Section 43CA does not apply in a situation where allotment letters are issued and part payments received prior to 1st April, 2013

FACTS
In the course of assessment proceedings of the assessee, carrying on the business of builders, developers and realtors, the Assessing Officer (AO) noted that there was a difference between agreement value and market value in respect of some of the properties. He issued a show cause to the assessee. In response, the assessee submitted that only in two cases the stamp duty value on the date of allotment was in excess of their respective agreement values. He further submitted that since allotment letters were issued and initial amounts received prior to coming into force of section 43CA, the provisions of section 43CA did not apply even to these two cases. To substantiate, the assessee submitted ledger copies of the buyer’s accounts and bank statements showing receipt of initial amounts from the buyer. The assessee also relied upon the decision of the Mumbai Tribunal in the case of Krishna Enterprises vs. ACIT.

The AO, not being convinced by the submissions made by the assessee, added a sum of Rs. 8,26,329 to the total income of the assessee under section 43CA.

Aggrieved, the assessee preferred an appeal to CIT(A), who confirmed the action of the AO.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD
The Tribunal noted the twin contentions of the assessee, namely that since section 43CA was introduced w.e.f. 1st April, 2013 and the agreements under consideration were entered into prior to 1st April, 2013; the provisions of section 43CA do not apply and because the difference between the ready reckoner rate and sale consideration was only 5%, the same needs to be ignored on the touchstone of the decision of the Mumbai Tribunal in the case of Krishna Enterprises vs. ACIT. The Tribunal held that the assessee succeeds on both the counts. The Tribunal set aside the orders of the authorities below and decided the issue in favour of the assessee.