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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
आदेश / ORDER
PER S.S. VISWANETHRA RAVI, JM :
This appeal by the assessee against the order dated 10-05-2023 passed by the Commissioner of Income Tax (Appeals)-11, Pune [‘CIT(A)’] for assessment year 2017-18.
The assessee raised three grounds of appeal amongst which the only effective issue emanates for our consideration is as to whether the CIT(A)
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justified in confirming the addition made by the AO on account of deemed rent u/s. 23(4) of the Act.
At the outset, we note that according to the AO on an examination of details filed by the assessee during the course of assessment proceeding, it is noted that the assessee held 14 unsold shops/offices as closing stock. The said vacant unsold shops/offices were not sold during the year under consideration and provisions u/s. 23(4) of the Act is applicable. The assessee contended that the same were held as stock-in-trade in the accounts of the assessee and deemed rent u/s. 23(4) of the Act should not be attributed and applicable. The AO proceeded to determine actual letting value and by allowing standard deduction at 30%, added actual letting value of Rs.17,64,000/- to the total income of the assessee on account of deemed rent u/s. 23(4) of the Act. The CIT(A) confirmed the same.
The ld. AR, Shri Suhas Bora drew our attention to the order of this Tribunal in the case of Pride and Expert Properties Private Limited in ITA No. 860/PUN/2022 for A.Y. 2017-18 and also in the case of Sai Spacecon India Pvt. Ltd. in ITA No. 2824/PUN/2017 for A.Y. 2014-15 and drew our attention to para No. 6 in the case of Pride and Expert Properties Private Limited (supra).
The ld. DR, Shri Uma Shanker Prasad submits that the order of this Tribunal in the case of Pride and Expert Properties Private Limited (supra) is not applicable as the decision of Hon’ble High Court of Delhi in the case of CIT Vs. Ansal Housing & Construction reported in (2016) 72 taxmann.com 254 (Delhi) was not referred. The relevant portion at para
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Nos. 6 to 9 in the case of Pride and Expert Properties Private Limited (supra) is reproduced here-in-below for ready reference : “6. We have heard both the parties and perused the material available on record. We note that the Hon’ble Bombay High Court in the case of Gundecha Builders (supra) vide its order dated 31-07-2018 for A.Y. 2008-09 considered question of law which are reproduced in para 2 of the said decision. The relevant question of law in para 2(i) is reproduced here-in- below for ready reference : “(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in treating the income received on letting out as house property income?”
On plain reading of the said question of law, we note that whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in treating the income received on letting out as house property. Admittedly, the assessee therein is engaged in the business of developing real estate projects which is evident from para 3(a) of the said decision. Further, it is also noted from para 3(e) that letting of property is not the business of assessee therein. Further, the Hon’ble High Court of Bombay by placing reliance in the case of Sane & Doshi Enterprises reported in 377 ITR 165 (Bom.) dismissed the substantial question of law raised by the Revenue by holding that the said question does not give any rise to substantial question of law which is evident from para 3(f) of the said decision. It is pertinent to note that the facts in the case of Gundecha Builders (supra) before the Hon’ble High Court was that the assessee therein received rental income which was classified as income from house property which is evident from para 3(b) of the said order. There is no dispute with regard to this aspect from the ld. DR. 8. Coming to the present facts of the case the contention of assessee was that the said 15 unsold flats was not sold during the year under consideration and no rental income derived from the said unsold flats as they were not let out, hence, no deemed rent could be levied u/s. 23(4) of the Act. We note that the assessee treated the same as 15 unsold flats as stock- in-trade which means that the profits on its sale would be offered as business income and no rental income received by the assessee from such 15 unsold flats. Therefore, facts in the case of Gundecha Builders (supra) are different from the facts of the present case in hand. Thus, we reject the arguments of ld. DR of applicability of observation of Hon’ble High Court of Bombay in the case of Gundecha Builders (supra). On similar issue and same identical facts, this Tribunal in the case of Sai Spacecon India Pvt. Ltd. in ITA No. 2824/PUN/2017 held no addition on account of deemed rent on unsold flats could be made in the hands of the assessee. The relevant portion of the same are as under for ready reference : “3. Heard both the parties and perused the material available on record. We note that the assessee is a Private Limited Company engaged in the business of Promoter, Developer, Builder and Power Generation. The AO found 37 unsold flats ready for possession and completion certificate in respect of said flats were also issued. He observed the assessee has not offered any rent income on these 37 unsold flats. The assessee claimed that the flats are stock-in-trade and the income from it is income from Business and Profession and not from House Property. The AO did not accept the submissions of the assessee and proceeded to calculate deemed rent vide its Para No. 5.4 to an extent of Rs.27,97,200/-. The CIT(A) confirmed the same. According to ld. AR that the issue is covered in favour of the assessee and the addition made by the AO as confirmed by the CIT(A)
