ASSISTANT COMMISSIONER OF INCOME TAX , MUMBAI vs. NEELKANTH URBAN DEVELOPERS PVT LTD, MUMBAI

आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal emanating from the appellate order dated 24.10.2025 is preferred by the Revenue alongwith Cross Objection by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to the assessment order passed u/s. 147 r.w.s 144 of the

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 24.06.2021 for the Assessment Year [A.Y.] 2018-19.

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. 4. Facts culled out from the assessment order reveal that the assessee company filed its return of income for the relevant year disclosing total income of Rs.30,63,99,300/- and Book Profit of Rs.30,41,63,441/- u/s115JB of the Act. It is engaged in the business of construction being a builder and developer. It wasnoticed by the AO thatit had shown very high Closing stock of Rs.102,84,86,070/- as on 31.03.2018 which mainly comprised of unsold flats. It was mentioned that the assessee had a high closing stock during AY 2017-18 also and 8% of notional rent was estimated as Income from House Property under the provisions of Act. Similarly, for the year under consideration, as the assessee was having high closing stock to which the provisions of section 23 were attracted. Accordingly, the provisions of notional rent u/s 23(5) of the Act were applicable in this case. In the absence of details necessary for computation of the notional rent,the AO considered the same @ 8% as per section 23(1)(a) of the Act as fair and reasonable annual lettable value. He drew support from the judgment of Hon’ble ITAT, Ahmedabad in the case of M/s Emtici Engineering Ltd. Vs Assistant Commissioner of Income Tax (58 TTJ 27) wherein it wassimilarly held. Therefore, the deemed let out value of the closing stock valued at Rs 102,84,86,070/- @8% equal to Rs.8,22,78,885/- was added to the total income of the assessee under the head “Income from house property”.

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. regard to upward variation to its income was issued by proposing addition.Besides, the provisions of section 23(5) of the Act were not applicable to the facts of its case as the main charging section 22 of theActcarves out an exception in respect of property occupied for the purposes of the assesssee’s business. To fall within its purport, what is essential is that there should be some nexus with the business. The profit from the sale of the offices held by the assessee is chargeable under the head “Profit for Business”.Besides, the property held by it is a business asset which is not intended for lease but for sale to a prospective purchaser. In these circumstances, the provisions of section 28 of the Act overrides the provisions of section 22 of the Act. Its stock in trade consists of shops/ offices.Shops/offices were unoccupied as there were no purchasers for the same. Therefore, there was no malafide intention to hoard the shops/offices since there were no ready purchasers for the same. Further,in view of conflicting decisions of High courts, if decisions of non- jurisdictional High Courts are in conflict with each other than decision favourable to assesse must be followed in view of CIT v. Vegetable Products Ltd. [1973] CTR (SC) 177: [1972] 88 ITR 192 (SC).

5.1 It was stated that the Assessing Officer has erred in placing reliance on decision of Hon’ble Ahmedabad ITAT in the case of M/s Emtici Engineering Ltd. (supra) was not applicable. Not only has the AO erred in placing reliance on a non-binding decision but also has erred in applying an adhoc rate of 8% on the value of closing stock without considering the facts and circumstances of the assessee which were wholly different to the facts and

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. circumstances in the case of Emtici (supra). Without prejudice to the aforesaid, the Assessee relies on decision of Mumbai ITAT in case of DCIT, Central Circle-2(4) v. RustomjeeEvershine Joint Venture (I.T.A. No.1349/Mum/2022), which held as under:

“15. Ground no. 3 is against the action of the Ld. CIT(A) deleting the addition of Rs.28,73,543/- on account of deemed rent calculated @ 2% of the closing stock of unsold flats and shops where occupancy certificates were received. 16. Brief facts as noted by the AO is that he noted from the balance-sheet of the assessee that it had inventories as on 31.03.2016 which included closing stock of unsold flats of Rs.54,41,25,101/-. So he issued notice to the assessee calling upon the response from it as to why the Annual Letting Value (ALV) of the finished properties which was held in stock should not be assessed under the head “income from house property” as per section 23 of the Act. Assessee’s reply has been reproduced by the AO at para no. 6.2 to 6.5 of his assessment order and thereafter, he expressed his opinion at para 6.6 to 6.7 and made an addition of Rs.28,73,543/-@ 2% of the closing stock of unsold flats and shops where occupancy certificates were received to the tune of Rs 20,52,53,093/-.” “17. We have heard both the parties and perused the records. The issue is regarding the Annual Letable Value/ALV (deemed rent) calculated by AO at 2% ofthe closing stock of unsold flats/shops for which occupancy certificates was received by the assessee….” “Thereafter, the AO taking note of the fact that occupancy certificate was only in respect of unsold stock/flats to the tune of Rs.20,52,53,093/-, estimated the ALV @ 2% of the closing stock which works outto Rs.41,05,061/- and thereafter allowed 30% standard deduction as provided u/s 24(a) of the Act, and resultantly assessed the income from house property at Rs.23,73,543/-.” “Lastly, the AO to estimate the ALV after ascertaining Municipal Letable Value for computing the notional rent as held by the Hon’ble Bombay High Court in the case of CIT Vs. Tip Top Typography reported in 368 ITR 30 or @ 2% which was estimated by AO whichever is less. Therefore, the ground no. 3 of the revenue is partly allowed for statistical purposes.” 5.2 The assessee furthermore relied on decision of the Hon’ble Mumbai ITAT in case of ACIT, Central Circle 4(2) v. M/s. Chalet Hotels Ltd (As a M/s. Magna Distribution & Warehousing Pvt. Ltd.), which held as under:

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. Vs Om Prakash & Co. (2 SOT 1) to justify the estimation at 8.5% of value of inventory. The Ld. AR contended that the AO’s action of estimating rent at 8.5% of the value of inventory was arbitrary, without any basis and highly excessive. The Ld. AR brought to our notice the judgment of Hon'ble Bombay High Court in the case CIT Vs. Tip top Typography (368 ITR 330), wherein, it has been held that the municipal annual lettable value is definitely a safe-guide and can be considered to be bona fide rental value of the property. The Court however also held that, even the market rate in the locality is an approved method for determining the fair rental value. The High Court however caveated the same by observing that it can be applied only when the AO can bring reliable material and evidence to show that the annual municipal value does not represent the fair rental value, and only then can he resort to enquire about the prevailing market rate in the locality. Upon query from the Bench, the Ld. AR submitted that the municipal annual lettable value of the property in question was not available. He, however, submitted that, the estimation of rental value at 8.5% of value of inventory was highly excessive. He explained that in the decisions in the cases of ITO Vs Chem Mech (P) Ltd (supra) and ACIT Vs Om Prakash & Co. (supra) relied upon by the AO, the years in question were the 1990s which was prior toliberalization of the economy and that the demography, economic scenario, real estate prices, rental yields etc. were completely different and distinguishable. He pointed out that it was in the 2000s that the real estate sector in India saw a dramatic upswing and that the property prices were at an all-time high post 2000. Even the demography, lifestyle needs in metro cities underwent a complete change and that the property prices vis-à-vis the rental yields had changed drastically. The Ld. AR invited our attention to the rental yield analysis researchreport published by Knight Frank in the year 2018, a globally recognized real estate consultant, which is available in public domain. The Ld. AR showed us that the rental yields of properties in Indian metro-cities are generally 2%-3% p.a. He also referred to the recent report published by research website, www.moneycontrol.com in which, a survey conducted across India revealed that the rental yields in real-estate projects in metro cities was 2% p.a. The Ld. AR also explained that the reason for the lower rental yields was that, any real estate property yielded return primarily in two modes viz., (a) rent & (b) price appreciation. According to him, the return of 8.5% estimated by the AO was inclusive of both rental yield and price appreciation of the property. He demonstrated that out of the 8.5%, only 1%-2% generally comprised of rental yield and 6.5%-7.5% represented the price appreciation over a year. According to him, as the municipal value of the vacant units was not available, the notional fair rental value could otherwise be estimated at 1.5%-2% of the value of the unsold inventory.” 48. Having considered the rival submissions and the decision of the Hon’ble Bombay High Court (supra), we note that the annual municipal value of the property in question, which is otherwise the safe-guide for estimating of annual value, is not available. Accordingly, the prevailing market rate of the property in question has to be taken into account to ascertain the annual value of the unsold units for the purposes of Section 22 & 23 of the Act. Having perused the decisions relied upon by the AO to estimate annual value at 8.5%, we note that the years involved in these cases were 1988-89 & 1991-92. We agree with the Ld. AR that the economics of real-estate sector, demography, people’s lifestyle, infrastructure in urban areas, overall economic scenario was vastly different and hence the estimation exercise undertaken in these decisions cannot be considered as a comparable barometer for the years in question before us. Instead,

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. having regard to the research / survey reports cited by the Ld. AR, we find force in the assessee’s plea that the rental yield of 8.5% estimated by the AO on the value of the vacant inventory was excessive in today’s scenario. As noted from these market research reports, the rental yield of immovable properties in metro cities are generally in the range of 2-3% of the value of investment. We note that, this Tribunal in the case of DCIT Vs Rustomjee Evershine Joint Venture in ITA No. 1349/Mum/2022 dated 31.07.2023 has also countenanced the Revenue’s action of estimating rental yield at 2% of the value of unsold inventory.” 5.3 In addition to the aforesaid case laws, the Assessee relies on the decision of Mumbai Bench of the Tribunal in the case of DCIT, Central Circle 4(2), Mumbai Vs. M/s Inorbit Mall Pvt. Ltd., [ITA No. 2220/Mum/2021, dated 11/10/2022.].

5.4 It was further stated that in respect of its project, Neelkanth Corporate Park,it had received a sum of Rs. 2,07,98,753/- as an advance from the purchaser in relation to the said property and therefore, the closing stock value in relation to such office was required to be excluded from the working.

