2025 (2) TMI 973 - AT - Income Tax

Addition u/s 43CA - difference between the market value and the agreement value - assessee has sold 12 flats for a total consideration leass than market price of the same as pointed out by the Auditor in the audit report - HELD THAT - A perusal of the assessment order shows that the dates of booking of 12 flats in question were much prior to the dates of registration. A perusal of the details filed by the assessee in the paper book shows that in all the 12 cases the market value (Govt. value) is more than the agreed value as on the date of booking. Since there is a long gap between the date of booking and the date of sale therefore the market price (Govt. value) has gone up. Merely because the Auditor has mentioned in the audit report that the assessee has sold certain flats which is less than the market value (Govt. value) the same cannot be the basis for addition without looking to the clear provisions of the Act AO himself has reproduced the details filed by the assessee in the body of the assessment order which clearly shows the gap between the date of booking and the date of agreement. The documents clearly show that the market value i.e. Govt. value as on the date of booking was less than the agreement value as on the date of booking. As decided in the case of Kolte Patil Developers Ltd. 2024 (8) TMI 748 - ITAT PUNE where the Tribunal has decided the issue in favour of the assessee by holding that since the assessee has received a part of consideration as advance as per agreement and the sale deeds were made on the basis of agreement value although the market price has gone up by that time therefore in view of provisions of sub-sections (3) and (4) of section 43CA no addition was called for. Since admittedly in the instant case the assessee has received a part of the consideration as advance as per the agreement and the sale deeds were made on the basis of such agreement value although the market price has gone up by that time therefore in view of the provisions of sub-sections (3) and (4) of section 43CA of the Act no addition is called for. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the addition of Rs. 38,69,867 under Section 43CA of the Income Tax Act is justified when the sale consideration of 12 flats was less than the market value at the time of transfer.
Whether the conditions under Section 43CA(3) and 43CA(4) were fulfilled, allowing the assessee to use the agreement value instead of the market value for tax purposes.
The applicability of Section 43CA to agreements entered into prior to the introduction of the section by the Finance Act, 2013.
The consequential levy of interest under Sections 234B and 234C of the Act.
The initiation of penalty proceedings under Section 271(1)(c) read with Section 270A of the Act.

ISSUE-WISE DETAILED ANALYSIS

Addition under Section 43CA

Relevant Legal Framework and Precedents: Section 43CA of the Income Tax Act requires that when the sale consideration of an asset is less than the market value, the difference should be added to the income of the seller. Sub-sections (3) and (4) provide exceptions where the agreement date value may be used if certain conditions are met.
Court's Interpretation and Reasoning: The Tribunal considered whether the conditions of Section 43CA(3) and (4) were met, which would allow the use of the agreement value instead of the market value. It noted that the agreement value was higher than the market value at the time of booking, and a part of the consideration was received through banking channels.
Key Evidence and Findings: The Tribunal examined the dates of booking and registration, the agreement values, and the method of payment. It found that the market value at the time of booking was indeed less than the agreement value.
Application of Law to Facts: The Tribunal applied the provisions of Section 43CA(3) and (4) to determine that the conditions were satisfied, as the agreement value was higher at the time of booking and part of the consideration was received through banking channels.
Treatment of Competing Arguments: The Tribunal considered the Department's reliance on the auditor's report but found that the clear provisions of the Act and the evidence provided by the assessee were more compelling.
Conclusions: The Tribunal concluded that the addition under Section 43CA was not justified, as the conditions for using the agreement value were met.

Applicability of Section 43CA

Relevant Legal Framework and Precedents: Section 43CA was introduced by the Finance Act, 2013, effective from April 1, 2014. The Tribunal considered whether it applies to agreements entered into before this date.
Court's Interpretation and Reasoning: The Tribunal did not explicitly rule on this issue, as it found that the conditions for using the agreement value were satisfied regardless of the timing of the agreement.
Conclusions: The Tribunal did not need to address this issue conclusively due to its findings on the primary issue.

Levy of Interest and Penalty Proceedings

Relevant Legal Framework and Precedents: Sections 234B and 234C deal with interest on defaults in payment of advance tax, while Section 271(1)(c) addresses penalties for concealment of income.
Court's Interpretation and Reasoning: The Tribunal did not delve into these issues in detail, as its decision on the primary issue rendered them moot.
Conclusions: The Tribunal's decision to allow the appeal negated the need for interest and penalty considerations.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "Since the assessee has received a part of the consideration as advance as per agreement and the sale deeds were made on the basis of agreement value, although the market price has gone up by that time, therefore, in view of the provisions of sub-sections (3) and (4) of section 43CA, no addition is called for."
Core Principles Established: The Tribunal reinforced the principle that the provisions of Section 43CA(3) and (4) allow for the use of agreement value if certain conditions are met, such as receiving part of the consideration through non-cash means before the agreement date.
Final Determinations on Each Issue: The Tribunal allowed the appeal, determining that the addition under Section 43CA was unwarranted, and consequently, the issues of interest and penalties were not applicable.

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