No Section 43CA addition applies to reciprocal exchange of equivalent land for ownership rearrangement.

ORDER

S.S. Viswanethra Ravi, Judicial Member.- This appeal filed by the assessee is directed against the order dated 18.08.2025 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2016-17.

2. The assessee raised ground nos. 2 to 5 challenging the action of ld.CIT(A) and confirming the addition made by the AO u/s. 43CA of the Act.

3. Brief facts relating to the issue are that the assessee is a company engaged in the business of development of land into plots. The assessee filed return of income declaring a total income of Rs.20,08,710/- which was processed u/s. 143(1) of the Act. Thereafter, on an information that the assessee executed sale deeds to the tune of Rs.5,30,82,350/-, the AO issued notice u/s. 148 of the Act. In response to the said notice, the assessee filed return of income declaring the same as disclosed in the original return of income. The AO issued notices u/s. 142(1) of the Act and the assessee filed its submissions. The AO held the said submissions are not acceptable and added the compound value of the land transferred by the assessee as determined by the stamp valuation authority u/s. 43CA of the Act vide its order dated 28.09.2021 passed u/s. 147 r.w.144B of the Act. The ld.CIT(A) confirmed the same. As aggrieved, the assessee is before us.

4. The ld.AR, Shri. D. Anand, Advocate, submits the only issue in this appeal is as to whether the ld.CIT(A) erred in confirming the order of AO in invoking the provisions of section 43CA of the Act. He submits the entire addition u/s. 43CA of the Act proceeds on the assumption that the assessee transferred developed plots to Mr. G. Ramji, without receiving any consideration merely because the registered conveyance deeds mention the expression “Nil Consideration”. He argued vehemently that the ld.CIT(A) have proceeded on the erroneous premise that the seven registered documents executed by the assessee in favour of Mr.G. Ramji constituted the independent transfers. He argued that the provisions u/s. 43CA of the Act is not applicable as it only applies whether the owner transfers land held as stock-in-trade for consideration below the stamp duty value. He argued that the assessee is neither owner of land nor received any consideration under the above said sale deeds. He submits that the plots received under the development arrangement were subsequently sold and the sale proceeds had already been offered to tax as business income. He argued that the essential conditions for invoking section 43CA of the Act are absent and taking the stamp duty value of the exchange deeds u/s. 43CA of the Act would result in double taxation. He submits that the ld.CIT(A) has fundamentally misdirected for treating the assessee as a transferor merely because it executed the conveyance deeds as a power of attorney holder. He referred to the facts and submits the plots transferred under the impugned document belongs to the original land owner and not to the assessee. Further, he argued that the ld.CIT(A) has also incorrectly proceeded on the assumption that the assessee received consideration in kind in the form of developed plots which completely overlooks the assessee’s consistent explanation that the impugned deeds were not transactions and they were only adjustment or exchange deeds executed between land owners pursuant to an earlier memorandum of understanding so that each owner could obtain convenient plot after development. He argued vehemently that the ld.CIT(A) ought to have determined whether there was any consideration received by the assessee under the above said deeds before confirming the order of AO invoking the provisions u/s. 43CA of the Act. Further, the ld.CIT(A) failed to appreciate that impugned transactions constituted reciprocal exchanges equivalent land and consequently erred in treating the consideration as Nil, solely because no mandatory consideration was recorded in the individual deeds.

5. The ld.DR, Mr. Pilli Prem Kumar, submits the term transfer under the Act must be interpreted in a broader commercial sense, and when an assessee received immovable property as a business asset, exercises rights of ownership, sells the same to third parties, an accounts for the income in its books, it acquires beneficial ownership and control. He referred to assessee’s accounting treatment and submits whether the cost of land and development expenditure were recognised and corresponding sales were reported in the profit and loss account. He argued vehemently that the assessee has not acted as a mere intermediary but rather as a beneficiary and active participant in the transfer and monetization of land parcels. He submits that the assessee was a party to the registered documents which resulted in the transfer of plots to third party through registered sale deeds and the consideration received was not in cash but in the form of developed plots given in exchange. He argued that the said arrangement clearly constitutes the barter transfer and under the tax laws such a transfer is a taxable event at the time of exchange, regardless of whether the benefit is received in cash or in kind. He submits that the transfer is complete on the date of execution of registered deed and the tax liability u/s. 43CA of the Act arises on the said date, not deferred to the point of monetization through resale. Further, he argued that it is a settled legal principle that two independent and distinct taxable events cannot be merged to argue against taxation merely because they involve the same assets. The exchange of plots in the present case in return for development services rendered is a distinct transaction from the subsequent resale of the plots received. He argued that the law mandates recognition of income u/s. 43CA of the Act at the point of transfer, and even if actual sale consideration is received. He submits the provisions u/s. 43CA of the Act exists to plug tax leakage in cases of non-monetary transactions ensuring that the fair market value in the present case stamp duty value is brought to tax and prayed to dismiss the grounds raised by the assessee.

6. Heard both the parties and perused the material available on record. In order to examine the issue with reference to non-applicability of the Act as contended by the ld.AR deeming provisions u/s. 43CA of the Act, it is required to examine the Memorandum of Understanding dated 08.12.2014 entered between Mr.S.V. Shriramulu and Mr. G.Ramji. We find the said Memorandum of Understanding at pages 8 to 12 of the paper book. Upon perusal of the same, we note that the said Memorandum demonstrates that both the parties above had jointly developed residential layout under the name and style as “Fortune Residency” and several plots carved out representing joint ownership of the above said two parties. It is noted that both the parties agreed to exchange their respective undivided interest so that each would become the exclusive owner of complete and marketable plots. Further, both the parties agreed to transfer their respective undivided interest in the plots specified in Schedules B & C by way of exchange of equivalent lands. Further, we note, on an examination of Clause 4 at page no.10 of the paper book, which clearly explains that the parties shall execute mutual sale deeds in respect of the divided plots without any consideration and Clause 5 explains that exchange is for equal land, no consideration or payment is involved, to say, the said arrangement is only to facilitate better enjoyment of individual plots involving no sale. For better understanding, we shall look into Schedule C of above said Memorandum of Understanding at page no.11 of the paper book, which is reproduced in a tabular form as under showing the details of sale deeds and their corresponding page nos.

6.1 On perusal of the above said details described in Schedule C, we note Mr. G. Ramji transferred lands in favour of the nominee of Mr. S.V. Shriramulu, representing the assessee by way of various sale deeds at pages 26 to 230 of the paper book covering an aggregate extent of 15,795 sq.ft as shown above.

7. Further, we note that Mr.S.V. Shriramulu representing assessee herein as Power of Attorney transferred lands in Schedule B of above said MOU, which is tabulated hereunder for better understanding with reference to sale deeds and corresponding page nos as below:

8. On perusal of the above, we note that Mr.S.V. Shriramulu transferred land in favour of Mr.G. Ramji by executing sale deeds at page nos. 231 to 346 of the paper book covering an aggregate extent of 15,795 sq.ft. which is as equivalent to land transferred by Mr.G. Ramji to Mr.S.V. Shriramulu as reflecting in first table above. On further examination of market value in the said sale deeds, we note that the market value adopted in each of the said deeds demonstrates that the lands exchanged were of equivalent value, meaning thereby, consideration of the sale deed divided by extent of land conveyed in the sale deed. Further, we find the fair market value/document value adopted in all the conveyances was uniformly at 1500 per sq.ft which establishes the exchange was affected on an equal value basis without any understatement or excess consideration. Therefore, we find force in the arguments of the ld.AR that the conveyances contemplated under the Memorandum of Understanding were merely instruments for effecting rearrangement of ownership amongst the original landowners and did not constitute commercial sales. Further, no monetary consideration was received by the assessee or by the land owners under these mutual conveyances which were executed solely to implement the pre-existing contractual arrangement recorded in the above said Memorandum of Understanding.

9. Having held so above, the only issue for our consideration is as to whether AO and ld.CIT(A) erred in invoking the provisions of section 43CA of the Act by erroneously treating the impugned exchange deeds as transfers without consideration inspite of the admitted fact that the said transfers were supported by valuable reciprocal consideration in the form of equivalent land transferred by Mr.G.Ramji pursuant to the Memorandum of Understanding. In this regard, we find the entire addition u/s. 43CA of the Act proceeds on the assumption that the assessee transferred developed plots to Mr.G. Ramji without receiving any consideration as the registered conveyance deeds mentioned in the expression “Nill Consideration”. We note that the AO and ld.CIT(A) have proceeded on the erroneous premise that the seven registered documents executed by the assessee in favour of above said Mr.G. Ramji bearing document nos. 290 to 293, 295, 297 & 298 constituted the independent transfers liable to be examined in isolation. We find both the authorities below completely overlooked the corresponding reciprocal transfers executed by Mr. G. Ramji in favour of the assessee’s customer/nominees pursuant to the very same Memorandum of Understanding and the conveyances were not unilateral transfers but formed an integral part of a pre-arranged exchange mechanism. Further, we find assessee also transferred the lands described in Schedule B of the above said MoU in favour of Mr. G.Ramji, by executing the sale deeds listed at sl.nos. 20 to 26 in pages 231 to 346 of the paper book covering an aggregate extent of 51,795 sq.ft. as detailed in aforementioned paragraphs. We find in reciprocal consideration thereof, Mr.G. Ramji transferred the lands described in Schedule C of the above said MoU in favour of the nominees of assessee by executing various sale deeds listed at sl. nos. 5 to 19 in pages 26 to 230 of the paper book covering an aggregate same extent of 51,795 sq.ft. as detailed in aforementioned paragraphs.

10. In view of the above, we find in the present case, the transfer deed executed by the assessee in favour of Mr. G.Ramji were not independent and they were executed strictly in pursuance of above said MoU entered into between the land owners, which contemplated reciprocal exchanges of equivalent plots to consolidated fragmented ownership arising upon development of the residential layout. Further, correspondingly, Mr. G. Ramji, also executed transfer deeds in favour of the assessee’s customers/nominees in respect of equivalent plots. We find every transfer made by the assessee was matched by a corresponding transfer made by Mr. G. Ramji under the same contractual arrangements. Therefore, the very foundation of which the provisions of section 43CA of the Act have been invoked, that the assessee transferred land without consideration is actually, in our opinion, not correct. Further, we note once it is accepted that the impugned transfers were supported by valid and valuable consideration in the form of reciprocal transfer of equivalent land, the addition made by the AO which was confirmed by the ld.CIT(A) under the deeming fiction u/s. 43CA of the Act is not justified.

11. Further, on an examination of the provisions u/s. 43CA of the Act, which clearly explains that the said provisions comes into operation only whether the consideration received or accrued as a result of the transfer is less than the value adopted or assessed or assessable by the stamp valuation authority. We note that to make the provisions u/s. 43CA of the Act applicable, there are two conditions i.e. actual consideration received or accrued and stamp duty value of the property transferred. In the present case, we find on an examination of the assessment order, that the AO has not recorded any finding that the consideration received by the assessee was less than the stamp duty value of the property transferred. Therefore, we find force in the arguments of the ld.AR that before invoking section 43CA of the Act, the AO was required to ascertain the value of the land received under the exchange and compare the same with the stamp duty value of the land transferred. In the aforementioned we held the assessee received consideration equal in value to the property transferred, whereby, the area reconciliation statement and the details of the reciprocal exchange clearly establishes that the guideline value/stamp duty value and fair market value of the lands transferred and the lands received in exchange are identical. Thus, we find force in the arguments of the ld.AR when there exists no understatement of consideration, in our opinion, no occasion for invoking the deeming fiction contemplated in the provisions of section 43CA of the Act, in our opinion, cannot be invoked as the consideration received by the assessee is equal to the guideline value, stamp duty value and fair market value of the property transferred, since, there being no difference between the guideline consideration and the stamp duty value, the addition made by the AO u/s. 43CA of the Act is deleted and the order of the ld.CIT(A) is set aside. Thus, ground nos. 2 to 5 raised by the assessee are allowed.

12. In the result, appeal filed by the assessee is allowed.