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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE JM:
The assessee has filed the appeal against the order of National Faceless Appeal Centre (NFAC), Delhi/ CIT(A) passed u/sec 143(3) and U/sec 250 of the Act. The assessee has raised the following grounds of appeal:
1. 1. In law and on facts the Ld. AO erred in computing the deemed rent on the stock in trade of the Appellant.
2. In law and on facts the Ld. AO erred in computing the deemed rent on the basis of notional interest on interest free deposit received by the Appellant 3. In law and on Shri Vijay Kishin Bhatia, Mumbai. - 2 - facts the Ld. AO erred in computing the income from house property without granting vacancy allowance to the Appellant for the period for which the property was vacant.
4. In law and on facts the Ld. AO erred in following the Hon'ble Delhi High Court Order which has been stayed by the Hon'ble Supreme Court of India.
The brief facts of the case are that, the assessee is engaged in the business of construction of residential complex. The assessee has filed the return of income for the A.Y 2017-18 on 27.10.2017 disclosing a total income of Rs. 2,78,460/- and carry forward business loss of Rs. 1,50,90,002/-. Subsequently the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act was issued. In compliance to the notice, the assessee has submitted the details from time to time. The Assessing Officer (AO) on perusal of the information, found that the assessee has completed the project during the year and the assessee has sold one flat and has disclosed loss. Further the assessee has given one flat on rent to its own company for zero rent against deposits of Rs. 2.75 Crs. The AO is of the opinion that no rental income has been charged and has estimated rental income at Rs.1,54,687/- Per month based on rate of Interest rate @6.75% on the Shri Vijay Kishin Bhatia, Mumbai. - 3 - rental security deposits. On the other issue, the AO found that the assessee has unsold stock of flats held as stock-in-trade and as per the provisions of Sec. 23(5) of the income tax Act, the A.O has computed the notional annual letting value of flats and allowed the deduction U/sec24 of the Act and finally assessed the total income of Rs. 2,78,460/- and passed the order u/s 143(3) of the Act dated 26.12.2019.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO but has confirmed the action of the AO and dismissed the assessee appeal. Aggrieved by the order the assessee has filed an appeal before the Hon’ble Tribunal.
4. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in sustaining the addition of notional rent by the AO overlooking the facts that the no rental income was received and there is no basis/ Annual value computed ignoring the municipal valuation. The second disputed issue, the Ld. AR submitted that the present assessment year is A.Y Shri Vijay Kishin Bhatia, Mumbai. - 4 - 2017-18 and the provisions u/sec23(5) of the Act are not applicable. The Ld. AR substantiated the submissions with the paper book and judicial decisions and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A).
5. Heard the rival submissions and perused the material on record. On the first disputed issue, where the A.O has computed the notional annual letting value of flats held as stock-in-trade flats. The Ld. AR emphasized that the amendment in the Finance Act 2018 is effective from A.Y 2018-19 and referred to paper book at page 50 and relied on the decision of the coordinate bench of the Honble Tribunal in the case of Shri Rajesh Dharmavir Gulati Vs. PCIT in for the A.Y 2017-18 dated 18.08.2022 in respect of applicability of provisions u/s 23(5) of the Act at Page 4 Para 3.1 to 3.5 of the order read as under:
3.1. From the perusal of the aforesaid narration of facts and arguments of the ld. AR and perusal of relevant papers in the appeal folder to which our attention was drawn by the ld. AR, we find that the ld. PCIT is only Shri Vijay Kishin Bhatia, Mumbai. - 5 - directing to invoke the provisions of Section 23(5) of the Act for taxing the rental income on notional basis under the head ‘income from house property’ in respect of unsold flats lying as ‘closing stock’. We find that the provisions of Section 23(5) of the Act has been introduced in the statute only from A.Y.2018-19 and the same cannot be made applicable to assessment years prior to that. Hence, the same cannot be made applicable for the year under consideration. In respect of deemed rental income on unsold stock of flats held as stock in trade, the Hon’ble Gujarat High Court in the case of Neha Builders reported in 296 ITR 661 had categorically held that the said rental income, if any, could be brought to tax only under the head ‘income from business’ and not under the head ‘income from house property’. On perusal of the said decision of the Hon’ble Gujarat High Court, we find that the decision of the Hon’ble Delhi High Court in the case of Ansal Housing Finance and Leasing Co. Ltd., which has been heavily relied upon by the ld. PCIT has also been considered and distinguished. We find that the co- ordinate bench of this Tribunal in the case of DCIT vs Bengal Shapoorji Housing Development Pvt Ltd in dated 23/03/2021 for A.Y 2013-14 had deleted the addition made on account of annual lettable value of flats held by the assessee as stock in trade. Moreover, this Tribunal in the case of Tata Housing Development Company Limited vs PCIT in ITA Nos. 3492 & 3493/Mum/2019 dated 28/09/2020 for Asst Years 2015-16 & 2014-15 respectively had categorically held that the provisions of section 23(5) of the Act has been introduced from 01/04/2018 and since the said amendment is substantive in nature , the same would have only prospective application from A.Y. 2018-19 onwards. Hence, even on merits, no rental income could Shri Vijay Kishin Bhatia, Mumbai. - 6 - be brought to tax in the instant case, even if provisions of Section 23(5) of the Act is applied.
3.2. We hold that the order of the ld. PCIT suffers from legal infirmity in not considering the replies of the assessee, wherein the assessee had stated that the provisions of section 23(5) of the Act cannot be brought into operation at all for the year under consideration. We hold that no finding has been given by the ld. PCIT on the submissions made by the assessee together with its relevant legal provisions of the Act. Hence we have no hesitation to hold that the revision order passed by the ld. PCIT u/s 263 of the Act deserves to be quashed on merits.
3.3. From the perusal of the order of the ld. AO and from perusal of the replies filed by the assessee before the ld. PCIT, we find that no evidences were placed on record by the assessee as to whether any enquiries were carried out by the ld. AO in the instant case with regard to the taxability of deemed rental income on unsold stock of flats. To this extent, prima facie, the assumption of jurisdiction u/s 263 of the Act by the ld. PCIT would be correct. But however, from the aforesaid observations on merits, it is found that the ld. PCIT had proceeded to assume his revision jurisdiction by incorrect application of law i.e trying to apply provisions of section 23(5) of the Act, which is not applicable for the year under consideration. Hence on this ground, the assumption of revision jurisdiction u/s 263 of the Act by the ld. PCIT deserves to be quashed. Accordingly, the grounds raised by the assessee are allowed.
Shri Vijay Kishin Bhatia, Mumbai. - 7 -
Considering the ratio of the judicial decision as discussed above and the provisions of section 23(5) of the Act are introduced from 1-4-2018 and are applicable prospectively and the current assesseement is A.Y 2017-18 and therefore respectfully fallow the judicial precedence and set aside the order of the CIT(A) on this disputed issue and direct the assesseeing officer to delete the addition.
On the second disputed issue, with respect to deemed rent valuation of the flat, the AO has estimated the rent based on rate of interest on fixed deposits and has not brought on record the comparable case of adoption of annual value nor municipal annual value of flat but estimated rental on the adhoc basis. Hence considering the facts, circumstances and to meet the ends of justice shall provide with one more opportunity of hearing to the assessee and remit the disputed issue to the file of the Assessing officer to examine and adjudicate afresh on merits. And the assessee should be provided adequate opportunity of hearing and the assessee should cooperate in submitting the information. Shri Vijay Kishin Bhatia, Mumbai. - 8 - Accordingly, the ground of appeal of the assessee is allowed for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 23.08.2023.