Addition under Section 56(2)(x) Deleted Due to Immaterial Difference in Value.

By | May 19, 2025
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Addition under Section 56(2)(x) Deleted Due to Immaterial Difference in Value.

Issue:

Whether an addition under Section 56(2)(x) of the Income-tax Act, 1961, is sustainable when the difference between the stamp duty value and the purchase consideration of land is approximately 10% of the purchase consideration.

Facts:

  • The assessee purchased a parcel of land along with other co-owners for a total consideration of ₹2.01 crores.
  • The assessee had stated to the AO that in the case of one of the co-owners of the land having 0.5% share, the valuation of the land had been referred to the DVO by the AO who had determined its fair market value at Rs.2,25,46,000/-. Ld. Counsel for the assessee pointed out that the AO, therefore, accepted the DVO’s valuation of the fair market value of the land in the hands of one of the co-owners, as the value to be considered for determining the addition to be made u/s.56(2)(x) of the Act. Therefore, the stamp duty value of the land of Rs.3.32 Crores was substituted by the fair market value determined by the DVO of Rs.2.25 Crores and the difference by way of fair market value and the actual consideration paid amounting to Rs.24,46,000/-, to the extent relating to the assessee’s share being 47.50% amounting to Rs.11,61,850/- was added in the hands of the assessee u/s.56(2)(x)(b) of the Act.
  • FMV is Rs.2,25,46,000
  • The stamp duty value of the land was ₹3.32 crores.
  • The Assessing Officer invoked Section 56(2)(x) and made an addition to the assessee’s income, proportionate to their 47.50% holding in the land, representing the difference between the stamp duty value and the purchase consideration.
  • In the case of another co-owner of the same land, the Tribunal had deleted a similar addition under Section 56(2)(x), holding that a difference of approximately 10% between the fair market value and the purchase consideration was not a material difference.

Decision:

The court held that based on the Tribunal’s decision in the case of the other co-owner, the addition made in the hands of the assessee under Section 56(2)(x) was not sustainable and was to be deleted.

Key Takeaways:

