1. Introduction

The case of Shri Harish H Gandhi vs. ACIT (ITA No.1244/Mum/2019 & ITA No.2603/Mum/2019) adjudicated by the Income Tax Appellate Tribunal (ITAT), Mumbai, on June 28, 2022, serves as a significant precedent in the realm of income tax law, particularly concerning the application of Section 43CA of the Income Tax Act, 1961. The appellant, Shri Harish H Gandhi, a property developer, contested the addition made by the Assessing Officer (AO) based on discrepancies between the sale consideration and the stamp duty value of a property transaction.

2. Summary of the Judgment

The central issue in this case was whether the AO was justified in making an addition under Section 43CA amounting to ₹4,42,460 due to the difference between the stamp duty value (₹66,97,460) on the date of allotment (February 2011) and the actual sale consideration (₹62,55,000) recorded in the sale deed dated February 22, 2014.

The appellant argued that Section 43CA was not applicable at the time of allotment in 2011 and highlighted a proviso introduced by the Finance Act 2018, subsequently amended by the Finance Act 2020, which allows a 10% tolerance band for differences between stamp duty value and sale consideration. The Tribunal held that this proviso applied retrospectively and that the difference in the present case fell within the permissible 10% threshold, thereby quashing the addition made by the AO.

Consequently, both appeals filed by the appellant were allowed, setting a precedent for similar cases where the difference between stamp duty value and sale consideration is within the stipulated tolerance band.

3. Analysis

3.1. Precedents Cited

The Judgment referenced the Co-ordinate Bench decision in Maria Fernandez Cheryl vs. ITO reported in 123 Taxmann.com 252. In that case, the Tribunal held that amendments introducing a tolerance band in Section 50C(1) of the Act were retrospectively applicable from April 1, 2003, when Section 50C was introduced. The current case analogously applied this reasoning to Section 43CA, given the similar language and intent in both sections.

3.2. Legal Reasoning

The Tribunal meticulously examined the timeline of the property transaction. Although the sale deed was executed in February 2014, the initial allotment and acceptance of the advance payment occurred in February 2011. The AO correctly referred to the stamp duty value prevailing at the time of allotment. Importantly, the Tribunal recognized the retrospective applicability of the Finance Acts of 2018 and 2020, which amended Section 43CA to include a 10% tolerance band.

By applying the proviso of these amendments, the Tribunal concluded that the ₹4,42,460 addition constituted less than a 10% difference between the stamp duty value and the reported sale consideration. Therefore, no addition was warranted under Section 43CA.

3.3. Impact

This Judgment has substantial implications for property developers and taxpayers engaged in real estate transactions. It clarifies that when discrepancies between stamp duty valuations and sale considerations fall within a 10% margin, additions under Section 43CA may not be levied. Additionally, the retrospective application of the Finance Act amendments provides clarity and predictability, ensuring that past transactions are evaluated consistently with current legal standards.

4. Complex Concepts Simplified

5. Conclusion

The ITA Mumbai's decision in Shri Harish H Gandhi vs. ACIT significantly impacts the enforcement of Section 43CA regarding property transactions. By upholding the retrospective applicability of the 10% tolerance proviso, the Tribunal provided relief to taxpayers by mitigating the rigid application of earlier provisions. This Judgment not only underscores the importance of understanding legislative amendments but also ensures that taxpayers are not unduly penalized for minor discrepancies in property valuations.

Legal practitioners and property developers must take note of this precedent, as it offers a clearer framework for compliance and potential tax planning in real estate dealings.