Applicability of 10% tolerance u/s 43CA: ITAT allows Retrospective Benefit, Sets Aside S.263 order [Read Order]
Following Sai Bhargavnath Infra vs. ACIT and the Supreme Court principle in Vatika Township Pvt. Ltd., the ITAT held that the tolerance margin applied retrospectively.
ITAT - Retrospective Benefit - taxscan
ITAT - Retrospective Benefit - taxscan
The Pune Bench of Income Tax Appellate Tribunal ( ITAT ) allowed retrospective benefit of 10% tolerance under section 43CA of Income Tax Act,1961 and set aside the section 263 order.
Sai Essen Developers,appellant-assessee, was in the real estate and construction business. It filed its income return for assessment year 2018-19 on 31.10.2018, declaring Rs. 15,26,47,500/-. The case was selected for scrutiny under section 133A following survey proceedings. Notices under sections 143(2) and 142(1) were issued to seek details.
During the survey on 27.10.2018, partner Shri Narendra Agarwal stated that an estimated income of Rs. 15.29 crores would be offered for the Aishwaryam Hamara Phase-1 project.
The Assessing Officer( AO) noted that the assessee declared gross income of Rs. 22,61,05,434/- and, after claiming Rs. 7,34,57,930/- under section 80IB, offered total income of Rs. 15,26,47,500/-, which was accepted in the assessment under section 143(3).
The Principal Commissioner of Income Tax (PCIT), found that sales of flats had a variation of Rs. 15,15,659/- between the agreement value and ready reckoner value, attracting section 43CA. The AO had not considered this, so the PCIT issued a notice under section 263.
After reviewing submissions, the PCIT held the assessment order dated 24.06.2021 was erroneous and prejudicial to Revenue, and set it aside on 21.02.2024 for reassessment. The appellant appealed this order to the Tribunal.
The two member bench comprising Vinay Bhamore (Judicial Member) and Manish Borad (Accountant Member) heard arguments from both sides and reviewed the records, including the paper book and case law submissions. It noted that the assessee was engaged in real estate development and construction and sold residential flats as stock-in-trade.
The PCIT had observed a difference of Rs. 15,15,659/- between the agreement value and the ready reckoner value of the flats, which the AO had not taxed under section 43CA. Consequently, the PCIT set aside the assessment under section 263 and directed the Assessing Officer to re-examine the matter in light of section 43CA.
The assessee’s representative argued that the first proviso to section 43CA, introduced w.e.f. 01.04.2021, provided a 10% tolerance margin, which, according to various Tribunal decisions, should apply retrospectively.
The assessee counsel relied on the decision in Sai Bhargavnath Infra vs. ACIT where the tribunal allowed the tolerance margin retrospectively, holding that beneficial provisions in tax law could have retrospective effect, following the principle laid down by the Supreme Court in Vatika Township Pvt. Ltd.
The Departmental counsel cited judgments in CIT vs. Pooshya Exports (P.) Ltd. and Welfare Properties (P.) Ltd., but the tribunal found these either unrelated or superseded by the Sai Bhargavnath Infra ruling.
Following Sai Bhargavnath Infra, the tribunal held that the assessee was entitled to the benefit of the 10% tolerance margin retrospectively. As the difference between agreement value and ready reckoner value was below 10%, the Revenue suffered no loss. Therefore, the bench set aside the section 263 order passed by the PCIT, and allowed the assessee’s appeal.
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