Pune ITAT: Section 43CA Cannot Be Applied to Pre-2013 Sale Agreements

Harmony Construction Vs ITO (ITAT Pune)

Pune ITAT: Section 43CA Cannot Be Applied to Pre-2013 Sale Agreements

The Pune ITAT held that Section 43CA cannot be invoked merely because the final sale deeds were executed after 1 April 2013 when the underlying agreements to sell had been registered and substantial consideration had already been received before the provision came into force. Accordingly, the Tribunal deleted the addition of ₹68.27 lakh made on the basis of higher stamp duty valuation.

The assessee, a real estate developer, had sold certain flats during AY 2014-15. The Assessing Officer compared the sale consideration with the stamp duty value and made an addition of ₹68.27 lakh under Section 43CA in respect of 11 units. However, the assessee demonstrated that the agreements to sell for all these units had been executed and registered during FYs 2010-11 and 2012-13, well before Section 43CA became effective, and substantial sale consideration had already been received through banking channels and recognised under the percentage completion method.

The Tribunal observed that Section 43CA, introduced from 1 April 2014, is a prospective provision and cannot be applied retrospectively to transactions substantially concluded before its introduction. Relying on judicial precedents, including the Bombay High Court’s ruling in Swananda Properties Pvt. Ltd., the Tribunal held that where agreements were entered into and consideration was substantially received before 1 April 2013, the stamp duty valuation mechanism under Section 43CA could not be triggered merely because the final conveyance deed was executed later.

Holding that the Revenue had wrongly invoked Section 43CA, the ITAT deleted the entire addition of ₹68.27 lakh and allowed the assessee’s grounds of appeal.

FULL TEXT OF THE ORDER OF ITAT PUNE

The captioned appeal at the instance of assessee pertaining to A.Y. 2014-15 is directed against the order dated 13.11.2019 of CIT(A)-1, Nashik arising out of Assessment Order dated 22.12.2016 passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter also called ‘the Act’).

2. This is second round of litigation before this Tribunal. This case has been previously heard by this Tribunal and order pronounced on 21.11.2022 allowing the assessee’s appeal for statistical purposes. Subsequently, assessee moved Miscellaneous Application and vide M.A.No.130/PUN/2023 order dated 09.10.2025 the order of the Tribunal dated 21.11.2022 has been recalled for the Limited Purpose of adjudicating Grounds of appeal No.3 and 4 which have not been adjudicated by this Tribunal. The said unadjudicated grounds reads as follows :

“3. The learned CIT(A) failed to appreciate that all the agreement to sale in respect of the impugned transactions were executed and registered prior to 31.03.2013 i.e. when the provisions of section 43CA were not enacted by the Legislature and therefore, no addition u/s 43CA could have been made in respect of the above transactions entered much prior to the introduction of the above provisions.

4. Without prejudice to the above, grounds, it is submitted that the agreements to sale in respect of the impugned units were registered before 31.03.2013 and substantial revenue thereon was also booked in earlier years on the basis of percentage completion method followed by assessee and therefore, the A.O. was not justified in taxing the entire difference of Rs.68,27,500/- in A.Y.2014-15 when the possession of units was transferred to the customers.”

3. At the outset, ld. Counsel for the assessee submitted that the impugned addition of Rs.68,27,500/- is uncalled for because provisions of section 43CA are not applicable on the impugned transaction because the Agreement to Sale were executed and Registered prior to 01.04.2013 and substantial Revenue was received and booked in the preceding years on the basis of ‘Percentage Completion Method’ followed by the assessee. Reliance placed on plethora of decisions listed below :

“1. Regal Construction v. ITO [(2023) 154 taxmann.com 350 (Kol)]

2. Dimple Oswal v. ITO [ITA No. 1506/PUNE/2025] dated 14.10.2025

3. Bal Kishan Gupta v. ACIT [(2023) 152 com567 (Del)]

4. Rajprabha Developers Pvt. Ltd. v. ACIT [ITA No. 4540/Mum/2018]

5. Bhavesh Sejpal v. ITO [ITA No. 467/Nagpur/2024] dated 21.03.2025

6. Smt. Kajaree Banerjee v. ITO [(2025) 174 taxmann.com1226 (Kol)] dated 19.05.2025.”

4. On the other hand, ld. Departmental Representative supported the order of ld.CIT(A).

5. We have heard the rival contentions and perused the record placed before us. We observe that the assessee is a partnership firm and income of Rs.14,27,970/- declared in the return of income for A.Y. 2014-15 filed on 30.09.2014. After the case selected for Scrutiny under CASS and validly serving notices u/s.143(2) and 142(1) of the Act, ld. Assessing Officer observed that during the year assessee has shown sale of 42 units/business assets at Rs.9,37,80,000/-. However, after analysing the stamp duty value, it was observed that the difference of Rs.68,27,500/- being stamp duty value of 11 units/business assets is higher than the total sale consideration. Since the assessment year in question relates to A.Y. 2014-15, ld. Assessing Officer invoked section 43CA which came into effect from 01.04.2014 applicable for A.Y. 2014-15 onwards and made the addition at R.68,27,500/-. Assessee before us has successfully demonstrated that the 11 units/business assets referred by the Assessing Officer, though the date of final sale deed falls in F.Y. 2013-14 relevant to A.Y. 2014-15, however, the Agreement to sale were registered in the past during F.Y. 2010-11 and F.Y. 2012-13 and substantial Revenue/advances have been received and duly reflected in the books of account as part of the ‘Percentage Completion Method’. The details of each unit and the date of final sale deed and date of registered agreements is reproduced below :

