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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI AMARJIT SINGH, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax/NFAC, Delhi dated 06.02.2023 for assessment year 2014-15.
The grounds of appeal
of the assessee are as under: - “1. On the facts and circumstances of the case as well in law the learned CIT(A) erred in not considering fair market value of the properties as on 30.05.2013 determined by the District Valuation Officer-1, IT Deptt, Mumbai-12 vide his report dated 21.02.2019 as against stamp duty value adopted by learned Assessing Officer even through your appellant sold at prevailing market rate at arm’s length principle.
2. On the facts and circumstances of the case as well in law the learned CIT(A) erred in not giving the benefit of curative amendment inserted in section 43 CA by Finance Act, 2018 w.e.f. 01.04.2019 and subsequently Finance Act, 2020 w.e.f.
2 A.Y. 2014-15 Amsons Steel Pvt. Ltd. 01.04.2021 which can even apply to prior assessment as well, where if a fresh benefit is provided by the Parliament in an existing provision then such an amendment should be given retrospective effect.”
Brief facts are that the assessee is a Private Limited Company engaged in the business of Civil Construction. The assessee filed its return of income on 30.09.2014 declaring total income of Rs. 2,16,66,170/-. Later, the case of the assessee was selected for scrutiny. The AO noted that assessee had sold two units in this relevant year noted that there was difference in the sale consideration/agreed value of sale and stamp duty valuation. Therefore, he sought the details of the sale transaction vis-à-vis the stamp duty valuation of the units under question. Pursuant to the query of AO, assessee filed the details of sale of its two units to Indian Institute of Excellence Consultants Private Limited (hereinafter “IIECPL”), inter alia as under: - Unit Agreement Value Stamp Duty Value Difference 305 2,85,00,000 3,61,46,000 76,46,000 401 6,65,00,000 8,32,54,000 1,67,54,000 Total 9,50,00,000 11,94,00,000 2,44,00,000
The AO taking note of the difference in the sale value and stamp duty value made reference to the Departmental Valuation Officer (DVO) on 27.12.2016. Thereafter, the AO vide order dated 29.12.2016 passed the assessment order u/s 143(3) of the Income Tax Act, 1961 (hereinafter “the Act”) and made an addition of Rs.2.44 cr u/s 43CA of the Act. In the assessment order, the AO clarified that on receipt of the valuation report from the Departmental Valuer, the consequential 3 A.Y. 2014-15 Amsons Steel Pvt. Ltd. rectification order will be passed accordingly. Aggrieved by the action of the AO, the assessee preferred an appeal before the Ld. CIT(A), who took note of the valuation report submitted by assessee dated 07.03.2017 which is placed at page nos. 71 to 79 PB. And even the assessee brought to the notice of Ld. CIT(A) that the DVO had issued valuation report dated 21.02.2019 wherein the value of the properties were estimated at Rs.3,00,08,000/- and Rs.6,91,17,000/- respectively. Therefore, the total value of two units as per DVO were to the tune of Rs.9,91,25,000/- as against the agreement value as declared by assessee at Rs.9,50,00,000/-. And in such a scenario, it was pointed out by assessee that the difference between the valuation of the Departmental valuer and the value shown by the assessee is only Rs.41,25,000/- i.e. 4.35%, which is below the tolerance limit of 5%. But the Ld. CIT(A) confirmed the action of the AO and dismissed the appeal of the assessee by passing the impugned order dated 06.02.2023 without considering the departmental valuation report. Aggrieved, the assessee has preferred this appeal against the impugned action/omission of the Ld. CIT(A) not to have considered the DVO report called for by AO in respect of two (2) units and dismissal of the appeal.
