- u/s 43CA is that the difference is marginal and within permissible limits, and the AO failed to refer the matter to the Valuation Officer u/s 43CA (2) of the Act for one flat, the booking date should be considered instead of the registration date. Provisions of section 43CA clearly stipulate that where the sale consideration of land/building held as stock-in-trade is less than the value adopted by the Stamp Valuation Authority, such value shall be deemed to be the full value of consideration. It is an undisputed fact that the appellant has sold flats below the stamp duty value. The difference exceeded the statutory threshold applicable during the relevant year. Therefore, the provisions of section 43CA are squarely applicable in the present case.
The appellant has further argued that the difference falls within the allowable limits of 5% / 10%. However, it is observed that for A.Y. 2016-17, the tolerance band of 10% was not applicable. The applicable tolerance band of 10% was introduced by the Finance Act, 2020 w.e.f. 01.04.2021. Judicial precedents support that such amendments are prospective unless explicitly retrospective.
Reliance is placed on the decision of CIT v. Vatika Township Pvt. Ltd. 367 ITR 466 (SC), wherein it was held that beneficial provisions are not automatically retrospective unless expressly stated. Also in the case of PCIT v. Vembu Vaidyanathan (2019) 413 ITR 248 (Bom HC), where the Hon’ble High Court held that amendments enhancing tolerance limits are prospective in nature. Accordingly, the appellant’s reliance on retrospective application is not acceptable.
The appellant has contended that the AO failed to refer the matter to DVO. However, it is noted that the reference to the Valuation Officer is not automatic. It is required only when the assessee specifically disputes the stamp duty valuation with supporting evidence. In the present case, the appellant had not substantiated that the stamp duty value exceeded fair market value with cogent evidence and no independent valuation report was submitted.
Reliance on the same issue is placed on the judgment in the matter of Sunil Kumar Agarwal v. CIT (2015) 372 ITR 83 (Cal HC), wherein it has been held that though opportunity should be given, burden lies on assessee to dispute valuation with evidence. In the case of Meghraj Baid v. ITO (2018) 69 ITR (Trib) 1 (Kol), it has been held that the AO is not bound to refer to DVO where no credible objection is raised. Thus, the AO was justified in adopting the stamp duty value.
The appellant argued that for one flat, the booking date should be considered. However, for the applicability of section 43CA(3), it must be demonstrated that consideration was fixed at the time of agreement, and consideration was received through banking channels on or before such date. In the present case, the evidence furnished is not sufficient to conclusively establish compliance with the conditions of section 43CA (3) of the Act. A mere booking token without substantial payment does not satisfy the statutory requirement.
Reliance in this regard is placed on the judgment of ITO v. Modipon Ltd. (2017) 397 ITR 293 (SC), wherein it has been held that the conditions of deeming provisions must be strictly complied with. Therefore, the claim is not acceptable, and section 43CA is a deeming fiction and must be strictly applied.
The case laws relied upon by the appellant are distinguishable.
In view of the facts and circumstances discussed above, I am not inclined to interfere with the action of the AO.
8. As a result, the appeal filed by the appellant is dismissed.”
4. Before us, the learned counsel for the assessee submitted that as regards to flats A-804 and A-1103, the differences of 5.00% and 3.76% respectively fall well within the tolerance band of 10% introduced by the Finance Act, 2020, and that this enhancement, being curative in nature, applies retrospectively from the inception of the third proviso to Section 50C (mirrored in Section 43CA), relying onGaurav Investments v. Dy. CIT   (Mumbai – Trib.), andShreem Properties v. Dy. CIT (Mumbai – Trib.).