6. The above details of date of final Sale Deed and date of Registered Agreements have also been annexed and ld. DR failed to controvert this contention of ld. Counsel for the assessee that the properties on which the alleged addition has been made, Agreement to Sale were entered prior to 01.04.2013 and that major portion of Revenue/Sale consideration have been received through banking channel in the past. For instance in the case of Sale Deed of Apartment No. C-05, date of Final sale is 30.08.2013 but the date of Agreement to Sale (placed at page 12 of the paper book) is dated 02.01.2012. On going through the payment details, we note that Rs.11,000/- in cash was received on 09.10.2010, Rs.2.00 lakh through cheque received on 30.08.2011 and Rs.2,53,000/- through cash on 15.02.2012, Rs.7,10,000/-and Rs.1,45,000/- through cheque on 23.02.2012 and 21.11.2012 and also cheque of Rs.1,45,000/- on 18.08.2012. It clearly indicated that the major sale consideration has already been received through cheque mode prior to 01.04.2013. Same is the situation in all the remaining cases which brings to a conclusion that the sale consideration of the properties in question referred above in the list of 11 units/business assets, provisions of section 43CA of the Act will not be applicable as the Agreements to Sale have been entered prior to 01.04.2013 along with the major sale consideration through cheque mode also received prior to 01.04.2013. Under these given facts and circumstances, section 43CA of the Act will not be applicable and our view is supported by the decision of Coordinate Bench, Mumbai in the case of Disha Constructions Vs. ACIT – ITA No.5538/Mum/2019, dated 17.06.2021. Relevant finding of Tribunal reads as under :

“5. We find that the assessee, along with its written submissions, have placed on record copy of development agreement dated 06/03/2011 entered in to by the assessee with the Society. As per Clause-12 of the agreement, the assessee has agreed to sell additional carpet area of 12350 square feet to 92 members of the society. The additional area was to be sold at Rs.15000/- per square feet and the sale consideration was to be paid by the members in various trenches as specified in sub clause (c) of Clause-12. Thus, quite clearly the additional area has been sold by the assessee pursuant to the development agreement which has been entered into by the assessee during financial year 2010-11 which is prior to introduction of Sec.43CA. The provisions of Sec.43CA has been inserted by the legislatures only with effect from 01st April, 2014 and the same would not apply to any such agreements as entered into by the assessee in earlier years as held by Hon’ble Bombay High Court in Pr. CIT V/s Swananda Properties (P.) Ltd. {2019) 111 taxmann.com 94 (Bombay) dated 09/09/2019}. The Hon’ble Court declined to admit the question of law as raised by the revenue with following observations: –

Re. Question (b)

12. The Respondent- Assessee is a Developer. He is in the business of real estate development. The flats sold by the Respondent- assessee are stock-in-trade. The CIT (A) by his order passed the best judgment assessment and noted that the sale consideration of twelve flats in the project has been suppressed. According to him, the market rate nearest to that date is Rs.8,992/- per sq.ft. and, thus, reassessed the sale of each of the twelve flats. This basis of the nearest market rate is not found in his order. Therefore, on this basis itself the assessment is bad. In any case, Mr. Sharma, the learned Counsel for the Revenue submits that the market rate is the stamp duty rate of registration. Therefore, the stamp duty rate is used as a means to consider proper sales value of transfer of the flats. At the relevant time i.e. for the assessment year 2005-06, the only provision for application of deemed value for consideration was found under Section 50C of the Act relating to capital assets. At the relevant time there was no provision in the Act for deeming the consideration received on sale of goods/assets other than capital assets on the basis of stamp duty valuation. However, this provision in the form of Section 43CA of the Act has been introduced with effect from 1 April 2014. The present case pertains to the assessment year 2005-06. Therefore, Section 43CA of the Act will have no application for the subject Assessment Year.