  • When the difference between the stamp duty value and the purchase consideration of an immovable property is not substantial (in this case, approximately 10%), an addition under Section 56(2)(x) may not be warranted.
  • The principle of consistency should be applied in similar cases involving co-owners of the same property.
  • Tribunal decisions in related cases can provide persuasive value.
  • A minor difference between the stamp duty value and the purchase price may be considered immaterial for the purpose of Section 56(2)(x).
IN THE ITAT AHMEDABAD BENCH ‘SMC’
Arvindkumar Jagjivandas Thakkar
v.
Income-tax Officer
Smt. Annapurna Gupta, Accountant Member
and T.R. Senthil Kumar, Judicial Member
IT Appeal No. 1966 (Ahd) of 2024
[Assessment Year 2018-19]
APRIL  30, 2025
S.N. Divatia and Samir Vora, A.Rs. for the Appellant. Prateek Sharma, Sr. DR for the Respondent.
ORDER
Smt. Annapurna Gupta, Accountant Member.- The present appeal has been filed by the assessee against the order passed by the Commissioner of Income Tax(Appeals), National Faceless Appeal Centre (NFAC), Delhi (in short ‘the CIT(A)’) under Section 250 of the Income Tax Act, 1961 (in short ‘the Act’) dated 17.09.2024 pertaining to Assessment Year 201819.
2. The grounds of appeal raised in the appeal by the assessee are as under:
“1.1 The order passed by U/s.250 passed on 17.09.2024 by NFAC, [CIT(A)], Delhi (for short CIT(A) ” upholding the addition of Rs.11,61,850/- made by A.O. u/s 56(2)(x)(b) is wholly illegal, unlawful and against the principles of natural justice.
2.1 The ld. CIT(A), has grievously erred in law and or on facts in upholding the addition of Rs.11,61,850/- made by A.O. u/s 56(2)(x)(b).
2.2 That in the facts and circumstances of the ld. CIT(A), ought not to have upheld the addition of Rs.11,61,850/- made by A.O. u/s 56(2)(x)(b).
2.3 The ld. CIT(A) has grievously erred in law and or on facts in not appreciating that in view of the orders in case of coowners and the proviso to this section, the alleged difference between the sale consideration and FMV as per DVO did not call for invoking sec.56(2)(x) and thereby confirming the addition of Rs. 11,61,850/-.
2.4 That in the facts and circumstances of the FMV determined by DVO was contrary to the established principles of valuation.”
3. The solitary issue in the present appeal it was submitted related to the addition made in the hands of the assessee u/s.56(2)(x) of the Act on account of difference in the stamp duty value and the actual consideration paid by the assessee on account of purchase of land. It was pointed out that a parcel of land was purchased by the assessee along with other co-owners for a total consideration of Rs. 2,01,00,000/-. The stamp duty value of the same was found to be of Rs.3.32 Crores and accordingly the stamp duty value being found to be greater than actual consideration paid, the provisions of Section 56(2)(x) of the Act was invoked for making addition of the difference, to the extent of the assessee’s holdings in the said land, which tantamounted to 47.50% of the total land. Ld. Counsel for the assessee pointed out that during assessment proceedings the assessee had stated to the AO that in the case of one of the co-owners of the land having 0.5% share, the valuation of the land had been referred to the DVO by the AO who had determined its fair market value at Rs.2,25,46,000/-. Ld. Counsel for the assessee pointed out that the AO, therefore, accepted the DVO’s valuation of the fair market value of the land in the hands of one of the co-owners, as the value to be considered for determining the addition to be made u/s.56(2)(x) of the Act. Therefore, the stamp duty value of the land of Rs.3.32 Crores was substituted by the fair market value determined by the DVO of Rs.2.25 Crores and the difference by way of fair market value and the actual consideration paid amounting to Rs.24,46,000/-, to the extent relating to the assessee’s share being 47.50% amounting to Rs.11,61,850/- was added in the hands of the assessee u/s.56(2)(x)(b) of the Act.
4. The contention of the Ld. Counsel for the assessee before us was that Ld. CIT(A) had confirmed the addition completely ignoring assessee’s contention that identical addition made in the hands of the third co-owner i.e. Dilip Manibhai Prajapati (supra) was deleted by the ITAT. He drew our attention to the submissions made by the assessee in this regard contained at page 3 of his order as under:
“Appellant’s Submission:
With the due respect and reference to the above matter, I the undersigned on behalf of our client “Arvind Kumar Jagjivandas Thakkar submit the following facts and evidences and written arguments for our 1st appeal for A. Y. 2018-19.
Addition of Rs. 1161850/- u/s 56(2) (x) (b) by the ld assessing authority @47.50/- of difference of Rs. 2446000/- value determined by district Valuation Officer and purchase consideration Rs. 20100000/- which is nearer to 10% of our consideration of purchase Rs. 20100000/- hence our honest belief that deeming provision section 56(2) (x) (b) cannot be applied. In the recent ITAT judgement in the case of Dilipbhaimanilal Prajapati (2nd coparcener of same and 47.50% share), it is held that “In view of the above fact, since on a valid reference made to DVO for the valuation of the fair market value of the impugned property/land in terms of provisions of law in this regard, the FMV has been found to be in excess of approximately of Rs. 20 lakhs only, Le. within 10% range of the purchase consideration of Rs. 2.01 crores, there is no material difference between the FMV of the property and the purchase consideration for which it was purchased. Further in the light of the fact that the DVO has found the FMV of the land to be far less than its stamp duty value being Rs. 2.23 crores as opposed to its stamp duty value of Rs. 3,32 crores, there is no case with the Revenue for considering the stamp duty value of the land for ITA No. 179/Ahd/2022 computing the addition to be made to the income of the assessee in terms of section 56(2) (x) of the Act. At the most, the FMV could be taken for the purpose of determining the excess between the FMV and the purchase consideration, but since the difference is only to the tune of Rs. 20 lakhs, which is approximately 10% of the purchase consideration of the property of Rs. 2.01 crores, it is not a material difference. Therefore, the is no occasion for making any addition in the hands of the assessee for receiving immovable property for consideration which is less than is stamp duty value/FMV for the above reason. We direct the AO to delete the addition made in the hands of the assessee under section 56(2) (x) of the Act amounting to Rs. 62,52,9000/-.” The Hon ‘ble ITAT A bad has deleted total addition in same percentage coparcener Dilipbhai Manilal Prajapati. “
5. The copy of the order of the ITAT in the case of in ITA No.179/Ahd/2022, dated 28.06.2024/Dilip Manibhai Prajapati v. Income-tax Officer (Ahmedabad – Trib.) was also placed before us. Ld. Counsel for the assessee stated that the issue was squarely covered by the decision of the ITAT in the case of other co-owner.
6. The Ld. DR was unable to controvert the contention of the Ld. Counsel for the assessee that the Ld. CIT(A) had ignored the categorical submission of the assessee before it that the issue was covered in his favour by the decision of the ITAT in the case of 3rd co-owner of the land nor was the Ld. DR able to point out any distinction on law or on facts in the decision of the ITAT in the case of the 3rd co-owner i.e. Dilip Manibhai Prajapati (supra) with that in the present case.
7. Having heard the contention of both the parties and gone through the order of the Ld. CIT(A) in the case of Dilip Manibhai Prajapati (supra), we have no hesitation at all in deleting the addition made in the hands of the assessee of Rs.11,61,850/-u/s.56(2)(x)(b) of the Act. As rightly pointed out by the Ld. Counsel for the assessee, the Ld. CIT(A) has upheld the addition ignoring the plea of the assessee that the addition was not sustainable since the ITAT had deleted identical addition made in the hands of the 3rd co-owner of the impugned land itself. We have gone through the order of the ITAT in the case of Dilip Manibhai Prajapati (supra) and we have noted that the ITAT had deleted the addition noting that the difference between fair market value and the purchase consideration is approximately 10% of the purchase consideration of the property which is not a material difference. The relevant finding of ITAT are at para nos. 20 to 21 of its order as under:
“20. In view of the above facts, since on a valid reference made to the DVO for the valuation of the fair market value of the impugned property/land in terms of provisions of law in this regard, the FMV has been found to be in excess of approximately of Rs.20 lakhs only, i.e within 10% range of the purchase consideration of Rs.2.01 crores, there is no material difference between the FMV of the property and the purchase consideration for which it was purchased.
21. Further in the light of the fact that the DVO has found the FMV of the land to be far less than its stamp duty value being Rs.2.23 Crs as opposed to its stamp duty value of Rs.3.32 crs, there is no case with the Revenue for considering the stamp duty value of the land for computing the addition to be made to the income of the assessee in terms of section 56(2)(x) of the Act. At the most, the FMV could be taken for the purpose of determining the excess between the FMV and the purchase consideration, but since the difference is only to the tune of Rs.20 lakhs, which is approximately 10% of the purchase consideration of the property of Rs.2.01 Crs, it is not a material difference. Therefore, there is no occasion for making any addition in the hands of the assessee for receiving immovable property for consideration which is less than its stamp duty value/FMV for the above reasons. We direct the AO to delete the addition made in the hands of the assessee under section 56(2)(x) of the Act amounting to Rs.62,52,900/-.”
8. Since, the Ld. DR was unable to distinguish the case of the assessee with that of the other co-owner already adjudicated by the ITAT, we agree with Ld. Counsel for the assessee that the issue is clearly covered in favour of the assessee by the decision of the ITAT in the case of 3rd co-owner Dilip Manibhai Prajapati (supra). And following the same, we hold that the addition made in the hands of the assessee of Rs.1 1,61,850/- u/s.56(2)(x) of the Act is not sustainable and direct deletion of the same.
9. In the result, appeal filed by the assessee is allowed.