Question And Answer
Subject: SEc. 43CA and Tolerance limit
Querist: Ruchi Bhansali
Answered by:
Tags: ,
Date: April 8, 2022
Query asked by Ruchi Bhansali

Assessee is partnership engaged in business of developing of Housing Project. In the A.Y. 2016-17 has offered the income as per sales consideration received however the A.O. has assessed the income by invoking the provisions of Sec. 43CA  and made the addition difference between the sale consideration and Stamp duty valuation. Also made reference to the DVO, his report came after the assessment and DVO also valued the  FMV of the units sold and now the difference between the sales and value as per DVO is less than 10% in all cases except 2 cases where the difference is about 12% .

In the appeal before CIT A, the appellant made the following submissions

Earlier these sections did not provide for any safe harbour limit w.r.t difference in SDV and actual consideration up to which the said sections would not trigger, which resulted in additions in income even in case of marginal difference in the valuation. Finance Act 2018 has inserted a proviso to sub-section (1) of section 43CA providing 5% tolerance limit in variation between declared sale consideration vis-a-vis stamp duty value for making no addition.

Similar proviso was inserted by the Finance Act 2018 to sub-section (1) to section 50C of the Act. The said tolerance limit band was enhanced from 5% to 10% by the Finance Act 2020 w.e.f. 01.4.2021.Thus Finance Act 2018, came up with a remedial measure by         providing a tolerance band of 5% in respect of the difference in Stamp Duty Value and the actual consideration which was further increased to 10% by Finance Act 2020.

Due to this remedial measure, SDV is deemed to be the sale consideration only where the variation between the agreement value and the circle rate exceeds 10% i.e., there is a safe harbour limit of 10%. Simply, where the difference between the SDV and the actual transaction price is not more than 10%, the sections 43CA, 50C and Sec. 56(2)(x) would not get triggered.

However CIT A has confirm the addition on following grounds

Relaxation w.r.t the ‘Third proviso to sec. 50C(1) was prospectively inserted from 01.04.2018.

The proviso was further amended by with prospective effect from 01.04.2020 and the safe harbour limit of 5% was increased to 10%.

Accordingly, the variation permissible was only 5% and relaxation of 10% would not apply. Since the Difference is more than 5% addition is confirmed and also rejected the contention that no benefit of 5% or 10% can be given if the difference is more than 5% or 10%

please guide, whether assessee can take the argument that the amendment is    retrospective on the ground that where the legislation is enacted with a purpose of        mitigating undue hardship the provision in such a case has to be   given a reasonable and equitable construction and has to be considered to be retrospective in nature so as to make the provision workable and even the benefit of 5% or 10% also be given iof difference is more than 5% or 10%

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The Hon’ble Mumbai ITAT in the case of Joseph Mudaliar v. DCIT [2021] 130 250 (Mumbai – Trib.) has held that Amendment made in section 50C(1) of the Act by inserting third proviso by Finance Act, 2018, with effect from April 01, 2019 is curative in nature and same would apply retrospectively.

Therefore, the same will help the asseessee.

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One comment on “SEc. 43CA and Tolerance limit
  1. cakmroy says:

    calculation may be made on aggregatee basis. flat wise calculation is not warranted

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