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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE JM:
1. The assessee has filed the appeal against the order of the Pr. Commissioner of Income Tax (Pr.CIT)-27, Mumbai, passed u/s 143(3) of the Act. The assessee has raised the fallowing grounds of appeal:
1. The learned Pr. CIT erred in holding the order framed by the assessing officer u/s 143(3) of the I. Tax Act on 09.05.2019 to be erroneous and prejudicial to the interest of revenue and accordingly the assumption of jurisdiction by the Pr. CIT u/s 263 was not valid and justified.
NMS Enterprises, Mumbai. - 2 -
2. The learned Pr. CIT erred in setting aside to the AO, the assessment for A.Y. 2017-18 framed u/s 143(3) on 09.05.2019, with a direction to compute income under the head "Income from house property" by taxing annual value of flats forming part of closing stock as per the provision of section 23(1)(a) of the IT Act 1961, not appreciating that annual value in respect of vacant unsold units held as stock in trade, was not liable to tax in the year under appeal.
3. The appellant craves leave to add, alter, amend and/or vary the grounds of appeal
at any time before the decision of the appeal.
2. The brief facts of the case that the assessee is a partnership firm engaged in the business as builders and developers. The assessee has filed the return of income on 13.10.2017 for the A.Y 2017-18 disclosing a total income of Rs.58,83,100/-, subsequently the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act are issued through ITBA portal. In compliance to the notice, the assessee has made submissions online and the AO accepted the returned income and passed the order u/s 143(3) of the Act dated 09.05.2019.
3. Subsequently, the Pr. CIT on perusal of the facts and the assessment record found that the AO has not made any enquiry and verification of facts while
NMS Enterprises, Mumbai. - 3 - passing the assessment order and Pr. CIT has issued show cause notice u/sec263 of the Act as under:
“On perusal of the record, it is observed that your case for A.Y 2017-18 was assessment was completed u/s. 143(3) vide order dated 09.05.2019 wherein income declared in return of income at Rs. 58,83, 100/- was accepted as assessed income.
2. You, being a builder has shown closing stock at Rs. 86.90 crore as on 31.03.2017. Income on the basis on Annual Value of unsold constructed property should have been offered under the head of Income from 'House Property' as provided in Section 23(1)(a) of the Act.
3. The annual value of the property has to be computed according to the annual rent which could be received in respect of the property. On the basis of decision of Gujarat High court in case of Bipin Vadilal Family Trust v/s. CIT[208 ITR 1005] 8% of the cost of the House Property is reckoned as value for which the property might reasonably be let out during the year as per Section 23(1)(a) of the I.T. Act, 1961.
4. From foregoing discussion, it is clear that, by computing the value of unsold property @ 8% of the cost of property, which is the amount of closing stock, the deemed rent income that has not been taxed during the year comes to Rs. 6,95,23,301/-. After deduction @ 30% u/s. 24(a) of the Income Tax Act, 1961, the balance
NMS Enterprises, Mumbai. - 4 - amount of Rs. 4,86,66,310/- is required to be brought to tax as income from house property."
4. Whereas, incompliance to the notice, the assessee has filed the reply on 21.03.2022 before the Pr. CIT referred at Para 3 of the order as under:
"In response to your above referred show cause notice u/s 263 dt. 15.03.2021 we humbly submit as under.
We are a partnership firm engaged in the business of Builders and Developers. The return of income was filed on 13.10.2017 declaring total income of Rs.58,83, 100/-. Copy of ITR-V of retum filed alongwith computation of income and audited financial statements are enclosed at Annexure "A" Assessment u/s 143(3) of the I.T Act, 1961 exure "A". Ass was completed in this case by ACIT, Circle 28(2), Mumbai on 09.05.2019 accepting the retumed income of Rs.58,83,100 as assessed income, after due verification of financials and details called for by the Id AO.
Now, your honour has issued show cause notice u/s 263 stating that the order passed u/s 143(3) of the IT Act, 1961 on 09.05.2019 appears to be erroneous and prejudicial to the interest of the revenue for the following reasons "That perusal of assessment records of AY 2017-18 reveals that our firm has shown closing stock of unsold constructed property at Rs.86.90 crores as on 31.03.2017. However, we have not computed deemed
NMS Enterprises, Mumbai. - 5 - rental income u/s. 23(1)(a) of the IT Act, 1961. Your honour has relied upon the decision of Bipin Vadilal Family Trust vs. CIT (208 ITR 105) and has computed the deemed rent at 8% of the cost of property which comes to Rs.6,95,23,301/-and after standard deduction u/s. 24(a) of the IT Act, 1961 at Rs.4,86,66,310/-."
In lieu of the above, it is mentioned in the show cause notice that the assessment order is deficient and erroneous and therefore the asst. order is apparently erroneous as well as prejudicial to the interest of revenue.
It is also pointed out that by Finance Act, 2017, sub- section (5) has been inserted in section 23 of the I. T. Act 1961, whereby it is provided that if any property is held as stock in trade and not actually let out, then the annual value of such property or part thereof for a period of one year from the end of the financial year in which certificate of completion of construction is obtained is to be taken as Nil. This means that for a period of one year from the end of the financial year in which certificate of completion of construction is obtained, the ALV will be NIL. It is only thereafter that annual value has to be ascribed to such stock in trade. The above amendment is prospective in nature and is applicable from asst. year 2018-19. It is pointed out that prior to the said insertion, there is no provision to assess such notional ALV u/s 22 of the I. T. Act 1961. It is for the above reason also that income in respect of vacant unsold units held as stock in trade is not required to be assessed to tax in the year under consideration.
NMS Enterprises, Mumbai. - 6 -
At this juncture, we draw your honour's kind attention to the decision of hon'ble Pune ITAT in the case of Kumar Properties and Real Estate P. Ltd (128 taxmann.com 364) (Pune) wherein hon'ble Pune tribunal have given categorical finding that effect of the amendment in section 23 can applied prospectively. After considering the decision of hon'ble Delhi HC in n case of Ansal Properties and hon'ble Gujarat HC's decision in case of CIT v. Neha Builders (P.) Ltd. [2007] 164 Taxman 342/[2008] 296 ITR 661 where in it is held that stock in trade can be treated as Income from business and not as Income from house property' The relevant para of the Hon. Pune Tribunals decision is quoted below for your ready reference.
The amendment has been carried out we.f. 1-4-2018 and the Memorandum explaining the provisions of the Finance Bill also clearly provides that this year 2018-19 and subsequent years. Obviously, it is a amendment will take effect from 1-4-2018 and accordingly apply in relation to the assessment year 2018-19 and 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.
NMS Enterprises, Mumbai. - 7 - This matter has also been decided in favour of the assessee by the jurisdictional Mumbai Tribunal in the under mentioned cases. (i) M/s. C.R. Development Pvt. Ltd.-vs-JCIT, order dt. 13.05.2015 (ii) M/s Runwal Constructions -vs- ACIT ITA No.5408/Mum/2016, order dt.22.02.2018, Hon. Members, "G" Bench of the Mumbai Tribunal. (iii) Progressive Homes-Vs-ACIT ITA No. 5082/Mum/2016 dated 16.05.2018, Hon. Members, "G" Bench, ITAT Mumbai. (iv) ACIT-vs-Haware Construction Private Limited ITA No.3321/Mum/2016 and 3172/Mum/2016 dated 31.08.18, Hon. Members, "C" Bench, ITAT Mumbai. (v) Haware Engineers and Builders Pvt. Ltd. -vs- DCIT ITA No.7155/Mum/2016 dated 10.10.2018, Hon. Members, "H" Bench, 1TAT Mumbai. Accordingly, till amendment to section 23 by insertion of sub-clause (5) by Finance Act, 2017 applicable w.e.f. A.Y. 2018-19, no such estimation of ALV in respect of unsold constructed premises held as stock-in-trade is justified. We accordingly state that no such ALV is required to be estimated on unsold stock of constructed premises particularly considering that the year under consideration is A.Y. 2017-18.The on this issue may kindly be dropped.
5. We further point out that on very similar facts, order u/s 263 stood quashed in the case of S.D. Corporation-vs- Pr. CIT-3, Mumbai, 175 ITD 164 (Mumbai - Trib) (2019) wherein the concerned period was AY 2013-14. In the said case also, the Pr. CIT was of the view that the AO not considering notional income on unsold flats held as stock in trade, resulted in the asst. order being erroneous and prejudicial to revenue. The Hon, Members, Mumbai
NMS Enterprises, Mumbai. - 8 - Tribunal at para no. 13 /pg no. 9 of the order concluded as under. Therefore, in our considered view that the order for not bringing the unsold flats to tax at notional letting value under the head "Income from Other Sources" is not erroneous. The assessing officer has taken one of the possible views. Even otherwise, sub-section (5) in section 23 was inserted by Finance Act, 2017 and is applicable only from 01.04.2018 and not for the Assessment Year under consideration. Therefore, the twin condition as prescribed under section 263 are not fulfilled in As far as your honours say that the assessment order is deficient and erroneous since no addition is made on the cited issue, it is to be noted that the Id. AO has adopted a possible view of the matter and the view propagated in the show cause is a debatable view. In such circumstances, the asst. order cannot be termed as erroneous. In support, the assessee relies upon the decision of the Hon. Jurisdictional High court in the case of CIT -vs- Gabriel India Ltd., 203 ITR 108, (Bom)(1993), the Hon. High Court held as under
The power of suo moto revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment' have been defined in Black's Law Dictionary. According to the NMS Enterprises, Mumbai. - 9 - definition/erroneous', means 'involving error, deviating from the law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, y erroneous judgment' means 'one rendered according to course and practice of Court, but contrary to law upon mistaken view of law, or upon erroneous application of legal principles'
From the aforesaid definitions it is clear erroneous unless it is not in accordance with law. If an ITO acting in accordance with nice with law. If an ITO acting in accordance was law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, not be br according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner, he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power
NMS Enterprises, Mumbai. - 10 - vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject- matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully eligible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed."
7. In lieu of the above cited facts and the applicable provisions of law, it is humbly submitted that the assessment order passed by the Id. AO u/s 143(3) of the I.T Act, 1961 on 09.05.2016 is not erroneous and therefore not prejudicial to the interest of revenue. Accordingly, it is humbly prayed that the revisionary proceedings u/s. 263 may kindly dropped."
The Pr.CIT has considered the facts and submissions and found that as per Sec. 22 the annual value of the property consisting of any buildings or NMS Enterprises, Mumbai. - 11 - lands appurtenant thereto of which the assessee is the owner is chargeable to income tax under the head income from house property. The Pr.CIT has discussed on the Provisions of Sec. 22 r.w.s 23(1)(a) of the Act and is of the opinion that the assessee was owner of flats which constitute property within the meaning of Sec. 22 of the Act and therefore the annual value of the flats owned by the assessee is form part of the closing stock and is taxable under the head income from house property in the A.Y 2017- 18 and the AO has not considered these facts and excluded and Pr. CIT has relied on the decision of the Hon’ble Delhi HC in the case of CIT Vs. Ansal Housing Finance and Leasing Company Ltd (354 ITR 180). Finally the Pr. CIT has dealt on the provisions of Sec. 263 and explanation (2) and issued the directions to the AO as under:
As while making the assessment u/s 143(3) for the Assessment Year 2017-18 (Assessment order dated 09.05.2019) the AO has failed to tax the annual value of the property forming part of the closing stock, under the head "Income from House Property". therefore, it is held that the Assessment Order passed by the AO u/s 143(3) on 09.05.2019 is erroneous in so far as it is prejudicial to the interest of the revenue. Hence, the assessment order dated 09.05.2019 passed by the AO is set aside to the AO
NMS Enterprises, Mumbai. - 12 - with the direction to make a fresh assessment by taxing the annual value of the property forming part of the closing stock, under the head "Income from House Property". The annual value shall be computed as per the provision of section 23(1)(a) and deduction if any admissible under section 24 shall also be allowed while computing the income from house property. Before making the assessment, reasonable opportunity of being heard shall be allowed to the assessee by the AO.
6. Aggrieved by the order of the Pr. CIT, the assessee has filed appeal before Hon’ble Tribunal. At the time of hearing, the Ld. AR submitted that the AO has rightly considered the facts of closing stock of flats unsold in the asssesseement proceedings and further the issue with respect of taxability of annual value of closing stock of flats is debatable and the deeming provisions of ALV are applicable from A.Y.2018-19 and not to the current assessement year. The Ld. AR emphasized that when the matter/ dispute is debatable the action of the Pr.CIT cannot be accepted. Further the Ld. AR submitted that the Pr. CIT has erred in set aside the order of the AO which does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. The Ld. AR also submitted that explanation (2) to Sec. 263 of the Act are to be considered only when the AO has not NMS Enterprises, Mumbai. - 13 - applied his mind and no the facts are verified and no enquiry was conducted. The Ld. AR has contended that the assessee has complied with the statutory notices and filed reply online through ITBA. The AO dealt on the facts of the disputed issue in the proceedings but there are no observations in the assessment order. Further Pr. CIT has erred in overlooking the fact that the assessee has filed the return submissions before the lower authorities and also emphasized that AO having satisfied provisions and accepted the returned income and the action of the Pr. CIT on the debatable issue is not a valid and substantiated the submissions with judicial decisions and factual paper book and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the Pr. CIT and made submissions in respect of applicability of provisions of Sec. 263 and explanation (2) and the AO has overlooked the fact of charging of income and the Ld. DR relied on the judicial decisions to support the order of Pr.CIT.
We heard the rival submissions and perused the material on record. The Ld. AR contentions are that the order passed by the AO does not satisfy the twin
NMS Enterprises, Mumbai. - 14 - conditions being erroneous and prejudicial to the interest of the revenue. The Ld. AR also submitted that the Pr. CIT is of the opinion that AO has not conducted enquiry in respect of charging of annual value of closing stock of flats under the head income from house property and the AO has also overlooked the facts with respect to the additions. Whereas the assessee has filed the explanations in respect of notice issued u/s 142(1) of the Act and referred to the submissions at page 15 to 26 of the paper book. Further, the contentions of the Ld. AR that when the charging of income under income from house property applying the deemed provisions is applicable from A.Y.2018-19 is a debatable and therefore revision proceedings shall not sustained. The Ld. AR substantiated the submissions relying on the judicial decisions:
(i) M/s. C.R. Development Pvt. Ltd.-vs-JCIT, order dt. 13.05.2015 (ii) M/s Runwal Constructions -vs- ACIT ITA No.5408/Mum/2016, order dt.22.02.2018, Hon. Members, "G" Bench of the Mumbai Tribunal. (iii) Progressive Homes-Vs-ACIT ITA No. 5082/Mum/2016 dated 16.05.2018, Hon. Members, "G" Bench, ITAT Mumbai.
NMS Enterprises, Mumbai. - 15 - (iv) ACIT-vs-Haware Construction Private Limited and 3172/Mum/2016 dated 31.08.18, Hon. Members, "C" Bench, ITAT Mumbai. (v) Haware Engineers and Builders Pvt. Ltd. -vs- DCIT ITA No.7155/Mum/2016 dated 10.10.2018, Hon. Members, "H" Bench, 1TAT Mumbai. (vi).M/s Cosmopolis Constructions Vs ACIT CC Pune ITA No 191/Pun/2022 dated 11-1-2013.
Finally the Ld. AR explained that the disputed was dealt by the A.O. and the assessee has complied with the notices which cannot be ignored. The AO in the assessment proceedings having satisfied with the claim has not made any comment on the issue. Further the contentions of the Ld. AR that the ALV of the house property held as stock in trade has to be considered on deeming provisions as per finance Act 2017 from the A.Y 2018-19 and whereas the current A. 2017-18. Further if any query is raised in the assessement proceedings and it was responded by the assessee, mere fact that it is not dealt with by the A.O. in the order cannot implied that there is no application of mind. Therefore considering the ratio of judicial decisions on applicability of provisions prospectively, the observations of the Pr.CIT cannot be acceptable as the order passed by the A.O. does
NMS Enterprises, Mumbai. - 16 - not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. Accordingly, we set aside the order of the Pr.CIT and allow the grounds of appeal in favour of the assessee.
In the result, the appeal filed by the assessee is allowed.