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2025 (6) TMI 314 - AT - Income TaxDetermination of profit on sale of four shops with the help of Section 43CA - AO was of the view that the full sale consideration is to be equated according to the value adopted by the valuation authority for charging the stamp duty - CIT(A) has upheld the addition on the basis of the DVOs report and such addition has been confirmed partly - HELD THAT - Valuation taken on the date of agreement is to be adopted. But sub-clause (4) puts a condition that payment in furtherance of Sale Agreement is to be made by banking channel. In the present case Sale Agreement was executed on 25.01.2011. Payment was made through account payee cheque and such payments have been made according to the schedule reproduced above. The balance which was not paid due to the dispute the vendee has paid the interest. Therefore the appointed date in this case is 25.01.2011 and the collectorate rate for charging the stamp duty on that day ought to have been adopted. Neither the AO nor the DVO could lay their hands on the correct rate of stamp valuation authority on that day. Thus the value declared by the assessee in the Sale Deed on which stamp duty has been paid is to be construed as the correct value and no addition was required to be made. Apart from that if we looked at from another angle also we find that alleged interest charged by the assessee from the vendee would partake character of sale proceeds because it is an interest on delayed realization of sale proceeds for registration of the Sale Deed. We have seen this aspect while computing the profit eligible for grant of 80-I wherein it has been held that if sale proceeds are realized late by the assessee and interest is being charged on those sale proceeds then interest would par-take character of business income upon whom 80-I would be applicable. Assessee has disclosed sale consideration at Rs. 28.82 Cr. It has charged interest at Rs. 6.19 Cr. Total comes to Rs. 35.01 Cr. The DVO has determined Fair Market Value of the asset at Rs. 37.45 Cr. The difference is Rs. 2.44 Cr which is less than 10%. Hence on that ground also no addition could be made. We are fortified by the order of the ITAT in assessee s own case for assessment year 2017-18. This appeal has been decided 2024 (8) TMI 1569 - ITAT CHANDIGARH . We are of the view that no addition required to be made in the hands of the assessee as per Section 43CA of the Income Tax Act. Nature of expenditure - interest expenses paid on conversion charges to Chandigarh Administration for change of land user - capital expenditure or revenue expenditure - HELD THAT - It is pertinent to note that asset in the case of the assessee was put to use on 14.03.2013. Till the Shopping Mall was under construction and asset was not put to use assessee has capitalized this expenditure but the asset has been put to use. As per Section 36(1)(iii) of the Act it is allowable as a revenue expenditure. CIT(A) has made an elaborate discussion in the finding extracted supra thus view taken by the CIT(A) is in consonance with the proposition laid down by the ITAT as well as in consonance to Section 36(1)(iii) of the Income Tax Act. No interference is called for. Accordingly the appeals of the Revenue are dismissed in both the years.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal are: (a) Whether the profit on sale of shops owned by the assessee for assessment years 2014-15 and 2015-16 should be computed by adopting the value as per Section 43CA of the Income Tax Act, 1961, particularly whether the valuation for stamp duty purposes on the date of agreement or on the date of registration is applicable, and whether the addition made by the Assessing Officer (AO) under Section 43CA is justified. (b) Whether the interest expenses paid by the assessee on conversion charges (land use conversion fees) to the Chandigarh Administration should be treated as capital expenditure or revenue expenditure for the relevant assessment years. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability and Interpretation of Section 43CA for Determining Profit on Sale of Shops Relevant legal framework and precedents: Section 43CA of the Income Tax Act, 1961, is a special provision applicable to the transfer of assets other than capital assets (such as stock-in-trade) involving land or building. It mandates that if the consideration received or accruing as a result of such transfer is less than the value adopted or assessed by any State Government authority for stamp duty purposes, then the latter value shall be deemed to be the full value of consideration for computing profits and gains. Section 43CA parallels Section 50C, which applies to capital assets. The proviso to Section 43CA provides a 10% tolerance band: if the stamp duty value does not exceed 110% of the consideration received, the actual consideration shall be taken as full value. Sub-sections (3) and (4) of Section 43CA clarify that where the date of agreement and date of registration differ, the stamp duty valuation on the date of agreement may be adopted, provided part or full consideration has been received through banking channels on or before the agreement date. Precedents cited include orders of the ITAT and High Courts interpreting similar provisions and the nature of interest income related to delayed payments. Court's interpretation and reasoning: The Tribunal noted that the assessee had entered into an agreement to sell shops on 25.01.2011 and received payments through account payee cheques as per the payment schedule. The Sale Deed was registered later during the accounting year relevant to AY 2014-15. The AO treated the full sale consideration as the stamp duty value on the date of registration, invoking Section 43CA, and made additions accordingly. The Tribunal examined the applicability of Section 43CA, emphasizing sub-sections (3) and (4), which require adoption of stamp duty valuation on the date of agreement if payment has been made through banking channels on or before that date. Since the assessee had made payments by cheque as per the agreement date, the valuation for stamp duty on 25.01.2011 was relevant. However, neither the AO nor the DVO could find the collectorate rate applicable on the date of agreement. The DVO himself opined that adopting collectorate rates might not be appropriate due to the nature of the property (office space vs. commercial space). Consequently, the Tribunal held that the value declared by the assessee in the Sale Deed, on which stamp duty was paid, should be considered the correct value. The Tribunal further considered the interest of Rs. 6.19 crore charged by the assessee from the vendee during the dispute period. It held, relying on judicial precedents, that such interest is part of the sale consideration and qualifies as business income. When this interest was added to the sale consideration, the total value was Rs. 35.01 crore, compared to the DVO's valuation of Rs. 37.45 crore, a difference of only 6.51%, which falls within the 10% tolerance band under the proviso to Section 43CA. Therefore, no addition was warranted. The Tribunal also referred to its own earlier order for AY 2017-18, which supported this view. Key evidence and findings:
Application of law to facts: The Tribunal applied the provisions of Section 43CA, particularly sub-sections (3) and (4), to hold that the stamp duty valuation on the date of agreement should be adopted, provided payment was made through banking channels. Since payments were made accordingly and no collectorate rates were available for that date, the sale consideration declared by the assessee was accepted. The inclusion of interest income as part of sale consideration further reduced the deviation below the 10% threshold, negating the need for any addition. Treatment of competing arguments: The AO and Revenue argued for adoption of stamp duty valuation on the date of registration, treating Section 43CA as applicable and making additions accordingly. The assessee contended that Section 43CA should apply on the date of agreement and that interest income should be included in sale consideration, reducing the deviation below 10%. The Tribunal accepted the assessee's arguments based on statutory provisions and evidentiary support. Conclusions: No addition under Section 43CA was warranted for the assessment years 2014-15 and 2015-16. The additions made by the AO and confirmed by the CIT(A) were deleted. Issue 2: Treatment of Interest Expenses on Conversion Charges as Revenue or Capital Expenditure Relevant legal framework and precedents: Section 36(1)(iii) of the Income Tax Act allows deduction of interest on borrowed capital used for business purposes. The proviso to this section permits capitalization of interest expenses incurred during the construction period or pre-operative period until the asset is put to use. Judicial precedents cited include ITAT decisions in cases such as Sanjay Dahuja vs. ACIT and Deputy Director of Income Tax v. Micron Instruments (P) Ltd, which held that interest on conversion charges paid after the asset is put to use should be treated as revenue expenditure, not capital expenditure. Court's interpretation and reasoning: The assessee purchased industrial land and obtained approval for conversion of land use from industrial to commercial. Conversion fees totaling Rs. 185.45 crore were payable in installments with interest at 8.25%. The assessee capitalized the conversion fee and interest during the construction period (pre-operative period) until the Shopping Mall was completed and put to use on 14.03.2013. Post this date, interest expenses were claimed as revenue expenditure under Section 36(1)(iii). The AO disallowed the revenue expenditure claim, treating the interest as capital expenditure on the ground that the interest related to conversion charges which provide enduring benefit. The CIT(A) allowed the claim, relying on precedents and reasoning that since the asset was put to use, the interest paid thereafter is revenue in nature. The Tribunal agreed with the CIT(A), noting that the facts were identical to the cited precedents and that the AO's view was not sustainable. Key evidence and findings:
Application of law to facts: The Tribunal applied Section 36(1)(iii) and the proviso, holding that capitalization of interest is appropriate only until the asset is put to use. After that, interest expenses are allowable as revenue expenditure. The assessee's treatment complied with this principle. Treatment of competing arguments: The AO argued for capital treatment of all interest on conversion charges, citing enduring benefit. The assessee and CIT(A) contended for capitalization only during construction and revenue treatment thereafter. The Tribunal sided with the latter view, supported by authoritative precedents. Conclusions: The Tribunal upheld the CIT(A)'s order allowing the interest expenses on conversion charges paid after the asset was put to use as revenue expenditure. The Revenue's appeals on this issue were dismissed. 3. SIGNIFICANT HOLDINGS The Tribunal made the following significant legal determinations: On Section 43CA valuation: "Section 43CA ... contemplates that where the consideration received or accruing as a result of the transfer by an assessee of an asset ... is less than the value adopted or assessed or assessable by the Stamp Duty Authority ... such valuation would be deemed as full sale consideration for transfer of such asset." "Sub-clause (3) further provides that if the Deed of Agreement fixing the value of consideration for transfer of asset and the date of registration of such transfer of asset are not the same, then value referred in sub-section (1) of Section 43CA may be taken as the value assessable by any authority of State Government for the purpose of payment of Stamp Duty in respect of such transfer on the date of agreement." "The balance, which was not paid due to the dispute, the vendee has paid the interest. ... This interest is part and parcel of the sale consideration." "The difference between the sale proceeds disclosed by the assessee vis-`a-vis one determined by the DVO is less than 6.51% and the assessee is protected by proviso attached to Section 43CA sub-clause (1)." On treatment of interest on conversion charges: "If any expense including interest is incurred for acquisition of a new asset, it has to be capitalized till the asset has been put to use or the business is yet to commence and thereafter (after it is put to use or business has commenced) treated as a revenue expense." "In the instant case, the asset in question had been put to use, there is no occasion to treat interest as capital expenditure." "The character of the expense has to be construed from the nature of the transaction." Final determinations:
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