13. In the case of CIT v. Neelkamal Realtors & Erectors India (P.) Ltd. [2017] 79 com238/246 Taxman 274, the Division Bench of this Court had an occasion to consider the value of the flat in case of sale by the Developer in the context of section 50C and section 56(2)(vii)(b)(ii) of the Act. The Division Bench observed thus:

“3. Regarding question No. (i):

***

(f) It is self evident from reading of section 50C of the Act it would not have any application while determining ‘Profits and gains of business or profession’. This is so as its application is only limited to computation of income chargeable under the head ‘Capital gains’ as is evident from specific reference in sub-section (1) of section 50 of the Act to section 48 of the Act i.e. mode of computation of capital gains. In fact section 50C of the Act as observed by the impugned order is placed as part of the Chapter IV-E under the head ‘capital gains’, it can only govern the valuation of the property to determine capital gains and cannot govern valuation of transfer of assets (other than a capital asset) i.e. stock in trade. This view is further strengthened by the fact that section 43CA has been introduced into the Act w.e.f. 1st April, 2014 which governs taking of full value of consideration for transfer of assets other than capital assets on the basis of stamp duty valuation. This section 43CA of the Act finds a place as a part of Chapter IVD – Profits and gains of business or profession. Therefore, with effect from 1^st April 2014 the stamp duty valuation of assets sold could be taken as value of consideration. Our above view that section 50C of the Act has no application to value stock in trade is also a view taken by Allahabad High Court in Commissioner of Income Tax v. Ken Construction and Colonizers (P.) Ltd. (2012) 208 Taxman 478/20 taxman.com 381. Similarly the Madras High Court in CIT v. Thiruvengadam Investments (P.) Ltd. (2010) 320 ITR 345 has also held that section 50C of the Act cannot be invoked to arrive at full consideration of sale of business asset. We see no reason not to adopt the views of the above two High Courts to the present facts.” (Emphasis Supplied)

Therefore, section 43CA cannot be made applicable to the facts of the present case. By the plain language of this provision it is not retrospective. Thus, there is no statutory provision based on which the stamp duty valuation could have been made a basis in the present case.

14. The Division Bench of this Court in the case of Zain Constructions v. ITO [2019] 107 taxmann.com300/265 Taxman 82 (Mag.) has conclusively decided the issue as under:

“8. In our opinion, the entire approach of the Assessing Officer is wholly incorrect. As is well known, Section 50C of the Act would enable the Revenue to bring to tax by way of deemed capital gain difference between the stamp valuation and the sale price of a capital asset. For obvious reasons, this provision would not apply in case of a builder for whom such immovable property is in nature of stock in trade and not capital asset. To overcome this difficulty the legislature had inserted Section 43CA under Finance Act, 2013 w.e.f 1.4.2014. This provision would enable the Revenue to tax the income arising out of sale of stock by a deeming fiction where subject to certain conditions, stamp valuation of such stock would substitute the actual receipt thereof. In absence of any such statutory provisions, giving rise to the deeming fiction, the Revenue cannot tax any amount which has not been received by a seller of an immovable property at the time of sale.” (Emphasis Supplied)

No contrary decision is shown.

15. As regards the decision in the case of Associated Builders relied upon by the Appellant- Revenue, it arose in the context of valuation of assets including stock in trade on dissolution of a partnership firm. This Court was concerned with the issue whether, when the asset was valued on the basis of book value as provided in the contract between the parties, is it open to the Assessing Officer to ignore it and ascertain whether the valuation done does represent the fair value of the asset. This the Court answered in the affirmative by holding that the contract between the parties will not bind the Revenue, while determining the fair market value of the assets of the partnership firm. In the present case, we are not dealing with the valuation of assets on dissolution of a firm. In case of dissolution, there is no sale as in the case of running business. Thus, the decision in the case of Associated Builders is in different facts and circumstances and would have no application to the present facts.

16. It is to be noted that the Revenue has not made any reference even remotely that the Respondent had received amounts in excess of that shown in the agreements in respect of twelve flats which is not being accepted. The entire case of the Revenue is merely on suspicion. It is not the case of the Revenue that the Respondent made secret profits out of sale of the twelve flats.

17. The Supreme Court has observed in the case of CIT v. A. Raman & Co. [1968] 67 ITR 11 that the law does not oblige a trader to make maximum profit, he can make, out of his trading activity. Income on which he can be taxed is only the income he has earned. So also recently, the Supreme Court in the case of S.A. Builders v. CIT [2007] 158 Taxman 74/288 ITR 1 has observed that no businessman can be compelled to maximize his profits. Therefore, in view of the above, this question as proposed also does not give rise to any substantial question of law. Thus not entertained.

18. The appeal is dismissed.

The Hon’ble Court has held that the provisions of Sec.43CA would not have retrospective application and accordingly, do not apply to agreement executed prior to its introduction. The ratio of this decision is squarely applicable to the case of the assessee. Therefore, the impugned additions could not be sustained in the eyes of law on this point alone. We order so. Consequently, the other arguments made by the assessee has become merely academic in nature.”

7. Respectfully following the above decision and following the rule of consistency, we hold that the lower authorities have erred in invoking section 43CA of the Act even when Agreement to Sale and substantial sale consideration through banking channel has been received prior to 01.04.2013. Thus, impugned addition of Rs.68,27,500/- is deleted. Finding of ld.CIT(A) is set aside and Grounds of appeal No.3 and 4 raised by the assessee are allowed.

8. In the result, the appeal of the assessee is Partly allowed for statistical purposes.

Order pronounced on this 01^st day of June, 2026.