4.1 Regarding flat A-702, learned counsel submitted that the flat was allotted to the purchaser on 23.05.2011 i.e. well before Section 43CA came into force on 01.04.2014, at a fixed consideration of Rs. 16,93,710/-, with earnest money of Rs. 51,000/- received by account payee cheque on 23.05.2011, which was credited to the assessee’s HDFC account on 26.05.2011, and recorded as such in the registered agreement dated 10.03.2016 itself. It was submitted that that these facts, undisputed by the authorities below, would take the transaction outside Section 43CA altogether. In the alternative, it was submitted that that under Section 43CA(3) and (4), since consideration was fixed and part-paid through banking channels on the date of allotment, the stamp duty value as on that date (Rs. 14,74,558/-, itself lower than the agreement value of Rs. 16,93,710/-) should govern, defeating the addition on this ground as well. Reliance was placed onLodha Developers Ltd. v. Dy. CIT   (Mumbai – Trib.), Spenta Enterprises v. ACIT [IT Appeal No.2133 (Mum) of 2019, dated 27-1-2022], andReegal Construction v. ITO    ce, and in respect of all three flats, learned counsel submitted that reference to the Departmental Valuation Officer (“DVO”) ought to have been made before adopting the stamp duty value, as specifically requested, and that the learned CIT(A) rejected this request without adequate reason.
5. We have heard the learned representatives and perused the material available on record.
5.1 The first issue concerns the applicability of the enhanced tolerance band under the first proviso to section 43CA(1) of the Act. The learned CIT(A), while rejecting the assessee’s contention, relied upon the decision of the Hon’ble Bombay High Court in Vembu Vaidyanathan (supra) and observed that the Hon’ble High Court had held amendments enhancing tolerance limits to be prospective. We are unable to subscribe to this reading of the said judgment.
5.2 But, the decision in Vembu Vaidyanathan (supra) was rendered in the context of determining the date of acquisition of a residential unit pursuant to an allotment letter for the purposes of capital gains. The Hon’ble Bombay High Court, relying inter-alia upon CBDT Circular Nos. 471 and 672, held that the date of allotment was the relevant date of acquisition and that subsequent payment of installments and delivery of possession were consequential acts. The said decision did not consider the prospective or retrospective operation of the tolerance band introduced in section 43CA, nor did it lay down any ratio to that effect. Consequently, reliance placed upon Vembu Vaidyanathan (supra) by the learned CIT(A) for deciding the retrospectivity of the tolerance band is misplaced.
5.3 The question of retrospective applicability of the enhanced tolerance band under section 43CA has, however, been considered by the Mumbai Benches in appropriate cases. In Gaurav Investments (supra), the Tribunal specifically considered the applicability of the 10% tolerance band introduced by the Finance Act, 2020 to earlier assessment years and, after considering the statutory scheme and the decision of the Hon’ble Supreme Court in Vatika Township (P.) Ltd. , (supra) held the amendment to be curative and applicable retrospectively. The decision also considered the pari materia provisions of sections 43CA and 50C.
5.4 Further, we find that Coordinate Benches including Maria Fernandes Cheryl v. ITO, (International Taxation), 2(3)(1), Mumbai  187 ITD 738/85 ITR(T) 674 (Mumbai – Trib.)/ITA No. 4850/Mum/2019 (Mum-Trib., 15.01.2021); Gaurav Investments (supra) and Shreem Properties (supra) have held that the insertion of the tolerance band under the third proviso to Section 50C, and its subsequent enhancement to 10%, are curative amendments intended to remedy an unintended hardship in a deeming provision, and accordingly relate back to 01.04.2003, the date of introduction of Section 50C, the same reasoning applying with equal force to the mirror provision in Section 43CA.
5.5 Applying the retrospectively available 10% tolerance band, we find that the differences for flat A-804 (Rs. 2,29,610/- on a stamp duty value of Rs. 45,92,000/-, being 5.00%) and flat A-1103 (Rs. 1,79,582/- on a stamp duty value of Rs. 47,75,000/-, being 3.76%) both fall within the permissible band. The additions of Rs. 2,29,610/- and Rs. 1,79,582/-, aggregating Rs. 4,09,192/-, are accordingly deleted.
6. As regards the third property i.e. Flat A-702, the facts are slightly different. The difference here is of Rs. 18,25,790/- on a stamp duty value of Rs. 35,19,500/-, being 51.88% , which lies far outside any tolerance band, however computed, and the tolerance-band argument does not assist the assessee on this flat.