5.5. The assessee stated that without prejudice to the fact thatmunicipal rateable value may be lower, it was unable to ascertain the value of the same and therefore, agreed to concede to the addition of deemed notional rent @ 2% on the value of closing stock of finished goods of Rs. 98,53,86,593/- determined hereinabove.

5.6 In relation to the appellant’s contention that the addition towards Neelkanth Business Park ought to be restricted to 60% of value of stock since 40% of the stock belonged to Gammon Neelkanth Realty Corporation pursuant to joint development agreement. As per the Development Agreement and Supplementary Agreement with Gammon Neelkanth Realty Corporation and Assessee Company, sales of units of the project - Neelkanth Business Park, 7

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. belonged 60% to the Assessee and 40% to GNRC. Accordingly, the closing stock of units representing value of Rs. 37,98,79,084/- in the project Neelkanth Business Park belongs 60% to the Assessee and 40% with GNRC. The Assessing Officer had factually erred in making addition u/s 23(5) on 100% value of stock in books of the Assessee instead of only on 60% which belonged to it.

- In this ground, the appellant contended that the provisions of section 23(5) are not applicable to the facts of its case as per section 22 of the Income Tax Act. Section 22 of the Act which is the charging section for the head “Income from House Property’ charges annual value of the property being buildings or land appurtenant thereto to tax under the head `Income from House Property’. However, it carves out an exception in respect of property occupied for the purposes of the appellant’s business. The appellant has contended that since the property held by it is occupied/in possession for business purpose, the provisions of section 23(5) are not applicable. The contention of the appellant is not tenable. The provisions of section 23(5) are applicable to “property consisting of any building or land appurtenant thereto is held as stock in trade”. Where the provision of Section 23(5) squarely applies to finished stock in trade, the appellant contention that the same is excluded u/s. 22 of the Income Tax Act cannot be accepted

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. - During the appeal proceedings, the appellant has submitted that the AO has factually erred in making addition u/s 23(5) on 100% value of stock in books of the appellant instead of only on 60% which belonged to the appellant. The contention of the appellant is not tenable. It is observed from the assessment order that the addition was made by the AO on the value of stock appearing in the books of the appellant and the same is agreed upon by the appellant in its own written submission furnished during the appeal proceedings. The copy of the notes to the financial statements for the year ended 31st March 2018 as submitted by the appellant during the appeal proceedings is scanned as under for the sake of convenience; In this regard, the relevant provision of the act is enumerated below; “Following sub-section (5) shall be inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 1-4-2018: (5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.” - As required to apply this provision, the details regarding date of completion of the project is mandatory. Hence, the appellant was requested to submit the completion/occupation certificate issued by the competent authority vide this office notice dated 17.06.2025 in respect 9

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. of both the projects Neelkanth corporate park and Neelkanth business. In response to the same, the appellant vide communication dated 18.06.2025 has submitted the occupationcertificate issued by the Municipal Corporation of Greater Mumbai, which is scanned as under; - - From the above, it is observed that both the projects were completed and completion certificate has also been issued by the competent authority. As the period up to two years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority expires in the year 2015-16 and 2017-18 in respect of Neelkanth business park and Neelkanth corporate park respectively. Hence, the appellant qualifies for the computation of notional rent on the closing stock as appearing in the books ofaccount at the end of the financial year 2017-18 relevant to the Ay 2018-19. - The next issue under contention of the appellant is AO has calculated the notional rent on the closing stock @ 8% which is not in accordance with the principles for determination of Annual Letting Value of the property. The principles laid down by the Hon’ble High Court of Delhi and Mumbai for determination of Annual Letting Value of the property in the case(s) of CIT v/s Moni Kumar Subba (2011 333 ITR 838) and CIT v/s Tip Top Typography (2014 368 ITR 330) respectively is reproduced as under: (i) ALV would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances. (ii) An inflated or deflated rent based on extraneous

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. consideration may take it out of the bounds of reasonableness. (iii) Actual rent received, in normal circumstances, would be reliable evidence unless the rent is inflated / deflated by reason of extraneous consideration. (iv) Such ALV, however, cannot exceed the standard rent as per the Rent Control Legislation applicable to the property. (v) if standard rent has not been fixed by the Rent Controller, then it is the duty of the assessing officer to determine the standard rent as per the provisions of rent control enactment. (vi) The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as ALV and not the standard rent. - Further, the appellant during the appellate proceedings, has placed its reliance on the decision of the Hon’ble ITAT, “D” Bench, Mumbai in the case of Rustomji Ever shine Joint venture, which has been pronounced in line with the decision of the Hon’ble High Court, Mumbai and contended that the notional rent to be charged at the rate of 2% on the value of closing stock as appearing in the books of appellant at the end of the year for AY 2018-19 instead of 8% charged by the AO. The Assessee furthermore relied on Hon’ble Mumbai ITAT decision in the case of M/s. Chalet Hotels Ltd (as a M/s.Magna Distribution & Warehousing Pvt Ltd) I.T.A.No.2505/Mum/2021 provided a detailed reasoning justifying the rental yield of 2% on value of stock in Mumbai. The appellant also relied on Hon’ble Mumbai ITAT decision in case of M/s Inorbit Mall Pvt. Ltd., [ITA No. 2220/Mum/2021, dated 11/10/2022.] which held that if the appellant received any advance against the stock in trade, the value of such stock in trade is not required to considered for the purpose of computation of deemed income u/s 23(5) of the Income Tax Act. He agreed with this contention raised by the appellant and

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. direct the AO to reduce the value of the stock in trade against which advance is received by the appellant. - In light of the judgments of the above-mentioned Hon’ble Court(s), the AO was directed to calculate the annual rental income using a percentage of 2% instead of 8%. The grounds of appeal raised by the appellant on this issue is partly allowed.

