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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri M. Subramanian Dr. Mahesh Akhade
O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Principal Commissioner of Income Tax, Mumbai – 17 [hereinafter in short “Ld. Pr.CIT”] dated 23.03.2022 for the A.Y.2017-18 passed u/s. 263 of the Income-tax Act, 1961 (in short “Act”).
Brief facts of the case are, assessment u/s. 143(3) of the Act for A.Y.2017-18 was completed on 26.12.2019 determining the total assessed
(A.Y: 2017-18) Bhagwati Abhilsha Conventure income at ₹.21,45,930/-after making additions of ₹.9,23,160/- on account of deemed rent and ₹.3,40,500/- u/s. 43CA.
On perusal of the above assessment records, Ld. Pr.CIT, Mumbai–17 observed from the Schedule-D of Closing Stock shown in the Balance Sheet for the year under consideration that a total number of 29 units were held by assessee as closing stock and these units were completed and Occupancy Certificates (OC) were received. He observed from the financials that assessee did not offer any deemed rent as per the provisions of section 22 r.w.s. 23 of the Act. Accordingly, Assessing Officer had given a show cause notice dated 21.12.2019 and asked the assessee why deemed rent at 8% of value of closing stock should not be added as Income from House property in respect of flats held as finished stock.
In response, vide letter dated 24.12.2019, assessee submitted a chart showing the deemed rent of ₹.13,18,800/- on flats/units which were held as finished stock. Ld. Pr.CIT observed that Assessing Officer accepted the submissions and completed the assessment after making addition of ₹.9,23,160/- after giving 30% standard deduction from the deemed rent submitted by assessee. Ld. Pr.CIT is of the view that (A.Y: 2017-18) Bhagwati Abhilsha Conventure Assessing Officer accepted submission with regard to calculation of deemed rent on face of it without verifying the base of such calculation. The Assessing Officer in his show-cause notice dated 21.12.2019 had proposed an addition on account of deemed rent at 8% of the value of closing stock of these flats/units.
According to Ld. Pr.CIT, the Assessing Officer was expected to verify the calculation of deemed rent submitted by assessee in respect of flats/units held by assessee as finished stock with current market rate prevailing or should have adopted the 8% of the value of closing stock of these flats/units as proposed by him. However, he has failed to do so.
By recording the above said reason, Ld. Pr.CIT came to the conclusion that the Assessment Order passed by the Assessing Officer without making the necessary enquiries and verification in these aspects which should have been made to ascertain the relevant facts for the purpose of deciding the issue at hand. The assessment order therefore suffers from this infirmity and the same is erroneous in so far as it is prejudicial to the interests of the revenue in the light of Explanation 2 to sub section 1 of section 263 of the Act. Accordingly, he issued show cause notice u/s. 263 of the Act.
(A.Y: 2017-18) Bhagwati Abhilsha Conventure 7. In response, assessee filed submissions through ITBA portal and Ld.Pr.CIT has reproduced the same in his order, for the sake of clarity it is reproduced below: - “3.1 ............ In compliance with the notices of hearing issued u/s 143(2) and 142(1) all the details as desired by the learned AO after fully examining and verifying the documents and submissions submitted during the course of assessment proceedings completed the assessment for AY 2017-18 by passing an order u/s 143(3) of the Act on 26/12/2019, after making an addition of an amount of Rs.9,23,160/- as deemed rent u/s 22 r.w.s. 23 of the Act. The assessee relied on the following judicial decisions: 1. Malabar Industrial Co. Ltd. V. CIT [2000] 243 ITR 83 (SC) 2. CIT v NiravModi [2017] 390 ITR 292 (Bom.) 3. Moil Ltd. V. CIT [2017] 396 ITR 244 (Bom.) 4. CIT V. Gabriel India Ltd. [1993] 203 ITR 108 (Bom) 5. CIT V. Max India Ltd. [2007] 295 ITR 282 (SC) 4.4 The closing stock consisting of 29 units of property are occupied/ used for the purpose of assessee's business and therefore, not chargeable to tax as per the provisions of section 22 of the Act Needless to mention that the unsold flats are held as stock in trade and therefore, no notional annual rental value on unsold flats held in stock in trade can be made in assessee's hands (please see case law M/s KoltePatil Developers Limited v/s DCIT, ITA No. 2206/PUN/2016. 4.5 Without prejudice to the above, it may also have to be submitted that the issue raised in the show cause notice issued u/s 263 of the Act is an issue covered by provisions of section 23(5) of the Act, inserted by the Finance Act 2017 w.e.f 01-04-2018 and therefore, not applicable for the impugned A.Y. 2017-18.”
