ITAT Mumbai Says Section 43CA Does Not Cover Pre-Enactment Bookings, Grants Relief To Lodha Developers

On 13 May, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that Section 43CA of the Income Tax Act does not apply to flats booked and allotted before the provision came into force, even if the sale deed is registered later. The provision deems stamp duty value as sale consideration for taxing real estate business transfers when it exceeds the declared price.

Accountant Member Om Prakash Kant and Judicial Member Anikesh Banerjee deleted an addition of Rs. 2.05 crore made by the Income Tax Department on Lodha Developers Limited. The Bench observed:

“...we find that the flats were allotted and the agreements were duly executed during A.Y. 2012-13 itself. Therefore, the rigours of section 43CA of the Act would not be applicable to the impugned transactions.”

Lodha Developers, engaged in real estate development, sold Flat Nos. 2301 and 2302 in its “World View” project at Lower Parel, Mumbai. It received booking advances of Rs. 9 lakh each in Financial Year 2011-12.

It executed and registered the agreements in Financial Year 2013-14. The Assessing Officer invoked Section 43CA after comparing the declared consideration of about Rs. 2.42 crore with the stamp duty value of about Rs. 4.48 crore and added Rs. 2.05 crore to income.

The Revenue argued that Section 43CA applied because registration took place after its insertion from Assessment Year 2014-15.

Lodha Developers contended that booking and allotment in FY 2011-12 created vested rights for the buyers, so the later registration could not change the tax position. It relied on allotment letters, agreements, and bank records showing receipt of consideration before the provision came into force.

The Tribunal accepted this position and held that Section 43CA, being a substantive provision, cannot apply to transactions that had already crystallised before its introduction. It deleted the addition of Rs. 2,05,97,289.

The Bench followed the Bombay High Court in CIT v. Lokhandwala Construction Industries Ltd. and allowed deduction of interest on borrowed funds used for business purposes. It directed limited verification to ensure that the taxpayer did not claim a double deduction through work-in-progress.

On foreign exchange loss of Rs. 1.17 crore arising from consultancy payments to foreign parties, the Tribunal upheld deletion of the disallowance. It relied on the Supreme Court in Woodward Governor India Pvt. Ltd. and treated the loss as allowable revenue expenditure.

Accordingly, the ITAT allowed Lodha Developers' appeal and partly allowed the Revenue's appeal for statistical purposes.

Appearance for the Assessee: Shri Niraj Sheth

Appearance for the Revenue: Shri Rajesh Kumar Yadav (CIT-DR) a/w. Shri Surendra Mohan (Sr. DR)