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. 8.1 Regarding quantification of annual letting value,the contentions made before the appellate authority have been reproduced. Strong reliance has been placed on the decisions of the coordinate bench in the cases of DCIT v. Rustomjee Evershine Joint Venture and ACIT v. Chalet Hotels Ltd. (supra).

8.2 In so far as the reliance placed by the AO on the assessment order for AY 2017-18 regarding adoption of similar rate of 8% is concerned, it was submitted that the facts were not identical.Upon appeal, the First Appellate Authority held that the said assessment was not justified as, units in the Neelkanth Corporate Park project were held as work-in-progress in absence of receipt of occupation certificate as on 31/03/2017 and accordingly no notional income could be added in relation to the same.Upon further appeal by the Revenue before the Tribunal, the said position stands confirmed with the matter being remanded to the AO to verify whether the addition was made in respect of work in progress.Therefore, in AY 2017-18, though the AO had applied the rate of 8%, he had done so to the work-in-progress held by the assessee. The Tribunal while noting that the CIT(A) had made a finding remanded the matter to the AO to verify the same. Therefore, adopting the rate of 8% by the AO for AY 2017-18 would not be determinative of the matter.

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. case. We find that similar addition was made by the AO in the assessment order for the AY 2017-18 which was however, deleted by the ld.CIT(A).On further appeal by the Revenue, the matter was considered by the coordinate bench of ITAT, Mumbai in its order in ITA No.2408/Mum/2023 dated 26.03.2024 wherein it has duly deliberated on the issue at length and finally set aside the appellate order subject to verification by the AO, allowing the appeal for statistical purposes. Relevant parts of the said order are reproduced as below for ready reference:

“1. By way of the present appeal the Revenue has challenged the order, dated 09/05/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi [hereinafter referred to as 'the CIT(A)'] for the Assessment Year 2017-18, whereby the Ld. CIT(A) had allowed the appeal of the Assessee against the Assessment Order, dated 23/12/2019, passed under Section 143(3) of the Income Tax Act, 1961 (Assessment Year: 2017-18) (hereinafter referred to as 'the Act'). 2. The Revenue has raised the following grounds of appeal: "1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition made by the AO u/s 23 of the Act, on account of notional rent on flats held by the assessee as stock in trade ignoring the fact that the provision of Section 23(5) were introduced in the Act, from the A.Y. 2018-19 onwards merely for granting relief to the builders. 2. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 3. The relevant facts in brief are that the Assessee is a domestic company engaged in the business of builders and developers. The Assessee filed return of income for the Assessment Year 2017-18 on 31/03/2018 declaring total Income of INR 6,54,46,210/-.The case of the Assessee was selected for scrutiny. During the assessment proceedings Assessing Officer issued notice, dated 09/12/2019, to the Assessee requiring the Assessee to show cause why notional rental income in respect of closing stock of flats/shops/offices should not be brought to tax as income from house property in hands of the Assessee as per Section 23(1)(a) of the Act. In response, the Assessee filed reply letter, dated 18/12/2019, contending that notional rental income in respect of units forming part of the closing stock could not be brought to tax as income from house property by placing reliance on the judgment of the Hon'ble Gujarat High Court in the case of CIT Vs. Neha Builders (P.) Ltd. : [2008] 296 ITR 661 (Gujarat). It was also contended that there was no provision in Act which specified adoption of rate of 8% (of the value of the closing stock) for (Assessment Year: 2017-18) computing the notional rental income as proposed by the Assessing Officer. However, the Assessing Officer was not

