ITAT rules section 43CA not applicable when stamp duty value exceeds agreement value by only 4.88%

The ITAT Mumbai ruled in favor of the assessee regarding the applicability of section 43CA. The case involved a difference of only 4.88% between stamp duty value and agreement value. The tribunal held that amendments to section 43CA made by Finance Act 2018 are retrospective in nature, establishing that where stamp duty value does not exceed 105% of consideration received, it is deemed full value. Since the 4.88% difference falls below the 5% threshold, the provisions of section 43CA were not applicable to the assessee's case.

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The core legal issue considered in this appeal pertains to the applicability and retrospective effect of the proviso to Section 43CA(1) of the Income Tax Act, 1961, as amended by the Finance Act, 2018 and subsequently by the Finance Act, 2020. Specifically, the questions are: whether the tolerance band of 5% (later increased to 10%) difference between the stamp duty value and the actual sale consideration for immovable property applies to the assessment year 2018-19; whether this amendment should be construed as retrospective; and consequently, whether the addition made by the Assessing Officer under Section 43CA is justified when the difference is less than 5% of the stamp duty value. Additionally, the appeal raises the issue of whether the valuation by the Departmental Valuation Officer under Section 50C(2) should have been referred to.

The first and principal issue involves the interpretation of the amendment introduced by the Finance Act, 2018, which inserted a proviso to Section 43CA(1) providing that if the stamp duty value does not exceed 105% of the actual sale consideration, then the sale consideration shall be deemed to be the full value for computing capital gains or business profits. This tolerance band was further increased to 10% by the Finance Act, 2020. The legal framework thus involves the Income Tax Act, 1961, particularly Section 43CA(1), and the amendments thereto. The legislative intent, as explained in the Finance Act, 2018, was to mitigate hardship caused by the previous provision which mandated adoption of the higher of the stamp duty value or the sale consideration, resulting in double taxation where genuine transactions showed minor variations.

The assessee contended that since the difference between the stamp duty value (Rs. 1,45,07,616) and the sale consideration recorded in books (Rs. 1,38,00,000) was 4.88%, which is below the 5% threshold introduced by the Finance Act, 2018, the addition under Section 43CA was unwarranted. The assessee further argued that the amendment should be treated as curative and retrospective, applying to the assessment year 2018-19, which is prior to the effective date of 1.4.2019. Reliance was placed on various decisions of the Income Tax Appellate Tribunal (ITAT) Mumbai and other benches, including the case of Faber Construction and others, where it was held that the proviso to Section 43CA(1) has retrospective effect and that no addition should be made if the variation is within the tolerance band.

The Assessing Officer and the Commissioner of Income Tax (Appeals) (CIT(A)) rejected the assessee's plea, holding that the amendment was effective only from 1.4.2019 and thus did not apply to the assessment year 2018-19. The CIT(A) relied on a contrary decision of the ITAT Mumbai Bench 'G' in Welfare Properties (P.) Ltd. v. DCIT, which held that prior to insertion of the proviso, no tolerance limit existed and the amendment cannot be applied retrospectively. The CIT(A) also referred to Supreme Court precedents emphasizing that when the date of commencement of an amendment is clearly stipulated, judicial authorities cannot extend the benefit retrospectively by reading words into the statute. The CIT(A) accordingly confirmed the addition of Rs. 7,07,616 under Section 43CA.

On appeal before the Tribunal, the Departmental Representative supported the CIT(A)'s view that the amendment was not applicable to the assessment year under consideration. However, the Tribunal noted that a coordinate bench of the ITAT Mumbai in Shri Harish H Gandhi v. ACIT had held that the proviso to Section 43CA is retrospective in nature, applying the reasoning from cases involving Section 50C, which has similar provisions and amendments. The Tribunal observed that the proviso introduced a tolerance band to mitigate hardship and was curative, thus warranting retrospective application. The Tribunal distinguished the CIT(A)'s reliance on Welfare Properties, suggesting that the ratio of the coordinate bench in Harish H Gandhi was more relevant and persuasive.

The Tribunal further examined the legislative intent and judicial precedents, including the principle that beneficial amendments that are curative in nature and meant to remove unintended hardships can be construed as retrospective unless expressly stated otherwise. The Tribunal noted that the Finance Act, 2018 amendment was introduced to address genuine transactions where minor variations in valuation occur due to factors such as plot shape or location, and to prevent double taxation. The Tribunal applied the proviso to Section 43CA, concluding that since the difference of 4.88% was within the 5% tolerance limit, no addition was warranted.

Regarding the plea that the valuation should have been referred to the Departmental Valuation Officer under Section 50C(2), the Tribunal did not find this issue determinative and did not elaborate further, implying that the main controversy centered on the applicability and retrospective effect of the amendment to Section 43CA.

The Tribunal thus allowed the appeal, directing deletion of the addition made under Section 43CA for the difference less than 5%, effectively holding that the proviso to Section 43CA(1) inserted by the Finance Act, 2018 applies retrospectively to the assessment year 2018-19.

Significant holdings include the following verbatim reasoning by the Tribunal:

"The proviso introduced by the Finance Act 2018 w.e.f. A.Y.2019-20 onwards and which was later amended by the Finance Act 2020 applicable from A.Y.2021-22, which states that if the difference between the stamp duty value and the reported sale consideration is not more than 10% then, the reported sale consideration shall have to be accepted and no addition in terms of 43CA is required to be made... The language of provisions of Section 50C are exactly pari materia with provisions of Section 43CA of the Act. Hence, though the aforesaid decision was rendered in the context of Section 50C of the Act, the same analogy would apply for provisions of Section 43CA of the Act also as similar proviso is available in Section 43CA of the Act also... we hold that the difference of Rs.4,42,460/- added by the ld. AO in the assessment falls below the tolerance band of 10% and hence, by applying the proviso to Section 43CA of the Act, no addition is required to be made in the instant case u/s.43CA of the Act."

Core principles established include:

• The proviso to Section 43CA(1) providing a tolerance band of 5% (later increased to 10%) between stamp duty value and sale consideration is a curative amendment intended to mitigate hardship and applies retrospectively.
• Where the difference between stamp duty value and sale consideration is within the prescribed tolerance band, the actual sale consideration must be accepted for income computation, and the deeming provisions of Section 43CA(1) do not apply.
• Judicial authorities should not override explicit commencement dates of amendments unless the amendment is curative and intended to remove unintended hardship.
• Provisions and precedents relating to Section 50C are applicable by analogy to Section 43CA due to their pari materia nature.

Final determinations on the issues are:

• The amendment to Section 43CA introduced by the Finance Act, 2018, and the subsequent amendment by the Finance Act, 2020, are retrospective in nature and applicable to the assessment year 2018-19.
• The difference of 4.88% between the stamp duty value and sale consideration falls within the 5% tolerance band prescribed by the amendment, hence no addition under Section 43CA is warranted.
• The addition of Rs. 7,07,616/- made by the Assessing Officer under Section 43CA is deleted.
• The plea for referral to the Departmental Valuation Officer under Section 50C(2) was not upheld or considered decisive.

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