AMANORA FUTURE PVT. LTD,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 1(1), PUNE

PER R.S.SYAL, VP : These two cross appeals – one by the assessee and other by the

Revenue - arise out of the order passed by the ld. CIT(A) on

22.09.2020 in relation to the assessment year 2015-16.

2 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

AR did not raise any objection to the condonation of the delay. The

delay is hereby condoned and the appeal is admitted for hearing.

engaged in the business of real estate development. A return was

filed declaring total income of Rs.26.93 crore. The assessee reported

certain international transactions and Specified Domestic

transactions (SDTs) in Form No. 3CEB. The Assessing Officer

(AO) made a reference to the Transfer Pricing Officer (TPO) for

determining the Arm’s Length Price (ALP) of the transactions.

Currently, we are concerned with the international transaction of

payment of interest on CCDs paid to IIRF Cyprus V. Holding

Limited and the Specified Domestic transaction of payment of

interest on debentures to M/s. City Corporation Limited amounting.

The assessee applied the Comparable Uncontrolled Price (CUP)

method to demonstrate that the international transaction and the

SDT were at ALP. The TPO observed that the assessee, in fact,

availed funds from its related concerns as share capital but wrongly

classified them as debentures/CCDs for claiming interest deduction.

Relying on his decision for the A.Y. 2013-14, the TPO finally held

that such financing by the related concerns was a shareholders’

3 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

activity. He, thus recharacterized the transactions of issue of

debentures/CCDs to those of issue of equity shares and held that no

interest payment was called for. That is how, he determined Nil

ALP of the transactions and accordingly proposed transfer pricing

adjustment of Rs.18,12,37,000/-. The AO made such an addition,

which came to be deleted by the ld. CIT(A), who also directed the

TPO to verify certain facts regarding the ALP determination of the

interest on debentures/CCDs paid by the assessee at 17.5% and

restrict the addition to 1.13% in a certain eventuality. Both the sides

have come up in their respective appeals before the Tribunal.

through the relevant material on record. The first ten grounds of the

Revenue’s appeal are against the ld. CIT(A) accepting the

transaction of issuance of debentures/CCDs as genuine and

reversing the AO’s view of re-characterising the same to that of

issue of equity. The assessee’s ground no.1 is against the direction

given by the ld. CIT(A) in restricting the transfer pricing addition on

account of payment of interest on debentures/CCD at 1.13% of the

amount borrowed, after verification.

of these grounds are similar to those of the A.Y. 2014-15. The cross

4 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

appeals for the preceding year were simultaneously heard. In fact,

no fresh arguments were advanced for the year under consideration

and both the sides adopted their respective arguments made for the

immediately preceding year. We have discussed this issue in our

separate order passed for the assessment year 2014-15. Following

the same, we accord our imprimatur to the ld. CIT(A)’s view on

reversing the AO’s action of re-characterizing the transactions of

issue of debentures/CCD to the issue of equity. We also remit the

matter of re-determination of the ALP of the transaction to the file

of AO/TPO. In view of the remission of the matter for re-

determination of the ALP, the assessee’s grievance has become

infructuous.

of the ld. CIT(A) to treat Marg Limited as a comparable company.

four more specified domestic transactions, in addition to interest on

debentures/CCDs, viz., Payment of services - Rs.11,30,74,180/-;

Purchase of goods - Rs.23,89,120/-; Purchase of land -

Rs.2,62,98,970/-; and Reimbursement of expenses - Rs.53,92,920/-.

These four transactions were aggregated and the Transactional Net

Margin (TNM) method was applied for claiming them at the ALP.

5 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

The TPO restricted the list of comparables of the assessee and

recomputed the ALP at a higher level, which resulted in

recommending a transfer pricing adjustment of Rs.10,51,97.830/-.

The ld. CIT(A) directed to include Marg Limited in the list of

comparables, against which the Revenue has come up in appeal

before the Tribunal.

material on record, we find that there is no dispute on any other

issue of the ALP determination of these transactions except the

direction of the ld. CIT(A) for including Marg Ltd. in the list of

comparables. He held that “this company is in the business of real

estate that includes both residential and commercial sector”. We

find from the Annual report of this company, a copy of which has

been placed at page 229 onwards of the paper book, that it is

engaged in Port business, Real estate residential, Real estate

commercial apart from Others. Stand alone financial statements

from the Real estate business are available. `Income from

operations’ has been shown at Rs.168.18 crore, whose bifurcation

has been given in Note. 20, which includes `Income from

projects/operations’ at Rs.154.83 crore and `Income from leasing’ at

Rs.13.35 crore. There is no separate segmental information

6 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

available regarding the stream of income from projects/operations.

Since the income from the stream of leasing is also a part of the

income from projects and no separate segmental details qua the

income from projects stream are available, we are unable to approve

the inclusion of this company in the list of comparables.

