In a significant relief for two Mumbai brothers, the Income Tax Appellate Tribunal (ITAT) Mumbai “F” Bench has deleted a massive ₹5.80 crore notional income addition that arose purely because of a sharp rise in stamp duty valuation between the time they booked their flats and the date they finally registered the agreement years later.
The case, which has now become a textbook example of how a favourable Departmental Valuation Officer (DVO) report and the retrospective application of the 10% tolerance limit under Section 56(2)(x)(b) can save taxpayers from huge tax demands, involves Shri Vipul Otarmal Jain and his brother Shri Deepak O. Jain.
The 2007 Booking
Back in June 2007, the two brothers jointly booked two premium flats — No. 2101 and 2201 — in the building “Krypton Terraces” (also referred to as Krypton Terrace in the order) developed by M/s Krypton Constructions & Developers at JSS Road, Tata Road No. 1, Opera House, Mumbai.
The total agreed consideration for both flats was ₹2.25 crore. Vipul Jain paid the initial ₹10 lakh by cheque on 20 June 2007. The brothers decided to share the property in the ratio of 45% (Vipul) and 55% (Deepak). An allotment letter was issued by the builder on 23 June 2007.
For 13 long years, the brothers continued to make payments as per the original terms, but the formal Agreement for Sale was executed only on 18 March 2020.
The 2020 Shock: Stamp Duty Valuation Jumps to ₹8.05 Crore
On the date of the Agreement for Sale (18 March 2020), the Stamp Duty Authorities valued the two flats at ₹8.05 crore.
The difference between the stamp duty value and the actual agreed consideration was ₹5.80 crore. Under Section 56(2)(x)(b) of the Income Tax Act, this difference is treated as “income from other sources” in the hands of the buyer if it exceeds the higher of ₹50,000 or 5% (later increased to 10%) of the consideration.
The Assessing Officer (AO), Ward 19(3)(1), Mumbai, therefore made an addition of ₹2.61 crore (Vipul’s 45% share) in his hands for Assessment Year 2020-21 while a corresponding addition of approximately ₹3.19 crore was made in Deepak’s case.
The total notional income addition on both brothers combined stood at ₹5.80 crore.
Assessment, Appeal and the Game-Changing DVO Report
Vipul filed his return on 11 February 2021 declaring total income of ₹18.58 lakh. The case was selected for limited scrutiny. The AO passed the order on 29 September 2022 under Section 143(3) r.w.s. 144B, confirming the addition. The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, upheld the addition vide order dated 13 November 2025.
Meanwhile, in Deepak O. Jain’s parallel assessment proceedings, the AO referred the valuation of the two flats to the Departmental Valuation Officer.
On 5 April 2023, the DVO submitted his report determining the Fair Market Value of both flats together at ₹2.46 crore (as on the date of the Agreement for Sale, i.e., 18 March 2020).
The difference between the DVO’s fair market value and the original agreed price of ₹2.25 crore was only ₹21.31 lakh — well within the 10% tolerance limit (₹22.50 lakh).
ITAT Mumbai Delivers Relief (Order Dated 8 April 2026)
In Vipul Jain’s appeal (ITA No. 439/Mum/2026), a division bench comprising Judicial Member Shri Sandeep Singh Karhail and Accountant Member Shri Jagadish heard the matter on 2 April 2026 and pronounced the order on 8 April 2026.
The Tribunal noted that once the stamp duty value is disputed, the third proviso to Section 56(2)(x)(b) allows the AO to refer the matter to a Valuation Officer. The DVO’s valuation then substitutes the stamp duty value. Since the same DVO report was available from the brother’s case, it was equally binding on Vipul’s case as he was a co-owner.
Crucially, the ITAT held that the amendment brought in by the Finance Act 2020 — increasing the tolerance/safe harbour limit from 5% to 10% with effect from 1 April 2021 — is curative and clarificatory in nature and therefore applies retrospectively.
The Tribunal relied on two earlier coordinate bench decisions:
- Maria Fernandes Cheryl v. ITO (Mumbai ITAT)
- Sandeep Kumar Poddar v. ITO (Kolkata ITAT)
Since the difference of ₹21.31 lakh was less than 10% of the agreed consideration, no addition was warranted under Section 56(2)(x)(b).
The ITAT deleted the entire ₹2.61 crore addition in Vipul’s case. Deepak had already received similar relief in his own proceedings using the same DVO report.
Both brothers were thus saved from a combined tax demand running into several crores.
What This Judgment Means
This order reinforces two important principles for taxpayers:
- A properly obtained DVO report can override an inflated stamp duty valuation.
- The 10% tolerance limit under Section 56(2)(x)(b) is available retrospectively for genuine transactions where the variation is small.
For thousands of buyers who booked properties years ago at lower prices but registered them later when circle rates had risen sharply, this judgment comes as a major relief.
The Revenue has not indicated any further appeal to the High Court so far.
