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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya
O R D E R Per Shri Shamim Yahya (AM) :-
This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-28 dated 25.03.2019 and pertains to assessment year 2014-15.
Grounds of appeal
read as under:-
1. Upholding the additions made by the Learned AO under the provisions of section 43CA without considering 1.1 the fact that the impugned shops were agreed to be sold prior to 31.03.2013 under allotment letters dated 06.09.2009 and 27.12.2012, which was prior to introduction of the provisions of section 43CA of the Act which was applicable w.e.f. 01.04.2013, and therefore, the provisions u/s 43CA were not applicable.
2. The Learned CIT(Appeals) has failed to consider the fact that the Ready Reckoner rates are for ready possession shops and not for shops under construction and the marginal difference being less than 5% between the Ready Reckoner rates and the Sale consideration in respect of impugned shop's ought to be ignored.
Brief facts of the case are that assessee is deriving income from carrying on business of builders developers and realtors. In the assessment order, AO noted that there was difference between the agreement value and market value as per registered agreement. Hence, AO issued notices to the assessee for invoking the provision of section 43CA. In response the assessee stated that payment & allotment letters for the impugned items were received much earlier. In this regard, AO referred to the following response to the assessee
In response, the AR filed a reply dated 15.12.2016, "...From the above mentioned details it can be evident that the allotment letters in respect of sale of shops can be correlated with the bank statement and ledger accounts reflecting receipt of payment from them. Since, the contract/allotment letter are substantiated with the tank statement, the market value as on the date of allotment and not the market value as on the date of registered agreement in terms of provision of section 43CA. The difference is only in two shops namely shop no. 408 and 509 in respect of Andheri project aggregating to Rs 8,26,329/- only. Since, there is a marginal difference in two cases as reflected in the chart and the same is less than, 5% of the value. Even under the Bombay Stamp Act, if the difference between market value and agreement value is less than 10%, the stamp duty is leviable on the agreement value even though, the market value is higher than the agreement value by less than 10%. We may add here that the rates quoted in the reckoner are average rates for ready possession shops whereas the shops sold are under construction, which will have a much lower value than ready shops".
AO further noted assessees submissions as under:-
The AR has filed evidences such as copy of allotment letters, ledger copies of the buyer's account, extracts of bank account statement showing receipt of first payment from the buyer of property, market of value of the flats/shops on the date of receipt of first payment from buyer in support of his claim. Further, the AR has relied upon the judgement by the honourable ITAT Mumbai in the case of Krishna Enterprises vs.ACIT. However, this case law refers to section 50C while the provision of the Act under consideration is section 43CA and hence, is not applicable to the case of the assessee.
However, AO was not fully convinced, he referred to provision of section 43CA. From the examination of the assessees evidences, the AO granted part relief and concluded as under:-
From the verification of submission made and annexure 1, it is established that the assessee has sold the two properties, viz shops no. 408 and 509 below the market value existing on the date on which of first payment towards the purchase of the shops were received from the buyers. In view of these, shortfall in consideration received for shop nos. 408 and 509 vis-avis their fair market value derived from adoption of ready reckoner values is worked out at Rs 4,33,575/- and Rs 3,92,754/- respectively. Thus the total amount of Rs 8,26,3297- is added back to the total income of the assessee.
Upon assessee’s appeal, ld.CIT(A) upheld the addition made by the AO. However, in upholding the addition by the AO, he has held as under:-
Appros to the above, I find that the fulcrum of the main contention of the appellant is that, according to the appellant, the various properties in respect of which the provision of section 43CA have been applied by the AO have not been sold in the F.Y. under consideration i.e the FY 2013-14[relevant to the A.Y. 2014-15], which is the year under appeal. This is because, it is the sway of the appellant that the part performance of the contract of sale of the various properties took place much before the relevant year i.e. F.Y.2013-14 [A.Y. 2014-15] and that it is only the formality of the registration that took place in the year under consideration. Hence, it is stated that, since, the Section 43CA which came on the statute book only from A.Y.2014- 15, hence, the same cannot be applied in the case of the appellant. Whereas, according to the AO, the properties were registered in A.Y.2014-15 (i.e. F.Y.2013- 14) and hence, the sale was completed only in the relevant year A.Y.2014-15 and hence, the provisions of section 43CA are indeed applicable to the appellant. The Id. AR further could not cogently explain as to how given the fact of registration in the relevant F.Y.2013-14 (i.e. A.Y.2014-15), can it be said that the sale was completed earlier? As observed above, in the earlier years some payments might have been received in part performance of the contract of sale, so however, it cannot be said that the contract of sale was formalized until and unless the registration was completed. It is a trite position even according to the Transfer of Property Act, 1882 [as amended], the essential completion and cessation of the contract of sale will become complete on the due fulfillment of rights and obligations of the parties concerned. Therefore, only because certain amounts were transacted in part performance of the agreement to sell, it was only in the year of the ultimate registration that the contract of sale gets fructified. On the execution of the formal agreement, the obligations of the parties will crystalize, subject to any supervening and extenuating circumstances. No such circumstance is proved to be in existence in the instant appeal and this issue is of immense significance. Moreover, I also find that, in view of the above, it is crystal clear that the sale gets culminated in the year of registration, formally of the agreement to sell and till such time, it is always possible that either of the parties to the said contract/agreement will always be available with the option to rescind or alter the conditions of the proposed sale. Therefore. I am in agreement with the views of the AO that the sale has been executed in the relevant A.Y.2014-15, to which the provisions of Section 43CA are squarely applicable.
Against the above order, assessee is in appeal before the ITAT.
I have heard the Ld. DR and perused the records. I find that in this case, assessee has submitted before the AO that allotment letters and some part of the payments were received much earlier. Hence, the provision of section 43CA cannot be invoked. The AO has accepted the said submissions except the two flats/shops for which, he found that the market value as per the ready recokner rates differed and hence, he made the addition of Rs. 4,33,575/- and Rs.3,92,754/-.
Upon assessee’s appeal, Ld.CIT(A) has held that he was of the opinion that invariably the stamp value date on registration has to be adopted and hence, hewas upholding the order of the AO. I find that this is quiet contrary to what the AO has held. AO has clearly accepted the assessee’s contentions that he is in agreement that ready recokner value on the date of allotment is being considered. Hence, the reason for Ld.CIT(A) in upholding the addition is not as per the facts on record. In any case, I note that this is assessees plea that section 43CA was introduced w.e.f. 01.04.2013 and the agreement under consideration were entered into prior to 31.03.2013. Further, this is assessees plea that difference is only 5% between the ready recokner rate and sale consideration. Hence, this is assessees plea that the same has to be ignored on the touchstone of ITAT, Mumbai decision in the case of Krishna Enterprises vs ACIT. I am of the considered opinion that the asessees succeeds on both the counts. Hence, I set aside the orders of the authorities below and decide the issue in favour of the assessee.
In the result, appeal by the assessee stands allowed.