AAESHKA RIDDHI REALTY,MUMBAI vs. CIT(A)-NFAC - ITO-19(1)(1), MUMBAI

PER SANDEEP SINGH KARHAIL, J.M.

impugned order dated 26/07/2024 passed under section 250 of the Income

Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax

(Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the

assessment year 2016-17.

“1) In the facts and circumstances of the case, the Assessment Unit-NFAC has erred in making an addition of Rs.7,37,505/- even though the difference

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between the market value as per Stamp Duty Authority and Agreement value was 3.79 percent. 2) In the facts and circumstances of the case the Assessment Unit-NFAC has not considered the amendment brought in by the Finance Act, 2018 which provided for relief of 5% between the SDA value and Agreement value which was applicable retrospectively and not prospectively as held by several Income Tax Appellate Tribunals. 3) In the facts and circumstances of the case and in law, National Faceless Appeal Centre/ CIT(A) has passed the ex-parte order on 26/07/2024 in haste without giving any opportunity of hearing. The notice dated 06/06/2024 was not received and the notice dated 11/07/2024 sent by NFAC has gone to the spam folder and hence could not be responded to. Adjournment to the third notice dated 19/07/2024 could not be sought on account of C.A. being caught up with return filing deadline. 4) In the facts and circumstances of the case and in law, National Faceless Appeal Centre/ CIT(A) erred in confirming the action of the Assessment Unit- NFAC in making an addition of Rs.7,37,505/-despite the fact that the difference between agreement value and stamp duty value was within the permissible limits laid down. The action of the Ld.CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the entire addition made by Ld. AO(NFAC) and confirmed by Ld.CIT(A)-NFAC. 5) The assessee craves leave to add/alter any grounds of appeal before or at the time of hearing.”

material available on record. The brief facts of the case pertaining to the

aforesaid issue are that the assessee is a firm and for the year under

consideration filed its return of income on 07/10/2016 declaring a total

income of ₹ 96,74,010. The return filed by the assessee was selected for

scrutiny under section 147 of the Act on the basis of the information that as

per the agreement registered, the sale value of the property is ₹

1,87,02,500, whereas the market value as per the Stamp Duty Authority is

₹ 1,94,40,006. Therefore, provision of section 50C/43CA/56(2)(vii) of the

Act is attracted in this case on an amount of ₹ 7,37,505, being the

difference between the sale consideration and the stamp duty value of the

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said property. During the assessment proceedings, the assessee was asked

regarding the aforesaid difference. In response to the notice issued, the

assessee submitted its written submission along with financial statements,

computation of income, audit report, the copy of the acknowledgement of

ITR filed in response to the notice issued under section 148, Form No. 26AS,

a copy of sale deed, and ledger account. During the assessment

proceedings, the notice was issued to the assessee to show cause as to why

the provisions of section 43CA of the Act be not applied and the amount of ₹

7,37,505 in respect of the sale of immovable property be not added to the

total income of the assessee. In the absence of any response from the

assessee with respect to the show cause notice, the Assessing Officer (“AO”)

vide order dated 16/05/2023 passed under section 147 r/w 144B of the Act

held that the provisions of section 43CA of the Act are attracted in respect of

the amount of ₹ 7,37,505 being the difference between the sale

consideration and the stamp duty value of the said property.

appeal filed by the assessee and confirmed the addition of ₹ 7,37,505 made

by the AO by applying the provisions of section 43CA of the Act. Being

aggrieved, the assessee is in appeal before us.

provisions of section 43CA of the Act, as existing during the year under

consideration, and the same reads as follows: –

“Special provision for full value of consideration for transfer of assets other than capital assets in certain cases. 3

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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 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.

(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).”

sale consideration of any immovable property, being land or building or

both, is less than the value adopted by the authority of the State

Government for the purpose of payment of stamp duty, then the value so

adopted by the authority of State Government shall be deemed to be the full

value of consideration received for computing the profits and gains from

transfer of such asset.It is pertinent to note that vide Finance Act, 2018 first

proviso was inserted to section 43CA(1) of the Act, w.e.f. 01/04/2019, which

reads as follows: –

“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.”

w.e.f. 01/04/2019, if the value adopted by the authority for the payment of

stamp duty is not more than 5% of the consideration received as a result of

transfer of the immovable property, then the consideration so received shall

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be deemed to be the full value of consideration for the purpose of computing

the profits and gains from transfer of such assets.

section 43CA(1) of the Act was again amended, and the tolerance limit was

increased from 5% to 10% of the consideration. Accordingly, it is evident

that as per the amended provisions of section 43CA(1) of the Act, since the

excess of stamp duty value over the sale consideration, i.e. ₹ 7,37,505 is

less than the 5% of the sale consideration, i.e. ₹ 9,35,125, therefore the

provisions of section 43CA of the Act are not applicable. As per the learned

DR, the amendment mentioned above does not apply to the year under

consideration, i.e. the assessment year 2016-17 and is prospective in its

application.

Cheryl v/s ITO, reported in [2021] 123 taxmann.com 252 (Mum.-Trib) held

that amendment made in scheme of section 50C(1), by inserting third

proviso thereto and by enhancing tolerance band for variations between

stated sale consideration vis-à-vis stamp duty valuation from 5% to 10%

are effective from the date on which section 50C, itself was introduced, i.e.

1-4-2003. The relevant findings of the coordinate bench, in the decision

mentioned above, are reproduced as follows: –

“7. These submissions, however, do not impress us. As noted by the Central Board of Direct Taxes circular # 8 of 2018, explaining the reason for the insertion of the third proviso to Section 50C(1), has observed that "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 the shape of the plot or location". Once the CBDT itself accepts that these variations could be on 5

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account of a variety of factors, essentially bonafide factors, and, for this reason, Section 50C(1) should not come into play, it was an "unintended consequence" of Section 50(1) that even in such bonafide situations, this provision, which is inherently in the nature of an anti-avoidance provision, is invoked. Once this situation is sought to be addressed, as is the settled legal position- as we will see a little later in our analysis, this situation needs to be addressed in entirety for the entire period in which such legal provisions had effect, and not for a specific time period only. There is no good reason for holding the curative amendment to be only as prospective in effect. Dealing with a somewhat materially identical situation in the case of Rajeev Kumar Agarwal v. Addl. CIT [2014] 45 taxmann.com 555/149 ITD 363 (Agra) wherein a coordinate bench was dealing with the question whether insertion of a proviso to Section 40(a)(i) to cure intended consequence could have retrospective effect, even though not specifically provided for, and speaking through one of us (i.e. the Vice President), the coordinate bench had, after a detailed analysis of the legal position, observed that, "Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced". Referring to this decision, and extensively reproducing from the same, including the portion extracted above, Hon'ble Delhi High Court, in the case of CIT v. Ansal Landmark Township (P.) Ltd. [2015] 61 taxmann.com 45/234 Taxman 825/377 ITR 635 (Delhi), has approved this approach and observed that "the Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance". The same was the path followed by another bench of this Tribunal in the case of DharamashibhaiSonani v. Asstt. CIT [2016] 75 taxmann.com 141/161 ITD 627 which has been approved by Hon'ble Madras High Court in the judgment reported as CIT v. VummudiAmarendran [2020] 120 taxmann.com 171/429 ITR 97]. The question that we must take a call on, therefore, is as to what is the rationale behind the insertion of the third proviso to section 50C(1), and if that rationale is to provide a remedy for unintended consequences of the main provision, we must hold that the third proviso to section 50C(1) comes into force with effect from the same date on which the main provision, unintended provisions of which are sought to be nullified, itself was brought into effect. Let us understand what the nature of the provisions of section 50C is. In terms of this provision, if the property is sold below the stamp duty valuation rate, which is often called circle rate, this stamp duty valuation report is assumed as sale consideration for the property in question, and, accordingly, capital gains tax is levied. This deeming fiction to substitute apparent sale considerations by notional consideration computed on the basis of a stamp duty valuation rate, was thus to address the issue with respect to potential evasion of taxes by understating the sale consideration amount in a sale deed. As noted by the CBDT, while explaining the justification for insertion of section 50C, "(t)he Finance Act, 2002, has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of 6

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immovable property". Section 50C, thus, on a conceptual note, is a provision to address capital gains tax evasion on account of understatement of the consideration. Of course, the law provides, under section 50C(2), that wherever an assessee claims that the actual market rate is less than the stamp duty valuation, he can have the matter referred to a Departmental Valuation Officer for the ascertainment of the market value, but then it is a cumbersome procedure and, at the end of the day, every valuation, whether by the departmental valuation officer or under the stamp duty valuation notification, is an estimate, and there can always be bonafide variations, though to a certain limited extent, in these estimations. Unless, therefore, some kind of a tolerance band or a safe harbour provision, in respect of such bonafide variations, is implicit in the scheme of law, the assessees are bound to face undue hardships. The mechanism under section 50C proceeds on the assumption that when the sale consideration is less than the stamp duty valuation, the sale consideration is to be treated as understated. This assumption is, however, laid to rest when the variations between the stated consideration and the stamp duty valuation figure are treated as explained. 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 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 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 7

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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 time frame 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, 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.

Associates (P.) Ltd. v. Dy. CIT,in IT Appeal No. 1941/Kol/2019, vide order

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dated 25/08/2021, following the aforementioned decision in Maria Fernandes

Cheryl (supra), observed as follows: –

“As has been aptly explained above, the rational for holding newly inserted proviso to sub-section (1) to section 50C of the 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."

of the Tribunal cited supra, since in the present case, excess of stamp duty

value over the sale consideration is less than 5% of the sale consideration,

we are of the considered view that the provisions of section 43CA of the Act

are not applicable to the present case. Since on this short ground only the

assessee is entitled to relief, the other contentions raised in the present

appeal become academic at this stage and therefore are left open. Thus, the

addition made under section 43CA of the Act is deleted. As a result, the

impugned order is set aside and grounds raised by the assessee are allowed.

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Order pronounced in the open Court on 20/09/2024

Sd/- Sd/- AMARJIT SINGH SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 20/09/2024

Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order

Assistant Registrar ITAT, Mumbai