Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI GAGAN GOYAL
2 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. O R D E R Per : Kuldip Singh, Judicial Member:
For the sake of brevity aforesaid appeal and cross objections emanated from same impugned order passed by Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] are being taken up for disposal by way of composite order.
2. Appellant Deputy Commissioner of Income Tax, Central Circle -6(1), Mumbai (hereinafter referred to as the Revenue) and the cross objector M/s. Neepa Real Estates Pvt. Ltd. (hereinafter referred to as the assessee) by filing the present appeal and cross objections respectively sought to set aside the impugned order dated 02.02.2023 passed by the Ld. CIT(A) qua the assessment year 2017-18 on the grounds inter-alia that: “ITA No.1508/M/2023 (Revenue’s appeal) i) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of deemed income from house property. ii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the judgement of Hon'ble Delhi High Court in the case of Ansal Housing Finance and Leasing Company Ltd (2013) 354 ITR 180 wherein on similar facts, the Hon'ble Court has upheld the action of AO in assessing deemed income from the unsold flats. iii) The appellant craves to leave, to add, to amend and/or to alter any of the ground of appeal if need be".
“Cross Objection No.56/M/2023 (Assessee’s) 1) The learned Commissioner Appeals erred in confirming addition of Rs.2,29,500/- u/s 43CA of the Income Tax Act, 1961 with reference to agreement of Sale for Flat No 1106, Ebony with Mrs. Pushpa S. Hajare without appreciating that difference between stamp value and agreement value is only 1.67% and thus Section 43CA has no application and hence addition of Rs. 2,29,500/- may be deleted.
3 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. 2) The cross-objector craves leave to amend, alter, add or delete any cross- objections.”
3. Briefly stated facts necessary for consideration and adjudication of the issues at hand are : the assessee is a private company into the business of development of residential and commercial project in the name of “Vasant Oasis” which was to be developed in three phases. In phase-I consisting of six buildings, occupation certificate (OC) was issued during Financial Year (F.Y.) 2016-17 for three buildings namely Ornella, Tiffany and Emrald. Work on phase-II was not started up to 31.03.2017. Phase-III consists of nine buildings and OC was not received qua any buildings during F.Y. 2016-17. The assessee brought on record building wise details of total flats in each building, number of flats sold and inventory of unsold flats in each building in Annexure-A. The assessee has not given any flat on rent during the year under consideration. Declining the contentions raised by the assessee company the Assessing Officer (AO) by relying upon the decision rendered by Hon’ble Delhi High Court in case of CIT vs. Ansal Housing Finance & Leasing Co. Pvt. Ltd. (2013) 354 ITR 180 (Del)(HC) by taking the value of the unsold stock of three buildings at Rs.71,39,31,675/-, estimated Annual Letting Value (ALV) on unsold stock @ 8.5% after deducting 30% taxed Rs.4,24,78,935/- as income from the house property. The AO also has made addition of Rs.2,29,500/- under section 43CA of the Income Tax Act, 1961 (for short ‘the Act’) on the ground that the assessee has sold certain flats on which sale consideration has been shown lower than the value of property adopted by the stamp duty valuation. The AO framed the assessment under section 143(3) of the Act. 4 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd.
4. The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) both the Revenue as well as the assessee have come up before the Tribunal by way of filing present appeal as well as cross objections respectively.
We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
Ground Nos.1 & 2 of Revenue’s appeal,
6. Ld. D.R. for the Revenue challenging the impugned order passed by the Ld. CIT(A) deleting the addition made by the AO to the tune of Rs.4,24,78,935/- being the estimated ALV on unsold stock @ 8.5% after deducting 30%, as income from house property contended that the Ld. CIT(A) has erred in not considering the judgment rendered by Hon’ble Delhi High Court in case of CIT vs. Ansal Housing Finance & Leasing Co. Pvt. Ltd. (supra).
7. However, on the other hand, the Ld. A.R. for the assessee in order to repel the arguments addressed by the Ld. D.R. for the Revenue by relying upon the impugned order passed by the Ld. CIT(A) contended inter-alia that when one of the objects of the business of the assessee is leasing then rental income is taxed as business income and relied upon the decision rendered by the Hon’ble Gujarat High Court and Hon’ble Supreme Court in cases of CIT vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj.) (HC) 5 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. and Chennai Properties and Investment Ltd. vs. CIT (2015) 373 ITR 673 (SC).
8. The Ld. A.R. for the assessee further contended that after considering the decision rendered by Hon’ble Delhi High Court in case of CIT vs. Ansal Housing Finance & Leasing Co. Pvt. Ltd. (supra) the co-ordinate Benches of the Tribunal in cases of Modern Abodes Pvt. Ltd. vs. ITO in dated 03.04.2023 (Mum-Trib.), Pegasus Properties Pvt. Ltd. vs. Dy. CIT (2022) 193 ITD 514 (Mum-Trib.) & Sheth Developers Pvt. Ltd. ITA No.1953 & 1954/M/2020 held that notional rent of unsold stock cannot be taxed. It is also held in the aforesaid order passed by the co-ordinate Bench of the Tribunal that section 23(5) is prospective in nature and applicable from 2018-19.
We have perused the order passed by the Ld. CIT(A) deleting the addition made by the AO who has duly thrashed the facts in the light of the provisions contained under section 23(5) applicable w.e.f. 01.04.2018 and order passed by the co-ordinate Bench of the Tribunal in case of Sheth Developers Pvt. Ltd. (supra) and in case of DCIT vs. Bengal Shapoorji Housing Development Pvt. Ltd. (ITA No.2927/M/2019 dated 13.05.2021) by returning following findings: “4.4. I have considered the submissions of the appellant. It is not disputed that the unsold flats / shops are related to the real estate business of the appellant. By way of S. 23(5) of the Act, an additional clause was inserted by the Finance Act, 2017 w.e.f. 01.04.2018. It specifically provides for treatment of computing annual value of property held as stock-in-trade and certain moratorium period has been given for such treatment.
4.5. S. 23(5) inserted w.e.f. 01.04.2018 reads as under- 6 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. "23. Annual value how determined.-
(1) …….. (2) …….. (3) …….. (4) ……..
(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to two year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil."
4.6. The memorandum to Finance Act by which the said provision was inserted explains the reasons as under:-
"No notional income for house property held as stock-in-trade
Section 23 of the Act provides for the manner of determination of annual value of house property.
Considering the business exigencies in case of real estate developers, it is proposed to amend the said section so as to provide that where the house property consisting of any building and land appurtenant thereto is held as stock- in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period upto one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.
This amendment will take effect from 1st April, 2018 and will, accordingly apply in relation to assessment year 2018-19 and subsequent years."
4.7. Thus, it is clear that till AY 2017-18 the house property, even if held as stock- in-trade was liable to be taxed by computing the annual lettable value. It is only from AY 2018-19 that the Parliament in its wisdom has provided for certain exception while computing the ALV. Hence, in my view, the appellant is not entitled to claim the benefit of S. 23(5) for the year under reference, being prior to AY 2018-19.
4.8. At the same time, the Hon'ble ITAT Mumbai in the cases of M/s Seth Developers Pvt. Ltd. v. DCIT (ITA No. 1953/Mum/2019 and dated 27.06.2022) and DCIT v. Bengal Shapoorji 7 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. Housing Development Pvt. Ltd. (ITA No. 2927/Mum/2019 dated 13.05.2021), held that the deemed notional rental income in respect of unsold flats held as stock-in-tradecannot be taxed. The Hon'ble ITAT has in the case Pegasus Properties (P) Ltd. v. DCIT (193 ITD 514) has considered the decision of Hon'ble Delhi High Court in Ansal Housing Finance, 354 ITR 180, and yet held that addition could not be made up to AY 2017-18.
4.9. In deference to the superior wisdom of the higher judicial forum, respectfully following the decisions of Hon'ble ITAT Mumbai, this addition stands deleted.”
10. With the insertion of section 23(5) of the Act by Finance Act, 2017 w.e.f. 01.04.2018 it becomes clear that computing of annual value of property held in stock in trade certain moratorium period has been given for such treatment, however, newly inserted provisions contained under section 23(5) of the Act are to be applicable w.e.f. A.Y. 2018-19 and not to the case at hand. So the Ld. CIT(A) has rightly decided that the assessee is not entitled for taking benefit of the amended provisions contained under section 23(5) of the Act.
11. However, the issue in question has already been decided in favour of the assessee by the co-ordinate Benches of the Tribunal in case of Bengal Shapoorji Housing Development Pvt. Ltd. (supra) and Sheth Developers Pvt. Ltd. (supra) by holding that “deemed notional rental income with regard to unsold flats held as stock in trade cannot be taxed. The co-ordinate Bench of the Tribunal in case of Pegasus Properties Pvt. Ltd. (supra) by considering the decision rendered by the Hon’ble Delhi High Court in case of Ansal Housing Finance & Leasing Co. Pvt. Ltd. (supra) held that such addition is not sustainable up to 2017-18.
ITA No.1508/M/2023 8 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd.
12. The co-ordinate Bench of the Tribunal in case of Pegasus Properties Pvt. Ltd. (supra) by relying upon the decision rendered by Hon’ble Gujarat High Court in case of Neha Builders (P) Ltd. (supra) decided the identical issue in favour of the assessee by returning the following findings: “5.13 We find that all the decisions relied upon by the Hon'ble Bombay High Court in Mangla Homes (P.) Ltd. (supra), were prior to the decision of the Hon'ble High Court in the case of Chennai Properties referred to supra. This is the background in which all the Tribunal decisions had followed the decision of the Hon'ble Gujarat High Court in the case of Neha Builders (supra). We find that the issue in dispute is also covered by the decision of Pune Tribunal in the case of Kumar Properties and Real Estates (P.) Ltd. v. Dy. CIT (2021) 128 taxmann.com 364/190 ITD 212. For the sake of convenience, the entire order is reproduced hereunder:- "This appeal by the assessee is directed against the order passed by the CIT(A)-7, Pune on 1-9-2017 in relation to the assessment year 2013-14.
The assessee has assailed confirmation of addition of Rs. 1,47,65,688/- towards deemed rental income on stock-in-trade of unsold flats/bungalows held by the assessee, as a first major issue. Succinctly, the factual panorama of the case is that the assessee has been engaged in the business of development of properties with the projects 'Kumar Infinia' and 'Kumar Picasso' Kumar Properties and Real Estate (P.) Ltd. having certain unsold flats/bungalows for ready possession at the year end. The AO opined that the assessee ought to have offered deemed notional rental income on such vacant flats/bungalows. The assessee submitted that the flats/bungalows were its stock-in-trade, from which no income could be taxed under the head 'Income from house property. Relying on judgment of the Hon'ble Delhi High Court in CIT v. Ansal Housing Finance and Leasing Company Ltd. [2013] 354 ITR 180 (Delhi), the AO computed the annual letting value of the unsold flats u/s. 23 of the Income-tax Act, 1961 (hereinafter also called the Act) at Rs. 1,47,65,688/- and made addition for the same. The Id. CIT(A) echoed the addition, against which the assessee has approached the Tribunal.
We have heard the rival submissions through Virtual Court and gone through the relevant material on record. Indisputably, the assessee has been engaged in the business of development of properties. Certain flats/bungalows out of the two buildings were unsold as at the year end. The authorities below have ITA No.1508/M/2023 9 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. canvassed a view that annual letting value of such unsold flats/bungalows lying as stock-in-trade at the end of the year is income chargeable to tax under the head 'Income from house property. Section 22 is the Kumar Properties and Real Estate (P.) Ltd. charging section of Chapter IV-C, Income from house property, which reads as under-
The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property (emphasis supplied by us)
This section states that the annual value of property (buildings or land appurtenant thereto) held by the assessee as an owner shall be chargeable as 'Income from house property'. However, an exception has been carved out, which provides that any such property or its part, which is occupied by the assessee for the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax, shall be excluded. Thus, in order to fall in the exclusion clause, the following conditions must be satisfied;
i. The property or its part should be occupied by the assessee as an owner. ii. Any business or profession should be carried on by the assessee-owner. iii. Occupation of the property should be for the purpose of business or profession. iv. Profits of such business or profession should be chargeable to income-tax.
Kumar Properties and Real Estate (P.) Ltd.
5. Only when the above four conditions are cumulatively satisfied that the property or its part goes outside the ken of section 22, not requiring computation of the annual letting value therefrom. Let us see if the above conditions are satisfied in the instant case ad seriatim.
The first condition is that the property or its part should be occupied by the assessee as an owner. The assessee is engaged in the business of developing buildings. Admittedly, the assessee is owner of the flats/bungalows lying unsold at the year end. Now the question is whether these flats etc. can be said to be 'occupied' by the assessee? The term 'occupy' has neither been ITA No.1508/M/2023 10 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. defined in section 2 (general definitions under the Act) nor section 27 (definitions relating to income from house property). Rather it is defined nowhere in the Act. In such a scenario, we will have to understand its connotation in common parlance. The term 'occupation' (in land law) has been defined in the Oxford Dictionary of Law to mean 'the physical possession and control of land'. Thus, occupation of a property means having its physical possession coupled with dominion rather than the physical possession coupled with actual use. Once a property is in physical possession and control of a Kumar Properties and Real Estate (P.) Ltd. person, it is said to be in his occupation, even if it is not actually used by him. Adverting to the facts of the extant case, we find it not to be a case of the AO or that of the Id. DR that the unsold flats etc. were not in the physical possession and control of the assessee. In fact, there is no one other than the assessee having physical possession and control over such flats, thereby making the assessee solely in their 'occupation'. Thus the first condition is fulfilled as the flats etc. were occupied by the assessee-owner.
The second condition is that any business or profession should be carried on by the assessee-owner. Obviously, the assessee is engaged in the business of property development and has returned income from such business.
The third condition is that the occupation of the property should be for the purpose of business or profession. Crucial words used in the provision linking occupation of property with are 'for the purpose of business'. If the property is occupied for the purpose of business, the condition gets satisfied. The expression 'for the purpose of business' is of wide amplitude. To fall within its purport, what is essential is that there should be some nexus with the business. Even remote connection with the business satisfies the test Kumar Properties and Real Estate Private Limited of 'for the purpose of business'. Section 37(1) of the Act, granting other deductions, also uses similar expression - 'for the purposes of the business or profession'. This has been interpreted to be wider in its scope vis-à-vis the expression 'for the purpose of making or earning such income' as used in section 57(), providing deduction under the head 'Income from other sources'. Reverting to section 22, we find that the legislature has used a wider expression: "for the purpose of business' with occupation of the property rather than any narrower expression indicating that the business must be carried on from such property or something like that as a sine qua non for exception. If the intention of the legislature had been to provide exception in a limited manner, it would have used a suitable constrained expression. Coming back to the factual scenario prevailing in the instant case, we find that the purpose of occupation of the flats is to hold them either for 11 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. readying them for final sale or during the interregnum from the ready stage to sale stage, which satisfies the test of 'for the purpose of business'.
9. The last condition is that profits of such business or profession should be chargeable to income-tax. It is indisputable that the Kumar Properties and Real Estate (P.) Ltd. profits of the business of property development by the assessee are chargeable to income-tax.
On a bird's-eye view, we find that flats/bungalows are occupied by the assessee owner; business of property development is carried on by the assessee; the occupation of the flats etc. is for the purpose of business; and profits of such business are chargeable to income- tax. Ergo, all the four conditions for exclusion from section 22 of the Act are cumulatively satisfied in the present case.
The authorities below have canvassed a view that the annual letting value of flats/bungalows is income chargeable to tax as 'Income from house property by relying on Ansal Housing Finance and Leasing Company Ltd. (supra). There is no doubt that the Hon'ble Delhi High Court in the said case has held that Annual letting value of unsold flats at the year end is chargeable to tax under the head 'Income from house property. At the same time, we find that the Hon'ble Gujarat High Court in CIT v. Neha Builders (P) Ltd. [2008] 296 ITR 661(Guj) has held that income from the properties held as stock-in-trade can be treated as Income from business and not as 'Income from house property'. Our attention has been drawn towards certain Tribunal decisions including Kumar Properties and Real Estate (P) Ltd. Cosmopolis Construction, Pune v. ITO dated 18-6-2018 (ITA Nos. 230 & 231/PUN/2018), wherein, after taking note of both the above judgments and finding none of them from the jurisdictional High Court, a view has been canvassed in favour of the assessee by holding that no income from house property can result in respect of unsold flats held by a builder at the year end. Similar view has been reiterated by the Pune Bench of the Tribunal in Mahanagar Constructions v. ITO (ITA No.632/PUN/2018) vide its order dated 5-9-2019.
At this juncture, it is relevant to mention that the Finance Act, 2017 has inserted sub-section (5) of section 23 w.e.f. 1-4-2018 reading as under:-'Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the ITA No.1508/M/2023 12 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. property is obtained from the competent authority, shall be taken to be nil."
13. A close scrutiny of the provision inducted by the Finance Act, 2017, transpires that where a property is held as stock-in- trade which is not let out during the year, its annual value for a period of Kumar Properties and Real Estate (P.) Ltd. one year, which was later enhanced by the Finance Act, 2019 to two years, from the end of the financial year in which the completion certificate is received, shall be taken as Nil. The amendment has been carried out w.e.f. 1-4- 2018 and the Memorandum explaining the provisions of the Finance Bill also clearly provides that this amendment will take effect from 1-4-2018 and will, accordingly apply in relation to the assessment year 2018-19 and subsequent years. Obviously, it is a prospective amendment. The effect of this amendment is that stock-in- trade of buildings etc. shall be considered for computation of annual value under the head 'Income from house property after one/two years from the end of the financial year in which the certificate of completion of construction of the property is obtained on and from the A.Y. 2018-19. Instantly, we are concerned with the assessment year 2013-14. As such, the amendment cannot apply to the year under consideration. In the absence of the applicability of such an amendment, no income can be said to have accrued to the assessee from unsold flats available as stock-in-trade. We, therefore, overturn the impugned order on this score and delete the addition of Rs. 1.47 crore sustained in the first appeal." 5.14 In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that no addition on account of deemed rental income could be made in respect of unsold stock of flats held as 'stock-in-trade' upto A.Y. 2017-18. However, the amendment has been brought in the statute in section 23(5) from A.Y. 2018-19 providing a moratorium period of two years. Hence, no addition could be made even for A.Y. 2018-19 also.”
In view of what has been discussed above and following the decision rendered by the Hon’ble Gujarat High Court in case of Neha Builders (P) Ltd. (supra) and order passed by the co-ordinate Benches of the Tribunal in cases of Kumar Properties and Real Estates (P.) Ltd. vs. Dy. CIT (2021) 128 taxmann.com 364/190 ITD 212 and Pegasus Properties Pvt. Ltd. (supra), we are of the considered view that the Ld. CIT(A) has rightly deleted the addition 13 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. made by the AO on account of deemed rental income qua the unsold stock of flats held in stock in stock in trade up to A.Y 2017-18. So finding no illegality or perversity in the impugned findings returned by the Ld. CIT(A) ground Nos.1 & 2 raised by the Revenue are rejected.
Ground No.1 of Cross Objections of Assessee in CO No.56/M/2023 14. The AO after perusing the value of flat No.1106, from the agreement to sell with Pushpa Hajare Ebony for a consideration of Rs.1,34,76,500/- stamp value of Rs.1,37,06,000/- noticed a difference of 1.67% in the sale consideration vis-à-vis stamp duty valuation and thereby made the addition of Rs.29,20,077/- under section 43CA being the excess value of the fair market value than the sale consideration value taken by the assessee. The Ld. CIT(A) by interpreting the provisions brought to the statute book w.e.f. 01.04.2014 and by interpreting 1st proviso to section 43CA(1) w.e.f. 01.04.2019 with a tolerance bond of 5%, which was subsequently increased to 10% w.e.f. 01.04.2021 being prospective in nature confirmed the addition made by the AO, which is under challenge before the Tribunal.
The Ld. A.R. for the assessee challenging the impugned findings returned by the Ld. CIT(A) contended that 1st proviso to section 43CA brought to statute book by Finance Act, 2022 w.e.f. 01.04.2021 is retrospective in nature and as such where the difference between the sale value of the flat sold by the assessee and stamp value of such flats was within 10% margin no addition is to be made and relied upon the order passed by the co-ordinate 14 CO No.56/M/2023 M/s. Neepa Real Estates Pvt. Ltd. Bench of the Tribunal in cases viz. Sai Bhargavanath Infra vs. ACIT (2022) 197 ITD 496 (Pune-Trib.), Maria Fernandes Cheryl vs. ITO (2021) 187 ITD 738 (Mum-Trib.) & Sheth Developers Pvt. Ltd. vs. Dy. CIT (supra).
The co-ordinate Bench of the Tribunal in case of Sai Bhargavanath Infra vs. ACIT (supra) held that first proviso to section 43CA inserted by Finance Act, 2020 with effect from 01.04.2021 is applicable retrospectively and thus where difference recorded between sale value of flats sold by assessee and stamp value of such flats was within 10% margin, no addition to be made. In the instant case the difference between the sale value and stamp value is 1.67% and as such within the threshold limit of 10%, so following the order passed by the co-ordinate Bench of the Tribunal in case of Sai Bhargavanath Infra vs. ACIT(supra), we are of the considered view that the Ld. CIT(A) has erred in confirming this addition which is ordered to be deleted. So ground No.1 raised by the assessee in its cross objections is hereby allowed.
In view of what has been discussed above, the appeal filed by the Revenue is hereby dismissed and the cross objections filed by the assessee are hereby allowed. Order pronounced in the open court on 10.11.2023.