The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has allowed an appeal filed by a real estate developer and deleted a ₹7,54,00,875 addition made under Section 43CA of the Income Tax Act, 1961, holding that the provision could not be invoked where the agreement to sell was entered into before Section 43CA came into force and substantial consideration had already been received at that time.

The bench of T. R. Senthil Kumar (Judicial Member) and Annapurna Gupta (Accountant Member) has observed that the critical consideration was not merely the date on which the formal registered document was executed, but the point at which the substantial obligations associated with the transaction had been discharged.

The issue raised was whether the stamp-duty valuation mechanism under Section 43CA, introduced by the Finance Act, 2013 with effect from April 1, 2014, could be applied to a land transaction where the agreement to sell had been executed on June 27, 2011, with substantial consideration received in advance, but the sale deeds were registered subsequently.

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The assessee was a private limited company engaged in the business of development and trading of lands and plots. 

According to the Tribunal’s order, an agreement to sell was executed on June 27, 2011. The agreement initially fixed the total consideration at ₹3.01 crore, and the assessee received substantial advance consideration through RTGS. The agreement also provided that if the balance payment was not made within six months, the sale consideration would stand reduced to ₹2.85 crore. The eventual sale deeds were registered for a total consideration of ₹2.85 crore.

The assessee’s case was that the transaction had effectively been settled in 2011 itself, when the agreement was executed and substantial consideration was received. Since Section 43CA was not part of the Income Tax Act at that point, the assessee argued that the subsequently introduced provision could not be used to substitute the agreed consideration with the stamp-duty value.

Section 43CA applies where land or building held as a non-capital asset, such as stock-in-trade, is transferred for consideration lower than the value adopted or assessed by the stamp valuation authority. In such circumstances, the stamp-duty value can be deemed to be the full value of consideration for computing business profits.

The Assessing Officer applied this provision to the three land transactions and substituted the relevant stamp-duty values for the actual consideration.

The resulting additions were:

The Tribunal recorded that the Assessing Officer relied on the DLC/stamp-duty rates applicable in the relevant context while calculating the difference between the deemed value and the actual consideration.

Before the appellate authorities, the assessee argued that Section 43CA had been introduced only with effect from April 1, 2014, whereas the agreement to sell was executed nearly three years earlier, on June 27, 2011.

It was specifically contended that approximately ₹2.41 crore had already been received in 2011 through RTGS, and therefore the transaction could not be subjected to a provision that did not exist when the substantial obligations under the agreement were undertaken.

The assessee also challenged the valuation adopted by the Assessing Officer, arguing that two of the properties were agricultural land and that the DLC rate applicable to abadi or converted land could not automatically be applied. It further argued that the matter ought to have been referred to the Departmental Valuation Officer (DVO) after the assessee disputed the stamp-duty valuation.

The Commissioner of Income Tax (Appeals), however, rejected these contentions and confirmed the additions.

The Revenue relied on the reasoning that the actual transfer of the properties took place only when the sale deeds were registered during the relevant assessment year.

The lower authorities noted that possession and other rights remained with the assessee at the time of the original agreement and that the agreement merely represented an advance payment arrangement. On that basis, they concluded that the transfer occurred when the registered sale deeds were executed, by which time Section 43CA was already on the statute book.

The CIT(A) also relied upon an earlier Jaipur ITAT decision in A. Spytech Buildcon v. ACIT, where Section 43CA had been held applicable to a transaction involving an earlier agreement and a subsequent sale deed.

The Tribunal disagreed with the lower authorities after examining the specific facts and the statutory framework.

The Bench noted that Section 43CA was introduced by the Finance Act, 2013 with effect from April 1, 2014. Sub-section (3) itself contemplated situations where the date of agreement fixing the consideration and the date of registration were different.

The Tribunal reproduced the statutory framework under Section 43CA and noted that, where the agreement date and registration date differ, the stamp-duty value on the date of the agreement can be considered, subject to the statutory conditions relating to receipt of consideration through non-cash modes.

The Bench found significance in the fact that the agreement dated June 27, 2011 had fixed the consideration and that ₹2.47 crore had been received in advance through RTGS, i.e. through a mode other than cash. The agreement also contained a mechanism under which the consideration would stand reduced to ₹2.85 crore if specified conditions were not fulfilled within six months.

A key part of the ruling was the Tribunal’s treatment of the earlier Spytech Buildcon decision relied upon by the CIT(A).

The Jaipur Bench observed that the facts of that case were materially different. In Spytech Buildcon, the assessee had failed to establish that the sale consideration had been received through account-payee cheques at the time of entering into the agreement.

The present case, according to the Bench, involved substantial consideration having already been received through RTGS pursuant to the 2011 agreement.

The Tribunal therefore held that the earlier decision had been wrongly relied upon by the CIT(A) because the factual foundation was different.

The Tribunal also examined earlier rulings dealing with analogous transitional questions under Section 50C and Section 56(2)(vii)(b).

The Bench observed that Section 50C and Section 43CA are pari materia provisions in the sense that both can substitute stamp-duty value for actual consideration where the statutory conditions are satisfied. The important distinction is that Section 50C applies to capital assets, whereas Section 43CA concerns land or building held as non-capital assets, particularly stock-in-trade.

The Tribunal considered the decision in M. Siva Parvathi & Ors. v. ITO, where the transaction had been initiated through an agreement before Section 50C was introduced, while registration occurred after the provision came into force.

That ruling had taken the view that the character of the transaction, for the purposes of the Income Tax Act, should be determined with reference to the law applicable when the transaction was initially entered into, particularly where the later registration merely fulfilled contractual obligations already undertaken.

The Jaipur Bench also referred to the principle emerging from a decision concerning Section 56(2)(vii)(b), where the purchase agreement and payment of consideration had occurred before an amendment came into force, while registration took place later.

The Tribunal noted that in such circumstances, where substantial obligations had already been discharged and substantive rights had accrued, a subsequent registration by itself did not necessarily bring the transaction within the subsequently amended statutory regime.

The Bench ultimately adopted the view that the provisions of law applicable on the date when substantial obligations under the transaction were discharged should govern the transaction.

The Tribunal expressly held that where the agreement to sell was entered into in FY 2011-12 and substantial consideration was received during that year, the law existing during that period would apply.

Since Section 43CA was not on the statute book during FY 2011-12/AY 2012-13, the provision could not subsequently be invoked merely because the sale deeds were registered in a later assessment year.

In the operative portion of the order, the Jaipur ITAT held that the invocation of Section 43CA was legally impermissible in the facts of the case.

Consequently, the Tribunal deleted the entire addition of ₹7,54,00,875 made under Section 43CA.

The assessee’s alternative plea seeking reference of the valuation issue to the DVO was not adjudicated because, after deleting the Section 43CA addition itself, the valuation issue became academic or infructuous.

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