2025 (10) TMI 699 - AT - Income Tax

10% tolerance under proviso to Section 43CA applies retrospectively; no addition where DVO and sale within band

ITAT MUMBAI (AT) held that the 10% tolerance band in the proviso to section 43CA-introduced to reduce hardship in genuine real estate transactions-applies ... Addition u/s 43CA - Special provision for full value of consideration for transfer of assets other than capital assets in certain cases - applicability of a higher tolerance band of 10% - retrospective applicability of the amendment by the Finance Act, 2020, to the provisions of the 1st proviso to section 43CA of the Act, whereby the tolerance band was increased from 5% to 10%, to the year under consideration - assessee raised additional ground that the difference between the sale consideration and the value of the immovable properties as determined by the DVO is less than 10% of the consideration received, and therefore, the consideration received should be deemed to be the full value of consideration. HELD THAT:- As decided in own case of assessee [2025 (5) TMI 1389 - ITAT MUMBAI] in Circular 8 of 2018 dated 26.12.2018 containing Explanatory Notes to the provisions of Finance Act 2018 in Para 16 for 'Rationalization of Sections 43CA and 50C' it is stated that the proviso containing the tolerance band is inserted in order to minimize hardship in case of genuine transactions in the real estate sector. When the reason behind the introduction of the proviso is read with the ratio laid down by the judicial precedence as discussed here in above on the retrospective applicability of beneficial provision, we have no hesitation in holding that the tolerance band of 10% is applicable in assessee's case for AY 2017-18. In assessee's case the difference between the DVO valuation that is considered for making addition under section 43CA and the sale consideration is less than the tolerance band as per the proviso to the said section (refer table extracted in the earlier part of this order). Accordingly, we hold that in assessee's case no addition under section 43CA of the Act is warranted for the year under consideration. As the CIT(A), following the decision of the Co-ordinate Bench of the Tribunal in the assessee’s own case in the preceding year, deleted the addition made u/s 43CA of the Act, therefore, we do not find any infirmity in the findings of the learned CIT(A) on this issue. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the enhanced tolerance band of 10% inserted in the first proviso to section 43CA is retrospectively applicable to assessment years prior to its stated effective date, so as to exclude from deeming under section 43CA those transactions where the value adopted/assessed for stamp duty does not exceed 110% of the actual consideration. 2. Whether, on the facts where the DVO valuation shows differences from agreement value that are each less than 10% of the agreement value, no addition under section 43CA can be sustained. ISSUE-WISE DETAILED ANALYSIS Issue 1: Retrospective applicability of the 10% tolerance band in the first proviso to section 43CA Legal framework: The first proviso to section 43CA provides that where the stamp duty value does not exceed 110% of the consideration received, the consideration received shall be deemed to be full value of consideration. The Finance Act, 2020 increased the tolerance band from 5% to 10%, with a stated effective date (w.e.f.). Precedent Treatment: Coordinate Tribunal decisions have considered retrospective application of analogous provisos (notably in section 50C) and have held that amendments providing a tolerance/safe-harbour are curative/beneficial and may relate back to the date of insertion of the parent statutory provision. The Supreme Court principle in Vatika Township (P.) Ltd. (summarised in the impugned reasoning) sets out the test for retrospective application of beneficial amendments. Opposing authorities have been distinguished where they arose on different factual or legal bases (e.g., provisions made effective only prospectively or decisions not considering retrospective effect). Interpretation and reasoning: The Court (Tribunal) applied the doctrine that a beneficial or curative amendment intended to remove hardship or unintended consequences can be given retrospective effect. The reasoning rests on: (a) the purposive construction of the proviso as a remedial measure to prevent invocation of anti-avoidance/deeming provisions in cases of small bona fide variations; (b) analogy with section 50C precedents where the tolerance band was held retrospective because the rationale for tolerance existed from the inception of the parent provision; and (c) explanatory material (CBDT Circular/explanatory notes) recognising the proviso is to minimize hardship in genuine transactions. The Tribunal concluded that the enhanced tolerance band is intended to mitigate unintended hardship and therefore applies to earlier assessment years where the material facts are similar. Ratio vs. Obiter: The holding that the 10% tolerance band is retrospectively applicable to prior assessment years (where the substantive facts are indistinguishable) is treated as ratio decidendi by the Tribunal, grounded on the purposive/curative nature of the amendment and precedent analogies. Distinguishing of contrary authorities is part of the reasoning (ratio where directly applied; distinguishing treated as ratio-supporting analysis). Conclusions: The Tribunal concluded that the 10% tolerance band in the first proviso to section 43CA is applicable retrospectively to the year under consideration (and similar prior years), and that where the difference between DVO valuation (or stamp duty value) and sale consideration is within 10%, section 43CA's deeming provision does not trigger an addition. Issue 2: Application of section 43CA where DVO valuation differences are within 10% Legal framework: Section 43CA deems stamp-duty-adopted value to be full value of consideration where stamp-duty value exceeds consideration; the first proviso creates a safe-harbour where stamp-duty value does not exceed 110% of consideration. Section 43CA(2)/(3) cross-applies sub-sections of section 50C as far as may be. Precedent Treatment: The Tribunal relied on its earlier decision in the assessee's own immediately preceding year and other coordinate-bench decisions applying the 10% tolerance retrospectively; analogous section 50C jurisprudence (including reasoning that the proviso is curative) was invoked. Decisions holding prospective application were examined and distinguished on legislative intent and remedial character. Interpretation and reasoning: On the factual matrix, the DVO valuations for the three properties when compared to agreement values produced percentage differences of approximately 1.68%, 7.54% and 8.93% respectively, each being less than 10%. The Tribunal accepted the DVO figures (which were substituted for stamp authority values for assessment purposes) and applied the proviso: since the DVO values did not exceed 110% of agreement value, the agreement value was to be treated as the full value of consideration and no addition under section 43CA was warranted. The Tribunal also noted that the AO had provisionally made additions based on stamp-duty values subject to rectification upon receipt of DVO report; on receipt the addition was reduced and ultimately deleted in appeal consistent with the proviso's application. Ratio vs. Obiter: The conclusion that no addition under section 43CA is warranted where the stamp/DVO value is within 110% of the consideration is the operative ratio applied to the facts. Observations regarding the remedial purpose of the proviso and their analogy with section 50C form part of the reasoning underpinning the ratio (not mere obiter). Conclusions: On the facts, the differences being less than 10% led to deletion of additions under section 43CA. The Tribunal upheld the appellate authority's deletion of the addition and dismissed the Revenue's grounds challenging retrospective application and deletion. Cross-references and ancillary observations - The Tribunal expressly relied on the coordinate-bench treatment of section 50C proviso and CBDT explanatory notes as persuasive aids for construing section 43CA's proviso as remedial/beneficial and thus retrospective in application; see analysis under Issue 1. - The Tribunal distinguished decisions cited by the Revenue that either did not address retrospective applicability or which turned on different factual/statutory matrices; those distinctions are integral to the holding that the proviso applies where it materially cures an unintended hardship in comparable historical cases. - The deletion of addition was upheld both on legal construction (retrospective application of proviso) and on facts (DVO valuations showing differences