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. convinced and rejecting the aforesaid contention of the Assessee, the Assessing Officer concluded that the notional rental income on closing stock of units was liable to tax in the hands of the Assessee. Relying upon the decision of the Tribunal in the case of Emtici Engineering Limited Vs. Assistant Commissioner of Income Tax: 58 TTJ 27, the Assessing Officer computed the notional rental income at the rate of 8% of the value of the closing stock and made addition of INR 1,77,89,901/- as income from house property in the hands of the Assessee invoking provisions of Section 23(1)(a) of the Act. 4. Being aggrieved, the Assessee preferred appeal before the CIT(A). It was contended that the provisions for levying tax on notional rental income from closing stock was introduced with effect from Assessment Year 2018-19 and therefore, notional rental income could not be brought to tax in the hands of the Assessee for the Assessment Year 2017-18. Reliance in this regard was placed on Section 23(5) of the Act. It was further submitted before the CIT(A) that the occupation certificate in respect of units/flats forming part of closing stock was not received by the Assessee till 31/03/2017 and the same were held as work-in-progress. Therefore, no notional rental income in respect of the same could be brought to tax in the hands of the Assessee. The CIT(A) accepted the aforesaid contention of the Assessee; allowed the appeal of the Assessee; and deleted the addition of INR 1,77,89,901/- made by the Assessing Officer under Section 23(1)(a) of the Act. 5. Being aggrieved, the Revenue is now in appeal before us on the (Assessment Year: 2017-18) grounds reproduced in paragraph 2 above. 6. The Ld. Departmental Representative relied upon the decision of the Tribunal in the case of Dimple Enterprises Vs. DCIT [ITA No. 5269/Mum/2019, dated 21/05/2021] which was approved in the case of DCIT, Central Circle 4(2), Mumbai Vs. M/s Inorbit Mall Pvt. Ltd., [ITA No. 2220/Mum/2021, dated 11/10/2022.] and submitted that the issue raised in the present appeal stands decided in favour of the Revenue. It was further submitted that the Assessing Officer was justified in bringing to tax the notional rental income computed at the rate of 8% of the value of closing stock of units held by the Assessee. The CIT(A) had incorrectly concluded that there was no provision to bring to tax the aforesaid rental income in the hands of the Assessee prior to the insertion of Section 23(5) of the Act which was applicable from Assessment Year 2018-19. 7. Per contra, the Ld. Authorised Representative for the Assessee supported the order passed by the CIT(A) and submitted that the issue raised in the present appeal stood decided in favour of the Assessee by the judgment of the Hon'ble Gujarat High Court in the case of CIT Vs. Neha Builders (Pvt.) Ltd. (supra) which has since been followed by the Mumbai Bench of the Tribunal in the case of M/s C.R. Developments Pvt. Ltd. Vs. JCIT-8(1)(OSD), Mumbai [ITA No. 4277/Mum/2012, dated 13/05/2015] and in the case of Shri Rajendra Godshalwar Vs. ITO-21(3)(1), Mumbai [ITA No. 7470/Mum/2017, dated 31/01/2019]. He vehemently contended that a view taken in favour of the Assessee should be adopted even if there existed a contrary view taken by the Tribunal on the same issue. He further submitted that the CIT(A) had also returned a factual finding that in respect of units forming part of closing stock, (Assessment Year: 2017-18) occupation certificate was not obtained. Further, the aforesaid units were held as work-in-progress. Therefore, no notional rental income could have been brought to tax in hands of the Assessee.

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. 8. In rejoinder, the Ld. Departmental Representative submitted that there was nothing on record to support the factual finding returned by the CIT(A) that occupation certificate was not obtained till 31/03/2017. He further submitted that even if, additional evidence was submitted by the Assessee before CIT(A), the provisions contained in Rule 46A of the Income Tax Rules, 1962 [for short 'IT Rules'] were not been complied with as no remand report was sought from the Assessing Officer. 9. We have heard the rival submissions and perused the material on record. 10. We note that identical issue came up for consideration before the Mumbai Bench of the Tribunal in the case of DCIT, Central Circle 4(2), Mumbai Vs. M/s Inorbit Mall Pvt. Ltd., [ITA No. 2220/Mum/2021, dated 11/10/2022.] After examining judicial precedents on which reliance has been placed by both the sides, the Tribunal observed that the jurisdictional High Court had taken a view contrary to the view taken by the Hon'ble Gujarat High Court in the case of Neha Builders (supra) while holding that in cases where the there was actual receipt of rental income, the same was to be assessed as income from house property and not as business income. However, the aforesaid judgments were not applicable to a case where there was no actual receipt of rental income in the present case. The relevant extract of the decision of the Tribunal reads as under: 13. Thus, in all these cases there was actual receipt rental income from the unsold stock of property and the controversy of whether income is to be assets under the head income from house property or business income. Hon‟ble Bombay High Court in all the aforesaid decisions has taken a contrary view to judgment of Hon‟ble Gujarat High Court in the case of Neha Builders and held that the rent received from property held as stock-in-trade and any rent received on such unsold closing stock, then income is assessable as „income from house property‟ and not as a „business income‟. 14. The aforesaid ratio and principle, either of the Hon‟ble Gujarat High Court or the Hon‟ble Bombay High Court is not applicable on the facts of the present case, because, here in this case the Assessee had unsold units which were lying vacant and were in the possession of the Assessee Company. Assessing Officer held that these properties are liable to be taxed on notional rental income under the head „income from house property‟ on the basis of ALV. It is not a case that there is any actual receiving of rent as was the case before the Hon‟ble Gujarat High Court and Hon‟ble Bombay High Court. Had it been a case wereAssessee have fetched rental income from the unsold stock, then following the principle laid down by the Hon‟ble Bombay High Court same would have been assessed under the head income from house property. 11. After making the above observations, the Tribunal, taking into consideration the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance & Leasing Company Limited:[2013] 354 ITR 180 (Delhi) [31-10- 2012], as well as the provisions of Section 23(5) of the Act, concluded as under: "15. Now, coming to the decision of Hon‟ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance & Leasing Company Ltd (Supra), one of the question of law referred before the Hon‟ble High Court was as under; "Whether the assessee was liable to pay income tax on the annual letting value of unsold flats owned by it under the head "income from house property"? 16

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. 15.1 There the facts relevant to the issue raised relate to the addition on account of annual letting value (ALV) of flats, added on notional basis are that the assessee-company engages itself in the (Assessment Year: 2017-18) business of development of mini-townships, construction of house property, commercial and shop complexes etc. In the assessment completed for the year under consideration, the AO assessed the ALV of flats which the assessee had constructed, but were lying unsold under the head "Income from house property". The assessee however, contended that the said flats were its stock-in-trade and therefore, the ALV of the flats could not be brought to tax under the head "Income from house property". The AO however did not accept the stand of the assessee and therefore, added the notional value of unsold flats to the total income of the assessee. On appeal by the assessee, the CIT(A) however set aside the addition made by the AO. The revenue's appeal to the Tribunal was unsuccessful. 16. Hon‟ble Delhi High Court after referring to various judgments of Hon‟ble Supreme Court, finally observed as held in under: "In the present case, the assessee is engaged in building activities. It argues that flats are held as part of its inventory of stock-in- trade, and are not let out. The further argument is that unlike in the other instances, where such builders let out flats, here there is no letting out and that deemed income which is the basis for assessment under the ALV method, should not be attributed. This Court is of the opinion that the argument, though attractive cannot be accepted. As repeatedly held, in East India, Housing & Land Development Trust's case (supra) Sultan Bros's case (supra) and Karan Pura Development Co. Ltd.'s case (supra) the levy of income tax in the case of one holding house property is premised not on whether the assessee carries on business, as landlord, but on the ownership.The incidence of charge is because of the fact of ownership. Undoubtedly, the decision in Vikram Cotton Mills Ltd. case (supra) indicates that in every case, the Court has to discern the intention of the assessee; in this case the intention of the assessee was to hold the properties till they were sold. The capacity of being an owner was not diminished one whit, because the assessee carried on business of developing, building and selling flats in housing estates. The argument that income tax is levied not on the actual receipt (which never arose in this case) but on a notional basis, i.e. ALV and that it is therefore not sanctioned by law, in the opinion of the Court is meritless. ALV is a method to arrive at a figure on the basis of which the impost is to be effectuated. The existence of an artificial method itself would not mean that levy is impermissible. Parliament has resorted to several other presumptive methods, for the purpose of calculation of (Assessment Year: 2017-18) income and collection of tax. Furthermore, application of ALV to determine the tax is regardless of whether actual income is received; it is premised on what constitutes a reasonable letting value, if the property were to be leased out in the marketplace. If the Assessee's contention were to be accepted, the levy of income tax on unoccupied houses and flats would be impermissible which clearly not the case is". 17. Though, the judgment which has been referred by the Hon‟ble Delhi High Court in the case in "East India Housing & Land Development Trust (Supra)", "Sultan Bros" and "Karan Pura Development Company Ltd". (Supra) wherein, in all the cases the issue whether the rental income received from the property is to be assessed as business income or income of house

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. property. No where, the Hon‟ble Supreme Court in any of the cases which has been referred by the Hon‟ble Delhi High Court dealt with issue of notional rental income when the property held as stock-in-trade or closing stock which has not been actually let out, is liable to be taxed as income from house property. However, be that as maybe, there is no contrary decision of any other High Court and therefore, this decision Hon‟ble Delhi High Court will have both binding and persuasive value. No direct contrary decision has been brought to our knowledge of any other High Court and we have already noted above that the decision of Hon‟ble Gujarat High Court in the case of Neha Builder (supra) was not on the issue on notional rent from unsold stock. Therefore, it cannot be held that on this issue the judgment of Hon‟ble Gujarat High Court is in favor of the Assessee and therefore, the judgment of Delhi High Court in the case of Ansal Housing Finance Leasing Company Ltd (Supra) should not be followed. Thus, in our opinion this Tribunal in the case of Dimple Enterprises vs. DCIT (Supra) as cited and relied upon by the Ld. DR has correctly appreciated this distinction. 18. One very important development took place post these judgments, that an amendment has been brought in the statute in section 23(5) which is applicable from AY 2018-19 which reads as under, "Where the property consisting of any building or land appurtenant there to is held as stock-in trade and the property of any part of the property is not let during the whole or any part of the previous year, the annual value (Assessment Year: 2017- 18) of such property or part of the property, for the period up to one year form the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil." It is trite that the said amendment has to be given effect prospectively from 01.04.2018 as mentioned in the Explanatory Notes to the provisions of the Finance Act, 2017. It is a cardinal principle of the interpretation that the normal presumption which respect to an amendment is that is applicable prospectively unless and until specifically stated otherwise. The logic behind such as interpretation is that the law should govern current activities; i.e. to say "lex prospicit non respicit", which means that "The Law looks forward and not backward." 19. Now, that specific provision has been brought in the statute which provides that, if building or land held as stock in trade and the property has not been let out during the whole or any part of the previous year, then annual value of such property after the period of one year (which was increased 2 years), shall be computed as income from house property and up to period of one year/two years income shall be taken to be „nil‟. Thus, when specific provision has been brought with the effect from 01.04.2018 which cannot be applied retrospectively, then in our humble opinion it cannot be imputed that ALV of the flats held as stock in trade should be taxed on notional basis prior to AY 2018-19. Without any legislative intent or specific provision under the Act, such notional or deeming income should not be taxed as cardinal principle, because assessee is not aware that any hypothetical income is to be shown when he has not received any real or actual income. In our view of Hon‟ble Delhi High Court is too harsh an interpretation. 20. Since, even prior to the amendment, there is one High Court judgment of Hon‟ble Delhi High Court which is directly on this 18

