M/S PRATHAM CONSTRUCTIONS,PUNE vs. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), PUNE, PUNE

This appeal preferred by the assessee emanates from the order of Principal Commissioner of Income Tax (Central), Pune (for short, „PCIT‟), dated 23.03.2023 for A.Y.2018-19 as per the grounds of appeal on record.

The solitary grievance of the assessee is pertaining to the revisionary jurisdiction exercised by the ld.PCIT in passing the order u/sec. 263 of the Income Tax Act, 1961 (for short, „the Act‟).

The relevant facts of the case are that assessee is a partnership firm engaged in the business of real-estate development and construction, filed its return of income declaring total income of M/s. Pratham Constructions Rs.5,81,64,270/-. The assessment was completed u/sec. 143(3) by accepting the returned income. During the course of 263 proceedings, the PCIT observed that assessee had claimed expenses of Rs. 37,665/- on account of interest on TDS. However, the assessee has not added back the same while computing its total income nor the Assessing Officer (AO) has disallowed the same in the assessment order. Since, the interest on TDS is not allowable as deduction u/sec. 37(1), the same was required to be disallowed. That, further on perusal of the financial statements submitted by the assessee, it was noticed that the assessee firm had undertaken a project called „Sukhwani Pacific‟, which was under construction during the year under consideration. As per the profit & loss account, the assessee firm has shown total sales of Rs.20.17 crores and closing stock of Rs.20.51 crores. Further, vide submission dated 31/01/2020, the assessee firm has submitted that part of the project was already completed and sold and some part of the project was unsold as was under construction. This was the justification given in reply to one of the reasons for selection of case under CASS i.e. having higher closing stock as compared to the sale. Further, the assessee vide its submission dated 15/07/2020 had given details of closing stock working as per which buildings C, D & E were already completed, whereas building B was having some work in progress. The unsold stock of these three completed buildings i.e. C, D & E was valued at Rs.19.50 crores. Therefore, the unsold flats valued at Rs.19.50 crores were lying in the balance sheet as stock-in- M/s. Pratham Constructions trade. Therefore, the assessee was liable for offering deemed rent on account of these unsold flats held as stock-in-trade in the return of income filed during the year under consideration. However, the assessee has not offered any deemed rental income on account of these unsold stock of flats nor the AO has carried out any enquiry with regard to taxability of deemed rental income on this issue. Hence, deemed rental income of the assessee firm to the tune of Rs. 97.50 lakhs was not at all considered during the assessment proceedings for the year under consideration. It was further held by the PCIT, after considering the detailed submissions of the assessee as well as assessment order that in fact the AO has not at all carried out verification/enquiry in the course of the assessment proceedings. The AO has failed to call for the relevant details in respect of disallowance of interest paid on TDS and applicability of deemed rent on unsold flats. There is a categorical mention in the order of the PCIT that as per the record, it is obvious that no examination on these issues were conducted by the AO who has also not raised any query in this regard. There was complete non-application of mind on the part of the AO and, therefore, the assessment order passed by the AO was erroneous insofar as prejudicial to the interest of the Revenue.

At the time of hearing, ld.AR for the assessee submitted that in order to invoke revisionary jurisdiction u/sec. 263, the PCIT must satisfy twin conditions laid down in the statute i.e. the order of assessment should be erroneous so as to be prejudicial to the interest 3 M/s. Pratham Constructions of the Revenue. In the case of the assessee, the order may be erroneous, but it is not prejudicial to the interest of the Revenue because vide Finance Act, 2017, sub-sec. (5) has been inserted in sec. 23 of the Act, and this amendment has been brought w.e.f. 01/04/2018 which provides that the annual value of the property held as stock-in-trade for a period of one year from the end of the financial year in which certification of completion of construction of property is obtained from the competent authority shall be nil. In the given facts, the occupation certificate for buildings C, D & E was received in A.Y. 2018-19 and one year from the end of the financial year when the completion certificate was received shall end on 31/03/2019. Thus, as per the provisions of sec. 23(5) of the Act, the annual value till the period 31/03/2019 has to be taken as nil. The assessee, therefore, submitted that deemed rental income shall be applicable for the A.Y. 2020-21, if there is unsold stock of the C, D & E wing for the year end 31/03/2020. Therefore, in the relevant year, there is no deemed rental income on unsold stock and the same would be applicable on from A.Y. 2020-21. The second limb of argument of ld.AR that the PCIT has not arrived at any satisfaction regarding the arguments put-forth before him during the proceedings u/sec. 263, and hence, without such satisfaction, revisionary jurisdiction cannot be invoked.

We have considered the submissions of the parties, assessment order as well as order passed u/sec. 263 of the Act.

In the result, appeal of the assessee is dismissed. Order pronounced in open Court on 21st August, 2023.