Real estate developer liable for deemed rent on unsold flats under sections 22-23, partial relief on section 43CA additions

The ITAT Mumbai ruled on two key issues involving a real estate developer. For additions under section 43CA regarding undervalued property sales, the tribunal found no addition warranted for two specific flats as the sale price and market value difference did not exceed 10%. However, citing the burden of proof principle from Punjab & Haryana HC in Chandani Bhuchar case, the matter was remanded to the AO for verification of remaining transactions since neither the revenue proved higher consideration nor the assessee provided documents excluding cash payments. On deemed rent taxation under sections 22 and 23, the tribunal upheld the AO's determination of annual letting value for unsold flats held as stock-in-trade, rejecting the assessee's claim for exemption and following precedents from Delhi HC and Bombay HC that established liability for deemed rent on unsold inventory.

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Issues Involved:
1. Addition under Section 43CA.
2. Applicability of Section 43CA on agreements before 01.04.2013.
3. Income offered for taxation in earlier years.
4. Rejection of property valuation and non-referral to valuation officer under Section 50C.
5. Additions without corroborative evidence.
6. Addition under Section 22 r.w.s 23 for deemed rent.

Summary:

1. Addition under Section 43CA:
The assessee contested the addition of Rs. 34,66,134/- under Section 43CA, arguing that the sale price did not exceed the stamp duty value by more than 10%. The Tribunal noted that the benefit conferred by the first proviso to Section 43CA(1) should be given retrospective effect, as per the Supreme Court ruling in CIT (Central)-I, New Delhi v. Vatika Township (P.) Ltd. Consequently, no addition could be made for transactions where the sale price did not exceed the stamp duty value by more than 10%.

2. Applicability of Section 43CA on Agreements Before 01.04.2013:
The assessee argued that Section 43CA should not apply to agreements entered before 01.04.2013. The Tribunal did not address this issue separately, focusing instead on the retrospective application of the benefit under the first proviso to Section 43CA(1).

3. Income Offered for Taxation in Earlier Years:
The Tribunal did not find merit in the assessee's argument that income from the flats had already been offered for taxation in earlier years, as the addition under Section 43CA was based on discrepancies between the sale price and the stamp duty value.

4. Rejection of Property Valuation and Non-Referral to Valuation Officer:
The assessee's valuation was rejected without referral to a valuation officer under Section 50C. The Tribunal remanded the matter back to the AO for verification, emphasizing that the AO must bring positive evidence to support the stamp duty valuation, as per the Punjab & Haryana High Court ruling in CIT vs. Chandani Bhuchar.

5. Additions Without Corroborative Evidence:
The Tribunal found that the revenue failed to discharge its burden of proof that higher sale consideration had passed to the seller. The matter was remanded back to the AO for further verification.

6. Addition under Section 22 r.w.s 23 for Deemed Rent:
The AO added Rs. 24,52,359/- as deemed rent for unsold flats under Section 22 r.w.s 23. The Tribunal upheld this addition, relying on the Delhi High Court ruling in CIT vs. Ansal Housing Finance & Leasing Co. Ltd., which stated that the annual letting value (ALV) method applies regardless of actual income received, based on ownership and not on whether the property is let out.

Conclusion:
The appeal was partly allowed for statistical purposes, with some issues remanded back to the AO for further verification and others upheld based on existing judicial precedents.

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