After considering the submissions of the assessee Ld. Pr.CIT concurred with his view which was expressed in the show cause notice and he came to the conclusion to the same conclusion that Assessing
(A.Y: 2017-18) Bhagwati Abhilsha Conventure Officer has not made proper verification with regard to calculation of the deemed rent.
Ld. Pr.CIT by relying on various case laws in particular Ballarpur Industries Ltd. (85 Taxmann.com 10), Rajlakshmi Mill Ltd., v. ITO, [20009] 31 SOT 353 (Chennai), Dr. Rabindra Kumar Singh v. CIT [2011] 131 ITD 39 (Ranchi) and other judicial precedents to come to the conclusion that Assessment Order passed by the Assessing Officer u/s.143(3) is erroneous and prejudicial to the interest of the Revenue accepting the assessment was made without proper verification, enquiries on the issue which the Assessing Officer was expected to make in view of the facts and circumstances discussed above. Accordingly, he directed the Assessing Officer to frame the assessment de novo and due enquiries regarding computation of the deemed rent of flats/units held by assessee as finished stock with current market rate in accordance with law, after giving proper opportunity of being heard to the assessee.
Aggrieved assessee is in appeal before us raising following grounds in its appeal: -
1. On the facts and in the circumstances of the case and in law, the order passed U/s.263 of the I.T Act, 1961 is invalid and bad in law.
(A.Y: 2017-18) Bhagwati Abhilsha Conventure 2. On the facts and in the circumstances of the case and in law, learned C.I.T. erred in passing an order u/s.263 of the I.T. Act, 1961 and that too without appreciating fully and properly the facts of the case.
3. On the facts and in the circumstances of the case and in law, the learned C.I.T. erred in holding that the order dated 26-12-2019 passed u/s 143(3) of the act by the A.O. is erroneous and prejudicial to the interest of revenue although the same was neither erroneous nor prejudicial to the interest of revenue.
4. On the facts and in the circumstances of the case and in law, the learned C.I.T. erred in setting aside the order passed u/s 143(3) of the I.T. Act on 26-12-2019 although the assessment order elaborately discusses the very same points raised in the S 263 notice.
5. The appellant craves leave to add, alter, amend or delete all or any of the grounds of appeal at any time.
At the time of hearing, Ld. AR brought to our notice Page No. 67 of the Paper Book which is the notice issued u/s. 263 of the Act and in the notice Ld. Pr.CIT has observed that Assessing Officer has called for the details of closing stock and verified the valuation of ALV which clearly indicate that Assessing Officer has called for relevant information at the assessment time itself. Further, he brought to our notice Page No. 65 of the Paper Book which is the findings of the Assessing Officer and he brought to our notice that Assessing Officer has issued show cause notice on the same issue under discussion. Accordingly, assessee has responded by submitting relevant information before the Assessing Officer and assessee also made a submission justifying the submissions made before the Assessing Officer. He submitted that in Para No. 4.4 of the (A.Y: 2017-18) Bhagwati Abhilsha Conventure Assessment Order Assessing Officer has accepted the submissions made by the assessee with regard to ALV calculation and he gave standard deduction for the ALV which clearly shows that Assessing Officer has taken one of the possible view. In support of the above submission Ld. AR relied on the decision of the DCIT v. M/s. Bengal Shapporji Housing Development Pvt. Ltd., in ITA.No. 4369/Mum/2019 dated 23.03.2021 and C.R. Developments Pvt. Ltd., v. JCIT in ITA.No. 4277/Mum/2012 dated 13.05.2015.
On the other hand, Ld.DR submitted that Ld. Pr.CIT has clearly brought on record that Assessing Officer no doubt issued proper show cause notice and collected the information. However, by merely collecting the information does not matter. It is the duty of the Assessing Officer to verify the information collected from the assessee. Therefore he heavily relied on the orders of the Ld. Pr.CIT and in support of his contentions Ld.DR relied on the case of CIT v. Ballarpur industries ltd., [2017] 85 taxmann.com 10 (Bombay) and Jeevan Investment & finance (P.) Ltd., v. CIT [2017] 88 taxmann.com 552 (Bombay).
Considered the rival submissions and material placed on record, we observe from the facts of this case that Assessing Officer issued show
(A.Y: 2017-18) Bhagwati Abhilsha Conventure cause notice in order to verify the ALV which assessee failed to declare in its return of income. Assessing Officer issued the show cause notice by observing that assessee has finished flats/units as closing stock and did not offered any deemed rent for the above said flats and in response to the above notice even assessee has accepted the view of the Assessing Officer and accordingly, submitted statement in which assessee has declared notional rent on the above said finished stock and declared the rent of ₹.13,18,800/-. It is fact on record that Assessing Officer has accepted the submissions of the assessee and gave a standard deduction of 30% of the above declared rent.