6.1 The assessee’s case here rests instead on the specific facts of a 2011 allotment. The assessee has contended that property was booked five years back in 2011 when its market value as well as stamp duty was lower. The learned counsel for the assessee before us referred to the booking application form (PB: 210/211) and bank account of the buyer Shri Ashwin Kumar Sharma (PB: 212/213), according to which payment of Rs. 50,000/- was made on 16/05/2011 to the assessee company. Same amount is also appearing in the HDFC bank statement of the assessee on 25/05/2011, available on the paper book page 214.
6.2 It was further submitted that agreement entered into 2011 take the transaction outside Section 43CA altogether. Alternatively it was submitted that Section 43CA(3) and (4) are attracted in the case of the assessee to fix the relevant stamp duty value as at the date of allotment. It was submitted that these are factual matters requiring verification of the genuineness and completeness of the 2011 allotment documentation, and of whether the statutory conditions under Section 43CA(3)/(4) are, in fact, satisfied that have not been examined by either authority below with reference to the underlying evidence now placed before us.
6.3 We find that Section 43CA itself contains a mechanism for taking the value assessable by the Stamp Valuation Authority as on the date of agreement, subject to fulfilment of the conditions prescribed in sub-sections (3) and (4). The claim of the assessee that the allotment in 2011 constituted the relevant agreement fixing the consideration, and that the requisite part consideration was received through banking channels, therefore requires examination with reference to the primary documents. Further, the Section 43CA(2) expressly incorporates, so far as may be, the provisions of sections 50C(2) and 50C(3). Thus, where the assessee disputes the value adopted by the Stamp Valuation Authority on the ground that such value exceeds the fair market value of the property, the statutory mechanism for determination of the appropriate value by the Valuation Officer becomes relevant. In the present case, the assessee has specifically raised the issue of valuation and has sought reference to the Valuation Officer. The learned CIT(A), however, rejected the contention on the ground that the assessee had not produced an independent valuation report or other cogent evidence.
6.4 We are unable to sustain the reliance placed by the ld CIT(A) on Sunil Kumar Agarwal v. CIT [2015] 372 ITR 83 (Calcutta) for the proposition that the burden lies on the assessee to substantiate its objection to stamp duty valuation before reference to the DVO can be made. That decision holds precisely the converse: the Hon’ble Calcutta High Court held that, in fairness to the taxpayer and to avoid miscarriage of justice, the Assessing Officer ought to refer the valuation to the DVO once the stamp duty value exceeds the disclosed consideration, even where the assessee has made no specific request for such reference. Far from supporting the rejection of the assessee’s request for a DVO reference in the present case, this authority favours the assessee’s contention on Ground No. 2, the assessee here having in fact made a specific request that was declined. In view of above, the assessee’s specific request for reference to the DVO ought ordinarily to have been acceded to before the stamp duty value was adopted as the deemed consideration, particularly given the substantial variance and the assessee’s specific objection on facts.
6.5 In our opinion, the matter requires reconsideration in the light of the statutory scheme. The assessee’s objection to the stamp duty valuation cannot be disposed of merely by observing that no independent valuation report was furnished, without examining the applicability of the statutory machinery contemplated under section 43CA(2) read with section 50C(2).The assessee has placed on record material showing that Flat No. A-702 had been allotted on 23.05.2011 for an agreed consideration of Rs.16,93,710/- and that Rs.51,000/- was received through an account-payee cheque on the date of allotment. The assessee has also relied upon the subsequent registered agreement dated 10.03.2016.
6.6 Accordingly, without expressing any final opinion on the applicability of section 43CA to Flat No. A-702, we consider it appropriate to restore the issue concerning flat A-702 to the file of the AO, with a direction to first verify the assessee’s claim regarding the date and terms of allotment and compliance with Section 43CA(3)/(4), for fresh examination, including, where warranted, reference to the Departmental Valuation Officer in accordance with section 43CA(2) read with section 50C(2) of the Act, before determining the addition, if any, in respect of this flat, after affording the assessee adequate opportunity of being heard.
7. In the result appeal of the assessee is allowed partly for statistical purposes.
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