Safe Harbour Benefit Available Even with DVO Valuation – Special Bench ITAT Gives Major Relief in Property Transactions
Real estate transactions often lead to income-tax disputes because the value adopted by the Stamp Valuation Authority (ready reckoner value) is frequently higher than the actual purchase price agreed between buyer and seller. To deal with such situations, the Income Tax Act contains deeming provisions like section 50C, section 43CA and section 56(2)(x). However, the law also provides a safe harbour limit (currently 10%) so that genuine transactions are not taxed merely because of minor valuation differences.
A very important controversy existed on one specific issue –
Whether the 10% safe harbour can be applied even when valuation is determined by the DVO instead of stamp duty value?
This issue has now been settled by the Special Bench of the ITAT, Mumbai in the case of Shreyas Naynesh Modi vs ITO (2026), which has given significant relief to taxpayers.
Below is a simplified analysis of the decision and its practical impact.
Background of the Case
The assessee purchased a flat for ₹2.65 crore, whereas the stamp duty value was ₹3.79 crore. Since the difference was large, the assessee requested reference to the Departmental Valuation Officer (DVO).
The DVO determined the fair market value at about ₹2.81 crore, which was only around 6% higher than the actual purchase price.
The Assessing Officer still made addition under section 56(2)(x) on the basis of DVO valuation, without giving benefit of 10% safe harbour.
The dispute reached the Tribunal, and due to conflicting decisions, the matter was referred to Special Bench.
Core Issue Before Special Bench
The question before the Tribunal was:
Whether the 10% safe harbour limit is to be applied only with reference to stamp duty value,
or it can also be applied to the value determined by the DVO?
This issue is very common in cases involving:
Section 50C (capital gain)
Section 43CA (business stock property)
Section 56(2)(x) (tax in hands of buyer)
Why Safe Harbour Was Introduced
The Tribunal noted that the safe harbour provision was inserted to reduce hardship because stamp duty values are only estimates and may differ from actual market price due to many factors such as:
location differences
shape of plot
building condition
market fluctuations
Therefore, the law allows variation within a small percentage without taxation.
Important Observation of the Tribunal
The Special Bench made a very logical observation:
Stamp duty value is an estimate
DVO valuation is also an estimate
Actual sale price is the real transaction value
Therefore, if safe harbour is allowed against stamp value,
it should also be allowed against DVO value, because both are only valuation opinions.
The Tribunal held that once reference is made to DVO,
DVO value replaces stamp duty value, and therefore safe harbour should be applied on DVO value also.
Final Decision of Special Bench
The Tribunal held:
– Safe harbour limit applies even when valuation is done by DVO
– If difference between actual price and DVO value is within limit, no addition
– Provision should be interpreted liberally because it reduces hardship
Thus, the issue was decided in favour of the assessee.
Practical Impact of This Decision
This ruling is very important for taxpayers dealing in property transactions.
Now relief can be claimed in cases where:
Stamp value is high
DVO value is lower
Difference with actual price is within 10%
Earlier, department often argued that safe harbour applies only to stamp value.
This decision rejects that view.
Example for Better Understanding
Particulars
Amount
Actual purchase price
1,00,00,000
Stamp duty value
1,30,00,000
DVO value
1,07,00,000
Difference between actual price and DVO value = 7%
Since difference is within 10%,
No addition should be made as per this decision.
Important for Pending Appeals
This decision can help in:
Scrutiny cases
CIT(A) appeals
ITAT appeals
Reopening cases
Property purchase cases u/s 56(2)(x)
Capital gain cases u/s 50C
Taxpayers whose cases are pending should definitely take this ground.
Conclusion
The Special Bench decision is a major relief for genuine property transactions.
It confirms that the safe harbour provision is meant to avoid unnecessary taxation and must be applied even when valuation is determined by the DVO.
This ruling will reduce litigation and provide practical relief to taxpayers who face additions only because of minor valuation differences.
The copy of the order is as under:
