WADHWANA HOUSING DEVELOPMENT AND INFRASTRUCTRURE COMPANY ,MUMBAI vs. ASSESSING OFFICER NFAC, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and v. ACIT – Circle – 32(1) Infrastructure Company Room NO. 702, 7th Floor 304, Ganesh Darshan Kautilya Bhavan, C-41 to C-43 G-Block, Bandra Kurla Complex L.T. Road, Borivali (W) Bandra(E), Mumbai - 400051 Mumbai - 400092

PAN: AAOFM5690A (Appellant) (Respondent) Assessee Represented by : None Department Represented by : Shri Minal Kamble

Date of Hearing : 30.01.2023 Date of Pronouncement : 20.04.2023 O R D E R PER S. RIFAUR RAHMAN (AM)

ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company 2. We observe from the grounds raised by the assessee that the issue involved in this appeal is relating to sale of immovable property and assessee has recorded in the Books of Accounts of sale consideration as ₹.1,38,00,000/- whereas the value of stamp duty is ₹.1,45,07,616/-. So, the Assessing Officer observed that there is a difference of ₹.7,07,616/- which comes to 4.88% of the stamp duty value. The assessee made a plea that the above difference is only 4.88% which is less than 5% of the stamp duty value. However, Assessing Officer rejected the above submission and observed that benefit of 5% is not applicable for the A.Y.2018-19 under consideration. Accordingly, he made the addition to the income of the assessee.

"By Finance Act, 2018, the first proviso to Section 43CA(1) was inserted, and this proviso provided that "where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration." This proviso was further amended by the Finance Act 2020, inasmuch as the tolerance band of 5% was increased to 10%. The net result of this amendment is that where the variation in actual sale consideration vis-à-vis the stamp duty valuation does not exceed 10%, the fiction of Section 43CA(1) will not come into play, and, Page No. | 2

ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company therefore, profit and loss will have to be computed with reference to the actual sale consideration only-disregarding the stamp duty valuation. The appellant draws your attention to the explanation to The Finance Act, 2018 which reads as under, 16. Rationalization of section 43CA, section 50C and section 56 16.1 Before amendment by the Act, for computing income from business profits (section 43CA), capital gains (section 50C) and other sources (section 56) arising out of transactions in immovable property, the higher of sale consideration or stamp duty value was adopted. The difference was taxed as income both in the hands of the purchaser and the seller. 16.2 It has been pointed out that 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 shape of the plot or location. 16.3 In order to minimize hardship in case of genuine transactions in the real estate sector, section 43CA, section 50C and section 56 of the Income-tax Act have been amended to provide that no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration is not more than five per cent of the sale consideration The paragraph 16.3 above secifically mentions this amendment is to minimize the hardship in case of genuine transactions in real estate sector. The rationale behind the insertion of the proviso to Section 43CA(1) is to provide a remedy for unintended consequences of the main provision. The amendment which been made by The Finance Act, 2018 and subsequent by The Finance Act, 2020, is a curative amendment and hence there is no reason for holding the curative amendment to have prospective in effect. The insertion of the proviso to Section 43CA(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 43CA(1) do not come into play. this insertion of the proviso to Section 43CA(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.

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ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company Your Honour, may please note that the difference is valuation is just 4.88%, which is less then 5%. The finance act, 2018 permitted variation up to 5% and The Finance Act, 2020 permitted variation up to 10%. The price difference in our case is below 5%, which is within tolerable limit and hence additions made by the Id. AO need to be deleted. In support of his claim the appellant relies on the below mentioned covered judicial decisions Faber Construction v. ACIT 21(1) I.T.A. No. 198/Mum/2019 (Assessment Year 2015-16) ITAT Mumbai (Copy attached) Where the Hon'ble ITAT Mumbai bench observed and held that "The above proviso has been inserted by the Finance Act, 2018 with effect from 1/4/2019. A cardinal principle of interpretation is to look at the mischief, the act, the amendment, the proviso is aimed to remove or take care of in the present case I find that proviso was inserted to grant relief where there is only a 5% variation in the agreement value and stamp value. In such circumstances the proviso granted relief in as much as the difference of 5% is to be ignored and the deeming provision of section 43-CA shall not be invoked. I find that this proviso is aimed at mitigating the hardship or the mischief which was caused to the taxpayer on the invocation of deeming provisions of section 43CA where there is marginal variation up to 5% In this view of the matter in my considered opinion this proviso shall take retrospective effect. Hence I hold that in cases where the variation is up to 5% no addition shall be made by the assessing officer by invoking the provisions of section 43CA The below are other identical cases on which your appellant relies upon, (Copies attached for quick reference) 1. Pankaj Anilkumar Pitale ITA 6813/Mum/2017 dt 19-3-2019 ITAT Mumbai 2. Maria Fernandes Cheryl ITA No. ITA No. 4850/Mum/2019 Ordered by Hon'ble VP Mumbai ITAT 3. Joseph-Mudaliar I.TA. No.6912/Mum/2019 ITAT Mumbai 4. John Flower India Pvt Ltd.. I.T.A. No. 7545/Mum/2014 ITAT Mumbai 5. Sanddep Patil ITA No.924/Bang/2019 ITAT Bangalore 6. Chandra Prakash Jhunjhunwala ITA No.2351/Kol/2017 In the light of above, your appellant prays Your Honour to delete the addition made by the Id. AO of Rs.7,07,616/- under section 43CA of The Income Tax Act, 1961” Page No. | 4

ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company 4. After considering the detailed submissions Ld.CIT(A) sustained the addition made by the Assessing Officer with the following observations: -

“5.2 Findings and Decision I have carefully considered the submissions filed by the appellant and facts of the case. I find no force in the arguments taken by the appellant. The sole argument of the appellant is that the amendment brought about by the Finance Act, 2018 w.e.f. 01.04.2019, which inserted the proviso which gave a tolerance limit of 5% on the difference in the sale consideration and the stamp duty value of the property, was in effect a retrospective amendment. In support of this contention, the appellant has cited certain decisions of Hon'ble ITAT. Mumbai bench, mentioned supra, where by application of certain twisted logic, it has indeed been held so. However, in another decision, the same Hon'ble THE ITAT MUMBAI BENCH 'G' in the case of Welfare Properties (P.) Ltd.v.Deputy Commissioner of Income-tax, Mumbai, [2020] 113 taxmann.com 156 (Mumbai - Trib.), held as under :- Section 43CA of the Income-tax Act 1961 Full value of consideration for transfer of assets other than capital assets in certain cases (Proviso) - Assessment year 2015- 16 Whether prior to incorporation of proviso to section 43CA(1), vide Finance Act 2018, with effect from 1-4- 2019, there was no tolerance limit envisaged in section 43CA regarding difference between stamp duty value and actual sale consideration received by assessee on transfer of asset (other than a capital asset) Held, yes [Paras 8.9 and 10] [In favour of revenue]. As all the decisions cited by the appellant are on section 50C, and none on section 43CA, the judgement cited above is more relevant. Still, it may be argued that the provisions of the two sections are analogous, and these ratios have applicability here as well. Since there are differing decisions of the different benches of the same ITAT, on the issue, as to from which date the beneficial amendments to the statute would be applicable, it would be worth-while to see if the Hon'ble Supreme Court has laid down any law in this respect. This, I am afraid, has not been done in any of the decisions cited by the appellant, notably the John Fowler case and the Maria Fernandes case cited supra. In a recent decision, Hon'ble SUPREME COURT OF INDIA in the case of Krishna Gopal Tiwaryv.Union of India, [2021] 129 taxmann.com 168 (SC), held as under-

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ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company Section 10(10) of the Income-tax Act. 1961 Gratuity (General) - Appellants were paid gratuity of Rs 10 lakhs in January 2007, however, Payment of Gratuity Act was amended and it received assent of President and came into effect from 2010 – Appellants challenged date of commencement of Amending Act as 24-5-2010 as tax had been deducted at source when gratuity was paid to appellants before commencement of Amending Act and asserted that it should be made effective from 1-1-2007 and consequently appellants would not be liable for deduction of tax on gratuity amount High Court by order declined claim of appellants to declare applicability of Amending Act from 1-1-2007- Whether benefit of higher gratuity was one-time available to employees only after commencement of Amending Act and hence, could not be treated to be retrospective Held, yes [Paras 13 and 17][In favour of revenue] And in the decision, the issue was discussed as under- "13. However, what is exempt from the Income-tax Act is the amount of gratuity received under the Gratuity Act to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of the Gratuity Act. The Gratuity Act contemplated rupees ten lakhs as the amount of gratuity only from 24-5-2010. Such gratuity is the amount payable only once. Thus, the cut-off date cannot be said to be illegal, it being one-time payment. Therefore, such amendment in the Gratuity Act cannot be treated to be retrospective. Therefore, the provisions of the statute cannot be said to be retrospective. 14. In a judgment of this Court reported as Sri Vijayalakshmi Rice Mills v. State of Andhra Pradesh [1976] 3 SCC 37, the new rate of supply of rice was made effective on 23-3-1964 The question arose was as to whether the rice supplied earlier would have the benefit of beneficial provision as contained in the later notification dated 23-3-1964 This Court held that price as was prevalent on the date of sale alone would be payable and not the higher price introduced by amendment. It was held as under: "6. The aforesaid sales in the instant cases having been made by the appellants before the coming into force of the Rice (Andhra Pradesh) Price Control (Third Amendment) Order, 1964, and the property in the goods having passed to the Government of Andhra Pradesh on the dates the Page No. | 6

ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company supplies were made, the appellants had to be paid only at the controlled price obtaining on the dates the sales were effected and not at the increased price which came into operation subsequently." 15. In another judgment reported as Orient Paper & Industries Ltd.v. State of Orissa 1991 Supp. (1) SCC 81, it was held that since the executive has been empowered to choose the date of commencement of the Act, such delegation cannot be said to be case of excessive delegation. The Court held as under. "29. Even if the section were to be seen as a delegation of power, it is a power conferred on the government to give full effect to the policy behind the legislation. It is with a view to achieving that purpose that the executive has been empowered to choose the time, place and forest produce for bringing the Act into operation having regard to the particular facts and circumstances in the contemplation of the legislature. There is no excessive delegation in such statutory grant of power. [See Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CST [(1974) 4 SCC 98: 1974 SCC (Tax) 226 (1974) 2 SCR 879] Harishankar Bagla v. State of M.P. [(1955) 1 SCR 380, 388: AIR 1954 SC 465]]" 16. In a recent judgment reported as Himachal Road Transport Cor. v. Himachal Road Transport Corpn. Retired Employees Union [2021] 4 SCC 502, in the case of payment of increased quantum of death-cum-retirement gratuity. it was held that the cut- of date cannot be said to be arbitrary which was fixed keeping in view financial constraints. This Court held as under: "18. Though there are long line of cases, where validity of fixation of cut- off date is considered by this Court, we confine and refer to the case law which is relevant to the facts of the case on hand. In State of Punjab v. Amar Nath Goyal [State of Punjab v. Amar Nath Goyal, (2005) 6 SCC 754 : 2005 SCC (L&S) 910], while examining the validity of cut-off date fixed for grant of benefit of increased quantum of death-cum-retirement gratuity. this Court has held that the financial constraint pleaded by the Government was a valid ground for fixation of cut-off date and such

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ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company fixation was not arbitrary, irrational or violative of Article 14 of the Constitution …….. 17. In view of the above, we find that the date of commencement fixed by the Executive in exercise of power delegated by the Amending Act cannot be treated to be retrospective as the benefit of higher gratuity is one-time available to the employees only after the commencement of the Amending Act. The benefit paid to the appellants under the office memorandum is not entitled to exemption in view of specific language of section 10(10)(ii) of the Income-tax Act." The principle of law is simple, where date of application of an amendment is clearly stipulated, the judicial authorities cannot impose their own interpretations and insert their own words in the statute, where none exist. Accordingly, the plea of the appellant is hereby rejected, and it is held that the benefit of the amendment brought about by the Finance Act, 2018 w.e.f. 01-04-2019, is not available to the Assessee in the A.Yr. 2018-19. Hence the ground of appeal no. 1, 2 and 3 are dismissed and the addition of Rs.7,07,616/- made to the total income of the assessee u/s 43CA of The Income Tax Act, 1961, is hereby confirmed.”

“1) On the facts and in the circumstances of the case and in law, the Ld. NFAC CIT(A) erred in sustaining addition made by ld. Assessing Officer of Rs.7.07,616/-in total income of the assessee u/s 43CA of The Income Tax Act, 1961. a. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have considered that Finance Act 2018 has made amendment in section 43CA and as per amendment if there is difference of 5% between stamp duty value and agreement value than agreement value shall be deemed to be the full value of consideration and further, Finance Act, 2020 has made an amendment in section by raising the limit of 5% to 10%. b. On the facts and in the circumstances of the case and in law, the Ld. AO ought to have consider that the amendment made by the Finance Act, 2018 to section

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ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company 43CA giving a 5% deviation being curative in nature be treated as having retrospective effect from 1-4-2003. 2) Without prejudice to the other grounds of appeal and on the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have referred the valuation of the flat by departmental valuation officer (DVO) u/s 50C(2). 3) The assessee craves Your Honour leave to add or alter or amend or delete any of the above grounds.”

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ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company value of consideration. As per the ground raised, we observe that assessee has claimed that the amendment made to section 43CA are retrospective in nature. On similar proposition, the Coordinate Bench in the case of the Shri Harish H Gandhi v. ACIT [(2022) (6) TMI 1277 – ITAT Mumbai] adjudicated that the amendment made to section 43CA is retrospective in nature in consonance with the amendments made to section 51C of the Act, for the sake of clarity it is reproduced below: -

“3.3. ……… But we find that there is a proviso introduced by the Finance Act 2018 w.e.f. A.Y.2019-20 onwards and which was later amended by the Finance Act 2020 applicable from A.Y.2021-22, which states that if the difference between the stamp duty value and the reported sale consideration is not more than 10% then, the reported sale consideration shall have to be accepted and no addition in terms of 43CA is required to be made. We find that this amendment has been held to be retrospective in operation by the Co-ordinate Bench decision of this Tribunal in the case of Maria Fernandez Cheryl vs. ITO reported in 123 taxmann.com 252 wherein it was held that amendment made in scheme to Section 50C(1) of the Act by inserting the proviso thereto and by enhancing tolerance band for variations between sale consideration vis a vis stamp duty valuation from 5% to 10% are effective from date on which section 50C itself was introduced i.e. from 01/04/2003 and therefore, having retrospective applicability thereon. The language of provisions of Section 50C are exactly pari materia with provisions of Section 43CA of the Act. Hence, though the aforesaid decision was rendered in the context of Section 50C of the Act, the same analogy would apply for provisions of Section 43CA of the Act also as similar proviso is available in Section 43CA of the Act also. Hence, respectively following the aforesaid decision of this Tribunal, we hold that the difference of Rs.4,42,460/- added by the ld. AO in the assessment falls below the tolerance band of 10% and hence, by applying the proviso to Section 43CA of the Act, no addition is required to be made in the instant case u/s.43CA of the Act. Accordingly, the ld. AO is hereby directed to delete the addition of Rs.4,42,460/- made by him in the assessment. Accordingly, the grounds raised by the assessee are allowed.”

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ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company 9. Respectfully following the above said decision, and in the above decision the Coordinate Bench adjudicate that amendment made to section 43CA is retrospective in nature. Accordingly, as per the proviso the percentage up to 5% are outside the provisions of section 43CA of the Act. We observe that, the stamp duty value difference is 4.88% and the same outside the provisions of this section considering the fact the difference is less than 5%. From the above discussion, we are inclined to allow the ground raised by the assessee.

Order pronounced in the open court on 20th April, 2023

Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 20/04/2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER

(Asstt. Registrar) ITAT, Mum

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