Section 43CA Cannot Be Applied Retrospectively to Pre-2013 Sale Agreements: Pune ITAT Rules in Favour of Real Estate Developer
Background and Case Overview
The Income Tax Appellate Tribunal, Pune Bench, delivered a significant ruling in the case of Harmony Construction Vs ITO (ITAT Pune) concerning the applicability of Section 43CA of the Income Tax Act, 1961 to sale transactions where the underlying agreements to sell were executed and registered well before the provision came into existence. The Tribunal ultimately deleted an addition of ₹68,27,500/- that had been made by the Assessing Officer on the basis of stamp duty valuation differences.
This matter pertained to Assessment Year 2014-15 and arose from an Assessment Order dated 22.12.2016 passed under Section 143(3) of the Income Tax Act, 1961, which was subsequently challenged before the CIT(A)-1, Nashik, and thereafter before the ITAT Pune. Notably, this was the second round of litigation before the Tribunal. An earlier order dated 21.11.2022 had allowed the appeal for statistical purposes, but Grounds No. 3 and 4 had remained unadjudicated. Following a Miscellaneous Application (M.A. No. 130/PUN/2023), an order dated 09.10.2025 recalled the earlier Tribunal order for the limited purpose of adjudicating those two specific grounds, leading to the present decision pronounced on 01st June, 2026.
The Unadjudicated Grounds of Appeal
The two grounds that had been left unaddressed in the earlier round were:
"3. The learned CIT(A) failed to appreciate that all the agreement to sale in respect of the impugned transactions were executed and registered prior to 31.03.2013 i.e. when the provisions of section 43CA were not enacted by the Legislature and therefore, no addition u/s 43CA could have been made in respect of the above transactions entered much prior to the introduction of the above provisions.
4. Without prejudice to the above, grounds, it is submitted that the agreements to sale in respect of the impugned units were registered before 31.03.2013 and substantial revenue thereon was also booked in earlier years on the basis of percentage completion method followed by assessee and therefore, the A.O. was not justified in taxing the entire difference of Rs.68,27,500/- in A.Y.2014-15 when the possession of units was transferred to the customers."
These grounds formed the crux of the entire dispute and raised a fundamental legal question — whether Section 43CA could be invoked in respect of transactions that had been substantially concluded prior to its legislative introduction.
Facts of the Case
The assessee, a partnership firm engaged in real estate development, had filed its return of income for AY 2014-15 on 30.09.2014 declaring income of ₹14,27,970/-. The case was selected for scrutiny under CASS, and notices under Section 143(2) and Section 142(1) of the Income Tax Act, 1961 were duly served.
During scrutiny, the Assessing Officer noted that the assessee had reported sale of 42 units/business assets amounting to ₹9,37,80,000/-. Upon comparing the declared sale consideration with the stamp duty valuation, the AO identified a difference of ₹68,27,500/- with respect to 11 units/business assets, where the stamp duty value exceeded the declared sale price.