Provision of sec. 43CA not applicable if builder entered into agreement to sell under-construction flats

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Provision of sec. 43CA not applicable if builder entered into agreement to sell under-construction flats

Provision of sec. 43CA not applicable if builder entered into agreement to sell under-construction flats
Shree Laxmi Estate (P.) Ltd. v. ITO – [2019] 108 taxmann.com 195 (Mumbai – Trib.)
The assessee was a builder. He developed a commercial project and adopted project completion method for revenue recognition. Assessing Officer (AO) noticed huge discrepancies between agreement value and stamp duty in respect of the various units. He asked the assessee to explain the differences. Assessee stated that the project was completed in the Assessment Year (AY) 2015-16 and sale price of all the units was offered to tax in the same AY following project completion method. Thus the assessee pleaded that those differences were to be considered in the year of completion and not otherwise.
However, AO rejected the assessee’s contention. He opined that the transactions were executed in the year under appeal and differences were to be treated as suppressed sales by the assessee and the same was to be brought to tax under section 43CA in AY 2014-15.
The Tribunal held in favour of assessee that the provisions of section 43CA are applicable only when there is a transfer of a land or building or both. What the assessee had transferred was only the rights in the flat/office (which were under construction) and not the property per se. Hence, it could be safely concluded that there was no transfer of any land or building or both. Hence, the provision of section 43CA couldn’t be made applicable to the same. Thus, the appeal of the assessee was allowed.

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