Overturning the impugned order, we direct to exclude it from the

list of comparables.

same is, therefore, dismissed as ‘not pressed’.

confirmation of disallowance of Rs.9,18,700/- u/s.43CA of the

Income-tax Act, 1961 (hereinafter also called `the Act’).

assessee to furnish a list of flat sales booked during the year under

consideration along with the details of parties where the sale

consideration was less than the stamp value. The assessee furnished

such an information. Invoking the provisions of section 43CA of

the Act in respect of one transaction where the difference in the

agreed value and the stamp value was 7.24%, the AO added

Rs.9,18,700/- to the total income. The ld. CIT(A) echoed the

assessment order on this score.

7 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

section 43CA inserted by the Finance Act, 2013 w.e.f. 01-04-2014,

which is a special provision deeming stamp value as the full value

of consideration in the case of transfer of land or building or both

held as stock in trade, where the stamp value is higher than the

transacted value. Sub-section (1) of this section provides 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

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”. In this case, the agreed value of one unit

sold by the assessee is Rs.1,26,88,900/- as against its stamp value at

Rs.1,36,07,600/-. This is how, the differential amount of

Rs.9,18,700/- was added to the assessee’s total income as per the

prescription of section 43CA(1) of the Act.

section 43CA was inserted by the Finance Act, 2018 w.e.f. 01-04-

8 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

2019 providing 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’. It is

palpable that the rigor of section 43CA has been slackened by the

first proviso inserted by the Finance Act, 2018 providing that where

the stamp value does not exceed by 5% of the agreed sale

consideration, only the transacted value should be considered as full

value of consideration. The Memorandum explaining the

provisions of Finance Bill, 2018, at the time of insertion of the first

proviso, reads as under:

“Rationalization of section 43CA, section 50C and section 56. At present, while taxing income from capital gains (section 50C), business profits (section 43CA) and other sources (section 56) arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted. The difference is taxed as income both in the hands of the purchaser and the seller.

It has been pointed out that this variation can occur in respect of similar properties in the same area because of a variety of factors, including shape of the plot or location. In order to minimize hardship in case of genuine transactions in the real

9 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

estate sector, it is proposed 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 percent of the sale consideration.

These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.”

legislature recognised difficulties in the implementation of section

43CA inasmuch as the variation in the stamp value and the

transacted value may sometimes genuinely arise because of a

variety of reasons. In order to relax such a hardship in case of

genuine transactions of sale, it was decided to take no punitive

action of enhancing the full value of consideration where the

difference between the stamp value and the sale consideration did

not breach 5% band.

proviso to section 43CA has been inserted by the Finance Act,

2018. Under such circumstances, a question arises if the assessee

can avail the benefit of the proviso which was inserted w.e.f. 01-04-

2019 and further relaxed w.e.f. 01-04-2021? At this juncture, it is

relevant to note the judgment of Hon’ble Supreme Court in a

Constitution Bench decision in CIT Vs. Vatika Township Pvt. Ltd.

10 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

(2014) 367 ITR 446 (SC) in which the prospective or retrospective

application of the provisions has been extensively dealt with by

holding that a legislation is ordinarily presumed to be prospective

unless contrary intention appears. It further went on to hold that:

`where a benefit is conferred by legislation, the rule against a

retrospective construction is different. If legislation confers a benefit

on some persons but without inflicting a corresponding detriment on

some other person or on the public generally and where to confer

such benefit appears to have been the legislators object, then the

presumption would be that such legislation, giving it a purposive

construction, would warrant it to be given a retrospective effect.

This exactly is the justification to treat procedural provisions as

retrospective.’

backdrop of the memorandum explaining the provisions read in

conjunction with Vatika Township Pvt. Ltd. (supra), it becomes

graphically clear that the insertion of the proviso, which has been

provided to mitigate the hardship in the case of genuine real estate

transactions, should be held as retrospective. Here is a provision

which has been inserted to confer a benefit on some persons (where

the difference in two values is less than 5%) but without inflicting a

11 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

corresponding detriment on some other person or on the public

generally and the legislator’s object is clearly to confer such benefit.

It would be a clear case of travesty of the provision, if in two

parallel cases before the Tribunal involving such issue – one for the

A.Y. 2015-16 as is the case under consideration and another for the

A.Y. 2019-20 - the benefit of proviso is conferred in the case for the

A.Y. 2019-20 and is denied in the other case for the A.Y. 2015-16.

That is the raison d`etre for treating the proviso retrospective

notwithstanding the fact that it has been expressly made applicable

from the A.Y. 2019-20.

amendment was carried out by the Finance Act, 2020 w.e.f. 01-04-

2021 to the first proviso to section 43CA by substituting the word

`one hundred and ten per cent of the consideration’ with `one

hundred and five per cent of the consideration’. The relevant part of

Memorandum explaining the provisions of Finance Bill, 2020 in

this regard reads as under:

“Increase in safe harbour limit of 5 per cent. under section 43CA, 50C and 56 of the Act to 10 per cent.. Section 43CA of the Act, inter alia, provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (i.e. “stamp valuation authority”) for the purpose

12 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall for the purpose of computing profits and gains from transfer of such assets, be deemed to be the full value of consideration. The said section also provide 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. ….. Thus, the present provisions of section 43CA, 50C and 56 of the Act provide for safe harbour of five per cent.

