2023 (9) TMI 1204 - AT - Income Tax

Additions u/s 43CA - consideration for the transfer of an asset (other than a capital asset), being land or building or both, is less than the value adopted for stamp duty purposes - DR submitted that where the circle rate is in excess of the actual sale consideration, the actual sale consideration is required to be substituted by the deeming provisions of S. 43CA in force and the no fault could be found with the action of AO - HELD THAT - The application of Section 43CA in the facts of the case of AY 2015-16 is in question. Section 43CA has been inserted by Finance Act, 2013 and is applicable from Assessment Year 2014-15 onwards corresponding to previous year 2013-14. On a broader reckoning, section 43CA w.e.f. 1-4-2014 of the Income-tax Act create deeming fiction as regards full value of consideration received on transfer of asset, being immovable property. Consequently, where the consideration for the transfer of an asset (other than a capital asset), being land or building or both, is less than the value adopted for stamp duty purposes, the value so adopted or assessed shall be deemed to be the full value of consideration f or the purposes of computing income under the head profits and gains of business or profession. In the present case, the undisputed facts are that the assessee, engaged in real estate business, has received a part consideration of certain mutually agreed sale price and issued allotment letters in lieu thereof towards sale of plots to various allottees. Assessee has received majority payment through banking channel in the earlier years much prior to the insertion of Section 43CA of the Act w.e.f 1-4-2014 i.e AY 2014-15. AO however, applied the provisions of section 43CA and substituted the sale consideration determined at the time of allotment of plots to various customers with the corresponding stamp duty valuation applicable for this year where agreement for sale of plot was executed for the purposes of transfer of plots. Assessee contends that where allotment were issued much prior to the financial year relevant to assessment year 2014-15 when the provisions of Section 43CA have become effective, there is no way an assessee could have foreseen these provisions at the time of allotment - The issue is squarely covered in favour of the assessee by hosts of the judgments including Index One Trade Con P. Ltd. 2018 (9) TMI 1231 - ITAT JAIPUR On appraisal of the factual analysis carried out by the CIT(A) and applicable legal position thereon, we see no perceptible error in the findings rendered by the CIT(A) on first principles that the circle rate on the date of agreement can not be substituted for agreed and actual sale consideration determined in terms of allotment letter whereby the contractual obligations to transfer the plots had already been fastened on the assessee in the earlier years, much prior to insertion of s. 43CA. The relief thus granted by the CIT(A) is in tune with the schematic interpretation of S. 43CA and thus deserves to hold the field. Hence, We decline to interfere. The appeal of the revenue thus fails. Assessee seeking to challenge the denial of relief granted in the case of one allottee namely, Hemlata on the ground that allotment letter for transfer of plot has been issued for consideration received in cash albeit in FY 2006-07 - CIT(A) denied relief and sustained application of S. 43CA to transaction carried out in cash in the earlier year taking shelter of sub-section (4) of Section 43CA of the Act. The action of the CIT(A) is squarely opposed to the decision of the co-ordinate bench in Indexone (supra). We see no justifiable reason to deny the benefit of agreement value instead of circle rate in the case of Hemlata where the condition of receipt in cheque has been unjustly read into the provisions in contradiction to the judgment of the Co-ordinate Bench in Index One Trade Con P. Ltd. The transaction in cash occurred in AY 2007-08 when the provisions of Section 43CA was not at all existing in statute book. Significantly, the assessee is in the business of real estate and has issued allotment letters for sale of plot to large number of parties and sold about 70 plots. Thus, the assessee has not entered into an isolated instance of allotment of plot with Hemlata alone. Large number of allottees shows the bona fide of the modus operandi of the assessee. When tested on the touchstone of preponderance of probabilities, the bona fide transaction and contractual commitment with Hemlata way back in FY 2006-07 cannot be doubted merely to invoke and apply a prospective law of S. 43CA. Hence, in respect to appeal of the assessee, we find justifiable reason to reverse the action of the CIT(A) to the extent of additions confirmed for transaction with Hemlata - The action of the CIT(A) to this extent is thus set aside and reversed. Decided against revenue.

Summary

Issues Involved:

1. Legality of the CIT(A)'s order.
2. Applicability of Section 43CA of the Income Tax Act, 1961.
3. Validity of additions made by the Assessing Officer (AO).

Summary:

1. Legality of the CIT(A)'s order:
The Revenue challenged the CIT(A)'s order as "bad in law and not in consonance with the facts of the case," particularly criticizing the reduction of the addition from Rs. 3,66,41,140/- to Rs. 45,78,589/-. The CIT(A) had examined the allotment letters, sale deeds, and other records, and concluded that the benefit of Section 43CA(3) and (4) should be given, thus adopting the actual sale consideration instead of the circle rate. The CIT(A) referred to the decision in Index One Trade Con P. Ltd. vs. DCIT, which reversed similar additions under Section 43CA.

2. Applicability of Section 43CA of the Income Tax Act, 1961:
The Assessee contended that Section 43CA should not apply as the agreements were entered into before the section's insertion in the Act. The CIT(A) agreed, noting that the allotment letters issued prior to AY 2014-15 meant the circle rate of the later year could not be applied. The Tribunal upheld this view, stating that the "circle rate on the date of agreement cannot be substituted for agreed and actual sale consideration determined in terms of allotment letter."

3. Validity of additions made by the Assessing Officer (AO):
The AO made an addition of Rs. 3,66,41,140/- under Section 43CA, substituting the actual sale consideration with the circle rate. The CIT(A) reduced this addition to Rs. 45,78,589/-, considering the agreements' dates and payments received. The Tribunal found no error in the CIT(A)'s findings and upheld the relief granted. However, the Tribunal reversed the CIT(A)'s decision to sustain an addition of Rs. 16,31,225/- for the allottee Hemlata, as the transaction occurred before Section 43CA's insertion, and the initial payment in cash was received in FY 2006-07.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the Assessee's appeal, affirming the CIT(A)'s reduction of the addition and reversing the sustained addition for Hemlata. The final order pronounced that the addition amounting to Rs. 3,66,41,140/- gets downscaled to Rs. 45,78,589/-, with the further reduction of Rs. 16,31,225/- for Hemlata.