1. [2019] 108
taxmann.com 195 (Mum. – Trib.) Shree Laxmi Estate (P.) Ltd. vs. ITO ITA No.:
798/Mum/2018 A.Y.: 2014-15 Date of order: 5th July, 2019
Section 43CA
applies only when there is transfer of land or building or both – In a previous
year, when an assessee engaged in the business of construction of a commercial
project entered into agreements to sell flats / offices (which were under
construction) and there was no transfer of any land or building or both in
favour of buyers, provisions of section 43CA would not apply
FACTS
The assessee,
engaged in the construction of a commercial project following the project
completion method of accounting, entered into seven agreements to sell flats /
offices. In each of these cases there was a huge difference between the
consideration as per the agreement entered into by the assessee and the stamp
duty value of the units agreed to be sold. Further, there were a further seven
agreements entered into during the previous year in respect of which the
allotments were made prior to 31st March, 2013. In these seven cases
also there was a huge difference between the agreement value and stamp duty
value.
The AO asked
the assessee to explain the difference between the agreement value and the
stamp duty value. In response, the assessee submitted that the two values were
different because (i) the stamp valuation authorities have charged stamp duty
by considering the project to be situated in an area different from the area
where the project is situated; (ii) in respect of seven agreements which were
registered during the year but the allotments were made in the earlier year,
the stamp duty value was greater because the allotments were made in an earlier
year whereas the stamp duty was levied on the basis of value prevailing on the
date of registration; (iii) the sale value of properties is based on various
market conditions, location, etc., whereas the stamp duty valuation is based on
thumb rule without taking into account various market conditions, location,
etc.
For these
reasons, the assessee pleaded, the agreement value is the correct value and the
buyers were not willing to make any payment over and above the amount stated in
the agreement. The assessee pleaded that in the alternative the provisions be
made applicable in A.Y. 2015-16 when, following the project completion method,
the assessee has offered profits for taxation. The AO added a sum of Rs.
3,41,41,270 being the difference between stamp duty value and the agreement
value of all the 14 flats to the total income of the assessee.
Aggrieved, the
assessee preferred an appeal to the CIT(A) who upheld the action of the AO. He
then preferred an appeal to the Tribunal.
HELD
The Tribunal
noted that during the year under consideration the assessee had not reported
any sales of units since it was following the project completion method. The
project under consideration was completed and profits offered for taxation in
A.Y. 2015-16 by considering agreement value as sale consideration. The Tribunal
observed that it is not in dispute that the assessee had not sold any land or
building or both in respect of any of the units during the year under appeal.
The assessee had only registered the agreement during the year under appeal
wherein it is clearly stated that the subject mentioned property was still
under construction and that the ultimate flat owners shall allow the assessee
to enter upon the subject premises to complete the construction of the flats as
per the said agreement which was subject matter of registration with the stamp
duty authorities. The Tribunal held that what was registered was the ‘property
under construction’ and not the ‘property’ per se. Therefore, the question
was whether in these facts the provisions of section 43CA could at all be
applied.
Observing that the provisions of section 43CA are applicable only when
there is transfer of land or building or both, the Tribunal stated that in the
present case neither of these had happened pursuant to the registration of the
agreement. In respect of the seven allotments made prior to 31st March,
2013, the Tribunal observed that the assessee and the prospective purchaser had
specifically agreed that till such time as the agreement to sell is executed
and registered, no right is created in favour of the purchaser and that
allotment is only a confirmation of booking subject to execution of the
agreement which is to be drafted at a later point of time. The said allotment
letter also specifies that the relevant office has been allotted to the buyer
with the rights reserved to the assessee to amend the building plan as it may
deem fit and that the buyer is bound to accept unconditionally and confirm that
any kind of increase or decrease in the area of the said office or shift in the
position of the said office, due to amendment in plan, etc., and in case of
variation of the area, the value of the office shall be proportionately
adjusted.
The Tribunal
held that, during the previous year under consideration, the construction of
the property was not completed and that the registration of the agreement
resulted in a transfer of rights in the office (which is under construction)
and not the property per se. It held that there was no transfer of any
land or building or both by the assessee in favour of the flat buyers pursuant
to registration of the agreement in the year under appeal. The Tribunal held
that the provisions of section 43CA cannot be made applicable during the year
under consideration. The Tribunal supported its conclusion by placing reliance
on the decisions of the Tribunal in the case of ITO vs. Yasin Moosa Godil
[(2012) 20 taxmann.com 425 (Ahd. Trib.)] and Mrs. Rekha Agarwal
vs. ITO [(2017) 79 taxmann.com 290 (Jp. – Trib.)].
The Tribunal
allowed the appeal filed by the assessee.
