2021 (6) TMI 614 - AT - Income Tax

Income Tax Act: Section 43CA Not Retrospective, Rs. 6,18,000 Addition Overturned by Tribunal, Partial Appeal Success.

The Tribunal determined that Section 43CA of the Income Tax Act does not apply retrospectively to agreements executed before its introduction. ... Addition u/s 43CA - consideration received in respect of agreements to sale executed during the year in respect of redevelopment project under construction - HELD THAT:- 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 in Pr. CIT V/s Swananda Properties (P.) Ltd. [2019 (9) TMI 1270 - BOMBAY HIGH COURT] 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. Issues Involved:1. Addition of Rs. 6,18,000 under Section 43CA of the Income Tax Act.2. Applicability of Section 43CA to agreements executed prior to its introduction.3. Evidence of rate and date of agreement for additional area sold.4. Retrospective application of amendments to Section 43CA.5. Method of revenue recognition and its acceptance by the department.Issue-wise Detailed Analysis:1. Addition of Rs. 6,18,000 under Section 43CA of the Income Tax Act:The assessee contested the addition of Rs. 6,18,000 made by the Assessing Officer (AO) under Section 43CA. The AO invoked this provision due to the difference between the aggregate sale consideration of Rs. 224.70 Lacs and the stamp duty value of Rs. 230.88 Lacs for the additional area sold to 11 members. The CIT(A) upheld this addition, leading to the assessee's appeal.2. Applicability of Section 43CA to agreements executed prior to its introduction:The assessee argued that the provisions of Section 43CA, introduced from FY 2013-14, should not apply to sale agreements entered into during FY 2010-11. The development agreement dated 06/03/2011 fixed the sale price at Rs. 15,000 per square foot, which was higher than the stamp duty value of Rs. 9,700 per square foot at that time. The Tribunal agreed with the assessee, citing the Bombay High Court's decision in Pr. CIT vs. Swananda Properties (P.) Ltd., which held that Section 43CA does not apply retrospectively.3. Evidence of rate and date of agreement for additional area sold:The CIT(A) had confirmed the AO's action partly because the assessee failed to furnish evidence of the rate and date of the agreement for the additional area sold. However, the Tribunal found that the assessee provided a copy of the development agreement dated 06/03/2011, which clearly stipulated the sale of additional carpet area at Rs. 15,000 per square foot. This evidence supported the assessee's claim that the sales were pursuant to an agreement executed before the introduction of Section 43CA.4. Retrospective application of amendments to Section 43CA:The assessee contended that the amendment to Section 43CA by the Finance Act, 2018, which introduced a tolerance limit of 5%, should apply retrospectively. The Tribunal, referencing the Bombay High Court's decision, held that Section 43CA does not have retrospective application. Therefore, the addition based on the stamp duty value could not be sustained for agreements executed before the provision's introduction.5. Method of revenue recognition and its acceptance by the department:The assessee argued that even if the addition under Section 43CA were justified, only 10% of Rs. 6,18,000 should be added to the total income based on the progressive declaration method of accounting. This method had been consistently followed and accepted by the department in past assessments. However, since the Tribunal decided that Section 43CA did not apply to the agreements in question, this argument became academic.Conclusion:The Tribunal concluded that the provisions of Section 43CA do not apply retrospectively to agreements executed before its introduction. Therefore, the addition of Rs. 6,18,000 could not be sustained. The appeal was partly allowed, and the other arguments made by the assessee were rendered academic. The order was pronounced on 17th June 2021.