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2025 (5) TMI 1389 - AT - Income TaxApplication of provisions of section 43CA - addition towards the difference between the stamp duty value and sale consideration - whether the tolerance band introduced under section 43CA of the Act i.e. 5% w.e.f. 01.04.2019 and 10% w.e.f. 01.04.2021 are applicable to assessee s case for AY 2017-18? - HELD THAT - As in Macrotech Developers Ltd 2023 (5) TMI 153 - ITAT MUMBAI held that the proviso to section 43CA providing relief to the assessee to the extent of the difference being less than 10% is applicable retrospectively for the reason that it is a beneficial provision as has been held in the case Vatika Township Pvt. Ltd. 2014 (9) TMI 576 - SUPREME COURT (LB) It is relevant to notice here that the coordinate bench has distinguished the decision relied on by the ld DR in the case of welfare properties private limited 2020 (1) TMI 853 - ITAT MUMBAI We also notice in the case of Maria Fernandes Cheryl 2021 (1) TMI 620 - ITAT MUMBAI in the context of section 50C has elaborated the legislative intent of introducing the tolerance band and held that the amendment providing the tolerance band is retrospective in nature and relates back to the date of insertion of statutory section to the Act. Thus rational for holding newly inserted proviso to sub-section (1) to section 50C of the Act as curative in nature hence having retrospective application. In our considered view the same analogy would apply to the provisions of Section 43CA of the Act also since both the sections are similarly worded with the difference being that section 50C is applicable in case of transfer of capital asset being land or building or both and section 43CA is for the transfer of asset (other than capital asset) being land or building or both. Circular 8 of 2018 dated 26.12.2018 containing Explanatory Notes to the provisions of Finance Act 2018 in Para 16 for Rationalization of Sections 43CA and 50C it is stated that the proviso containing the tolerance band is inserted in order to minimize hardship in case of genuine transactions in the real estate sector. When the reason behind the introduction of the proviso is read with the ratio laid down by the judicial precedence as discussed here in above on the retrospective applicability of beneficial provision we have no hesitation in holding that the tolerance band of 10% is applicable in assessee s case for AY 2017-18. In assessee s case the difference between the DVO valuation that is considered for making addition under section 43CA and the sale consideration is less than the tolerance band as per the proviso to the said section. Accordingly we hold that in assessee s case no addition under section 43CA of the Act is warranted for the year under consideration. Appeal of the assessee is allowed.
The core legal questions considered in this appeal are:
1. Whether the reopening of the assessment under section 147 of the Income Tax Act, 1961, was justified when the difference between the sale consideration and stamp duty valuation was used as a basis for reassessment. 2. Whether the addition made under section 43CA of the Act, based on the difference between the stamp duty value and sale consideration, was correctly upheld by the Commissioner of Income Tax (Appeals) (CIT(A)) for the assessment year (AY) 2017-18. 3. Whether the proviso to section 43CA, introducing a tolerance band (initially 5%, later 10%) for differences between stamp duty valuation and sale consideration, applies retrospectively to AYs prior to its effective date (i.e., before AY 2019-20). 4. Whether minor differences (less than the tolerance band) between the Departmental Valuation Officer's (DVO) valuation and the agreement value should be ignored for the purpose of applying section 43CA. Issue-wise Detailed Analysis: 1. Justification for Reopening Assessment under Section 147: The reopening was triggered by information received from the Sub-Registrar Office indicating that the assessee had sold two properties below the stamp duty valuation. The Assessing Officer (AO) issued a notice under section 148 to reopen the assessment. The assessee objected, arguing that circle rates fixed for stamp duty purposes are guidelines and cannot be universally applied without considering individual property specifics. However, the AO proceeded with reopening, relying on the statutory provisions that deem the stamp duty value as full consideration if it exceeds the sale consideration. The Court noted that the AO's action was based on credible information from the stamp duty authorities and that section 147 allows reopening if there is reason to believe income has escaped assessment. The reopening was therefore held to be valid. 2. Applicability of Section 43CA Addition for AY 2017-18: Section 43CA provides that if the consideration received on transfer of an asset (other than capital asset) such as land or building is less than the value adopted for stamp duty, the stamp duty value shall be deemed to be the full value of consideration for computing profits and gains. The proviso to section 43CA, introduced by the Finance Act 2018 effective from 01.04.2019, provides a tolerance band of 5% (later increased to 10% by Finance Act 2020 effective 01.04.2020) within which no addition is warranted. The AO held that since the proviso was introduced after the AY under consideration, it was not applicable, and made an addition of Rs. 4,46,63,000. The CIT(A) upheld this view but reduced the addition to Rs. 77,80,000 based on the DVO's valuation. The assessee contended that the proviso should apply retrospectively as it is curative and removes hardship, and that the difference between the DVO valuation and sale consideration was less than 5%, thus no addition should be made. The AO and CIT(A) rejected this, citing the effective date of the proviso. 3. Retrospective Applicability of the Tolerance Band in Section 43CA: This was the pivotal issue. The Tribunal examined coordinate bench decisions, particularly the decision in Macrotech Developers Ltd., which held that the tolerance band introduced by the proviso to section 43CA is curative in nature and hence applies retrospectively. The Tribunal relied on the Supreme Court's decision in Vatika Township Pvt. Ltd., which established the principle that beneficial amendments should be given retrospective effect unless expressly stated otherwise. The Tribunal noted that the proviso was introduced to alleviate genuine hardship caused by small differences between stamp duty valuation and sale consideration, which can arise due to various factors like plot shape or location. The CBDT Circular No. 8 of 2018 was also cited, emphasizing the remedial nature of the proviso. The Tribunal distinguished the decision relied upon by the Revenue (Welfare Property Pvt. Ltd.) on the ground that it did not deal with retrospective applicability. It also observed that the Bombay High Court decision in Swanand Properties Pvt. Ltd. related to the applicability of section 43CA itself and not the proviso tolerance band. Further, the Tribunal drew an analogy with section 50C, which deals with capital assets and has similar provisions and tolerance bands. The coordinate bench decision in Maria Fernandes Cheryl vs. ITO held that the tolerance band in section 50C is curative and retrospective, applying from the date of insertion of section 50C itself. The Tribunal applied this reasoning to section 43CA. 4. Treatment of Minor Differences Between DVO Valuation and Sale Consideration: The DVO's valuation was only 2.46% and 1.55% higher than the sale consideration for the two properties, respectively, resulting in a total difference of 2%. The Tribunal held that such small differences fall within the tolerance band and should be ignored for the purpose of section 43CA additions. Accordingly, the Tribunal directed deletion of the addition under section 43CA for AY 2017-18. Application of Law to Facts and Treatment of Competing Arguments: The Tribunal carefully weighed the legislative intent, judicial precedents, and CBDT circulars. It accepted the assessee's argument that the tolerance band is a beneficial provision introduced to mitigate hardship and should be applied retrospectively. The Revenue's contention that the proviso was prospective was rejected on the basis that no clear legislative intent to make it prospective only was demonstrated. The Tribunal also considered the practical reality that valuation differences within the tolerance band are common and do not justify invoking anti-avoidance provisions. Significant Holdings: "The ratio laid down in the above decision is that the rational for holding newly inserted proviso to sub-section (1) to section 50C of the Act as curative in nature, hence, having retrospective application. In our considered view the same analogy would apply to the provisions of Section 43CA of the Act also since both the sections are similarly worded..." "When the reason behind the introduction of the proviso is read with the ratio laid down by the judicial precedence as discussed here in above on the retrospective applicability of beneficial provision, we have no hesitation in holding that the tolerance band of 10% is applicable in assessee's case for AY 2017-18." "Accordingly we hold that in assessee's case no addition under section 43CA of the Act is warranted for the year under consideration." The Tribunal established the core principle that beneficial amendments introducing tolerance bands in valuation provisions under the Income Tax Act should be applied retrospectively to protect taxpayers from undue hardship arising from minor valuation differences. This principle aligns with the Supreme Court's doctrine that beneficial provisions are to be given retrospective effect unless explicitly stated otherwise. On the facts, the Tribunal concluded that the difference between the sale consideration and the DVO valuation was within the tolerance band and therefore no addition under section 43CA was justified for AY 2017-18. The appeal was allowed accordingly.
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