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. issue and against the Assessee, therefore same needs to be followed. Accordingly, we hold that Assessing Officer is correct in computing ALV on notional rent on unsold stock, but with following riders and directions to the AO as discussed herein after. 21. Firstly, the flats or units on which assessee has received any advance in this year or in the earlier years but has not delivered or given final possession of the said flat/unit to the buyer, then no notional rent can be charged as it tantamount to sale. Secondly, if unit of flat is shown as work- in-progress in the books then also no notional rent can be computed. And Lastly, Ld. Assessing Officer is not justified in making estimate of 8.5% of investment as ALV which is unsustainable in view of the decision of Hon‟ble Bombay High Court in the case CIT Vs. Tip top Typography reported in 368 ITR 330, wherein, it has been held that rent should be computed at Municipal ratable value. We accordingly direct the AO to ascertain the Municipal ratable value for computing the notional rent. This is also been held by ITAT Mumbai Bench in the case of Dimple Enterprise Vs. DCIT (Supra), in the following manner:- "Now the question is of the rental value. The assessing officer has not levied the deemed rent on municipal ratable value or any nearly similar instance. The reliability of municipal ratable value has been duly upheld in several decisions. The Assessing Officer cannot make any ad hoc computation of deemed rent. Honorable Bombay High Court decision in the case of CIT vs. Tip Top Typography [2014] 48 taxmann.com 191/[2015] 228 Taxman 244 (Mag.)/[2014] 368 ITR 330 duly supports this proposition. Thus assessing officer has made an ad hoc estimate of 8.5% of investment on the plea that assessee has not been able to provide the municipal ratable value. This is not sustainable on the touchstone of Hon'ble Bombay High Court decision in the case of Tip Top Typography (supra). In our considered opinion nothing stops the assessing officer from obtaining the municipal ratable value from Departmental or government machinery. Hence we direct the assessing officer to compute the valuation of deemed rent in accordance with our observation as above and take into account the Hon'ble Jurisdictional High Court decision as above. Since we have decided the issue by duly taking note of Hon'ble Jurisdictional High Court decision and have also applied Hon'ble High Court decision, the reference to other decision in this case is not considered relevant to adjudication in this case." 22. Thus, AO is directed to compute accordingly as per direction given above. Accordingly, ground No.1 of the revenue is partly (Assessment Year: 2017-18) allowed for statistical purposes." (Emphasis Supplied) 12. Thus, on perusal of above it can be seen that in the above decision the Tribunal had, after considering contentions identical to those raised by the parties before us, concluded that notional rental income on unsold stock can be brought to tax as income from house property in the hands of an assessee subject to the following riders. Firstly, the flats/units on which an assessee has received any advance but has not delivered/given final possession to the buyer shall not be subjected to notional rent. Secondly, if unit of flat is shown as work-in-progress in the books of accounts of the assessee then also notional rent could not be computed. Thirdly, as 19

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. per the judgment of the Hon'ble Bombay High Court in the case CIT Vs. Tip top Typography: 368 ITR 330, notional rent should be computed at Municipal Ratable Value. 13. We note that the CIT(A) has returned a finding that the closing stock of units were held by the Assessee as work-in-progress as the occupation certificate in respect of the same was not received till 31/03/2017. However, the Revenue has disputed the finding returned by the CIT(A) as without any basis. In our view, the factual finding retuned by the CIT(A) goes to the root of the matter as it has been held by the Tribunal in the case of Inorbit Mall Pvt. Ltd. (supra) that notional rental income is not chargeable in case closing stock of units was held as work-in- progress. The material placed before us is not sufficient to return a factual finding on this issue. Since the issue requires verification, we remand this issue back to the file of the Assessing Officer with the directions to verify whether the closing stock of the units was held by the Assessee as work-in-progress and decide the issue as per the decision of the (Assessment Year: 2017-18) Tribunal in the case of Inorbit Mall Pvt. Ltd. (supra). Accordingly, we set aside the order passed by the CIT(A) as well as the addition of INR 1,77,89,901/- made by the Assessing Officer under Section 23(1)(a) of the Act. Ground No. 1 raised by the Revenue is allowed for statistical purposes. 14. In result, the appeal by the Revenue is allowed for statistical purposes.” 10. On careful consideration,we find some factual difference qua the assessment for AY 2017-18.First and foremost is the provision of section 23(5) of the Act which are were applicable from the impugned assessment year.Therefore,questioning the validity the said provisions lacks any substance. The AO was therefore, justified in invoking the said provisions and the ld.CIT(A) having agreed, we do not find any infirmity therein. Secondly, in AY 2017-18, the unsold flats were held to be work-in-progress by the ld.CIT(A) though the said order was set aside by the ITAT for verification of such factual finding. In the impugned year, the assessee had apparently received the Occupancy/Completion certificate and this fact has not been denied at any point of time. Therefore, the provisions of section 23(5) of the Act were found applicable by the ld.CIT(A) which remains uncontested before us.

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. 10.1 We also find that the Revenue has agitated the action of ld.CIT(A) in allowing relief to the assessee in respect of flat against which it had received advance. Revenue has contended that the appellate authority allowed the benefit without allowing the AO any opportunity in this regard,thus violating the provisions of Rule 46A.We find merits in the contentions as no such plea was made by the assessee before the AO.However,we find that in the decision in the case of Inorbit Mall Pvt. Ltd.,(supra)in para 12,it was categorically held that in such cases where advances are already received, would be out of purview of the section as it has to be considered as sold premises.Therefore, we find that the issue is covered in favour of the assessee.However, considering the fact that the claim was made for the first time before the ld.CIT(A),we deem it appropriate to set aside the appellate order and direct the assessee to produce relevant details in this regard before the AO who after due examination and in the light of the above decision, would exclude the cost subject to such verification. The ground of appeal is allowed for statistical purposes.

10.2 In view of the stated factual and legal position,the only issue for consideration is the application of rate of 8% of the cost by the AO and reduced to 2% instead by the ld.CIT(A) requires to be adjudicated.As deliberated in the appellate order(supa) for the AY 2017-18,the decision of the coordinate bench in the case of Inorbit Mall(supra) has been followed which in turn,followed the ratio laid downy by the jurisdictional high Court in the case of CIT Vs. Tip Top Typography(supra),wherein it was directed to restrict the

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. addition to the Municipal rate only. Accordingly, we hold that in view of the binding orders of the coordinate bench and the judgment of the Hon'ble Bombay High Court in the case CIT Vs. Tip top Typography, notional rent should be computed at Municipal Ratable Value.Accordingly, we set aside both the impugned orders for quantification of notional withthe direction to the AO to recalculate the quantum of addition after arriving at the Municipal Rateable Value.Therefore,the ground in this regard is also set aside for statistical purposes.

12.C.O. 130/MUM/2026(A.Y. 2018-19) Grounds of Cross Objection

“Without prejudice to the fact that the additions made by the Ld Faceless Assessing Officer, NFAC has been rightly deleted by the CIT(A) on merits, the Assessee contends that the Ld. CIT(A) has erred in dismissing the Assessee's prayer in law that the assessment is void ab initio. The Assessee herein contends that the order u/s 143(3) was passed without issuance of show cause notice and accordingly, the order u/s 143(3) is passed by violating the provisions of section l44B.In the circumstances, the Assessee contends that the assessment order u/s 143(3) is without jurisdiction and is required to be quashed. Without prejudice to the above, the Respondent Assessee craves leave to amend or alter any grounds of cross objection or to submit additional new grounds of cross objection which may be necessary at the time of hearing.” 13. In this regard,it was submitted by the ld.AR that there is a delay in filing the cross objections to ITAT. Since the ld. CIT(A) had granted relief on merits by deleting the additions made by the Assessing Officer, the assessee did not consider it necessary to prefer any further appeal in the matter. Subsequently, upon receipt of notice of the appeal filed by the Revenue on

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. 02.03.2026, the matter was revisited and the assessee is of the opinion that it had a strong legal ground challenging the jurisdiction of assessmentproceedings that the assessment order passed under section 143(3) is void ab initio. The assessee states that the delay is purely unintentional and neither due to negligence nor due to any malafide intention, but has occurred due to the bonafide belief and circumstances explained hereinabove.On due consideration,we condone the delay.

13.1 The assessee filed a CO, urging that, in the present case, the assessment order has been passed without first issuing a show-cause notice in accordance with section 144B (1)(xii)(b) of the Act, rendering the proceedings to be illegal and bad in law.

ITA No. 225/Mum/2026; M/s. Neelkanth Urban Developers Pvt. Ltd. 16. In the final summing up, the appeal of the Revenue in ITA No.225/Mum/2026 is allowed for statistical purposes while the CO filed by the assessee stands dismissed.

Order pronounced in the open court on 24/06/2026.

Sd/- Sd/- SAKTIJIT DEY PRABHASH SHANKAR (उपाध्यक्ष/ VICE PRESIDENT) (लेखाकार सदस्य/ACCOUNTANT MEMBER)

Place: म ुंबई/Mumbai ददनाुंक /Date 24.06.2026 Soumili Das / PS

आदेश की प्रतितलति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीलीअतधकरण