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Facts
The assessee, a real estate company, purchased industrial land, converted it for commercial use to build a shopping mall, and sold shops as stock-in-trade for AY 2014-15 and 2015-16. The Assessing Officer (AO) applied Section 43CA, deeming the stamp duty value as full sale consideration, leading to additions. The assessee also incurred interest expenses on conversion charges for the land, which it capitalized during the construction period but claimed as revenue expenditure after the mall was put to use, which the AO disallowed but CIT(A) allowed.
Held
For the Section 43CA issue, the Tribunal held that since the difference between the assessee's disclosed sale consideration (including delayed interest, treated as part of sale proceeds) and the DVO's fair market value was less than the 10% tolerance band, no addition was warranted. For the interest on conversion charges, the Tribunal upheld the CIT(A)'s decision, ruling that once the asset (shopping mall) was put to use, such interest should be treated as revenue expenditure under Section 36(1)(iii) and not capital expenditure.
Key Issues
1. Whether additions under Section 43CA are justified when the difference between declared sale consideration (including interest for delayed payment) and stamp duty value is within the 10% tolerance limit and the agreement date for stamp duty valuation was not properly ascertained. 2. Whether interest expenses incurred on conversion charges for land use change are to be treated as revenue expenditure under Section 36(1)(iii) or capital expenditure, after the asset is put to use.
Sections Cited
43CA, 50C, 48, 36(1)(iii), 143(3), 154, 271(1)(c), 80-I
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
a common order dated 27.10.2019. This order has been impugned by the assessee as well as Revenue. Thus, the present four cross-appeals are being clubbed for deciding them by this common order.
ITA 131/CHD/2020 (A.Y. 2014-15)
We first take appeal of the assessee for assessment year 2014-15. The assessee has taken six grounds of appeal but its grievance revolves around a single issue, namely, as to how profit on sale of four shops is required to be determined with the help of Section 43CA of the Income Tax Act, 1961.
The brief facts are that assessee company has purchased 20.16 acres of industrial land from M/s Pfizer Ltd. in Chandigarh. The company has obtained approval from Chandigarh Housing Board (CHB) vide letter No. CHB/CEO/land-use/2006/4855 dated 26.03.2007 for conversion of land from industrial use. It was required to pay Conversion Fee of Rs.1,85,45,47,440/-. Out of above conversion fees, 10% was to be paid as down payment and remaining over a period of nine years in equated annual instalments with interest at 8.25%. The assessee has , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 3 developed a shopping mall over this land. It has entered into an Agreement for sale of shops A-501, 502 and 503, B-408 and 409. The Agreement to Sell for unit No. 501 to 503 was executed on 25.01.2011. The schedule of payment was decided as under :
PAYMENT PLANT At the Time of Booking 25 % of Sale Price 30.04.2011 15 % of Sale Price On 31.07.2011 15 % of Sale Price On 31.10.2011 15 % of Sale Price On 31.01.2012 15 % of Sale Price On Intimation for Possession 15 % of Sale Price + Stamp Duty & Registration Charges 3.1 The Vendee has made a payment of Rs.2,60,00,000/- vide cheque No. 023655 on 25.01.2011. There was some dispute between the assessee and the vendee and ultimately Sale Deed was executed during the Accounting Year relevant to assessment year 2014-15. The ld. AO has confronted the assessee qua Section 43CA. The stand of the AO was that Section 43CA is equivalent to Section 50C of the Income Tax Act. Under Section 50C, full sale consideration implied u/s , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 4 48 of the Income Tax Act will be deemed equivalent to the amount on which Stamp Duty was charged by the Stamp Duty Authority for the purpose of registering the Sale Deed. Similarly, for selling stock-in-trade in a Real Estate company, the value at which stamp duty is being levied, would be deemed full sale consideration of the alleged land/building. Thus, AO was of the view that the full sale consideration is to be equated according to the value adopted by the valuation authority for charging the stamp duty. The ld. AO, accordingly, made additions to the total income of the assessee. The assessee has declared a loss of Rs.65,92,02,520/- in this year which has been reduced to Rs.30,98,19,874/-.
Dissatisfied with the above, assessee carried the matter in appeal before the CIT(A). The ld. CIT(A) made a reference to the DVO for determining the Fair Market Value of the property as contemplated u/s 43CA of the Income Tax Act. The ld. CIT(A) has upheld the addition on the basis of the DVOs report and such addition has been confirmed partly.
, 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 5
Before us, ld. counsel for the assessee raised many fold of contentions. In his first fold of contention, it was submitted that assessee agreed to sell for office units on 25.01.2011 and 27.01.2011. At that point of time, Section 43CA was not in picture, hence, no addition ought to be made with the help of Section 43CA.
5.1 In next fold of contention, he submitted that as per sub-clause (3) and (4) of Section 43CA, the Stamp Duty Valuation as applicable on the date of agreement is required to be adopted by the AO instead of the duty available on the date of Sale Deed. In the year 2011, there was no collectorate rates available for collecting the Stamp Duty, hence, the deaming fiction provided u/s 43CA fails. For butressing his proposition, he drew our attention to the Valuation Report where ld. DVO himself did not adopt the collectorate rate and rather made an observation that adopting collectorate rate to work out Fair Market Value of the subjected property may not be appropriate in this case. In view of the evidence produced by the assessee, moreover, collectorate rates available are for commercial space and not specifically for office space.
, 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 6 According to the DVO, the general trend available, commercial space such as shop, malls etc. are considered as compared to the office space. In other words, ld. DVO has not made reference to any collectorate rate in the DVO’s Report.
5.2 In his next fold of submission, it has been contended that assessee has received an interest of Rs.6.19 Cr from the vendees for the period during which a dispute remained between the parties. Thus, this interest is part and parcel of the sale consideration. In other words, the sale proceeds is also revenue receipt for the assessee because it has sold stock-in-trade and this interest income would also partake character of business receipt. Therefore, if both these amounts are being added together, then the difference between the sale proceeds disclosed by the assessee vis-à-vis one determined by the DVO is less than 6.51% and the assessee is protected by proviso attached to Section 43CA sub- clause (1). This proviso contemplates that if value is more than 110%, only them addition is to be made. The working made by the ld. counsel for the assessee read as under : “7. Further, Total Consideration = Sales Consideration + Interest. = 28.82 crore + 6.19 crore = 35.01 crore , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 7 FMV as per DVO report = 37.45 crore Difference = 2.44 crore Deviation i.e. = 6.51% As the deviation between Fair Market Value & Sales Consideration received, is less than 10% Marginal Relief provided u/s 50C.
The ld. CIT DR, on the other hand, relied upon orders of Revenue Authorities. He submitted that Section 43CA is applicable because Sale Deed has been registered during the Accounting Year relevant to Financial Year 2014-15. The only benefit available to the assessee is sub-clause (3) and (4) of Section 43CA. In other words, at the most, collectorate rate determining the Stamp Duty valuation on 25.01.2011 could be considered but it cannot be said that Section 43CA is not applicable.
We have duly considered the rival contentions and gone through the record carefully. Section 43CA has a direct bearing on the controversy in hand, therefore, we deem it appropriate to take note of this Section, which read as under : Special provision for full value of consideration for transfer of assets other than capital assets in certain cases. 43CA. (1)Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 8 of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer. [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 ten 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 [Provided further that in case of transfer of an asset, being a residential unit, the provisions of this proviso shall have the effect as if for the words "one hundred and ten per cent", the words "one hundred and twenty per cent" had been substituted, if the following conditions are satisfied, namely:— (i)the transfer of such residential unit takes place during the period beginning from the 12th day of November, 2020 and ending on the 30th day of June, 2021; (ii)such transfer is by way of first time allotment of the residential unit to any person; and (iii)the consideration received or accruing as a result of such transfer does not exceed two crore rupees.] (2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1). (3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement. (4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part thereof has been received [by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account] [or through such other electronic mode as may be prescribed] on or before the date of agreement for transfer of the asset.] [Explanation -For the purposes of this Section, ‘residential unit’ means an independent housing unit with separate facilities for living, cooking and sanitary requirement, distinctly separated from other residential unit within the building, which is directly , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 9 accessible from an outer door or through an interior door in a shared hallway and not by walking through the living space of another household.]”
7.1 A perusal of this Section would indicate that it is parametria to Section 50C of the Income Tax Act. It contemplates that where the consideration received or accruing as a result of the transfer by an assessee of an asset, other than a capital asset, being land or building or both, is less than the value adopted or assessed by the Stamp Duty Authority for the purpose of charging Stamp Duty, then such valuation would be deemed as full sale consideration for transfer of such asset. For example, if capital asset is being transferred, then Section 50C will be applicable and in all other cases, Section 43CA would be applicable. However, proviso appended to this Section would further provide that if a reference to the DVO is being made and the value so determined by the DVO or by the Stamp Duty Valuation Authority is at valuation of 110%, only then such value would be deemed as full sale consideration. In other words, a tolerance band of 10% is being provided. For example, an assessee has disclosed Rs.100/- as consideration received for transfer of the asset and Stamp Duty Valuation Authority has , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 10 determined that value by Rs.110/-, then value of the assessee need not to be disturbed. Sub-clause (3) further provides that if the Deed of Agreement fixing the value of consideration for transfer of asset and the date of registration of such transfer of asset are not the same, then value referred in sub-section (1) of Section 43CA may be taken as the value assessable by any authority of State Government for the purpose of payment of Stamp Duty in respect of such transfer on the date of agreement. In other words, the valuation taken on the date of agreement is to be adopted. But, sub-clause (4) puts a condition that payment in furtherance of Sale Agreement is to be made by banking channel.
7.2 In the present case, Sale Agreement was executed on 25.01.2011. Payment was made through account payee cheque and such payments have been made according to the schedule reproduced above. The balance, which was not paid due to the dispute, the vendee has paid the interest. Therefore, the appointed date in this case is 25.01.2011 and the collectorate rate for charging the stamp duty on that day ought to have been adopted. Neither the AO nor the DVO could , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 11 lay their hands on the correct rate of stamp valuation authority on that day. Thus, the value declared by the assessee in the Sale Deed on which stamp duty has been paid is to be construed as the correct value and no addition was required to be made
Apart from that, if we looked at from another angle also, we find that alleged interest charged by the assessee from the vendee would partake character of sale proceeds because it is an interest on delayed realization of sale proceeds for registration of the Sale Deed. We have seen this aspect while computing the profit eligible for grant of 80-I wherein it has been held that if sale proceeds are realized late by the assessee and interest is being charged on those sale proceeds, then interest would par-take character of business income upon whom 80-I would be applicable. [ 283 ITR 402 (Hon'ble Gujrat High Court] Nirma Industry and 284 ITR 389 Ind Swiss Jewel (Hon'ble Bombay HC)]. Thus, if this interest is being included in the alleged sale consideration disclosed by the assessee, which we have taken note While making reference to the argument of ld. counsel for the assessee, then the , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 12 difference of valuation between the sale proceeds determined by the DVO vis-à-vis one adopted by the assessee is less than 10%. Hence, no addition is required to be made on that account also. In other words, assessee has disclosed sale consideration at Rs.28.82 Cr. It has charged interest at Rs.6.19 Cr. Total comes to Rs.35.01 Cr. The DVO has determined Fair Market Value of the asset at Rs.37.45 Cr. The difference is Rs.2.44 Cr which is less than 10%. Hence, on that ground also, no addition could be made. We are fortified by the order of the ITAT in assessee's own case for assessment year 2017-18 (ITA No. 73/CHD/2024). This appeal has been decided on 06.08.2024.
In view of the above discussion, we are of the view that no addition required to be made in the hands of the assessee as per Section 43CA of the Income Tax Act. The additions made by the AO and confirmed by the CIT(A) are deleted.
In the result, appeal of the assessee for assessment year 2014-15 is allowed.
