Tax certainty for home buyers: ITAT nixes stamp value escalation

 In a recent ruling, the ITAT Mumbai deleted an addition proposed in the hands of a buyer on account of the difference between the agreed purchase price of a flat and the higher stamp duty value adopted at the time of registration. The Tribunal held that in the facts of the case, no tax demand was warranted since the buyer had satisfied the conditions laid down in the law to substantiate the genuineness of the transaction.

In this case, the buyer had booked an under-construction flat through an allotment letter issued by the developer. The allotment letter clearly fixed the total consideration and laid down a stage-wise payment schedule. Importantly, part of the consideration had already been paid through banking channels (and not in cash) at the time of booking, even though the formal registration of the property took place several years later. At the time of registration, the stamp duty value had gone up, and the tax authorities sought to treat the difference between this stamp value and the originally agreed price as taxable in the buyer’s hands.

After examining the facts and documents, the Tribunal accepted the buyer’s position. It observed that an allotment letter, if it clearly identifies the property, fixes the consideration, sets out mutual obligations, and is acted upon by both parties, can be treated as a valid agreement. Since the buyer had made part payment through non-cash modes before the date of allotment and could substantiate this with bank statements and related records, the agreed price as on the allotment date was to be considered, not the inflated stamp value price at the time of registration of the property.

The ruling is particularly relevant for buyers of under-construction properties. It clarifies that where the price is locked in through an allotment letter and payments are properly documented through banking channels; buyers should not be penalized merely because registration happens much later at a higher stamp duty value. As a practical takeaway, buyers should carefully preserve allotment letters, payment schedules, and bank statements, as these documents can be crucial in defending against such additions.