Section 43CA Relief: ITAT, Nagpur aggregates Land Deals, Quashes ₹57.68 Lakh Tax Demand
In a significant case argued by me for Shree Maya Real Estate Pvt. Ltd, the Income Tax Appellate Tribunal (ITAT), Nagpur Bench has deleted an addition of ₹57,68,020 made under Section 43CA of the Income Tax Act, 1961, for the Assessment Year 2017-18. The dispute centered on the difference between the actual sale price of a property and the value determined by the Departmental Valuation Officer (DVO). The Tribunal ruled that the difference fell within the accepted tolerance band, ultimately siding with the assessee and offering vital clarity on the application of Section 43CA.
The Heart of the Matter: Section 43CA and Property Valuation
The controversy arose from the sale of an immovable property, an agricultural land, by Shree Maya Real Estate. During the assessment proceedings, the Assessing Officer (AO) noted a difference between the sale consideration declared by the assessee and the stamp duty valuation, leading to a reference to the DVO.
The transaction details considered by the ITAT on an aggregate basis were:
• Actual Sale Price (Aggregate): ₹8,25,00,000
• Stamp Duty Valuation (Aggregate): ₹13,49,20,000
• DVO Valuation (Aggregate): ₹8,82,68,020
The AO initially focused on one specific sale deed, dated May 31, 2016 (Kh. No. 83), where the DVO’s valuation of ₹4,07,68,020 exceeded the actual sale value of ₹3,50,00,000. This difference of ₹57,68,020 was added to the assessee’s income under Section 43CA, and the total loss was determined as (-) ₹48,45,771. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this addition.
A Single Transaction, Multiple Deeds
A crucial argument by the assessee was that the sale of the three plots (Khasra Nos. 85/1 & 85/2, 72, and 83) must be considered as a single, aggregate deal, despite being executed through three separate sale deeds on the instance of the buyer. The property had been purchased by a common deed and sold to a single purchaser, M/s. Tirupati Developers, based on a single Memorandum of Understanding (MOU) from July 20, 2015.
The ITAT agreed with the assessee, emphasizing that the sale of the three plots, being contiguous portions of the same land purchased by a common deed and sold to a single purchaser, must be considered on an aggregate basis.
The Math That Mattered: The 10% Safe Harbour
When the ITAT aggregated the figures for the entire transaction, the comparison between the actual sale price and the DVO’s valuation was as follows:
• DVO Valuation (Aggregate): ₹8,82,68,020
• Actual Sale Price (Aggregate): ₹8,25,00,000
• Difference: ₹57,68,020
The Tribunal calculated that the difference of ₹57,68,020, when compared to the aggregate actual sale price of ₹8,25,00,000, amounted to only 6.99%.
The Power of Precedent and Retrospective Relief
The ITAT highlighted a significant legal principle: the difference between the declared sale consideration and the DVO’s valuation must be within a tolerance band, which the courts and tribunals have consistently viewed as 10%.
Citing a Co-ordinate Bench decision in the case of Stalwart Impex Pvt. Ltd. v/s ITO and other similar rulings on Section 50C (which is pari materia to Section 43CA), the Tribunal confirmed that the 10% tolerance band applies equally to Section 43CA.
Furthermore, the ITAT affirmed the landmark ruling that the enhancement of the tolerance band from 5% to 10%, introduced by the Finance Act, 2020, is curative in nature and thus has retrospective application from the date the related statutory provision was introduced (April 1, 2014, for Section 43CA).
Since the difference of 6.99% was well within the 10% tolerance band, the ITAT directed the complete deletion of the ₹57,68,020 addition. The appeal of Shree Maya Real Estate for A.Y. 2017-18 was thus allowed.
The copy of the order is attached herewith.