The additions in 2014-15 are also made on the same line, but with a little variance, however, after getting DVO’s report, , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 13 AO has passed an rectification order on 23.05.2019 u/s 154 of the Income Tax Act. The last paragraph of the AO’s order giving effect reads as under : “2.4 Thus, the order u/s 143(3) is hereby rectified and the revised calculation/re-computation of income is as under:-
“Therefore, by taking the values as determined by the DVO vide dated 04.04.2019, a rectification of Rs.11,41,70,333/- is made. Loss as per Return (-)Rs. 29,36,93,695/- Add:- Addition as per para 2.5 of Rs. 11,51,83,469/- A.O. dated 17.12.2018 Reduction of addition made Rs. 11,41,70,333/- Rs. 10,13,136/- as per DVO report Addition u/s 36(1)(iii) as per Rs.3,39,82,642/- order u/s 143(3) dated 17.12.2018 Loss to be carried forward (-) Rs.25,86,97,917/- Total Addition Rs. 3,49,95,778/- Loss of Rs. 25,86,97,917/- shall be carried forward. Issue necessary forms, charge interest as per law. The penalty proceedings u/s 271(1)(c) of the I.T. Act are being initiated separately for furnishing inaccurate particulars of income. Assessed. Issue demand notice. (Abhinav Agnihotri) Asstt. Commissioner of Income Tax, Circle- 2(1), Chandigarh 11.1 A perusal of the above would indicate that the difference in the value for the purpose of deemed sale consideration is Rs.10,13,136/-. It’s difference is less than 10% of the total sale consideration disclosed by the assessee vis-à-vis , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 14 determined by the DVO, therefore, as per first proviso of Section 43(1), addition does not call for. Accordingly, this addition is also deleted and we allow the appeal of the assessee.
Now we proceed to take both the appeals of the Revenue together. The Revenue has taken four grounds of appeal
in each assessment year. Its grievance revolves around a single issue, namely, CIT(A) has erred in deleting the addition of Rs.4,91,74,146/- and Rs.3,39,82,642/- made on account of treating the interest expenses paid on conversion charges to Chandigarh Administration for change of land user as revenue expenditure. As observed earlier, assessee has purchased 20.16 acres of industrial land from M/s Pfizer Ltd. The assessee company has obtained approval from Chandigarh Housing Board. It was required to pay Conversion Fees of Rs.185.45 Cr, ten percent was to be paid as down payment and remaining over a period of nine years on equated annual instalments with interest @ 8.25%. The assessee company has paid Rs.18,54,54,744/- as down payment on 17.03.2007 and balance was payable in nine equated annual instalments , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 15 together with interest, commencing from March 26, 2008. The assessee has treated the interest pertaining to the construction period as pre-operative expenditure till Completion Certificate of Mall, office and service building was granted. It has capitalized the alleged interest as per proviso to Section 36(1)(iii) of the Income Tax Act. When the Shopping Mall is put to use, then interest expenditure has been claimed as a revenue expenditure. The AO did not allow the claim of the assessee, however, on appeal, CIT(A) has allowed such claim. The discussion made by the CIT(A) in para 5.2 read as under : “5.2 Held : I have perused the order of the Assessing Officer and examined the reply of the assessee. Brief Facts of the case are that the appellant company has purchased 20.16 acres of industrial land from M/s Pfizer Limited in Chandigarh. It has obtained approval from Chandigarh Housing Board (CHB) vide letter No.CHB/CEO/Land Use/2006/4855 dated 26.03 2007 for conversion of land from Industrial use. The conversion fee of Rs. 1,85,45,47,440/- is payable by way of 10% of conversion fee as down payment and remaining over a period of 9 years in equated in annual installments together with Interest @8.25% p.a. It has paid Rs. 18,54,54,7'441- as down payment on March 17, 2007 and balance of Rs. 1,66,90,92,696/- is payable in nine equated annual installments together with Interest commencing from March 26, 2008. It has capitalized the conversion fee payable as cost of land creating a deferred conversion fee liability. The interest pertaining to the construction period was treated as pre-operative expenditure till Completion Certificate of Mall Office & Service Building and Capitalization as per proviso to section 36(1)(iii) of the Act. Meaning thereby the company has capitalized the interest upto 15-03-2013 i.e. till the date on which asset was put to use. Interest upto 14-03-2013 after getting Completion Certificate on 22-01-2013 was 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 16 capitalized as pre-operative expenses as per proviso to section 36(1)(iii) and w.e.f. 15.03.2013 was claimed as revenue expenditure as per section 36(1)(iii) of Act being assets put to use. This position was accepted by the AO in the assessment made u/s 143(3) of the Act for AY 2013-14. In the present financial year, interest on conversion fee was Rs.5,69,00,665/- ,out of this Rs.4,91,74,146/- pertains to Assets put to use (Mall, Office & Service building) is claimed as revenue expenditure as per section 36(1)(iii) of Act and Rs.77,26,519/- pertains to Hotel Building was capitalized under pre-operative expenditure as per proviso to section 36(1)(iii) of Act. AO has held that even interest expenditure incurred towards payment of conversion fee paid by the appellant would give enduring benefit in all the subsequent years and has treated the same as capital expenditure. 5.2.1. In 2005 the Chandigarh Administration notified that the business on the industrial site should be the same for which the site had been allotted. If otherwise then the land use should be changed from industrial activity for commercial activity. This issue of interest paid on installment of CLU Charges has also come for adjudication at different judicial forum. The Hon'ble ITAT, Chandigarh Bench in the case of Sanjay Dahuja vs. ACIT in IT A Nos. 95 & 96/Chd/2017 has held that the payment of interest on conversion charges after land was first put to use for conducting commercial activities shall not form part of the actual cost of such land. The Hon'ble ITAT Delhi Bench 'E' in the case of Deputy Director of Income Tax v. Micron Instruments (P) Ltd T20151
38. ITR (T) 242 (Delhi Tri.) has taken the same view on identical facts. Moreover, my predecessor, recently in the case of Sh. Vijay Passi for AY 2013-14 dated 07.02.2017 has taken the same view by holding as under: 4.5 The facts of this case are identical to the facts of the case of M/s Micron Instruments (supra). The appellant has been running the business since long and Chandigarh Administration came out with a scheme for payment of conversion charges for change of land use from industrial to commercial vide which the appellant was required to pay charges as per notification in September 2005. The appellant capitalized the conversion charges and claimed the interest payment as revenue expense. The 'character of the expense has to be construed from the nature of the transaction. The Ld. CIT(A), Chandigarh in the case of M/s Leela Mercantile (supra) has discussed that the interest would partakes the character of the principal amount. It would have been the case if the business of the appellant was yet to commence. If any expense including interest is incurred for acquisition of a new asset, it has , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 17 to be capitalized till the asset has been put to use or the business is yet to commence and thereafter (after it is put to use or business has commenced) treated as a revenue expense. In this case, it is pertinent to note that the business of the appellant of the appellant is in existence and running. Therefore, interest payment would be a revenue expense. Hence, the addition made by the Assessing Officer is deleted and ground of appeal No. 2 is allowed." 5.2.2. The facts of the instant case are identical and the asset in question had been put to use, there is no occasion to treat interest as capital expenditure. AO is directed to delete the addition. The Ground of Appeal No.1 is allowed.”
13. With the assistance of ld. Representative, we have gone through the record carefully. It is pertinent to note that asset in the case of the assessee was put to use on 14.03.2013. Till the Shopping Mall was under construction and asset was not put to use, assessee has capitalized this expenditure but the asset has been put to use. As per Section 36(1)(iii) of the Act, it is allowable as a revenue expenditure. The ld. CIT(A) has made an elaborate discussion in the finding extracted supra. It has followed the order of the ITAT in the case of Vijay Passi ITA No.255/2015-16. The ld. CIT(A) has also referred other judgements in the above finding (paragraph 5.2.1). Thus, we find that view taken by the ld. CIT(A) is in consonance with the proposition laid down by the ITAT as well as in consonance to Section 36(1)(iii) of the Income Tax Act. No interference is , 132, 146,147/CHD/2020 A.Y.2014-15 & 2015-16 18 called for. Accordingly, the appeals of the Revenue are dismissed in both the years.
In the result, both the appeals of the assessee are allowed and that of the Revenue are dismissed. Order pronounced on 28.05.2025.