We observe that Ld. Pr.CIT on a perusal of the assessment records observed that Assessing Officer has accepted the submissions made by the assessee without making proper verification of the notional rent declared by the assessee. Even though he has issued a show cause notice indicating that he will determine the notional rent at 8% of the value of the closing stock. Therefore, he came to the conclusion that the Assessment Order passed u/s. 143(3) of the Act is erroneous in so far as prejudicial to the interest of the Revenue.
(A.Y: 2017-18) Bhagwati Abhilsha Conventure 15. Before us, Ld. AR brought to our notice facts of the case as stated above and he submitted that the same issue of notional interest was verified by the Assessing Officer and Assessing Officer also made the addition relating to the notional interest. Therefore, it clearly shows that Assessing Officer has taken one of the possible view in this case. Therefore Ld. Pr.CIT cannot impose his view on the views taken by the Assessing Officer. After considering the submissions of both the parties carefully and we observe that Assessing Officer has taken a possible view that the notional rent on the unsold closing stock of the assessee is applicable and even assessee has accepted with possible view of the Assessing Officer and even we observe that Ld. Pr.CIT has accepted the view taken by the Assessing Officer. However, the question before us is whether the Assessing Officer merely accepting the statement submitted by the assessee is proper or not; and as far as applicable of ALV is concerned all the parties has agreed and on the same page. However, the Assessing Officer has accepted the calculation submitted by the assessee without making any further investigation is the main issue raised by the Ld. Pr.CIT.
From the record, we observe that the Assessing Officer has not made any enquiry with regard to the statement submitted by the (A.Y: 2017-18) Bhagwati Abhilsha Conventure assessee. On the similar grounds, the Hon'ble Bombay High Court in the case of CIT v. Ballarpur Industries Ltd. (supra) has held that Assessing Officer cannot abdicate his responsibility of examining the claim for deduction before allowing it. In the absence of examination of the claim made by the assessee while passing an assessment order and allowing the claim made, would render the order of the Assessing Officer erroneous and coupled with the fact that in this case it is admitting prejudicial to the interest of the revenue, therefore, exercise of revisional jurisdiction u/s.263 of the Act by the Commissioner of Income-tax is proper and valid. Similar view was expressed by the Hon'ble Jurisdictional High Court in the case of Jeevan Investment & finance (P.) Ltd. v. CIT (supra).
Coming to the submissions of the Ld. AR in which Ld. AR is very much relied on the case of C.R. Developments Pvt. Ltd., v. JCIT (supra) and DCIT v. M/s. Bengal Shapporji Housing Development Pvt. Ltd., (supra) in which the Coordinate Bench has decided the issue on notional rent of unsold closing stock of the builders in which they have considered the decision of the CIT v. Ansal Housing Finance and Leasing Company Ltd (2013) 354 ITR 180 (Del.) as well as CIT v. Neha Builder (2008) 296 ITR 661 (Guj.) and decided the issue in favour of the assessee. There they have analysed the applicability of the decision of CIT v. Ansal Housing
(A.Y: 2017-18) Bhagwati Abhilsha Conventure Finance and Leasing Company Ltd (supra) and decided that the decision of CIT v. Ansal Housing finance and Leasing Company Ltd is not applicable in the case of above respective said assessee. However, in the given case the Assessing Officer has applied the decision of the CIT v. Ansal Housing Finance and Leasing Company Ltd., [this is before amendment made to section 23 of the Act] and even assessee has accepted the above stand of the Assessing Officer and complied by submitting the relevant information before the Assessing Officer. Therefore, the case law relied by the assessee is not applicable in the present appeal. Therefore, in our considered view the issue before us is whether the Assessing Officer merely accepting the statement submitted by the assessee without proper verification is proper or bad in law. As held in the decision of the CIT. v. Ballarpur Industries Ltd., (supra) and Jeevan Investment & Finance (P.) Ltd., v. CIT (supra), in our considered view Assessing Officer has failed to verify the submissions made by the assessee with regard to determination of ALV. Here there is no question of taking any possible view since the view taken by the Assessing Officer is accepted by both the assessee as well as Ld. Pr.CIT. It is only the determination of ALV which Assessing Officer has failed miserably to make proper investigation. Therefore, we are inclined to accept the submissions of the Ld. DR and (A.Y: 2017-18) Bhagwati Abhilsha Conventure the view taken by the Ld. Pr.CIT to invoke the provisions of section 263 of the Act is accordingly upheld.
In the result, appeal filed by the assessee is dismissed.
Order pronounced in the open court on 05th January, 2023