Understanding Section 56(2)(x) and Its Safe Harbour Clause
Section 56(2)(x) of the Income Tax Act, 1961, introduced by the Finance Act, 2017, is an anti-abuse provision that taxes the recipient of immovable property if the consideration paid is significantly lower than the stamp duty value (SDV). This provision applies to all categories of persons — individuals, HUFs, firms, and companies — and seeks to tax the deemed income under “Income from Other Sources.”
To mitigate the hardship caused by minor valuation differences, a safe harbour was provided under clause (b)(ii), which allows a 10% variation between the agreement value and the SDV without triggering tax liability.
The key interpretational issue that has emerged is:
“Which date should be used to compare the SDV — the date of agreement (booking/allotment) or the date of registration?”
Case : NFAC v. NRB Developers, ITAT Mumbai, ITA Nos. 5352 & 5218/Mum/2024, order dated 25 February 2025.
Facts of the Case:
The assessee booked a property on 30 March 2010 by making an advance payment. An allotment letter was issued on the same date. At that time, there was a difference of 10.01% between the agreement value and the SDV. The Assessing Officer (AO), however, applied the SDV as on the registration date and made an addition under Section 56(2)(x).
CIT(A) & Tribunal Findings:
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The CIT(A) accepted the DVO valuation as applicable to the Financial Year 2009–10 and restricted the addition accordingly.
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The assessee claimed that the variation was only marginally above 10%, and hence the benefit of Section 56(2)(x)(b)(ii) should apply.
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The ITAT Mumbai ruled in favour of the assessee, holding that the SDV as on the date of booking/allotment should be taken into account and the 10% safe harbour benefit must be applied.
Key Judicial Interpretation:
"Where the assessee had booked the property and obtained an allotment letter by paying advance on 30-3-2010, the stamp duty value as on that date should be considered. The excess over 10% alone would be subject to addition under Section 56(2)(x)(b)(ii).”
The Booking Date Matters: Legal Position and Rationale
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The Explanatory Memorandum to the Finance Act, 2013 (similar provision under section 56(2)(vii)) clarified that the date of agreement should be considered when any part of the consideration is paid by banking channels before registration.
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The principle was reaffirmed under Section 56(2)(x) and incorporated in Rule 11UA(1)(b) and CBDT Circular No. 23/2017, which lend clarificatory character to the provision, making it retrospectively applicable.
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Multiple tribunals have upheld that where booking and partial payment are evidenced before registration, SDV on the booking date must be adopted to compute the variation.
Supporting Case Law Comparisons
| Case Law | Forum | Ratio Decidendi | Applicability |
|---|---|---|---|
| NFAC v. NRB Developers | ITAT Mumbai | SDV on booking date applies; 10% safe harbour applicable | Directly applicable |
| Vembu Vaidyanathan v. ITO | ITAT Chennai | Only excess over 10% can be taxed under Section 56(2)(x) | Safe harbour upheld |
| K.R. Palanisamy v. ITO | ITAT Coimbatore | Section 56(2)(x)(b)(ii) is clarificatory and retrospective | Retrospective effect upheld |
Common Revenue Argument
The AO often insists on applying the SDV as on registration date, arguing that property transfer legally occurs at that time. However, courts have repeatedly rejected this view when:
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The allotment letter and advance payment precede the registration,
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The booking date is documented and confirmed,
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The transaction is structured through banking channels.
This judicial approach upholds the doctrine of substance over form, protecting taxpayers from arbitrary taxation.
Practical Compliance Checklist for Professionals
✅ Advance Paid via Banking Channel before execution of registered deed
✅ Allotment Letter / Booking Confirmation with date and developer signature
✅ Agreement to Sale or Booking Form showing terms and price
✅ DVO Valuation (if disputed) to support fair value
✅ Comparison with SDV as on booking date (available from Ready Reckoner)
✅ Variation ≤10%? Then no tax under section 56(2)(x)(b)(ii)
✅ Document Audit Trail to pre-empt litigation
Conclusion: Booking Date Gains Legal Supremacy in Property Valuation under Section 56(2)(x)
The ruling by ITAT Mumbai in the NRB Developers case firmly establishes that where a property is booked by advance payment and allotment is confirmed, the stamp duty value as on that booking/allotment date should be considered for computing the notional income under Section 56(2)(x). Only the excess beyond the 10% threshold shall attract tax.
This decision is a welcome clarification and safeguards genuine property purchasers from penal tax additions due to procedural registration delays. It also underscores the importance of timely documentation and banking trail.
