2021 (8) TMI 271 - AT - Income Tax

Addition u/s 43CA - difference between agreement value of the flats and market value determined by the DVO - difference between agreement value and value determined by DVO - difference between the agreement value and the market value is less than 10% no addition should be made - HELD THAT - Rational for holding newly inserted proviso to sub-section (1) to section 50C of the Act as curative in nature, hence, having retrospective application, the same analogy would apply to the provisions of Section 43CA of the Act. Both the sections are similarly worded except that both the sections have application on different sets of assessee. As has been pointed earlier, Section 43CA gets attracted where the consideration received or accrues as a result of transfer of an asset (other than a capital asset) being land or building or both. Provisions of section 50C operates where the consideration received or accrues as a result of transfer of a capital asset being land or building or both. Both the sections induce deeming fiction to substitute actual sale consideration with notional value of asset based on Stamp Duty valuation. A perusal of Circular 8 of 2018 (supra) would show that identical reasons have been given for Rationalization of Sections 43CA and 50C . The proviso has been inserted and subsequently tolerance band limit has been enhanced to mitigate hardship of genuine transactions in the real estate sector. Ergo, in the light of reasoning given for insertion of the proviso and exposition by the Tribunal for retrospective application of the said proviso, have no hesitation in holding that the proviso to sub-section (1) to section 43CA and the subsequent amendment thereto relates back to the date on which the said section was made effective i.e. 01/4/2014. Assessing Officer is directed to delete the addition u/s 43CA - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under section 43CA of the Income Tax Act, 1961 due to the difference between the agreement value and the Stamp Duty value of flats sold by the assessee.
2. Determination of market value by the Department Valuation Officer (DVO).
3. Applicability of a tolerance limit for variations between declared sale consideration and Stamp Duty value.
4. Retrospective application of the proviso to section 43CA.

Detailed Analysis:

1. Addition under section 43CA of the Income Tax Act, 1961:
The core issue in the appeal is the addition made under section 43CA of the Income Tax Act, 1961. The Assessing Officer (AO) added the difference between the Stamp Duty value (?1,09,83,000) and the agreement value (?97,11,500) of three flats sold by the assessee, amounting to ?12,71,500. The CIT(A) upheld this addition, despite the assessee's objections and the subsequent valuation by the DVO.

2. Determination of Market Value by the DVO:
The DVO determined the market value of the flats at ?1,03,93,000, which resulted in a reduced difference of ?6,81,500. The assessee argued that since this difference is approximately 7%, which is less than 10%, no addition should be made. The AO had already granted partial relief under section 154 of the Act after receiving the DVO's report.

3. Applicability of a Tolerance Limit for Variations:
The assessee relied on the precedent set by the Tribunal in the case of Radhika Sales Corporation vs. Addl. CIT, where it was held that if the difference between the agreement value and the market value is less than 10%, no addition should be made. The Tribunal in the present case agreed with this reasoning, noting that the provisions of section 43CA are similar to those of section 50C, which also deals with the substitution of sale consideration with notional value based on Stamp Duty valuation.

4. Retrospective Application of the Proviso to Section 43CA:
The Tribunal discussed the retrospective application of the proviso to section 43CA, which provides a tolerance limit for minor variations in declared sale consideration. The Tribunal referred to the case of Maria Fernandes Cheryl vs. ITO, where it was held that the proviso to section 50C, which is similar to section 43CA, is curative in nature and should be applied retrospectively. The Tribunal concluded that the same rationale applies to section 43CA, and thus, the tolerance limit should be considered from the date the section was made effective (01/04/2014).

Conclusion:
In light of the above findings, the Tribunal directed the AO to delete the addition of ?6,81,500 under section 43CA of the Act. The impugned order was quashed, and the appeal of the assessee was allowed. The Tribunal emphasized that minor variations between the agreement value and the market value, if within the tolerance limit, should not warrant an addition under section 43CA. The decision underscores the importance of considering the tolerance limit and the retrospective application of the proviso to ensure fairness in tax assessments.