Aaeshka Riddhi Realty Vs CIT(A)-NFAC-ITO (ITAT Mumbai)
Summary: The assessee, a firm, challenged the order dated 26/07/2024 passed under section 250 of the Income Tax Act, 1961 by the learned CIT(A), National Faceless Appeal Centre, Delhi, for assessment year 2016-17. The dispute concerned an addition of ₹7,37,505 under section 43CA of the Act, representing the difference between the sale consideration of an immovable property and its stamp duty value.
The assessee had filed its return on 07/10/2016 declaring total income of ₹96,74,010. During reassessment proceedings, it was noted that the property had a sale value of ₹1,87,02,500, whereas the stamp duty value was ₹1,94,40,006, resulting in a difference of ₹7,37,505. The Assessing Officer, by order dated 16/05/2023 under sections 147 read with 144B, treated the difference as taxable under section 43CA. The CIT(A) dismissed the appeal ex parte and confirmed the addition.
Before the Tribunal, the assessee contended that the difference was only 3.79% and therefore fell within the 5% tolerance limit introduced by the Finance Act, 2018. The assessee also contended that the amendment was applicable retrospectively. The assessee further challenged the ex parte order passed by the CIT(A), alleging that the notices were not effectively received or responded to.
The Tribunal considered section 43CA and noted that the Finance Act, 2018 inserted the first proviso to section 43CA(1), with effect from 01/04/2019, providing a 5% tolerance limit. The Tribunal also noted that the Finance Act, 2020 subsequently increased the tolerance limit from 5% to 10% with effect from 01/04/2021.
Following the coordinate Bench decision in Maria Fernandes Cheryl Vs ITO and the decision in Karb Associates (P.) Ltd., the Tribunal held that the amendment providing the tolerance band was curative in nature and applicable retrospectively. It therefore held that, since the difference between the stamp duty value and sale consideration was less than 5% of the sale consideration, section 43CA was not applicable.
The Tribunal deleted the addition of ₹7,37,505 under section 43CA, set aside the impugned order and allowed the grounds raised by the assessee. The other contentions raised in the appeal were left open as the assessee was entitled to relief on the short ground concerning the tolerance limit.
Facts of the Case
The assessee is a firm which filed its return of income for assessment year 2016-17 on 07/10/2016 declaring total income of ₹96,74,010.
The case was selected for scrutiny under section 147 of the Act on the basis of information concerning the registered agreement for sale of an immovable property. The sale value under the agreement was ₹1,87,02,500, while the market value according to the Stamp Duty Authority was ₹1,94,40,006.
The difference of ₹7,37,505 was treated as attracting the provisions of section 43CA. During the assessment proceedings, the assessee submitted written submissions along with financial statements, computation of income, audit report, acknowledgement of the return filed in response to notice under section 148, Form No. 26AS, sale deed and ledger account.
The Assessing Officer subsequently issued a show-cause notice regarding application of section 43CA. In the absence of a response to that notice, the AO passed the assessment order dated 16/05/2023 under section 147 read with section 144B and made an addition of ₹7,37,505 under section 43CA.
Assessee’s Grounds and Submissions
The assessee challenged the addition primarily on the ground that the difference between the market value according to the Stamp Duty Authority and the agreement value was 3.79%.
It was contended that the amendment introduced by the Finance Act, 2018 providing a 5% tolerance limit was applicable retrospectively and that the addition should therefore be deleted.
The assessee also challenged the ex parte order of the CIT(A), contending that the notice dated 06/06/2024 was not received, the notice dated 11/07/2024 went to the spam folder and an adjournment could not be sought in response to the third notice dated 19/07/2024 because the assessee’s C.A. was occupied with the return filing deadline.
Section 43CA and Tolerance Limit
Section 43CA provides for the deemed full value of consideration where an asset other than a capital asset, being land or building or both, is transferred for consideration below the value adopted or assessed or assessable by a State Government authority for stamp duty purposes.
The Finance Act, 2018 inserted the first proviso to section 43CA(1) with effect from 01/04/2019. Under the proviso, where the stamp duty value does not exceed 105% of the consideration, the consideration received or accruing is deemed to be the full value of consideration.
The Finance Act, 2020 subsequently amended the provision with effect from 01/04/2021 and increased the tolerance limit from 5% to 10%.
The Tribunal noted that in the present case the difference of ₹7,37,505 was less than 5% of the sale consideration of ₹1,87,02,500, the 5% figure being ₹9,35,125.
Tribunal’s Findings
Retrospective Application of Tolerance Limit
The Tribunal relied upon the coordinate Bench decision in Maria Fernandes Cheryl v/s ITO, reported in [2021] 123 taxmann.com 252 (Mum.-Trib).
In that decision, the coordinate Bench held that the amendment to section 50C(1), including enhancement of the tolerance band from 5% to 10%, was curative in nature and therefore retrospective. The Tribunal in the present case followed that reasoning for section 43CA.
The Tribunal also relied upon Karb Associates (P.) Ltd. v. Dy. CIT, IT Appeal No. 1941/Kol/2019, order dated 25/08/2021. That decision, following Maria Fernandes Cheryl, held that the same analogy regarding retrospective application of the tolerance band under section 50C applies to section 43CA.
The Tribunal accordingly held that the tolerance limit introduced into section 43CA was applicable to the assessee’s case despite assessment year 2016-17 being prior to the stated effective date of the amendment.
Deletion of Section 43CA Addition
The Tribunal found that the excess of stamp duty value over the sale consideration was less than 5% of the sale consideration. It therefore held that the provisions of section 43CA were not applicable to the present case.
Since the assessee was entitled to relief on this short ground, the other contentions raised in the appeal were treated as academic at that stage and left open.
Accordingly, the addition of ₹7,37,505 made under section 43CA was deleted. The impugned order was set aside and the grounds raised by the assessee were allowed.
Final Decision
The Tribunal allowed the appeal filed by the assessee. The addition of ₹7,37,505 under section 43CA was deleted on the ground that the difference between the stamp duty value and sale consideration was within the retrospectively applicable 5% tolerance limit.
Order pronounced in the open Court on 20/09/2024.
Cases Discussed
- Maria Fernandes Cheryl Vs ITO (ITAT Mumbai), [2021] 123 taxmann.com 252 (Mum.-Trib)
- Karb Associates (P.) Ltd. v. Dy. CIT, IT Appeal No. 1941/Kol/2019, order dated 25/08/2021
- CIT Vs Vummudi Amarendran (Madras High Court), [2020] 120 taxmann.com 171 (Madras)
- Rajeev Kumar Agarwal Vs. ACIT [2014] 45 taxmann.com 555 (Agra)
- CIT Vs Ansal Landmark Township P Ltd (Delhi High Court) [2015] 61 taxmann.com 45 (Del)
- Dharamashibhai Sonani v. Asstt. CIT [2016] 75 taxmann.com 141/161 ITD 627 (Ahd)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. The present appeal has been filed by the assessee challenging the impugned order dated 26/07/2024 passed under sectio n 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2016-17.
2. In this appeal, the assessee has raised the following grounds: –
“1) In the facts and circumstances of the case, the Assessment Unit-NFAC has erred in making an addition of Rs.7,37,505/- even though the difference between the market value as per Stamp Duty Authority and Agreement value was 3.79 percent.
2) In the facts and circumstances of the case the Assessment Unit-NFAC has not considered the amendment brought in by the Finance Act, 2018 which provided for relief of 5% between the SDA value and Agreement value which was applicable retrospectively and not prospectively as held by several Income Tax Appellate Tribunals.
3) In the facts and circumstances of the case and in law, National Faceless Appeal Centre/ CIT(A) has passed the ex-parte order on 26/07/2024 in haste without giving any opportunity of hearing. The notice dated 06/06/2024 was not received and the notice dated 11/07/2024 sent by NFAC has gone to the spam folder and hence could not be responded to. Adjournment to the third notice dated 19/07/2024 could not be sought on account of C.A. being caught up with return filing deadline.
4) In the facts and circumstances of the case and in law, National Faceless Appeal Centre/ CIT(A) erred in confirming the action of the Assessment Unit- NFAC in making an addition of Rs.7,37,505/-despite the fact that the difference between agreement value and stamp duty v alue was within the permissible limits laid down. The action of the Ld.CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the entire addition made by Ld. AO(NFAC) a nd confirmed by Ld.CIT(A)-NFAC.
5) The assessee craves leave to add/alter any grounds of appeal before or at the time of hearing.”
3. We have considered the submissions of both sides an d perused the material available on record. The brief facts of the case pertaining to the aforesaid issue are that the assessee is a firm and for the year under consideration filed its return of income on 07/10/2 016 declaring a total income of ₹ 96,74,010. The return filed by the asse ssee was selected for scrutiny under section 147 of the Act on the basis of the information that as per the agreement registered, the sale value of the property is ₹ 1,87,02,500, whereas the market value as per the St amp Duty Authority is ₹ 1,94,40,006. Therefore, provision of section 50C/43CA/56(2)(vii) of the Act is attracted in this case on an amount of ₹ 7,3 7,505, being the difference between the sale consideration and the stamp duty value of the said property. During the assessment proceedings, the assessee was asked regarding the aforesaid difference. In response to the notice issued, the assessee submitted its written submission along with financial statements, computation of income, audit report, the copy of the acknowledgement of ITR filed in response to the notice issued under section 148, Form No. 26AS, a copy of sale deed, and ledger account. During the assessment proceedings, the notice was issued to the assessee to show cause as to why the provisions of section 43CA of the Act be not applied and the amount of ₹ 7,37,505 in respect of the sale of immovable property be not added to the total income of the assessee. In the absence of any response from the assessee with respect to the show cause notice, the Assessing Officer (“AO”) vide order dated 16/05/2023 passed under section 14 7 r/w 144B of the Act held that the provisions of section 43CA of the Act are attracted in respect of the amount of ₹ 7,37,505 being the difference betwe en the sale consideration and the stamp duty value of the said property.
4. The learned CIT(A), vide ex parteimpugned order, di smissed the appeal filed by the assessee and confirmed the addition of ₹ 7,37,505 made by the AO by applying the provisions of section 43C A of the Act. Being aggrieved, the assessee is in appeal before us.
5. Before proceeding further, it is pertinent to note the relevant provisions of section 43CA of the Act, as existing during the year under consideration, and the same reads as follows: –
“Special provision for full value of consideration for transfer of assets other than capital assets in certain cases.
43CA. (1) Where the consideration received or accru ing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adop ted or assessed or assessable shall, for the purposes of computing pro fits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer.
(2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1).”
6. Therefore, as per the provisions of section 43CA of the Act where the sale consideration of any immovable property, being land or building or both, is less than the value adopted by the authori ty of the State Government for the purpose of payment of stamp duty, then the value so adopted by the authority of State Government shall be deemed to be the full value of consideration received for computing the p rofits and gains from transfer of such asset.It is pertinent to note that vide Finance Act, 2018 first proviso was inserted to section 43CA(1) of the Act, w.e.f. 01/04/2019, which reads as follows: –
“Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and five per cent of the consideration rece ived or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing p rofits and gains from transfer of such asset, be deemed to be the full value of the consideration.”
7. Therefore, as per the aforesaid proviso inserted by Finance Act 2018, w.e.f. 01/04/2019, if the value adopted by the authority for the payment of stamp duty is not more than 5% of the consideration received as a result of transfer of the immovable property, then the consideration so received shall be deemed to be the full value of consideration for the purpose of computing the profits and gains from transfer of such assets.
8. Further, vide Finance Act 2020, w.e.f. 01/04/2021, the first proviso to section 43CA(1) of the Act was again amended, and t he tolerance limit was increased from 5% to 10% of the consideration. Acco rdingly, it is evident that as per the amended provisions of section 43CA(1) of the Act, since the excess of stamp duty value over the sale consideration, i.e. ₹ 7,37,505 is less than the 5% of the sale consideration, i.e. ₹ 9,35,125, therefore the provisions of section 43CA of the Act are not applicable. As per the learned DR, the amendment mentioned above does not apply to the year under consideration, i.e. the assessment year 2016-17 and is prospective in its application.
9. We find that the coordinate bench of the Tribunal in Maria Fernandes Cheryl v/s ITO, reported in [2021] 123 taxmann.com 252 (Mum.-Trib) held that amendment made in scheme of section 50C(1), by inserting third proviso thereto and by enhancing tolerance band for variations between stated sale consideration vis-à-vis stamp duty valuation from 5% to 10% are effective from the date on which section 50C, itself was introduced, i.e. 1-4-2003. The relevant findings of the coordinate bench, in the decision mentioned above, are reproduced as follows: –
“7. These submissions, however, do not impress us. As noted by the Central Board of Direct Taxes circular # 8 of 2018, explaining the reason for the insertion of the third proviso to Section 50C(1), has observed that “It has been pointed out that the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location”. Once the CBDT itself accepts that these variations could be on account of a variety of factors, essentially bonafide factors, and, for this reason, Section 50C(1) should not come into play, it was an “unintended consequence” of Section 50(1) that even in such bon afide situations, this provision, which is inherently in the nature of an anti-avoidance provision, is invoked. Once this situation is sought to be addressed, as is the settled legal position- as we will see a little later in our analysis, this situation needs to be addressed in entirety for the entire period in which such legal provisions had effect, and not for a specific time period only. There is no good reason for holding the curative amendment to be only as prospe ctive in effect. Dealing with a somewhat materially identical situation in the case of Rajeev Kumar Agarwal v. Addl. CIT [2014] 45 taxmann.com 555/149 ITD 363 (Agra) wherein a coordinate bench was dealing with the question whether insertion of a proviso to Section 40(a)(i) to cure intended consequence could have retrospective effect, even though not specifically provided for, and speaking through one of us (i.e. the Vice President), the coordinate bench had, after a detailed analysis of the legal position, observed t hat, “Now that the legislature has been compassionate enough to cure t hese shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not stat e so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced”. Referring to this decision, and extensively reproducing from the same, including the portion extracted above, Hon’ble Delhi High Court, in the c ase of CIT v. Ansal Landmark Township (P.) Ltd. [2015] 61 taxmann.com 4 5/234 Taxman 825/377 ITR 635 (Delhi), has approved this approach and observed that “the Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance”. The same was the path followed by another bench of this Tribunal in the case of DharamashibhaiSonani v. Asstt. CIT [2016] 75 taxmann.com 141/161 ITD 627 which has been approved by Hon’ble Madras High Court in the judgment reported as CIT v. VummudiAmarendran [2020] 120 tax mann.com 171/429 ITR 97]. The question that we must take a call on, therefore, is as to what is the rationale behind the insertion of the third proviso to section 50C(1), and if that rationale is to provide a remedy for unintended consequences of the main provision, we must hold that the third proviso to section 50C(1) comes into force with effect from the same date on which the main provision, unintended provisions of which are sought to be nullified, itself was brought into effect. Let us understand what the nature of the provisions of section 50C is. In terms of this provision, if the property is sold below the stamp duty valuation rate, which is often called circle r ate, this stamp duty valuation report is assumed as sale consideration f or the property in question, and, accordingly, capital gains tax is levied. This deeming fiction to substitute apparent sale considerations by notional consideration computed on the basis of a stamp duty valuation rate, was thus to address the issue with respect to potential evasion of taxes by under stating the sale consideration amount in a sale deed. As noted by the CBDT, while explaining the justification for insertion of section 50C, “(t)he Finance Act, 2002, has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property”. Section 50C, thus, on a conceptual note, is a provision to address capital gains tax evasion on account of understatement of the consideration. Of course, the law provides, under section 50C(2), that wherever an assessee claims that the actual market rate is less than the stamp duty valuation, he can have the matter referred to a Departmental Valuation Officer for the ascertainment of the market value, but then it is a cumbersome procedure and, at the end of the day, every valuation, whether by the departmental valuation officer or under the stamp duty valuation notification, is an estimate, and there can always be bonafide variations, though to a certain limited extent, in these estimations. Unless, therefore, some kind of a tolerance band or a safe harbour provision, in respect of such bonafide variations, is implicit in the scheme of law, the assessees are bound to face undue hardships. The mechanism under section 50C proceeds on the assumption that when the sale consideration is less than the stamp duty valuation, the sale consideration is to be treated as understated. This assumption is, however, laid to rest when the variations between the stated consideration and the stamp duty valuation figure are treated as explained. The insertion of the third proviso to Section 50C(1) provides for this tolerance band with respect to a certain degree of variations between the stamp duty valuation and the stated consideration of an immovable property. In other words, as long as the variations are within the permissible limits, the anti-avoidance provisions of Section 50C do not come into play. As we have noted earlier, the CBDT itself accepts that there could be various bonafide reasons explaining the small variations between the sale consideration of immovable property as disclosed by the assessee vis -à-vis the stamp duty valuation for the said immovable property. Obviously, therefore, disturbing the actual sale consideration, for the purpose of computing capital gains, and adopting a notional figure, for that purpose, will not be justified in such cases. On a conceptual note, an estimation of market price is an estimation nevertheless, even if by a statutory authority like the stamp duty valuation authority, and such a valuation can never be elevated to the status of such a precise computation which admits no variations. The rigour of Section 50C(1) was thus relaxed, and very thoughtfully so, to take these bonafide cases of small variations between the stated sale consideration vis-à-vis stamp duty valuation, out of the scope of adjustments contemplated in the computation of capital gains under this anti-avoidance provision. In our humble understanding, it is a case of a curative amendment to take care of unintended consequences of the scheme of Section 50 C. It makes perfect sense, and truly reflects a very pragmatic approach full of compassion and fairness, that just because there is a small variation between the stated sale consideration of a property and stamp duty valuation of the same property, one cannot proceed to draw an inference against the assessee, and subject the assessee to practically prove his being truthful in stating the sale consideration. Clearly, therefore, this insertion of the third proviso to Section 50C(1) is in the nature of a remedial measure to address a bonafide situation where there is little justification for invoking an anti-avoidance provision. Similarly, so far as enhancement of tolerance band to 10% by the Finance Act 2020, is concerned, as noted in the CBDT circular itself, it was done in response to the representations of the stakeholders for enhancement in the tolerance band. Once the Government acknowledged this genuine hardship to the taxpayer and addressed the issue by a suitable amendment in law, the next question was what should be a fair tolerance b and for variations in these values. As a responsive Government, which is truly the hallmark of the
present Government, even though the initial tolerance band level was taken at 5%, in response to the representations by the stakeholders, this tolerance band, or safe harbour provision, was increased to 10%. There is no particular reason to justify any particular time frame for imp lementing this enhancement of tolerance band or safe harbour provision. The reasons assigned by the CBDT, i.e., “the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location,” was as much valid in 2003 as it is in 2021. There is no variation in the material facts in this respect in 2021 vis-à-vis the material facts in 2003. What holds good in 2021 was also good in 2003. If variations up to 10% need to be tolerated and need not be probed further, under section 50C, in 2021, there were no good reasons to probe such variations, under section 50C, in the earlier periods as well. We are, therefore, satisfied that the amendment in the scheme of Section 50 C(1), by inserting the third proviso thereto and by enhancing the tolerance band for variations between the stated sale consideration vis-à-vis stamp duty valuation to 10%, are curative in nature, and, therefore, these provisions, even though stated to be prospective, must be held to relate back to the dat e when the related statutory provision of Section 50C, i.e. 1st April 2003. In plain words, what is means is that even if the valuation of a property, for the purpose of stamp duty valuation, is 10% more than the stated sale consideration, the stated sale consideration will be accepted at the face value and the anti-avoidance provisions under section 50C will not be invoked.
8. Once legislature very graciously accepts, by introducing the legal amendments in question, that there were lacunas in the provisions of section 50C in the sense that even in the cases of genuine variations between the stated consideration and the stamp duty valuation, anti-avoidance provisions under section 50C could be pressed into service, and thus remedied the law, there is no escape from holding that these amendments are effective with effect from the date on which the related provision, i.e., Section 50C, itself was introduced. These amendments are thus held to b e retrospective in effect. In our considered view, therefore, the provisions of the third proviso to Section 50C (1), as they stand now, must be held to be effective with effect from 1st April 2003. We order accordingly. L earned Departmental Representative, however, does not give up. Learned Departmental Representative has suggested that we may mention in our order that “relief is being provided as a special case and this decision may not be considered as a precedent”. Nothing can be farther from a judicious approach to the process of dispensation of justice, and such an approach, as is prayed for, is an antithesis of the principle of “equality before the law,” which is one of our most cherished constitutional values. Our judicial functioning has to be even- handed, transparent, and predictable, and what we decide for one litigant must hold good for all other similarly placed litigants as well. We, therefore, decline to entertain this plea of the assessee.”
10. We further find that the coordinate bench of the Tribunal in Karb Associates (P.) Ltd. v. Dy. CIT,in IT Appeal No. 1941/Kol/2019, vide order dated 25/08/2021, following the aforementioned decision in Maria Fernandes Cheryl (supra), observed as follows: –
“As has been aptly explained above, 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, the same analogy would apply to the provisions of section 43CA of the Act. Both the sections are similarly worded except that both the sections have application on different sets of assessee. As has been pointed earlier, section 43CA gets attr acted where the consideration received or accrues as a result of transfer of an asset (other than a capital asset) being land or building or both. Whereas, provisions of section 50C operates where the consideration received or accrues as a result of transfer of a capital asset being land or building or both. Both the sections induce deeming fiction to substitute actual sale consideration with notional value of asset based on Stamp Duty valuation. Further, a perusal of Circular 8 of 2018 (supra), would show that identical reason s have been given in Para 16 for ‘Rationalization of Sections 43CA and 50C’. The proviso has been inserted and subsequently tolerance band limit has been enhanced to mitigate hardship of genuine transactions in the real estate sector. Ergo, in the light of reasoning given for insertion of the proviso and exposition by the Tribunal for retrospective application of the said proviso, I have no hesitation in holding that the proviso to sub-section (1) to s ection 43CA and the subsequent amendment thereto relates back to the da te on which the said section was made effective i.e. 01/4/2014.”
11. Therefore, respectfully following the decisions of the coordinate bench of the Tribunal cited supra, since in the present case, excess of stamp duty value over the sale consideration is less than 5% of the sale consideration, we are of the considered view that the provisions of section 43CA of the Act are not applicable to the present case. Since on this short ground only the assessee is entitled to relief, the other contentions raised in the present appeal become academic at this stage and therefore are left open. Thus, the addition made under section 43CA of the Act is dele ted. As a result, the impugned order is set aside and grounds raised by the assessee are allowed.
12. In the result, the appeal by the assessee is allowed.
Order pronounced in the open Court on 20/09/2024
