Section 43CA tolerance band and third-party seized material require nexus and corroboration before an addition can stand.
Composite property sales executed through three connected deeds were treated as one arrangement, so the section 43CA valuation difference was examined on an aggregate basis; the proviso was regarded as curative and applied retrospectively, bringing the disclosed consideration within the tolerance band and deleting the addition. A further addition based on seized third-party material failed because the assessee's name did not appear against the cash entry, no nexus was established through enquiry, and no corroborative evidence proved receipt of unexplained income; that addition was also deleted.
Issues: (i) Whether the addition made under section 43CA on account of difference between the declared sale consideration and the valuation adopted for the property was sustainable, and whether the three connected sale deeds were to be viewed independently or on an aggregate basis. (ii) Whether the addition of Rs. 50 lakh based on seized third-party material from Tirupati Developers could be sustained in the absence of nexus and corroborative evidence.
Issue (i): Whether the addition made under section 43CA on account of difference between the declared sale consideration and the valuation adopted for the property was sustainable, and whether the three connected sale deeds were to be viewed independently or on an aggregate basis.
Analysis: The property transactions formed part of one composite arrangement and were executed in three deeds only as a matter of convenience, involving contiguous portions of the same land sold to a single purchaser. On an aggregate basis, the valuation difference between the consideration disclosed and the departmental valuation was found to be within the tolerance band. The proviso to section 43CA was treated as curative in nature and held to relate back to the date on which the provision became effective, applying the same approach adopted for the analogous deeming fiction under section 50C.
Conclusion: The addition under section 43CA was deleted and the issue was decided in favour of the assessee.
Issue (ii): Whether the addition of Rs. 50 lakh based on seized third-party material from Tirupati Developers could be sustained in the absence of nexus and corroborative evidence.
Analysis: The seized paper was treated as insufficient by itself because the assessee's name did not appear against the cash entry, no effective enquiry was made to establish linkage with the assessee, and no corroborative material or statement was brought on record to prove receipt of unexplained income. A third-party entry, without nexus to the assessee and without supporting evidence, was held incapable of sustaining an addition under the deeming or unexplained-income provisions.
Conclusion: The addition of Rs. 50 lakh was deleted and the issue was decided in favour of the assessee.
Final Conclusion: The reassessment challenge was not pursued, but the substantive additions were deleted on the merits, resulting in relief to the assessee in both appeals.
Ratio Decidendi: A curative tolerance-band amendment to a deeming valuation provision applies retrospectively, and an addition based on third-party seized material requires a proven nexus with the assessee and corroborative evidence beyond a bare entry.