In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Mumbai, held that the 10% safe harbour limit under Section 56(2)(vii)(b) of the Income Tax Act, 1961 applies retrospectively, even though it was introduced by the Finance Act 2020 with effect from 01.04.2021. The Tribunal deleted an addition of Rs. 5,59,522 made by the Assessing Officer (AO) for the assessment year 2017-18, reinforcing that curative amendments aimed at avoiding unintended consequences must be treated as retrospective in nature.
Background & Facts
The Dispute
The appellant, Bhavika Sameer Mistry, purchased an immovable property during the financial year 2013-14 (relevant to assessment year 2017-18). The AO invoked Section 56(2)(vii)(b) of the Income Tax Act, which taxes the difference between the stamp duty value and the actual consideration paid for the property, if such difference exceeds a prescribed limit. The AO made an addition of Rs. 5,59,522, calculating the difference between the stamp duty value of Rs. 96,68,471 and the actual consideration of Rs. 81,45,145, adjusted to Rs. 87,04,668 based on a valuation submitted by the assessee for FY 2013-14.
Key Facts
- The property was purchased in FY 2013-14 (relevant to AY 2017-18).
- The stamp duty value was Rs. 96,68,471, while the actual consideration was Rs. 81,45,145.
- The assessee submitted a valuation of Rs. 87,04,668 for FY 2013-14, resulting in a difference of 6.42% from the stamp duty value.
- The AO made an addition of Rs. 5,59,522 under Section 56(2)(vii)(b).
- The assessee contended that the difference was within the 10% tolerance limit introduced by the Finance Act 2020, which should apply retrospectively.
Procedural History
- 18.05.2023: AO passed order under Section 147 read with Section 143(3), making the addition.
- 29.12.2025: Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre, Delhi, dismissed the assessee’s appeal, holding that the 10% tolerance limit introduced by the Finance Act 2020 could not apply retrospectively to a transaction from FY 2013-14.
- 15.04.2026: ITAT Mumbai heard the appeal.
- 29.04.2026: ITAT Mumbai pronounced its order, allowing the assessee’s appeal.
Relief Sought
The assessee sought the deletion of the addition of Rs. 5,59,522, arguing that the difference between the stamp duty value and the actual consideration was within the 10% tolerance limit under Section 56(2)(vii)(b), which should apply retrospectively.
The Legal Issue
The central question before the ITAT was whether the 10% safe harbour limit introduced by the Finance Act 2020 under Section 56(2)(vii)(b) of the Income Tax Act applies retrospectively to transactions completed before its enactment, specifically for the assessment year 2017-18.
Arguments Presented
For the Appellant
- The assessee relied on judicial precedents, including Rahul Ramavtar Goenka vs ITO and Maria Fernandes Cheryl, to argue that curative amendments aimed at avoiding unintended consequences must be treated as retrospective in nature.
- The assessee contended that the difference of 6.42% between the stamp duty value and the actual consideration was within the 10% tolerance limit, and thus, no addition should have been made.
- It was further argued that both Section 50C and Section 56(2)(vii)(b) operate in relation to the same transaction, and the 10% tolerance limit should apply uniformly.
For the Respondent
- The Revenue argued that the 10% tolerance limit was introduced by the Finance Act 2020 with effect from 01.04.2021 and could not apply retrospectively to a transaction from FY 2013-14.
- It was contended that the 5% tolerance limit introduced by the Finance Act 2018 (applicable from AY 2018-19) and the 10% limit introduced by the Finance Act 2020 (applicable from AY 2021-22) were prospective in nature.
- The Revenue relied on the CIT(A)’s order, which dismissed the assessee’s plea for retrospective application.
The Court's Analysis
The ITAT examined the legal principles governing the retrospective application of curative amendments and the safe harbour limit under Section 56(2)(vii)(b). The Tribunal observed:
"As per settled position of law, the applicability of Safe Harbor limit in section 56(2)(vii)(b) of the Act for 5% brought in by Finance Act 2018 w.e.f. 01.04.2018, which was further enhanced from 5% to 10% by Finance Act 2020 w.e.f. 01.04.2021, would have its retrospective application."
The Tribunal relied on the coordinate bench decision in Rahul Ramavtar Goenka vs ITO, which held that curative amendments are intended to avoid unintended consequences and must be treated as retrospective. The Tribunal noted:
"It is also observed that as per well settled legal position it is obvious that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature, even though it may not say so specifically."
The Tribunal further referred to the decisions in CIT v. Ansal Landmark Township Pvt Ltd (Delhi High Court) and Dharmashibhai Sonani v. ACIT (ITAT Mumbai), which were approved by the Madras High Court in CIT v. Vummudi Amarendran. These precedents reinforced the principle that beneficial amendments aimed at avoiding hardship must be applied retrospectively.
The Tribunal concluded that the 10% safe harbour limit under Section 56(2)(vii)(b) applies retrospectively, even though it was introduced by the Finance Act 2020 with effect from 01.04.2021. Since the difference between the stamp duty value and the actual consideration in the assessee’s case was 6.42%, which is within the 10% tolerance limit, the addition made by the AO could not sustain.
The Verdict
The ITAT allowed the assessee’s appeal, setting aside the order of the CIT(A) dated 29.12.2025. The Tribunal directed the AO to delete the addition of Rs. 5,59,522 made under Section 56(2)(vii)(b). Consequently, the other legal grounds raised by the assessee were rendered academic and did not require adjudication.
What This Means For Similar Cases
Retrospective Application of Curative Amendments
- Beneficial provisions introduced to avoid unintended consequences must be treated as retrospective, even if not explicitly stated as such in the statute.
- Practitioners can rely on this judgment to argue for the retrospective application of amendments under Section 56(2)(vii)(b) and similar provisions where hardship or unintended consequences are evident.
Safe Harbour Limit Under Section 56(2)(vii)(b)
- The 10% tolerance limit introduced by the Finance Act 2020 applies retrospectively, and differences within this limit cannot be taxed under Section 56(2)(vii)(b).
- Assessees can challenge additions made under this section if the difference between the stamp duty value and the actual consideration is within 10%, even for transactions completed before 01.04.2021.
Precedential Value of Coordinate Bench Decisions
- Coordinate bench decisions, such as Rahul Ramavtar Goenka vs ITO, carry persuasive authority and can be relied upon to argue similar issues before the ITAT or higher courts.
- The principle that curative amendments are retrospective is now well-settled and can be invoked in cases involving Section 50C, Section 56(2)(vii)(b), and other similar provisions.
