ITAT deletes deemed income on unsold stock and Section 43CA disallowance under 10% tolerance band

The ITAT Mumbai allowed the assessee's appeal on two grounds. First, following its coordinate bench decision in the assessee's own case, the tribunal deleted the addition of deemed income on unsold stock under house property income head, applying the rule of consistency. Second, regarding disallowance under Section 43CA, the tribunal found that since the difference between actual consideration and DVO valuation was less than 10% of DVO value, the addition was deleted. The tribunal relied on the coordinate bench decision in Ravi Development case, holding that the 10% tolerance band amendment to Section 43CA applies retrospectively.

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Issues Involved:

1. Deemed income on unsold stock as house property income.
2. Addition due to the difference between agreement value and value determined by the Departmental Valuation Officer (DVO).

Issue-wise Detailed Analysis:

1. Deemed Income on Unsold Stock as House Property Income:

The primary issue in both appeals was whether the unsold units held as stock-in-trade by the assessee, a builder and developer, should be treated as deemed income under the head "Income from house property." The Assessing Officer had added deemed income from these unsold units by applying an 8.5% yield on their cost, relying on the Delhi High Court's decision in Ansal Housing Finance and Leasing Co. Ltd. However, the assessee argued that this issue was recurrent and had been settled in its favor in previous cases. The Co-ordinate Bench of ITAT, Mumbai, had ruled that such unsold units, being business assets, should not be assessed under "Income from house property" but rather as business income. This view was supported by the Bombay High Court in PCIT, Central-1 Vs. M/s Classique Associate Ltd., and the Gujarat High Court in CIT vs. Neha Builders Pvt. Ltd. The Tribunal, respecting the principle of consistency and the settled legal position, deleted the addition made by the Assessing Officer, allowing the grounds of appeal on this issue.

2. Addition Due to Difference Between Agreement Value and Value Determined by DVO:

The second issue pertained to the addition made under Section 43CA of the Income-tax Act due to the difference between the sale consideration of a property and its value as determined by the DVO. The assessee contended that the variation of Rs. 2,02,000/- was less than 10% of the DVO's value, and therefore, no addition was warranted. The Finance Act, 2018 had increased the allowable difference from 5% to 10%, applicable from AY 2019-20. The assessee argued that this amendment should be considered retrospective, aligning with amendments to Section 50C. The Tribunal agreed with the assessee, noting that judicial precedents, including decisions from ITAT Mumbai, had consistently held that the 10% tolerance band applied retrospectively. Consequently, the Tribunal deleted the addition made by the Assessing Officer, allowing the appeal on this ground as well.

Conclusion:

The Tribunal allowed both appeals filed by the assessee, concluding that the unsold units should not be treated as deemed income under "Income from house property" and that no addition was warranted for the difference in property valuation, given the retrospective application of the 10% tolerance band. The order was pronounced in the open court on 30 September 2024.

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