Assailing the action of Ld. CIT(A), for ignoring the DVO report which estimated the value of the immovable properties / flats and since the agreement value as shown by assessee was less than 10% and within the tolerance limit, therefore, according to the Ld. AR of assessee, no addition ought to have been made u/s 43CA of the Act. According to him, it is well settled that the tolerance band of 10% has 4 A.Y. 2014-15 Amsons Steel Pvt. Ltd. been provided for u/s 43CA, 50C and 56(2)(x) of the Act (as introduced vide Finance Act, 2020 with effect from 01.04.2021 which according to him is curative in nature and hence need to be applied retrospectively. For such a proposition, he relied on the decision of the Tribunal, Pune in the case of Sai Bhargavanath Infra Vs. ACIT (2022) (144 taxmann.com 168) wherein the question of retrospective application of proviso to section 43CA of the Act for AY. 2015-16 was considered and the Tribunal taking note of Hon’ble Supreme Court decision in the case of Vatika Township (P.) Ltd. 367 ITR 466 (SC) noted that the intent of the legislature was to provide relief to the assessee in case difference is less than 10%. According to Tribunal, this amendment has been brought into effect from 01.04.2021, thereby providing benefit to the assessee if difference is less than 10%. And since this being a beneficial provision, therefore, needs to be given retrospective effect and would apply to that case i.e. assessment year 2015-16. The Ld. AR also relied on the decision of this Tribunal in the case of Maria Fernandes Cheryle Vs. ITO (International Taxation) (2021) (123 taxmann.com 252/187 ITD 738) (Mum) (AY. 2011-12) wherein similar view (retrospective operation of law) albeit that it relates to section 50C of the Act. According to Ld. AR, section 43CA and section 50C of the Act are pari materia provisions and therefore, the Tribunal in Maria Fernandes Cheryle (supra) holding that amendment in section 50C of the Act as retrospective is even applicable while considering the retrospective application of section 43CA of the Act as well. The Ld. AR also relied on the decision of this Tribunal in the case of ACIT Vs. Sunil B Dalal (2022) (145 5 A.Y. 2014-15 Amsons Steel Pvt. Ltd. taxmann.com 313) wherein it was held that proviso to section 50C of the Act inserted vide Finance Act, 2020 with effect from 01.04.2021, enhancing tolerance band limit for difference between stated sale consideration and stamp duty value from 5% to 10% would be applicable retrospectively w.e.f. 01.04.2003 following the ratio decided in the case of Maria Fernandes Cheryl (supra). Therefore, the Ld. AR prayed that since the DVO estimated value of the properties in question is less than 5% no addition was warranted and therefore prayed for deletion of addition.
Per contra, the Ld. DR pointed out that the Ld. CIT(A) has not given any finding in respect of the DVO report dated 21.02.2019 in respect of the flats in dispute. Anyhow, he supported the action of the Ld. CIT(A) and does not want us to interfere with the order of the Ld. CIT(A).
We have heard both the parties and perused the records. We note that the assessee had sold two units (Unit No. 305 and 401) to Indian Institute of Excellence & Consultants Pvt. Ltd. for agreed price of Rs.9,50,00,000/-. Admittedly, the stamp duty valuation for both the units was to the tune of Rs.11,94,00,000/-. Thus, there was a difference of Rs.2,44,00,000/- which was added by the AO u/s 43CA of the Act without awaiting the report of DVO, which he sought by letter dated 27.12.2016. On appeal, the assessee pointed out to Ld. CIT(A) that the DVO has given his report and as per his report, the total value of both the units was to the tune of Rs.9,91,25,000/- as against the sale consideration of Rs.9,50,00,000/- shown by assessee. Thus, the 6 A.Y. 2014-15 Amsons Steel Pvt. Ltd. difference between the Valuation of the Departmental valuer and the value shown by assessee was to the tune of Rs.41,25,000/- which works out to percentage difference of 4.35%, which difference according to the assessee is less than 5% of tolerance band allowed by the law. In that context according to the assessee, no addition was warranted and pleaded for deletion of the addition of Rs.2.44 crores. For the aforesaid preposition, the assessee relied on the various decisions including the decision of Pune Tribunal in the case of Radhika Sales Corporation Vs. Addl. CIT in for A.Y 2011-12 decided on 16.11.2018 wherein the Tribunal held that if the difference in the value declared by the assessee and the value determined by the DVO is less than 10%, then no addition may be made by holding as under: “5. Similar issue had come up before the Tribunal in the case of Radhika Sales Corporation (supra). The Tribunal deleted the addition by observing as under: “5. We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The solitary issue raised in the appeal by the assessee is against the addition of Rs.10,38,000/- on account of difference in Long Term Capital Gain declared by the assessee and computed by the Assessing Officer after considering the DVO’s valuation report. It is an undisputed fact that the assessee has disclosed sale consideration of the land as Rs.1,10,00,000/-. During the scrutiny assessment proceedings reference was made to DVO for the valuation of property. The DVO vide report dated 30-12- 2013 determined the fair market value of the property as Rs.1,20,38,000/-. The difference between actual sale consideration declared by the assessee and the fair market value 7 A.Y. 2014-15 Amsons Steel Pvt. Ltd. determined by the DVO is approximately 9.43%. We find that the Co-ordinate Bench of the Tribunal in the case of Dattatraya Kerba Lonkar Vs. Deputy Commissioner of Income Tax (supra) after considering various decisions including the decision rendered in the case of Rahul Constructions Vs. Deputy Commissioner of Income Tax (supra) and the judgment of Hon’ble Patna High Court in the case of Bimla Singh Vs. Commissioner of Income Tax (supra) has held as under: “8. We find merit in the submission of Ld. A.R. The difference between the fair market value determined by the DVO and actual sale consideration is Rs.7,14,530/- i.e slightly more than 2 per cent of the sale consideration. The co-ordinate Bench of the Tribunal in the case of Rahul Construction V/s. DCIT (supra) has held that where difference between the sale consideration declared by the assessee and fair market value as determined by the DVO u/s 50C is less than 10 percent, the Assessing Officer was not justified in substituting the value determined for sale consideration disclosed by the assessee. The Co-ordinate Bench after considering the provisions of Section 50C of the Act and the provision of section 23A and 24(5) of the Wealth Tax Act held as under:- “13. A combined reading of the above provisions shows that the valuation adopted by the DVO is subject to appeal and the same is not final. In the instant case we find that as Against the value of Rs. 28,73,000/- adopted by the stamp valuation authorities, the DVO has determined the FMV on the date of transfer at Rs. 20,55,000/-. This itself shows that there is wide variation between the two values. Further, the value adopted by the DVO is also based on some estimate. We find that the difference between sale consideration shown by the assessee at Rs.19,00,000/- and the FMV determined by the DVO at Rs.20,55,000/- is only 8 A.Y. 2014-15 Amsons Steel Pvt. Ltd. Rs. 1,55,000 which is less than 10 per cent. The Courts and Tribunals are consistently taking a liberal approach in favour of the assessee where the difference between the value adopted by the assessee and the value adopted by the DVO is less than 10 per cent.
We find that the Pune Bench of the Tribunal in the case of Asstt. CIT V/s. Harpreet Hotels (p) Ltd. vide 1160/pn/2000 and relied on by the learned counsel for the assessee had dismissed the appeal filed by the Revenue where the CIT(A) had deleted the unexplained investment in house construction on the ground that the difference between the figure shown by the assessee and the figure of the DVO is hardly 10 percent.
Similarly, we find that the Pune Bench of the Tribunal in the case of ITO V/s. Kaaddu Jayghosh Appasaheb, vide ITA No.441/PN/2004 for the asst. yr 1992-1993 and relied on by the learned counsel for the assessee following the decision of the J&K High Court in the case of Honest Group of Hotels (P) Ltd. V/s CIT (2002) 177 CTR (J&K) 232 had held that when the margin between the value as given by the assessee and the Departmental valuer was less than 10 per cent , the different is liable to be ignored and the addition made by the A.O cannot be sustained. 16. Since in the instant case such difference is less than 10 per cent and considering the fact that valuation is always a matter of estimation where some degree of difference bound to occur, we are of the considered opinion that the A.O. in the instant case is not justified in substituting the sale consideration at Rs.20,55,000 as Against the actual sale consideration of Rs.19,00,000/- disclosed by the assessee. We, therefore, set 9 A.Y. 2014-15 Amsons Steel Pvt. Ltd. aside the order of the CIT(A) and direct the A.O. to take Rs.19,00,000/- only as the sale consideration of the property. The grounds raised
by the assessee are accordingly allowed.”
9. The ld. A.R of the assessee has further placed reliance on the decision of Hon’ble Patna High Court in the case of Bimla Singh V/s. CIT (supra) wherein Hon’ble High Court has held that difference between the cost of construction shown by the assessee and as determined by the Assessing Officer being less than 15 per cent, the same is to be ignored for the purposes of addition. The Hon’ble Delhi High Court in the case of CIT V/s. Sadna Gupta 352 ITA 595 held that unless and until there was some other evidence to indicate that extra consideration had flowed in transaction for purchase of property, report of DVO could not form basis of any addition on part of revenue. In absence of any evidence no reliance could be placed on the report of DVO for making addition.
10. Thus, in view of the fact that the difference between sale consideration and the market value determined by the DVO is not substantial and is approximately little over 2 per cent of the actual sale consideration, we find no reason for rejecting actual sale consideration mentioned in the Sale Deed for determining long term capital gain. Accordingly, the ground No.1 raised in appeal by the assessee is allowed. The Assessing Officer is directed to adopt actual sale consideration as mentioned in the Sale Deed as a fair market value for determining the long term capital gain.”
6. In the light of the facts of the case and the decisions discussed above, we find merit in the submissions of assessee. In the present case, since difference between the value declared by the assessee and the value determined by the DVO is less than 10%, 10 A.Y. 2014-15 Amsons Steel Pvt. Ltd. no addition in respect of Long Term Capital Gains is warranted. The findings of Commissioner of Income Tax (Appeals) on this issue are accordingly, set aside and the appeal of assessee is allowed.”
We note that the Finance Act 2018 has inserted a proviso to sub- section (1) of section 43CA which provides 5% tolerance limit if there is variation between declared sale consideration vis-a-vis stamp duty value, and in such an event then, no addition is warranted. Similar proviso was inserted by the Finance Act 2018 to sub-section (1) of section 50C of the Act. The said tolerance limit band was enhanced from 5% to 10% by the Finance Act 2020 w.e.f. 01/4/2021.It is noted that the Tribunal in the case of Maria Fernandes Cheryl vs. ITO (International Taxation) reported as 123 taxmann.com 252 (Mumbai) after considering various decisions and the CBDT Circular No. 8 of 2018 dated 26-12-2018 held, that the amendment is retrospective in nature and relates back to the date of insertion of statutory section to the Act. The relevant extract of the observations made by the Tribunal reads as under: “7. ………………… The insertion of the third proviso to Section 50C(1) provides for this tolerance band with respect to a certain degree of variations between the stamp duty valuation and the stated consideration of an immovable property. In other words, as long as the variations are within the permissible limits, the anti-avoidance provisions of Section 50C do not come into play. As we have noted earlier, the CBDT itself accepts that there could be various bonafide reasons explaining the small variations between the sale consideration of immovable property 11 A.Y. 2014-15 Amsons Steel Pvt. Ltd. as disclosed by the assessee vis-à-vis the stamp duty valuation for the said immovable property. Obviously, therefore, disturbing the actual sale consideration, for the purpose of computing capital gains, and adopting a notional figure, for that purpose, will not be justified in such cases. On a conceptual note, an estimation of market price is an estimation nevertheless, even if by a statutory authority like the stamp duty valuation authority, and such a valuation can never be elevated to the status of such a precise computation which admits no variations. The rigour of Section 50C(1) was thus relaxed, and very thoughtfully so, to take these bonafide cases of small variations between the stated sale consideration vis-à-vis stamp duty valuation, out of the scope of adjustments contemplated in the computation of capital gains under this anti-avoidance provision. In our humble understanding, it is a case of a curative amendment to take care of unintended consequences of the scheme of Section 50C. It makes perfect sense, and truly reflects a very pragmatic approach full of compassion and fairness, that just because there is a small variation between the stated sale consideration of a property and stamp duty valuation of the same property, one cannot proceed to draw an inference against the assessee, and subject the assessee to practically prove his being truthful in stating the sale consideration. Clearly, therefore, this insertion of the third proviso to Section 50C(1) is in the nature of a remedial measure to address a bonafide situation where there is little justification for invoking an anti- avoidance provision. Similarly, so far as enhancement of tolerance band to 10% by the Finance Act 2020, is concerned, as noted in the CBDT circular itself, it was done in response to the representations of the stakeholders for enhancement in the 12 A.Y. 2014-15 Amsons Steel Pvt. Ltd. tolerance band. Once the Government acknowledged this genuine hardship to the taxpayer and addressed the issue by a suitable amendment in law, the next question was what should be a fair tolerance band for variations in these values. As a responsive Government, which is truly the hallmark of the present Government, even though the initial tolerance band level was taken at 5%, in response to the representations by the stakeholders, this tolerance band, or safe harbour provision, was increased to 10%. There is no particular reason to justify any particular timeframe for implementing this enhancement of tolerance band or safe harbour provision. The reasons assigned by the CBDT, i.e., "the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location," was as much valid in 2003 as it is in 2021. There is no variation in the material facts in this respect in 2021 vis-à-vis the material facts in 2003. What holds good in 2021 was also good in 2003. If variations up to 10% need to be tolerated and need not be probed further, under section 50C, in 2021, there were no good reasons to probe such variations, under section 50C, in the earlier periods as well. We are, therefore, satisfied that the amendment in the scheme of Section 50 C(1), by inserting the third proviso thereto and by enhancing the tolerance band for variations between the stated sale consideration vis-à-vis stamp duty valuation to 10%, are curative in nature, and, therefore, these provisions, even though stated to be prospective, must be held to relate back to the date when the related statutory provision of Section 50C, i.e. 1st April 2003. In plain words, what is means is that even if the valuation of a property, for the purpose of stamp duty valuation, 13 A.Y. 2014-15 Amsons Steel Pvt. Ltd. is 10% more than the stated sale consideration, the stated sale consideration will be accepted at the face value and the anti- avoidance provisions under section 50C will not be invoked.
8. Once legislature very graciously accepts, by introducing the legal amendments in question, that there were lacunas in the provisions of section 50C in the sense that even in the cases of genuine variations between the stated consideration and the stamp duty valuation, antiavoidance provisions under section 50C could be pressed into service, and thus remedied the law, there is no escape from holding that these amendments are effective with effect from the date on which the related provision, i.e., Section 50C, itself was introduced. These amendments are thus held to be retrospective in effect. In our considered view, therefore, the provisions of the third proviso to Section 50C (1), as they stand now, must be held to be effective with effect from 1st April 2003. We order accordingly. Learned Departmental Representative, however, does not give up. Learned Departmental Representative has suggested that we may mention in our order that "relief is being provided as a special case and this decision may not be considered as a precedent". Nothing can be farther from a judicious approach to the process of dispensation of justice, and such an approach, as is prayed for, is an antithesis of the principle of "equality before the law," which is one of our most cherished constitutional values. Our judicial functioning has to be even-handed, transparent, and predictable, and what we decide for one litigant must hold good for all other similarly placed litigants as well. We, therefore, decline to entertain this plea of the assessee.” As has been aptly explained above, the rational for holding newly inserted proviso to subsection (1) to section 50C of the 14 A.Y. 2014-15 Amsons Steel Pvt. Ltd. Act as curative in nature, hence, having retrospective application, the same analogy would apply to the provisions of Section 43CA of the Act. Both the sections are similarly worded except that both the sections have application on different sets of assessee. As has been pointed earlier, Section 43CA gets attracted where the consideration received or accrues as a result of transfer of an asset (other than a capital asset) being land or building or both. Whereas, provisions of section 50C operates where the consideration received or accrues as a result of transfer of a capital asset being land or building or both. Both the sections induce deeming fiction to substitute actual sale consideration with notional value of asset based on Stamp Duty valuation. Further, a perusal of Circular 8 of 2018 (supra) would show that identical reasons have been given in Para 16 for ‘Rationalization of Sections 43CA and 50C’. The proviso has been inserted and subsequently tolerance band limit has been enhanced to mitigate hardship of genuine transactions in the real estate sector. Ergo, in the light of reasoning given for insertion of the proviso and exposition by the Tribunal for retrospective application of the said proviso, I have no hesitation in holding that the proviso to sub-section (1) to section 43CA and the subsequent amendment thereto relates back to the date on which the said section was made effective i.e. 01/4/2014.”
In the light of the discussion on this aspect, and taking into consideration the Pune Tribunal’s decision in the case of Radhika Sales Corporation (Supra), and the Mumbai Tribunal’s decision in the case of Maria Fernandes Cheryle (supra), we are of the opinion that the proviso explaining the tolerance limit has to be read retrospectively. Therefore, in the present case in hand as noted (supra) the difference 15 A.Y. 2014-15 Amsons Steel Pvt. Ltd. between the declared sale value i.e. Rs.9,50,00,000/- and the value decided by the DVO is Rs.9,91,25,000/- which difference being less than 10% [ i.e, 4.35%], no addition is warranted. However, we note that the AO has not passed the consequential rectification order after the DVO had submitted his report dated 21.02.2019. Therefore, we deem it fit to set aside the impugned order and restore the matter back to the file of AO for limited purpose of verification of the facts stated (supra); and if assessee’s claim as discussed (supra) is found to be correct, then, no addition is warranted. With the aforesaid observations, the issue raised by the assessee is disposed of and the A.O is directed to pass order on this issue as per the directions given (supra) in accordance to law.