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is not maintainable and the assessee recognized unsold flats as stock-in-trade. The ld. AR placed on record of order of this Tribunal in the case of Kumar Properties and Real Estate Private Limited in ITA No. 2977/PUN/2017 for A.Y. 2013-14. The Co-ordinate Bench of Tribunal vide order dated 28-04-2021 discussed the issue in detail from Para Nos. 3 to 13 of the said order and held that an exception has been carved out in section 22 of the Act that any such property or its part, which is occupied by the assessee for the purposes of any business or profession carried, the profits of which are chargeable to income-tax, shall be excluded on satisfying the conditions therein. The Co-ordinate Bench, further discussed the four conditions in Para Nos. 6, 7, 8 and 9. The first condition being that the property or its part should be occupied by the assessee as an owner. There is no material evidence to show before us that the assessee is not occupied the said unsold 37 flats. The second condition is that any business or profession should be carried on by the assessee. We note that the assessee filed return showing income from such business and also engaged in the business of property development. The third condition is that the occupation of the property should be for the purpose of business or profession wherein the assessee before us shown the said 37 unsold flats as stock in trade. The last condition is that profits of such business or profession should be chargeable to income- tax. In the present case that there is no dispute that the profits of the business of construction by the assessee are chargeable to income- tax. Therefore, in our view that the unsold 37 flats are occupied by the assessee are as owner; business of construction is carried on by the assessee; the occupation of the flats is for the purpose of business; and profits of such business are chargeable to Income-tax. Thus, in our opinion, all the four conditions provided in exclusion clause in section 22 of the Act are to be excluded, therefore, we hold that no addition on account of deemed rent on unsold 37 flats can be made in the hands of the assessee. The ld. DR did not dispute that the assessee recognized the unsold flats as stock-in-trade but however relied on the order of CIT(A). Thus, the order of CIT(A) is not justified and it is set aside. Thus, the grounds raised by the assessee are allowed.” 9. In the light of the above, we hold that the order of CIT(A) is not justified in confirming the view of AO in levying deemed rent u/s. 23(4) of the Act on account of income from house property. Thus, the grounds Nos. 1 to 3 raised by the assessee are allowed.”
On perusal of the above, we note that this Tribunal in order to come to such conclusion placed reliance in the case of Sai Spacecon India Pvt. Ltd. (supra), wherein, it was held that no addition on account of deemed rent on unsold flats could be made in the hands of the assessee. In the present case, the assessee is engaged in the business of development of housing/commercial projects and the same were held as stock-in-trade in the accounts of the assessee which means that the vacant unsold shops/offices were not sold during the year under consideration and
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intended for sale in subsequent years if that is the case no addition u/s. 23(4) of the Act is not justified. Thus, we find the facts in the case of Pride and Expert Properties Private Limited (supra) are similar to the present facts of the case and therefore, applying the same, we hold that the CIT(A) is not justified in confirming the order of AO in levying deemed rent u/s. 23(4) of the Act. Thus, the grounds raised by the assessee are allowed.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 04th August, 2023.
Sd/- Sd/- (R.S. Syal) (S.S. Viswanethra Ravi) JUDICIAL MEMBER VICE PRESIDENT पुणे / Pune; दिनाांक / Dated : 04th August, 2023. रदव
आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : अपीलार्थी / The Appellant. 1. प्रत्यर्थी / The Respondent. 2. 3. The CIT(A)-11, Pune. 4. The Pr. CIT (Central), Pune. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, “बी” बेंच, 5. पुणे / DR, ITAT, “B” Bench, Pune. गार्ड फ़ाइल / Guard File. 6. //सत्यादपत प्रदत// True Copy// आिेशानुसार / BY ORDER,
वररष्ठ दनजी सदचव / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune