CHALET HOTELS LTD.,MUMBAI vs. DY CIT,CC-4(2), MUMBAI

Before we advert to the grounds taken in the appeals, it would first be relevant to cull out the basic facts of the case. Search u/s 132 of M/s. Chalet Hotels Ltd the Income Tax Act [in short ‘the Act’] was conducted against the K Raheja Group on 30.11.2017. Having regard to the date of search, the Assessing Officer [in short ‘AO’] had reopened the six assessment years immediately preceding the searched assessment year, i.e. AY 2018-19 and those AYs were AYs 2012-13 to 2017-18. The summary of the additions/disallowances, in Rupees, made by the AO which are in dispute in the cross appeals enumerated above for AYs 2012-13 to 2018-19, are as follows: Issue 2012-13 2013-14 2014-15 2015- 2016-17 2017-18 2018- 16 19 Unexplained 5,92,69,560 8,71,87,346 1,52,49,750 - 4,00,214 - - expenditure u/s 69C [in the hands of Magna Warehousing & Distribution Pvt. Ltd.(since merged with Chalet Hotels Ltd.)] Unexplained - - 31,622 - - - - expenditure u/s 69C [in the hands of Genext Hardware & Parks Pvt. Ltd. (since demerged from Chalet Hotels Ltd.)] Depreciation on Consequential to the above issue CWIP Disallowance - - 16,04,12,564 - 31,62,06,295 6,51,53,018 - u/s 14A Deemed rent on - - 2,64,03,585 - 2,11,75,927 1,81,09,740 - vacant properties Carry forward of - - - - - 57,22,815 - STCL

We first take up the appeals of the assessee (successor to M/s Magma Warehousing and Distribution Pvt Ltd), and the Revenue for M/s. Chalet Hotels Ltd AY 2012-13 in ITA(SS) Nos. 928 & 2511/Mum/2021. Ground No. 1 raised by the assessee in their appeal was not pressed and is therefore dismissed.

Therefore, to ascertain the genuineness of the payments to the above-mentioned six parties, the AO made enquiries u/s 133(6) of the Act. According to the AO, however, either these notices remained un- M/s. Chalet Hotels Ltd served or the replies received from them were not satisfactory. The AO further noted that these parties had cancelled their TINs after few years. The AO thus held that the payments made to these six parties by the assessee in various years remained unverifiable. The AO observed that, mere filing of supporting bills/invoices and payment details, was not sufficient to justify the genuineness of the transactions and that the assessee failed to discharge its onus to establish such claim by producing relevant evidence/material in support thereof. The AO accordingly disallowed the payments made to these parties by way of unexplained expenditure u/s 69C of the Act across various years. While disallowing this amount, the AO noted that these expenses had been capitalised under the head ‘Work in Progress’ [in short ‘WIP’] and therefore reduced the same from the closing balances of the WIP in the respective years. Aggrieved by this action of the AO, the assessee preferred appeal before the Ld. CIT(A).

We have heard both the parties and perused the material placed before us. It is noted that case of the Revenue hinges on the premise that the AO in the course of assessment had made enquiries from the vendors u/s 133(6) of the Act and since none of them responded to the same, that raised suspicion on the genuineness of the transactions. From the material placed before us, it is noted that, at the time of search, Mr. N Krishnamohan, Vice President, Engineering of the Group, was enquired regarding the vendors involved in execution of the real estate project. From the details obtained from him, the Investigating Officer had made spot enquiries at the respective Bangalore addresses of the vendors. According to the Investigating Officer, the Inspector did not find the eight (8) vendors at their respective addresses and thus confronted Mr. N Krishnamohan again with these field enquiries. To this, he is noted to have reiterated that they had indeed conducted transactions with these vendors and sought time to explain the same. We thus note that Mr. N Krishnamohan had neither admitted to any wrong-doing nor had he averred that these expenses were not genuine. In fact, the AO noted that, in the post M/s. Chalet Hotels Ltd search enquiries, the assessee had furnished the relevant contemporaneous evidences in support of the transactions with these eight (8) vendors. In this background, the AO again made enquiries u/s 131 of the Act from the eight (8) vendors, to which two (2) vendors responded. The AO accordingly accepted the genuineness of the transactions conducted with the two (2) vendors. The AO thereafter made enquiries u/s 133(6) of the Act from the remaining six (6) parties, which according to him, either went unserved or had not been properly complied with. The AO therefore held that the genuineness of the payments made to these vendors remained un-discharged, and hence disallowed the same u/s 69C of the Act, which is now impugned before us.

Having taken note of the above, we find that the AO has not pointed out any specific infirmity or defect in these details furnished by the assessee. It is not the Revenue’s case that the above tasks/orders were not performed by them or that the search team did not find these items, furniture, tasks etc. installed or placed at the hotel premises. The AO has also noted disputed the central levies viz., excise duty / service tax by each of these vendors. It is not the case that these indirect central levies collected by them were found to be unpaid to the Central Government. Instead, the AO is noted to have simply emphasised on (a) the field enquiries conducted by search team which stated that there were not found at their given addresses and (b) that their local TINs M/s. Chalet Hotels Ltd were found to be subsequently cancelled, to justify the impugned addition. In this regard, as noted by us, from the documents/ evidences placed before the AO, that three (3) out of these five (5) vendors were located outside Bangalore i.e. Chennai, Mumbai, Delhi etc. These vendors are noted to have set-up temporary branch/site offices at Bangalore to execute their work orders obtained from the assessee. The assessee and/or the vendor are noted to have brought this material fact to the attention of the Investigating Officer and/or the Assessing Officer. We thus find merit in the submission of the Ld. AR that the non-availability of these three (3) vendors at their local/branch addresses at Bangalore in the course of field enquiries which were conducted more than 4-5 years after completion of the hotel project cannot be viewed suspiciously. Similarly, it is not unreasonable for these vendors to have cancelled their local TIN / VAT after completion of the works contract and/or closure of their branch office at Bangalore.

The Ld. CIT(A) is also noted to have elaborately examined the details/evidences furnished by each these five (5) vendors and therefore, for the sake of convenience, the relevant findings are extracted below :- “(i) Saket Interiors - The AO has noted that the assessee did not respond to the notice u/s 133(6) of the Act issued by him. He also observed that TIN of the parties had been cancelled. He has inferred that since the parties are not in existence, the payments made to these parties are presumed not to be genuine. The assessee has produced the office copy of the reply filed by Saket Interiors before the AO in response to the notice u/s 133(6) of the Act. It is noted that the reply confirms the transactions with Magna / Chalet and the ledger account of the assessee and necessary bank details have been provided. The Letter of the vendor is dated 13th December, 2019 but has been filed in the office of the AO on 26th December, 2019 (being the date mentioned on the receipt stamp). Perusal of the bank account as well as the ledger account clearly reveals that the transactions noted in these accounts are not accommodation entries. There are no Cheque deposits and immediate withdrawals or vice versa. Further, the AO has not commented on the reply filed. The vendor has rendered a service which includes supply of materials and necessary work orders M/s. Chalet Hotels Ltd have been provided. There is no evidence of Saket Interiors being a bogus entity and its office address is in Mumbai while the site address was in Bangalore which was wound after completion of the contract. A search on the internet reveals website in the name of the vendor and various places where it is carrying on its activities. The vendor has a significant presence in Mumbai and offers services related to Hotels and commercial spaces. The website even refers to the work done by the vendor for Raheja Group at Whitefield, Bangalore. Clearly, the AO's inference that the vendor is non-existent or that the vendor has not worked for the assessee is not based on sound evidences. The amount paid to this party for work done by the party is found to be genuine and explained and the addition of the amount under section 69C is not found correct. The addition made is directed to be deleted (ii) Total Environment Woodworks Pvt Ltd. -The AO has held that no reply has been received from the Vendor in response to notice /s 133(6) issued by him. He has also observed that TIN of the parties had been cancelled. He has inferred that since the parties are not in existence, the payments made to these parties are presumed not to be genuine. It is noted that the company has responded to the summons issued by the Investigation Unit by addressing a letter to the Director of Income Tax Investigation Unit 5(3), Mumbai. The letter has been written by one Sandeep Mukherjee, Director of M/s Quetzel Furniture Systems Pvt Ltd. It has been clarified in the letter that the company has changed its name from earlier name to Quetzel Furniture Systems Pvt Ltd. Copy of the necessary ROC documents have been provided. The RP has confirmed that they had worked on the Hotel Project of the appellant which had been invoiced and delivered as per plan. However, in light of the company landing up at NCLT being placed under corporate insolvency resolution process, the Board has been suspended and a Resolution Professional has been appointed for handling company affairs. The Director has submitted that necessary M/s. Chalet Hotels Ltd documentation would be available with the RP. He has also attached various newspaper advertisements related to insolvency proceedings as well as order of the NCLT Hence, it is not correct to say that the company has not replied to the department inquiries In light of the fact that the company is before NCLT and under corporate insolvency resolution process, it is clear that the Directors could not have produced the requisite documents. However, the genuineness of the company as well as the factum of work carried out by them has been amply demonstrated. The assessee has provided other requisite details. As such, the AO is incorrect in inferring that the expenditure made by the assessee was unexplained. The amount paid to this party for work done by the party is found to be genuine and explained and the addition of the amount under section 69C is not found correct. The addition made is directed to be deleted. (iii) Ceetech Systems -The AO has noted that the assessee made a partial reply to the notice u/s 133(6) of the Act issued by him. He has also observed that TIN of the parties had been cancelled. He has refused to consider the reply as the vendor has failed to provide all the details sought in the notice u/s 133(6) of the Act. He has inferred that since the parties are not in existence, the payment made to these parties are presumed not to be genuine. The documents filed by the assessee reveal that the reply to notice u/s 133(6) of the Act has been filed by the vendor on 14th October, 2019. In the reply, the proprietor of the firm Mr Shinath has offered to appear personally if so desired by the AO. The vendor works in the area of air conditioning and has rendered services relating to HVAC. It is also submitted by the vendor that they have ceased operation since last four years, most employees have left and the CA of the firm passed away recently and thus the firm has provided sufficient reason for part furnishing of information which is credible and acceptable. The reply reveals that the vendor was existing and has actually M/s. Chalet Hotels Ltd rendered services to the appellant. As such, the inference drawn by the AO that the party is a bogus or non-existing party is not found correct. The amount paid to this party for work done by the party is found to be genuine and explained and the addition of the amount under section 69C is not found correct. The addition made is directed to be deleted. …….. (v) Tech Workshop Interiors (I) Pvt Ltd.- The AO has held that no reply has been received from the Vendor in response to notice is 133(6) issued by him. He has also observed that TIN of the parties had been cancelled. He has inferred that since the parties are not in existence, the payment made to these parties are presumed not to be genuine. The assessee has produced the office copy of the reply filed by Saket Interiors before the AO in response to the notice u/s 133(6) of the Act The Letter of the vendor is dated 13th December, 2019 but has been filed in the office of the AO on 26th December, 2019 (being the date mentioned on the receipt stamp). It is noted that the reply confirms the transactions with Magna / Chalet and the ledger account of the assessee and necessary bank details have been provided. Perusal of the bank account as well as the ledger account clearly reveals that the transactions noted in these accounts are not accommodation entries. There are no deposits and immediate withdrawals or vice versa. Further, the AO has not commented on the reply filed. A search on the internet leads us to the website of the vendor wherein the work done for Chalet Hotels is prominently mentioned. It is clear that while the head office of the company is in Chennai, the letters were sent to temporary office in Bangalore. As such, neither the existence nor the genuineness of transaction are doubtful. The amount paid to this party for work done by the party is found to be genuine and explained and the addition of the amount under section 69C is not found correct. The addition made is directed to be deleted.

We now take up IT(SS) Nos. 930/Mum/2021 (Assessee’s Appeal) and 2510/Mum/2021 (Department’s Appeal) for AY 2013-14. Ground No. 1 taken by the assessee in their appeal was not pressed and is therefore dismissed.

Ground No. 2 of the appeal of the assessee and Ground No. 1of the appeal of the Revenue relates to disallowance of Rs.8,71,87,346/- under the head CWIP by way of unexplained expenditure u/s 69C of the Act in relation to payments made to M/s Saket Interiors, M/s Total Environment Woodworks Pvt Ltd, Vistar Constructions Pvt Ltd & Tech Workshop Interiors Pvt Ltd. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO to justify this addition and the Ld. CIT(A) to allow partial relief is verbatim same as in AY 2012-13.

Following our reasons and conclusions recorded in Paras 13 to 23 above, we hold that the disallowance of Rs.8,71,87,346/- made by the AO u/s 69C of the Act was unsustainable both on facts and in law. We therefore direct the AO to delete the impugned addition made u/s 69C of the Act for AY 2013-14. Accordingly Ground No. 2 of the M/s. Chalet Hotels Ltd assessee’s appeal is allowed and Ground No. 1 raised by the Revenue in their appeal is dismissed.

Both the parties fairly agreed that this ground is consequential to the preceding Grounds relating to addition/s made by the AO u/s 69C of the Act. Since we have already held that the addition/s made by the AO u/s 69C of the Act was unjustified, consequently the value of CWIP stands restored to the value as declared by the assessee in the return of income. As a corollary, the depreciation has to be allowed as claimed in the return of income. In light of the aforesaid observations, the AO is accordingly directed to re-work and allow the depreciation M/s. Chalet Hotels Ltd u/s 32 of the Act. Ground No. 2 of the Revenue therefore stands dismissed.

Ground No. 1 of this appeal relates to disallowance of Rs.1,52,49,750/- made u/s 69C of the Act by the AO in respect of payments made to M/s Nina Concrete Systems Pvt Ltd and M/s Ceetech Systems. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO to justify this addition and the Ld. CIT(A) to allow relief is verbatim same as in AY 2012-13. 33. Following our reasons and conclusions recorded in Paras 13 to 23 above, we hold that the Ld. CIT(A) had rightly deleted the disallowance of Rs.1,52,49,750/- made by the AO u/s 69C of the Act. Accordingly Ground No. 1 raised by the Revenue in their appeal is dismissed.

Ground Nos. 2 to 4 raised by the Revenue is against the action of the Ld. CIT(A) deleting the disallowance made by the AO under Section 14A of the Act in accordance with Rule 8D both while M/s. Chalet Hotels Ltd computing income under normal provisions and book profit u/s 115JB of the Act. Facts in brief are that the assessee held investments in shares of various associate companies, none of which yielded any exempt income during the year. The AO however had applied the provisions of Section 14A read with Rule 8D to make disallowance to the tune of Rs.16,04,12,564/-. On appeal, the Ld. CIT(A) relying on the decision of the Hon’ble Bombay High Court in the case of Nirved Traders Pvt. Ltd. (ITA No. 149 of 2017) held that, in absence of exempt income, no disallowance u/s 14A was warranted. The Ld. CIT(A) therefore deleted the disallowance made by the AO. Aggrieved by this action of the Ld. CIT(A), the Revenue is now in appeal before us.

Heard both the parties. It is noted that similar issue had come up for consideration in assessee’s own case for AY 2015-16 in ITA No. 3747/Mum/2019. In that case, this Tribunal had held that the disallowance cannot exceed the exempt income. The relevant findings of the Tribunal are noted to be as follows :- “We noted that the short point of dispute is whether the disallowance under Rule 8D(2)(iii) is to be restricted to the extent of exempt income i.e. dividend income earned by assessee at Rs. 13,17,233/- or the disallowance as suo-moto computed by assessee at Rs. 5,86,52,973/-. Here, we have gone through the decision of Hon’ble Supreme Court in the case of Maxopp Investments Ltd. (supra), wherein the Hon’ble Supreme Court has categorically held that the disallowance cannot exceed the exempt income. Hence, we delete the suo-moto disallowance made by assessee at Rs. 5,86,52,973/- and restricted the disallowance to the M/s. Chalet Hotels Ltd extent of exempt income claimed by assessee at Rs. 13,17,233/-. We direct the Assessing Officer accordingly.”

Applying the ratio decidendi laid down in the above decision (supra), since the assessee did not earn any exempt income during the relevant year, we do not see any infirmity in the action of the Ld. CIT(A) in having deleted the disallowance of Rs.16,04,12,564/- made under Section 14A read with Rule 8D(2).

The Ld. DR appearing for the Revenue however had cited the Explanation inserted in Section 14A by the Finance Act, 2022 by which even if an assessee did not earn any exempt income, the provisions of Section 14A would still apply. The Ld. AR has rightly pointed out that the amendment to Section 14A introduced by the Finance Act 2022 has been made applicable by the Legislature from Assessment Year 2022-23 and onwards and therefore did not have any application in the relevant AY 2014-15. We note that the Revenue had raised similar contention in the case of ACIT vs K Raheja Corporate Services Pvt. Ltd. (ITA No. 2521/Mum/2021). Rejecting the same, this Tribunal had held that the Explanation introduced in Section 14A of the Act by the Finance Act 2022 had prospective application. Accordingly, it was held that, if during the relevant year, the assessee has not earned any tax-free income, disallowance of expenditure u/s 14A of the Act was not permissible. The relevant findings in this regard are noted to be as follows:

This being the case, Explanation 3C is clarificatory - it explains Section 43B(d) as it originally stood and does not purport to add a new condition retrospectively, as has wrongly been held by the High Court.

Third, any ambiguity in the language of Explanation 3C shall be resolved in favour of the assessee as per Cape Brandy Syndicate v. Inland Revenue Commissioner (supra) as followed by judgments of this Court - See Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 at paras 60 to 70 per Kapadia, C.J. and para 333, 334 per Radhakrishnan, J ." 47. According to Ld. AR, therefore the amendment brought in by Finance Act, 2022 cannot be said to be retrospective and for that proposition he cited the Constitution Bench decision of the Hon'ble Supreme Court in the case of CIT vs. Vatika Township Pvt. Ltd. (supra) wherein it was held as under: "42.1. "Notes on Clauses" appended to the Finance Bill, 2002 while proposing insertion of proviso categorically states that 'this amendment will take effect from 1 .6.2002.' These become epigraphic 1 words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that a few other amendments in the Income tax Act made by the same Finance Act specifically making those amendments retrospective. For example, clause 40 seeks to amend S. 92-F. Clause (iii-a) of S. 92-F is amended "so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a contract ". (emphasis supplied). This amendment takes effect retrospectively from 01.04.2002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legislature is fully aware of three concepts : i) prospective amendment with effect from a fixed date; ii) retrospective amendment with effect from a fixed anterior date; and M/s. Chalet Hotels Ltd iii) clarificatory amendments which are retrospective in nature."

In a more recent decision in Commissioner of Income Tax vs. Vatika Township Pvt. Ltd. (2015) 1 SCC 1, a Constitution Bench of this Court held thus: 29. In M/s. Vijay Industries (supra), decided on 1 March 2019, a three judge Bench of this Court held that the provisions of Section 80AB which were introduced by the Finance (No.2) Act, 1980 with effect from 1 April 1981 could not be regarded as clarificatory in nature. The Court held that the provision was made with prospective effect and the amendment would not apply to assessment year 1979-1980 and 1980-1981 because the amended provision was brought on the statute book after the assessment years in question.

In conclusion, we therefore, hold that the amendment which was brought by Parliament to the Explanation to Section 73 by the Finance (No 2) Act 2014 was with effect from 1 April 2015 . In its legislative wisdom, the Parliament amended Section 43 (5) with effect from 1 April 2006 in relation to the business of trading in derivatives, Parliament brought about a specific amendment in the M/s. Chalet Hotels Ltd Explanation to Section 73, insofar as trading in shares is concerned, with effect from 1 April 2015 . The latter amendment was intended to take effect from the date stipulated by Parliament and we see no reason to hold either that it was clarificatory or that the intent of Parliament was to give it retrospective effect.

The consequence is that in A.Y. 2008-2009, the loss which occurred to the assessee as a result of its activity of trading in shares (a loss arising from the business of speculation) was not capable of being set off against the profits which it had earned against the business of futures and options since the latter did not constitute profits and gains of a speculative business."

This amendment will take effect from 1 st April, 2022. 6.It is also proposed to amend sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Income -tax Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act. 7.This amendment will take effect from 1 st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years."

We note that, following the above and the later judgment of the Hon’ble Delhi High Court in the case of PCIT Vs M/s Era Infrastructure India Ltd (ITA No. 204 of 2022), similar view has been expressed by the coordinate Bench of this Tribunal in the case of DCIT Vs Welspun Steel Ltd (ITA No. 2137/Mum/2021). The relevant findings are noted to be as under :-

We note that the Mumbai Bench of the Tribunal has, in the case of Assistant Commissioner of Income Tax- Circle 3(1)(1) Vs Assessment Year: 2015-16 Bajaj Capital Ventures (P.) Ltd.: [2022] 140 taxmann.com 1 (Mumbai - Trib.)[29-06-2022] and also in the case of Assistant Commissioner Of Income Tax Vs. K Raheja Corporate Services Private Limited [ITA No. 2521 to 2527], held that the amendments to Section 14A introduced by the Finance Act 2022 shall apply from Assessment Year 2022-23 and onwards. Further, Hon’ble Delhi High Court in the case of Principal Commissioner of Income-Tax (Central) -2 Vs. M/s Era Infrastructure India Ltd: [ITA No. 204 of 2022, decided on 20.07.2022] has rejected the contention of the Revenue that amendments to Section 14A introduced by the Finance Act 2022 shall have retrospective effect. Accordingly, Ground No.1 raised by the Revenue is dismissed.”

Ground No. 5 taken in the appeal by the Revenue is against the Ld. CIT(A)’s action of deleting the deemed rental income of Rs.2,64,03,585/- taxed by the AO under the head ‘Income from House Property’ in relation to the unsold units held by the assessee at the end of the relevant year. The facts as noted are that, the assessee is engaged in the business of Real Estate development. The AO, in the course of the assessment, had noted that the appellant had a stock of completed units valuing Rs.44,37,57,735/- which were lying vacant and unsold. Referring to the decision of the Hon’ble Delhi High Court in the case of Ansal Housing Finance and Leasing Company (354 ITR 180), the AO held that the vacant units in the possession of the assessee are liable to be assessed at their notional rental income under the head ‘Income from house property’. Since the assessee failed to provide the Annual Lettable Value (ALV) of these vacant units, the AO estimated 8.5% of the value of inventory by way of notional rent income on these properties. The AO, accordingly, computed income of Rs.2,64,03,585/- under the head income from house property after allowing standard deduction for 30% u/s 24(b) of the Act. Being aggrieved by the order of the AO, the assessee preferred an appeal M/s. Chalet Hotels Ltd before the Ld. CIT(A). The Ld. CIT(A) relying on the decisions of this Tribunal in the cases of M/s Harware Construction Pvt Ltd (101 taxmann.com 168) & M/s Runwal Constructions (ITA No. 5408/Mum/2016) deleted the aforesaid addition made by the AO. Hence, the Revenue is now in appeal before us.

We have heard the rival submissions and perused the material placed before us. It is a fact on record that the assessee had unsold closing stock, which was lying vacant during the relevant AY 2014-15. The AO is noted to have estimated the notional income by relying on the decision of the CIT vs Ansal Housing Finance and Leasing Company Limited (supra). We note that the coordinate Bench in the case of DCIT v. M/s. Inorbit Malls Pvt. Ltd. in dated 11.10.2022 has recently examined this particular issue and after considering the jurisprudence available on this subject [which was also relied upon by the Ld. CIT(A) and the assessee before us], has departed from the earlier position and answered the same in favour of the Revenue. The relevant findings of this Tribunal are reproduced hereunder :- "7. We have heard the rival submissions and perused the relevant finding given in the impugned orders. The main controversy as raised in ground No.1 is, whether notional income from unsold units held as stock-in-trade can be assessed under the head, "income from house property". It has been canvassed before us that, there are divergent views on this issue, one view proposed by the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Neha Builders (Supra) which is in the favour of the Assessee, whereas the other view has been proposed in the decision of the M/s. Chalet Hotels Ltd Hon'ble Delhi High Court in the case of the CIT Vs. Ansal Housing Financial Leasing Ltd. (Supra) which is in favor of the revenue. Therefore, judgment favorable the Assessee should be followed. 8. We have gone through the judgment in the case of CIT vs. Neha Builders, wherein following question of law was referred to the Hon'ble High Court: -. "Whether, on the facts and in the circumstances of the case the rental income received from any property in the construction business can be claimed under the head of 'Income from property even though they said property was included in the closing stock and expenses on maintenance were debited to the profit and loss account?" The facts in that case was that the Assessee Company was engaged in the business of construction of property and one of the building property was included the closing stock in the balance sheet drawn for the business. The Assessee has filed the revised returned submitting that a part of its property was given on rent and the income derived on that basis should be computed under the head income from house property and not business income. The Hon'ble High Court, had noted the following facts: "Assessee Company is engaged in the business of construction of property, one of the building properties was included in the closing stock in the balance-sheet drawn for the business. The assessee filed a revised return submitting that a part of its property was given on rent and the income derived on that basis should be computed under the head "Income from house property and not as business income. The Assessing Officer, during the course of the assessment proceedings, observed that the expenses on maintenance of the property were debited to the profit and loss account and so also the building was shown as stock-in- trade, therefore, the prop would partake the character M/s. Chalet Hotels Ltd of the stock and any income derived from the stock cannot be taken to be income from the property. The Tribunal allowed the appeal observing inter alia, that any dividend received on the shares or any interest received from the bank would be taken to be income from other sources, therefore, any income derived under the head of "rent" would also become income from the property, it accordingly allowed the appeal and directed reconsideration of the matter." 8.1. The Hon'ble High Court, then observed and held as under; "9. From the order passed by the learned Commissioner of Income-tax 7 (Appeals), it would clearly appear that the case of the assessee was that the company was incorporated with the main object of purchase, take on lease, or acquire by sale, or let- out the buildings constructed by the assessee. The development of land or property would also be one of the businesses for which the company was incorporated".

True it is, that income derived from the property would always be termed as "income from the property", but if the property is used as "stock-in-trade", then they said property would become or par take the character of the stock, and any income, derived from the stock, would be "income" from the business, and not income from the property. If the business of the assessee is to construct the property and sell it or to construct and let-out the same, then that would be the "business" and the business stocks, which may include movable and immovable, would be taken to be "stock-in-trade", and any income derived from such stocks cannot be termed as "income from property". Even otherwise, it is to be seen that there was distinction between the "income from business" and "income from property" on one side, and "any income from other sources" The Tribunal, in our considered opinion, was absolutely unjustified M/s. Chalet Hotels Ltd in comparing the rental income with the dividend income on the shares or interest income on the deposits. Even otherwise, this question was not raised before the subordinate Tribunals and, all of sudden, the Tribunal started applying the analogy. From the statement of the assessee, it would clearly appear that it was treating the property as "stock-in- trade". Not only this, it will also be clear from the records that, except for the ground floor, which has been let out by the assessee, all other portions of the property constructed have been sold out. If that be so, the property, right from the beginning was a "stock in-trade". Agreeing with the submissions made by Mr. Naik, learned counsel for the Revenue, we hold that the Tribunal was not correct in granting the appeal of the assessee. For the reasons aforesaid, the reference deserves to be answered in favor of the Revenue. It is accordingly answered and stands disposed of No costs."

Thus, there was no occasion by the Hon'ble High Court to deal and decide the case were the property shown in the closing stock was not rented and income was to be computed on the basis of some notional rent. Albeit there was actual rent received from the property which was included in the closing stock and the controversy was, whether the rental income derived from letting out the flat is assessable under the head income from house property or business income, which Hon'ble High Court held that it should be assessed as business income. 10 On the contrary, on this point, Hon'ble Jurisdictional High Court in the case of Mangla Homes Pvt. Ltd. Vs. ITO, reported in (2010) 325 ITR 281(Bombay) wherein, the Hon'ble Bombay High Court on the facts where the Assessee Company was incorporated with the object of dealing in properties and the main object of the company as contained in the memorandum of association was to M/s. Chalet Hotels Ltd carry on business of dealing and investment in properties, flats, warehouses, shops, commercial and residential houses. The ancillary object was to carry on business of leasing, hire purchase, renting, selling, re-selling or otherwise dispose of all forms of movable or immovable properties and assets including buildings, godowns, warehouses and real estate of any kind. The Assessee claimed by the assessee that the flat could not be sold because of recession in the market and hence it let out the flats on license basis for temporary period and earned monthly rental income as license fees. The assessee treated the said rental income as income from the business. The authorities below have concurrently found in favor of the revenue that the rental income cannot be treated as income from business and treated it as "income from house property" under section 22 of the Income-tax Act. The question thus raised was whether the Tribunal is right in so concluding that the rental income is an income from house property. Hon'ble High Court after referring to various decisions of the Hon'ble Supreme Court held that rental income owned by the Assessee was assessable as income from house property.

In another case of CIT Vs. Gundecha Builders reported in (2019) 102 taxmann.com 27 (Bombay), where the Assessee was engaged in the business of development of "Real Estate Project" rental income received from unsold portion of property constructed by it was assessable tax as income from house property.

Thus, in all these cases there was actual receipt rental income from the unsold stock of property and the controversy of whether income is to be assets under the head income from house property or business income. Hon'ble Bombay High Court in all the aforesaid decisions has taken a contrary view to judgment of Hon'ble Gujarat High Court in the case of Neha Builders and held that the rent received from property held as stock-in-trade and any rent received on such unsold closing stock, then income is assessable as „income from house property‟ and not as a "business income".

The aforesaid ratio and principle, either of the Hon'ble Gujarat High Court or the Hon'ble Bombay High Court is not applicable on the facts of the present case, because, here in this case the Assessee had unsold units which were lying vacant and were in the possession of the Assessee Company. Assessing Officer held that these properties are liable to be taxed on notional rental income under the head „income from house property‟ on the basis of ALV. It is not a case that there is any actual receiving of rent as was the case before the Hon'ble Gujarat High Court and Hon'ble Bombay High Court. Had it been a case were Assessee have fetched rental income from the unsold stock, then following the principle laid down by the Hon'ble Bombay High Court same would have been assessed under the head income from house property.

One very important development took place post these judgments, that an amendment has been brought in the statute in section 23(5) which is applicable from AY 2018-2019 which reads as under: "Where the property consisting of any building or land appurtenant there to is held as stock-in trade and the property of any part of the property is not let during the whole or any part of M/s. Chalet Hotels Ltd the previous year, the annual value of such property or part of the property, for the period up to one year form 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." It is trite that the said amendment has to be given effect prospectively from 01.04.2018 as mentioned in the Explanatory Notes to the provisions of the Finance Act, 2017. It is a cardinal principle of the interpretation that the normal presumption which respect to an amendment is that is applicable prospectively unless and until specifically stated otherwise. The logic behind such as interpretation is that the law should govern current 263 to 266/MUM/2022 (A.Y: 2012-13) Moraj Building Concepts Pvt Ltd activities; i.e. to say "lex prospicit non respicit", which means that "The Law looks forward and not backward."

Now, that specific provision has been brought in the statute which provides that, if building or land held as stock in trade and the property has not been let out during the whole or any part of the previous year, then annual value of such property after the period of one year (which was increased 2 years), shall be computed as income from house property and up to period of one year/two years income shall be taken to be ‘nil’. Thus, when specific provision has been brought with the effect from 01.04.2018 which cannot be applied retrospectively, then in our humble opinion it cannot be imputed that ALV of the flats held as stock in trade should be taxed on notional basis prior to AY 2018-19. Without any legislative intent or specific provision under the Act, such notional or deeming income should not be taxed as cardinal principle, because assessee is not aware that any hypothetical income is to be shown when he has not received any real or actual income. In our view of Hon'ble Delhi High Court is too harsh an interpretation.

Since, even prior to the amendment, there is one High Court judgment of Hon'ble Delhi High Court which is directly on this issue and against the Assessee, therefore same needs to be followed. Accordingly, we hold that Assessing Officer is correct in computing ALV on notional rent on unsold stock, but with following riders and directions to the AO as discussed herein after.”

Following the above decision, we, in principle, uphold the action of the AO seeking to tax the notional rental income in relation to the vacant unsold units lying as stock-in-trade with the assessee at the end of the relevant AY. Hence, the order of the Ld. CIT(A) to that extent is reversed.

The next question before us is the manner of computation of ALV for arriving at the notional rental income assessable u/s 22 & 23 of the Act. It is noted that the AO had relied upon the decisions of ITO Vs Chem Mech (P) Ltd (83 ITD 427) and ACIT Vs Om Prakash & Co. (2 SOT 1) to justify the estimation at 8.5% of value of inventory. The Ld. AR contended that the AO’s action of estimating rent at 8.5% of the value of inventory was arbitrary, without any basis and highly excessive. The Ld. AR brought to our notice the judgment of Hon'ble Bombay High Court in the case CIT Vs. Tip top Typography (368 ITR 330), wherein, it has been held that the municipal annual lettable value is definitely a safe-guide and can be considered to be bona fide rental value of the property. The Court however also held that, even the market rate in the locality is an approved method for determining M/s. Chalet Hotels Ltd the fair rental value. The High Court however caveated the same by observing that it can be applied only when the AO can bring reliable material and evidence to show that the annual municipal value does not represent the fair rental value, and only then can he resort to enquire about the prevailing market rate in the locality. Upon query from the Bench, the Ld. AR submitted that the municipal annual lettable value of the property in question was not available. He, however, submitted that, the estimation of rental value at 8.5% of value of inventory was highly excessive. He explained that in the decisions in the cases of ITO Vs Chem Mech (P) Ltd (supra) and ACIT Vs Om Prakash & Co. (supra) relied upon by the AO, the years in question were the 1990s which was prior to liberalization of the economy and that the demography, economic scenario, real estate prices, rental yields etc. were completely different and distinguishable. He pointed out that it was in the 2000s that the real estate sector in India saw a dramatic upswing and that the property prices were at an all-time high post 2000. Even the demography, lifestyle needs in metro cities underwent a complete change and that the property prices vis-à- vis the rental yields had changed drastically. The Ld. AR invited our attention to the rental yield analysis research report published by Knight Frank in the year 2018, a globally recognized real estate consultant, which is available in public domain. The Ld. AR showed us that the rental yields of properties in Indian metro-cities are generally 2%-3% p.a. He also referred to the recent report published by research website, www.moneycontrol.com in which, a survey conducted across India revealed that the rental yields in real-estate projects in metro cities was 2% p.a. The Ld. AR also explained that the M/s. Chalet Hotels Ltd reason for the lower rental yields was that, any real estate property yielded return primarily in two modes viz., (a) rent & (b) price appreciation. According to him, the return of 8.5% estimated by the AO was inclusive of both rental yield and price appreciation of the property. He demonstrated that out of the 8.5%, only 1%-2% generally comprised of rental yield and 6.5%-7.5% represented the price appreciation over a year. According to him, as the municipal value of the vacant units was not available, the notional fair rental value could otherwise be estimated at 1.5%-2% of the value of the unsold inventory.

To further buttress his contention, the Ld. AR placed before us a copy of rent agreement entered into by one of their investors, Mr. S Pasupuleti with a tenant in the same premises. It is noted that the investor had leased out their premises being Flat No. 703 admeasuring 3260 sq ft for rent of Rs.4,80,000/- per annum in the FY 2017-18 which worked out to Rs.147.24 per square feet. Reading of the rental agreement revealed that the flat was fully furnished and equipped with all fixtures, fittings and amenities and was ready to be occupied by the tenant. The relevant description of the premises, as noted from the said agreement, is set out below :- “That the Lessor hat the LESSOR hereby grants to the LESSEE, lease to enter into and use and remain in the said premises along with the existing fixtures and fittings. As such the premises is provided with Six AC's 8 No's ceiling fans (all bed rooms, kitchen, maid room), 4 No's Geysers in attached toilet, The premise is provided with 4 Ward robes in Bed rooms & kitchen with modular kitchen. All the rooms are provided with ample light fittings (29). Kitchen is provided with Hub and four burner stove.

The Ld. AR has further brought to our notice that even the appellant had similarly let out a fully-furnished flat admeasuring 4375 sq ft with luxurious amenities and modern furniture, fittings etc. for annual rent of Rs.9,00,000/- which worked out to Rs.205.71 per square feet. Referring to these two sample rent agreements, the Ld. AR argued that the rental value of the property nowadays was highly influenced by the quality of the amenities, fixtures, fittings, furniture etc. vis-à-vis a bare shell flat. The Ld. AR placed before us a comparative description of the furniture & fixtures made available in a luxuriously furnished flat (which was let out by them for Rs.205.71 / sq ft), fully furnished flat (which was let out by investor for Rs.142.74 / sq ft) and a bare-shell flat (which represented the stock of unsold flats lying with the assessee) to demonstrate the difference in amenities and consequently the variation in the rental rates.

The Ld. AR pointed out that, the rental agreements showed that the difference in rental yield between luxuriously furnished flat and fully furnished flat was almost 40%. Referring to comparative statement placed before us, he thus urged that, the rental rate of the fully furnished flat ought to be further discounted by 50% to arrive at the comparable rental yield of a bare-shell flat for AY 2018-19. The M/s. Chalet Hotels Ltd Ld. AR explained that, a bare-shell flat (unsold inventory) which did not even have basic amenities cannot be expected to earn equivalent rental yield of a furnished flat. According to him, therefore a reasonable expected return/rent of a bare-shell flat (unsold inventory) for AY 2018-19 would work out to Rs.73.62 per sq ft. The Ld. AR submitted that, this rental rate would require further inflation / escalation adjustment of 10% per year to arrive at the fair market value rates for AYs 2014-15, 2016-17 & 2017-18. The Ld. AR accordingly worked out the estimated fair rental value, in line with the aforementioned calculations, which is noted to be as follows :-

The Ld. AR accordingly pleaded that the annual lettable value of the unsold inventories ought to be estimated in the range of 1.5% to 2%, as set out in the Table above. Per contra, the Ld. DR supported the action of the AO.

Having considered the rival submissions and the decision of the Hon’ble Bombay High Court (supra), we note that the annual municipal value of the property in question, which is otherwise the safe-guide for estimating of annual value, is not available. Accordingly, the prevailing market rate of the property in question has to be taken into account to ascertain the annual value of the unsold M/s. Chalet Hotels Ltd units for the purposes of Section 22 & 23 of the Act. Having perused the decisions relied upon by the AO to estimate annual value at 8.5%, we note that the years involved in these cases were 1988-89 & 1991- 92. We agree with the Ld. AR that the economics of real-estate sector, demography, people’s lifestyle, infrastructure in urban areas, overall economic scenario was vastly different and hence the estimation exercise undertaken in these decisions cannot be considered as a comparable barometer for the years in question before us. Instead, having regard to the research / survey reports cited by the Ld. AR, we find force in the assessee’s plea that the rental yield of 8.5% estimated by the AO on the value of the vacant inventory was excessive in today’s scenario. As noted from these market research reports, the rental yield of immovable properties in metro cities are generally in the range of 2-3% of the value of investment. We note that, this Tribunal in the case of DCIT Vs Rustomjee Evershine Joint Venture in dated 31.07.2023 has also countenanced the Revenue’s action of estimating rental yield at 2% of the value of unsold inventory.

It is also noted that the assessee and another unrelated party had let out premises in the same building at varied rates of Rs.205 per sq ft and Rs.147 per sq ft respectively. The variation in the rental rates in the same premises is noted to be attributable to the quality and extent of amenities, fixtures, fittings, furniture etc. provided by the respective lessors. Having regard to the comparative details of a luxuriously furnished flat, fully furnished flat and bare-shell flat (unsold inventory), we find sufficient force in the Ld. AR’s plea that the fair M/s. Chalet Hotels Ltd rental rate of the unsold inventories, which were bare-shell accommodation, would indeed be lower than the rental rate of a fully furnished flat i.e. Rs.147 per sq ft. We find it fit to allow further discount of 40% to the comparative rental rate of a fully furnished flat. According to us, therefore, the fair annual lettable value of the unsold properties for FY 2017-18 would work out to Rs.88.20 per sq ft [147 X 60%]. We agree with the Ld. AR that this rate has to be further adjusted for inflation/escalation. For this, we take cue from the Cost Inflation Index (‘CII’), and the adjusted fair rental rate for the year in question before us is worked out as under :-

In view of the above, the assessable deemed annual lettable value of the unsold inventory held by the assessee is calculated as follows :- Asst Year Rental Rate per Unsold space Gross Annual sq ft p.a. (in sq ft) Lettable Value AY 2014-15 Rs.71.33 1,24,435 Rs.88,75,949/-

The AO is thus directed to re-compute and assess the gross annual lettable value of the unsold inventory as laid down in the table above. Needless to say, the same shall be further subjected to standard M/s. Chalet Hotels Ltd deduction u/s 24(b) of the Act. With these directions, this ground of appeal stands disposed. Accordingly, ground raised by the Revenue is partly allowed.

In the result, the appeal of the Revenue in IT (SS) No. 2513/Mum/2021 stands partly allowed.

We now take up the appeals in IT(SS) No. 2507/Mum/2021 filed by the Revenue for AY 2016-17.

Ground No. 1 of this appeal relates to disallowance of Rs.4,00,214/- made u/s 69C of the Act by the AO in respect of payments made to M/s Nina Concrete Systems Pvt Ltd. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO to justify this addition and the Ld. CIT(A) to allow relief is verbatim same as in AY 2012-13. 55. Following our reasons and conclusions recorded while deciding the appeals for AY 2012-13, we hold that the Ld. CIT(A) had rightly deleted the disallowance of Rs.4,004,214/- made by the AO u/s 69C of the Act. Accordingly Ground No. 1 raised by the Revenue in their appeal is dismissed.

Ground Nos. 2 to 4 taken by the Revenue is against the Ld. CIT(A)’s action of deleting the further disallowance made by the AO u/s 14A of the Act in terms of Rule 8D. It is noted that the issue & M/s. Chalet Hotels Ltd facts relating to this ground is akin to Ground Nos. 2 to 4 taken by the Revenue in the appeal for AY 2014-15. Following our reasonings given while deciding the appeal for AY 2014-15, we uphold the Ld. CIT(A)’s action of deleting the disallowance u/s 14A of the Act both while computing income under normal provisions as well as book profit u/s 115JB of the Act. This ground therefore stands dismissed.

Ground No. 5 taken by the Revenue relates to the addition of Rs.2,11,75,927/- made by the AO by way of notional rental income under the head ‘House Property’ with reference to the vacant & unsold units held by the assessee at the year-end in its stock-in-trade. After considering the rival submissions, it is observed that, except variation in the number of units lying unsold and the relevant figures, the reasoning adopted both by the AO to justify this addition and the Ld. CIT(A) to allow relief is verbatim same as involved in the appeal in for AY 2014-15.

Following our reasons and conclusions recorded at Paras 41 & 42 above while deciding the appeals for AY 2014-15, we uphold in principle the order of the holding that the provisions of Section 22 & 23 of the Act was applicable in the relation to the vacant & unsold units held by the assessee at the year-end. Also, following the methodology as discussed and laid down in Paras 43 to 51 above, the fair annual lettable value of the unsold inventory is worked out as under :-

In view of the above, the assessable deemed annual lettable value of the unsold inventory held by the assessee stands re-computed as follows :- Asst Year Rental Rate per Unsold space Gross Annual sq ft p.a. (in sq ft) Lettable Value AY 2016-17 Rs.82.36 1,05,385 Rs.86,79,509/-

The AO is accordingly directed to re-compute and assess the gross annual lettable value of the unsold inventory, in the manner as laid down in the table above. The same shall also be subjected to standard deduction u/s 24(b) of the Act. Hence, this ground raised by the Revenue is partly allowed.

Overall therefore, the appeal of the Revenue in ITA (SS) No. 2507/Mum/2021 stands partly allowed.

We now take up the appeals in IT(SS) Nos. 1756/Mum/2021 filed by M/s Gentex Hardware & Parks Pvt Ltd for AY 2014-15. Before adverting to the grounds taken in this appeal, it is relevant to take note that, with effect from AY 2014-15, the Hotel Division of M/s Magma Warehousing & Distribution Pvt Ltd stood demerged into this M/s. Chalet Hotels Ltd assessee. The AO is therefore noted to have made addition/s u/s 69C in relation to the payments made by the transferor company, M/s Magma Warehousing & Distribution Pvt Ltd towards the hotel project and has made consequential disallowance of depreciation, basis the disallowance / reduction made to the cost of CWIP in the earlier assessments of M/s Magma Warehousing & Distribution Pvt Ltd, in the hands of the resulting company, M/s Gentex Hardware & Parks Pvt Ltd from AY 2014-15 and onwards.

Ground No. 1 of the appeal relates to disallowance of Rs.31,622/- made u/s 69C of the Act in respect of payments made to M/s Vistar Constructions Pvt Ltd. during the year. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify this addition is verbatim same as in the matters of M/s Magma Warehousing and Distribution Pvt Ltd (since merged with M/s Chalet Hotels Ltd) in AY 2012-13.

Following our reasons and conclusions recorded while deciding the appeals of M/s Chalet Hotels Ltd (successor to M/s Magma Warehousing & Distribution Pvt Ltd) for AY 2012-13 [Paras 13 to 23 above], we hold that the disallowance of Rs.31,622/- made by the AO u/s 69C of the Act was unsustainable both on facts and in law. We therefore direct the AO to delete the impugned addition made u/s 69C of the Act for AY 2014-15. Accordingly Ground No. 1 of the assessee’s appeal is allowed.

We accordingly follow our reasons and conclusions recorded while deciding the Revenue’s appeal for AY 2013-14 in the matters of M/s Magma Warehousing and Distribution Pvt Ltd (since merged with M/s Chalet Hotels Ltd) wherein we have held that the addition/s made by the AO u/s 69C of the Act was unjustified. We thus direct the AO to restore the WDV of the CWIP back to the value as declared by the assessee in the return of income. Consequentially, the reduction to the current year’s depreciation as well as the unabsorbed depreciation brought forward from the transferor company, made by the AO, stands deleted. This ground therefore stands allowed.

In the result, the appeal of the assessee in IT(SS) Nos. 1756/Mum/2021 stands allowed.

We now take up the appeals in IT(SS) Nos. 1755/Mum/2021 & 1754/Kol/2021 filed by assessee, M/s Gentex Hardware & Parks Pvt Ltd for AYs 2015-16 & 2016-17. The first ground taken in both these appeals relates to denial of consequential depreciation claimed on CWIP. It is noted that this ground is akin to Ground No. 2 taken by this assessee in the appeal for earlier AY 2014-15. Following our M/s. Chalet Hotels Ltd reasonings given while deciding the appeal for AY 2014-15, the AO is directed to delete the disallowance made in relation to depreciation claimed by the assessee u/s 32 of the Act in the respective assessment orders for AYs 2015-16 & 2016-17. Hence, these grounds stands allowed.

Ground No. 2 taken in both these appeals relates to claim for deduction of education cess paid on income-tax, which has not been pressed by the assessee and therefore the same stands dismissed. Hence, both these appeals of the assessee in IT(SS) Nos. 1754 & 1755 /Mum/2021 stands partly allowed.

We now take up the appeal in IT(SS) Nos. 1401/Mum/2021 & 1400/Mum/2021 (Assessee’s Appeal) for AYs 2017-18 & 2018-19 respectively along with the appeal in IT(SS) No. 2505/Mum/2021 (Department’s Appeal) for AY 2017-18 . It is relevant to take note that, the Hotel Division of M/s Magma Warehousing & Distribution Pvt Ltd, which was demerged into M/s Genext Hardware and Parks Pvt Ltd with effect AY 2014-15, was subsequently again demerged & transferred to M/s Chalet Hotels Ltd with effect from AY 2017-18 and onwards. The AO is therefore noted to have considered the reduced cost / WDV of CWIP, after adjusting for the disallowances made u/s 69C of the Act, in the earlier assessments of M/s Magma Warehousing & Distribution Pvt Ltd & M/s Gentex Hardware & Parks Pvt Ltd across AYs 2012-13 to 2016-17 and has accordingly re-computed and allowed reduced depreciation u/s 32 of the Act with reference to the M/s. Chalet Hotels Ltd aforesaid revised CWIP in the hands of the transferee company, M/s Chalet Hotels Ltd from AY 2017-18 and onwards.

Ground No. 2 of the assessee’s appeal for AY 2017-18 & sole Ground No. 1 of the assessee’s appeal for AY 2018-19 relates to denial of consequential depreciation claimed on CWIP. It is noted that this ground is akin to Ground No. 2 taken by the demerged company, M/s Genext Hardware & Parks Pvt Ltd in AY 2014-15. Following our reasonings given while deciding that appeal for AY 2014-15, the AO is directed to delete the disallowance made in relation to depreciation claimed by the assessee u/s 32 of the Act in the respective assessment orders for AYs 2017-18 & 2018-19. Hence, these grounds stands allowed.

Ground No. 1 of the assessee’s appeal for AY 2017-18 and Ground Nos. 1 & 2 of revenue’s appeal for AY 2017-18 relates to revised claim made by the assessee in the return filed u/s 153A of the Act for the relevant AY 2017-18 claiming brought forward short term capital loss of Rs.57,22,815/- from AY 2016-17 as opposed to long term capital loss of Rs.8,89,01,133/- as originally claimed by the assessee in the return filed u/s 139 of the Act. The assessee had explained that it had incurred short term capital loss of Rs.57,22,815/- on sale of shares of M/s Intime Properties Pvt Ltd which was erroneously regarded as long term in nature in the return of income filed for AY 2016-17 and consequently the assessee had erroneously claimed and carried forward long term capital loss of Rs. 8,89,01,133/- instead of short-term capital loss of Rs.57,22,815/- incurred on sale of M/s. Chalet Hotels Ltd shares to the relevant AY 2017-18. The appellant had revised this mistake in the return of income filed u/s 153A of the Act for AY 2017- 18 and accordingly claimed brought forward short-term capital loss of Rs.57,22,815/- from AY 2016-17. The AO in the assessment order passed u/s 143(3)/153A of the Act had denied this revised claim holding that new deduction or allowance cannot be claimed in the assessments framed u/s 153A of the Act. On appeal the Ld. CIT(A) is noted to have directed the AO to allow set-off for correct brought forward losses by observing as under :- 5.9 The case of the assessee represents an abated assessment. In such an assessment, the normal assessment and the assessment pursuant to search action merge into one. Hence, the normal scope of assessment is retained by the AO/assessee, in addition to further reliance on the findings of the search. Hence, it is wrong on the part of the AO to claim that no further valid claims can be made by an assessee through a revised return, In an abated case, the AO is free to conduct any type of inquiries and made any such addition which he deems fit irrespective of its connection with the search cases. Such freedom is to be allowed on either side. The assessee is also free to file revised return to make a valid claim before the AO within the specified time which the AO is duty bound to look into.

Being aggrieved by the above order of the Ld. CIT(A), both the parties are now before us. It is not in dispute that AY 2017-18 is an abated assessment. According to Ld. AR once the year under consideration is held as "abated year", it becomes open for an assessee to make a fresh claim which needs to be considered on merits and therefore he contended that the Ld. CIT(A) was well within his jurisdiction directing the AO to allow the correct claim for brought forward capital loss. According to him however, the AO had not allowed the claim for brought forward STCL of Rs.57,22,815/- of AY 2016-17 since the said claim originally not allowed by this Tribunal in assessee’s case for AY 2016-17 vide their order in dated 14.06.2022. The Ld. AR brought to our notice that the assessee had preferred Miscellaneous Application before this Tribunal in MA No.358/Mum/2022 pursuant to which the order dated 14.06.2022 was recalled and thereafter this Tribunal vide order dated 11.05.2023 directed the AO to verify and allow the claim for short term capital loss. He thus urged that the AO be directed to take cognizance of the same and accordingly allow the set-off for the STCL of AY 2016-17 while computing the taxable income for AY 2017-18. Per contra, the Ld. DR supported the action of the AO.

In the present facts for the subject assessment years it is an undisputed position that the pending assessment before the Assessing Officer consequent to return filed under Section 139(1) of the Act for the subject Assessment years had abated. This was on account of the search and as provided in second proviso to Section 153A(1) of the Act. The consequence of notice under Section 153A(1) of the Act is that assessee is required to furnish fresh return of income for each of the six assessment years in regard to which a notice has beenissued. It is this return which is filed consequent to the notice which would be subject of assessment by the Revenue for the first time in the case of abated assessment proceedings. Consequent to notice under Section 153A of the Act the earlier return filed for the purpose of assessment which is pending, would be treated as non est in law. Further, Section 153A(1) of the Act itself provides on filing of the return consequent to notice, the provision of the Act will apply to the return of income so filed. Consequently, the return filed under Section 153A(1) of the Act is a return furnished under Section 139 of the Act. Consequently, the assessee-assessee is being assessed in respect of abated assessment for the first time under the Act. Therefore the provisions of the Act which would be otherwise applicable in case of return filed in the regular course under Section 139(1) of the Act would also continue to apply in case of return filed under Section 153A of the Act and the case laws on the provision of the Act would equally apply.

We observe that similar view was expressed by Hon'ble Bombay High Court while adjudicating similar issues in the case of JSW Steel Ltd (supra) and held as under: - "13. In the present case, search was conducted on the assessee on 30-11-2010. At that point of time assessment in the case of assessee for the assessment year 2008-09 was pending scrutiny since notice M/s. Chalet Hotels Ltd under section 143(2) of the Act was issued and assessment was not completed. Therefore, in view of the second proviso to section 153A of the said Act, once assessment got abated, it meant that it was open for both the parties, i.e. the assessee as well as revenue to make claims for allowance or to make disallowance, as the case may be, etc. That apart, assessee could lodge a new claim for deduction etc. which remained to be claimed in his earlier/regular return of income. This is so because assessment was never made in the case of the assessee in such a situation. It is fortified that once the assessment gets abated, the original return which had been filed looses its originality and the subsequent return filed under section 153A of the said Act (which is in consequence to the search action under section 132) takes the place of the original return. In such a case, the return of income filed under section 153A(1) of the said Act, would be construed to be one filed under section 139(1) of the Act and the provisions of the said Act shall apply to the same accordingly. If that be the position, all legitimate claims would be open to the assessee to raise in the return of income filed under section 153A(1). ….

From the above we conclude that in view of the second proviso to section 153A(1) of the said Act, once assessment gets abated, it is open for the assessee to lodge a new claim in a proceeding under section 153A(1) which was not claimed in his regular return of income, because assessment was never made/finalised in the case of the assessee in such a situation.

Reg. Question No.2 (a) Mr. Tejveer Sing, learned Counsel appearing for the revenue states that he is not pressing this question in view of the CBDT Circular No. 16 of 2017 dated 25th April, 2017. The above circular has clarified that income arising form the letting out of the premises in an Industrial Park/SEZ, are to be charged under the head "Profits and gains of business" and not under the head "Income from House Property". It further directs the department to withdraw/not press any appeal, filed, M/s. Chalet Hotels Ltd seeking to tax income from letting out of the premises in an Industrial Park under the head "income from house property". (b) In view of the above, as the question is not being pressed, no occasion to consider the same arises."

Following the above decision (supra), we uphold the order of the Ld. CIT(A) allowing the revised/modified claim raised by the assessee regarding claim for set-off of brought forward correct losses from AY 2016-17. Coming to the issue of quantification of the brought forward short term capital loss of AY 2016-17 eligible for set-off in AY 2017-18, the AO is directed to re-compute and allow the loss, as finally quantified and allowed to be carried forward in AY 2016-17 upon giving effect to the appellate order/s, in accordance with law. Accordingly, Ground Nos. 1 & 2 of the Revenue’s appeal stands dismissed and Ground No. 1 of the assessee stands allowed for statistical purposes.

Ground Nos. 3 to 5 taken by the Revenue in AY 2017-18 is against the Ld. CIT(A)’s action of deleting the further disallowance made by the AO u/s 14A of the Act in terms of Rule 8D. It is noted that the issue & facts relating to this ground is akin to Ground Nos. 2 to 4 taken by the Revenue in the appeal in for AY 2014-15. Following our reasonings given while deciding the appeal for AY 2014-15, we uphold the Ld. CIT(A)’s action of deleting M/s. Chalet Hotels Ltd the disallowance u/s 14A of the Act both while computing income under normal provisions as well as book profit u/s 115JB of the Act. This ground therefore stands dismissed.

Ground No. 6 taken by the Revenue relates to the addition of Rs.1,81,09,740/- made by the AO by way of notional rental income under the head ‘House Property’ with reference to the vacant & unsold units held by the assessee at the year-end in its stock-in-trade. After considering the rival submissions, it is observed that, except variation in the number of units lying unsold and the relevant figures, the reasoning adopted both by the AO to justify this addition and the Ld. CIT(A) to allow relief is verbatim same as involved in the appeal in for AY 2014-15.

Following our reasons and conclusions recorded at Paras 41 & 42 above while deciding the appeals for AY 2014-15, we uphold in principle the order of the holding that the provisions of Section 22 & 23 of the Act was applicable in the relation to the vacant & unsold units held by the assessee at the year-end. Also, following the methodology as discussed and laid down in Paras 43 to 51 above, the fair annual lettable value of the unsold inventory is worked out as under :- Asst Year CII Rental Rate per sq ft per annum* AY 2017-18 264 Rs.85.60 / sq ft *Base Year – AY 2018-19 [CII-272] : Rental Rate - Rs.88.20/sq ft M/s. Chalet Hotels Ltd 79. In view of the above, the assessable deemed annual lettable value of the unsold inventory held by the assessee stands re-computed as follows :- Asst Year Rental Rate per Unsold space Gross Annual sq ft p.a. (in sq ft) Lettable Value AY 2017-18 Rs.85.60 82,465 Rs.70,59,004/-

The AO is accordingly directed to re-compute and assess the gross annual lettable value of the unsold inventory, in the manner as laid down in the table above. The same shall also be subjected to standard deduction u/s 24(b) of the Act. Hence, this ground raised by the Revenue is partly allowed.