Representations have been received in this regard requesting that the said safe harbour of five per cent may be increased. It is, therefore, proposed to increase the limit to ten per cent. This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.”

transpires that complications were being faced with five per cent

safe harbour limit in cases of genuine sale of land, building or both

held as stock in trade, for which representations were made to the

Government. Realizing the difficulty, the Parliament stepped in and

enhanced the safe harbour limit from 5% to 10% in the first proviso

to section 43CA. Even though this amendment has been made

effective from 01-04-2021 and has been stated to apply in relation

to assessment year 2021-2022 onwards, but the same being a

13 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

beneficial provision aimed at mitigating hardship to the assessees

making genuine sale transactions at a rate in variance with the stamp

value, the same has also to be held as retrospective in the light of

the Constitution Bench judgment of the Hon’ble Supreme Court in

Vatika Township (supra).

difference between the stamp value and sale consideration is up to

ten per cent, such a difference is liable to be ignored and cannot be

brought within the ken of section 43CA(1). Adverting to the facts

of the instant case, we find that the difference between the stamp

value and the sale consideration is 7.24%. Such a difference, being

less than 10%, is liable to be ignored in terms of the amended

proviso to section 43CA of the Act. We, therefore, direct to delete

the addition of Rs.9,18,700/- sustained in the first appeal.

confirmation of addition of Rs.3,03,72,733/-. The factual panorama

of this ground is that the assessee paid interest on debentures/CCDs

to its AE for the assessment year 2013-14. The TPO determined Nil

ALP. When the matter came up before the ld. CIT(A), the assessee

contended that the interest cost of Rs.14.20 crore was taken to

work-in-progress and not claimed as deduction. Albeit the ld.

14 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

CIT(A) approved the ALP determination, but also accepted the

assessee’s alternative argument. He directed the AO that whenever

the assessee claims deduction against this work-in-progress, the

interest component for the assessment year 2013-14, whose ALP

was determined at NIL, should be added back to the total income.

Following the same, the AO added Rs.3.03 crore to the total income

of the assessee for the year under consideration representing interest

expenditure on debenture/CCDs booked for the assessment year

2013-14. The ld. CIT(A) approved the AO’s action.

material on record. It is seen that for the assessment year 2013-14

the Tribunal vide its order dated 18-12-2020 (ITA

No.772/PUN/2018) has overturned the view of the ld. CIT(A) and

held that the re-characterization of transaction of issue of

debentures/CCDs to issue of equity capital was not correct and

accordingly directed the AO/TPO to re-work out the ALP of the

transaction of interest payment. In that view of the matter, the

direction given by the ld. CIT(A) for the A.Y. 2013-14 stands

substituted with that of the Tribunal for re-determining the ALP of

the transaction of payment of interest on debentures/CCD. Since the

assessee capitalized interest on debentures/CCDs in its WIP for the

15 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

assessment 2013-14, it is but natural that when the work-in-progress

is reversed in the subsequent years at the time of sale of flats/plots,

the corresponding amount of excess interest on debentures/CCDs,

over and above its ALP, needs to be reversed and added back to the

income of that year. To exemplify, if the WIP stood at Rs.1000 as

on 31.3.2013 which included interest of Rs.100 paid on

debentures/CCDS and pursuant to the directions given by the

Tribunal, the ALP of interest payment is re-determined at Rs.75/-.

In that case, the differential amount of Rs.25/- (Rs.100 minus

Rs.75) is required to be added back proportionately to the total

income as and when the corresponding amount of the work-in-

progress is reversed on the sale of flats/plots etc. We, therefore,

overturn the impugned order on this score and hold that the amount

of capitalized interest on debentures/CCDs to the work in progress

for the assessment year 2013-14, as is in excess of its ALP freshly

determined by the AO/TPO, should be disallowed proportionately

in the years in which the work-in-progress containing the amount of

such interest standing as on 31-03-2013, is reversed on the sale of

flats/plots.

Education Cess and Secondary and Higher Secondary Cess

16 ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

amounting to Rs.26,66,359/- while computing the total income of

the assessee company.

assessment year 2014-15 wherein a direction has been given to the

AO for ascertaining the correct amount of education cess and then

allowing a deduction for it, after allowing opportunity of hearing to

the assessee. Same view is followed for the year under

consideration and the AO is also directed accordingly.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 17th August, 2021 सतीश आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent; 2. 3. The CIT(A)-13, Pune 4. The PCIT-5, Pune 5. DR, ITAT, ‘C’ Bench, Pune गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA No.619/PUN/2020 and ITA No. 45/PUN/2021 M/s. City Corporation Ltd.,

Date 1. Draft dictated on 16-08-2021 Sr.PS 2. Draft placed before author 17-08-2021 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *