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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: ABY T. VARKEY, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE ABY T. VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NOs.153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) Moraj Finanz Corporation v. DCIT – Central Circle – 5(2) C/7 Big Splash, 1st Floor Room No. 1908, 19th Floor Turbhe Road, Vashi Air India Building Navi Mumbai-400705 Nariman Point Mumbai – 400 021 PAN: AAKFM5831H (Appellant) (Respondent) Assessee Represented by : Shri Pradip N. Kapasi Department Represented by : Smt. Mahita Nair
Date of Hearing : 15.09.2022 Date of Pronouncement : 08.12.2022
O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by the assessee against common order of the Learned Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 30.11.2021 for the A.Ys.2010-11, 2011-12 and 2012-13.
2 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation 2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No. 153/MUM/2022 for Assessment Year 2010-11 as a lead appeal.
Brief facts of the case are, a search and seizure action was taken in Gurnani Group on 04.02.2016. The case has been centralized with the order of the Pr.CIT-28 dated 22.11.2016. The case of the assessee was reopened u/s. 148 of Income-tax Act, 1961 (in short “Act”) by issue of notice to the assessee on 27.03.2017 with the reasons recorded and the same are reproduced in Page Nos. 1 to 5 of the Assessment Order. In response, Authorized representative of the assessee attended and submitted the relevant information as called for. Assessee also filed return of income on 02.09.2017 declaring total income of ₹.58,49,080/-. Accordingly, notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. Before us, Ld AR has not made any submissions relating to reopening of assessment, accordingly, those issues are not discussed in this order. Accordingly, the ground no.1 raised by the assessee is dismissed.
3 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation 4. Coming to the issue relating to Ground No. 2 raised by the assessee, during the search proceedings it was noticed that assessee was holding various units i.e., flats/shops/offices as closing stock. In the post search proceedings, assessee was asked to furnish the year wise details of stock in trade of the fully constructed flats held at the end of each Financial Year during F.Y.2009-10 onwards. In response, assessee has furnished the flat wise details of stock in trade held during the F.Y. 2009-10 to F.Y. 2015-16. After considering the stock held by the assessee at close of each Financial Year, the Assessing Officer invoked the decision of Hon'ble Delhi High Court in the case of CIT v. M/s. Ansal Housing Finance and Leasing Company Limited, according to him it is squarely covered in the case of the assessee. As per the decision assessee engaged in building and construction activities has to pay tax on the annual lettable value of their flats held in the stock in trade. Accordingly, notices u/s. 142(1) dated 13.11.2017 were issued to the assessee to submit the relevant information on closing of flats and explain why annual lettable value should not be treated as part of the business income. After considering the submissions made by the assessee, Assessing Officer determined the annual lettable value of
4 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation ₹.42,83,312/- as notional lettable value and added as business income of the assessee.
Aggrieved, assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions in this regard, which are reproduced below: - “Ground No. 2: Addition u/s. 22 on account of notional rent The expenditure of Rs.3,63,39,423/- & Rs.5,06,33,520/- incurred after receipt of occupancy certificate and accounted for the year ended 31.03.2010 and 31.03.2011 respectively and examined and assessed by the AO thereafter clearly go to show that the cost of construction was not completed as on 31.03.2010, a fact which is further confirmed by examining the nature of expenditure incurred which was on construction of building and the finishing thereof. 2. The financial statements prepared and filed for the year ended 31.03.2010 highlighted that your appellant did not own and possess any finished goods as on that date and they also confirm that work of construction was in progress which was highlighted by disclosures of the WORK IN PROGRESS which was at the value of Rs.33,30,66,954/- as at 31.03.2010. 3. The financial statements for the year ended 31.03.2011 and the assessment proceedings and the records and also the Assessment Order clearly confirm that your appellant had completed the project and had sold all the flats and shops therein and has booked the entire sale proceeds and importantly the income of such sales of the entire project was assessed to tax under a speaking order passed u's 143(3) for AY 2011-12. The above stated facts clearly confirm that the appellant did not own and possess any flats and shops for the year ended on 31.03.2011 and 31.03.2012. 4. There is no statement made during the course of search u/s.132 to the effect by any person that the assessee was in possession of any stock of flats/shops for the year ended 31.03.2010, 31.03.2011 and 31.03.2012 5. There is also no statement made during the course of search or any time thereafter which indicated that the financial statement and books of account of your appellant representing the position in facts that was untrue or false.
5 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation 6. One Shri Mohan T.Gumani subsequent to the search was asked to furnish details of the registered agreements for sale in respect of all the flats and shops constructed and sold in respect of all the group concerns, which details were furnished as requested without prejudice. These details so furnished at no place indicate or confirm or convey that the appellant owned or possessed any flats or shops as at 31.03.2011 or at 31.03.2012. The details so furnished supplemented the facts stated herein above. The details so furnished simply gave the date of execution of agreements for sale and the date of registration agreed to allot the flats during the construction period (A.Y.2006-07 to 2011-12) on issue of letter of allotments recording the details flats booked and the total consideration agreed upon. In pursuance of such letters the appellant received part consideration from time to time and on completion of construction and on receipt of full consideration, handed over the possession to the respective allotees and on happening of these events recognized the project profits in the FY.2010-11, relevant to A.Y.2011-12. In many of the cases of sales the agreements for sale were executed and registered during the period 2005 to 2010 especially in cases where the buyers requested for them for certain financial arrangements. For the rest of the sales agreements were executed during F.Y.2010-11, 2011- 12 or even there after though the full revenue in respect of such sales has been recognised by the end of 31.03.2011. The complete details and evidences in support of the facts stated to the paragraphs has been furnished. This facts and the details clearly confirm that no further revenue in respect of sales remains to be recognised and importantly confirm that the appellant did not or possesses any unsold stock. 7. All of these facts including the fact of furnishing details of registration of agreements have been explained in an affidavit dated 25.09.2018 sworn on oath by Shri Mohan T.Gurnani (Ann. 13) which affidavit and facts stated there in should put the issue under consideration beyond any doubt. Kindly note that the affidavit of Shri Mohan T.Gurnani is being filed to support the facts stated and are placed on record of the Authorities and therefore the said affidavit is not in the nature of any additional evidence. In the event the said affidavit is considered or treated as additional evidence, the same may kindly be so admitted in accordance with the provisions of Rule 46Ar.w.s.250 and s.251 for the reason that your Appellant could not have furnished such an affidavit before receipt of the Assessment Order and coming to the knowledge of the presumption and allegation made by the Ld.AO in the assessment order and the affidavit is being filed to explain the correct facts and repute the presumptions and allegations made in
6 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation assessment order. This request therefore may kindly be treated as an application for admission for additional evidence as required by the law. 8. In addition the proof if parting with the possession by your appellant furnished as per your request should also put the issue under consideration beyond doubt and confirm that your appellant had parted with possession of all premises, constructed by it on or before 31.03.2011. 9. Kindly note that the rights in the premises under construction was transferred to the allotees on issue of letter of Allotment, which rights were further confirmed on receipt of consideration and what remained with the appellant was only the obligation to construct and transfer such premises. In the circumstances there was no valuable night with the appellant which could be considered and constructed to mean that the appellant was "OWNER" of the premises for the purposes of s.22 of the Income Tax Act. It is respectfully submitted that the appellant stood divested of any rights of ownership over the premises which were allotted to various persons on payment of consideration. The execution for agreements for sale was a formality to conclude the transaction of sale. Please note that a right of specific performance was created in favor of each of the purchasers under the Specific Relief Act and therefore to assume that the appellant to continue to be "owner" of such premises is a classic case of travesty of justice. 10. We also bring to your honour's kind attention following errors in calculations and law in computing the annual letting value and also in computation of income from house property. a. The letting of the premises is subjected to the provisions of the Maharashtra Rent Act, 1999, under which the letting has to essentially be at the standard rents specified by municipal authorities. Under the circumstances only standard rent should have been adopted as ALV in computing IFHP unless the letting was established at ALV. Under the circumstances only lower of standard rent or ALV should be adopted. Your honour is requested to direct AO to adopt only standard rent in assessing the income. b. That in respect of 4 shops the Ld.AO has calculated even ALV which has no basis in facts. The total ALV for each of the year for each of the shops was Rs.63,792/- against which the AO has assessed the ALV at Rs.8,71,478/- respectively. Once the correct ALV is
7 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation adopted a large part of addition for all the years be vanished. c. The ld.AO in computing the IFHP has ignored to grant the deduction of 30% of adjusted ALV as per section 24 of the Act. Once again even on back hand calculation 30% of the assessed income would have to be reduced. 11 It is significant to note that premises in question has remained vacant throughout the period consideration, a fact which is not in dispute. As a consequence your appellant was eligible for deduction of vacancy allowance under the proviso of section 23(1) of the Act for the full adjusted ALV. This position in law has been confirmed by the decisions in the following cases: (a) Premsutha Export Ltd. 110 ITD 158 (Mum.) (b) SachinR.Tendulkar, 172 ITD 266 (Mum.) (c) Saif Ali Khan, 172 ITD 345 (Mum.) (d) Vikas Keshav Garud, 160 ITD 7 (Pune) (e) Mehta Oxide (P) Ltd., 170 ITD 235 (Mum.) (f) Dr.Prabha Sandhi, 139 ITD 404 (Del.) (g) Kamal Mishra, 19 SOT 251 (Del.) 12. Stock in trade of business not liable to notional Income taxation. a. It is reiterated that the stock-in-trade held in the course of business is not liable to taxation of notional income as income under the head IFHP. b. The above submission is without prejudice to the fact that your appellant did not own or possess stock of the premises as on 31.03.2010, 31.03.2011 and 31.03.2012 and therefore provision of section 22 did not apply in case of your appellant and even where applicable no income was taxable on account of provisions of Section 23(1) and 24 of the Act. c. Kind attention is once again invited to the following decisions where it has been held that the provisions of Section 22 did not apply to the cases of stock-in-trade held by a builder/developer (i). Neha Builder (P) Ltd., 296 ITR 661 (guj.) (ii). Shyam Burlap Company Ltd. 31 taxmann.com 121 (Cal.)
8 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation (iii). Howrey Engineers & Builders (P) Ltd., ITA No.755/M/2016 dated 10.10.2018 (iv). Howrey Engineers & Builders (P) Ltd., ITA No.3321/M/2016 dated 31.08.2018 (v). C.R.Development (P.)Ltd., ITA No.4277/M/2012 dated 13.05.2016 (vi). Runwal Constructions, ITA no.5408/M/2016 (vii). Progressive Homes, ITA No.5082/M/2016 dated 16.06.2018 Your attentions is also invited to the decision of Supreme Court in the case of CIT vs. Vegetable Products Ltd., 88. ITR 192 (SC) wherein it has been held that the view beneficial to the tax payer should be adopted in cases where two views of a provision is possible in interpretation of the tax laws. Kindly also note that the position that the stock-in-trade of a builder developer is not liable to taxation on notional basis as confirmed by the amendment in section 23 made by the legislature by the Finance Act, 2017 thereby removing any doubts about the non- applicability of the provisions of section 22 of the Act to the years under consideration. d. Kindly note that the courts and tribunals deciding in the above mentioned cases has examined cases had examined the implications of the Delhi High Court decision in the cases of Ansal.., and on due consideration held that the provisions of notional income taxation did not apply to the premises held in case of stock-in-trade by a businessman engaged in building and construction of such premises. e. Further note that the appellant had raised the bills for payment of maintenance charges from the period February 2010 and respective premises owners have paid the same in due course of time and thereby proving that the appellant was no more in possession of premises at 31st March 2011 and 31st March 2012. f. It is significant to note that Ld.AO has accepted the position for A.Y.2013-14 and thereafter that the appellant was not in possession of any of the premises and therefore has not made any addition of whatsoever nature to the total income for such years."
9 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation 6. After considering the submissions of the assessee, Ld.CIT(A) rejected the same and sustained the additions made by the Assessing Officer with the following observations: - “5.3 The findings of the AO in the assessment order and the submissions made by the appellant have been carefully examined. The facts of the case are that the appellant company had constructed the project named 'Moraj Palm Paradise'. It is submitted by the appellant that the project was completed as on 31.03.2011 and all the flats and shops were sold. It is also submitted that the income from the sale of flats and shops was assessed to tax in A.Y.2011-12. It is further submitted that the rights in the flats/shops were divested when the allotment letters were issued to the buyers. Therefore, the assessee was not the owner of the shops/flats as on 31.03.2010. The appellant has requested to adopt the Municipal Rent to determine the ALV. It is also submitted that the property in question remained vacant throughout the year, therefore, the vacancy allowance should be allowed u/s. 23(1) of the Act. It is further submitted that the stock- in-trade is not liable to notional income tax. 5.4 The appellant has mainly argued that the it was not the owner of the 37 units in question. However, during the course of appellate proceedings, the appellant has submitted a copy of reply dated 26.05.2016 given to the DDIT (Inv.) Unit VII(4). Mumbai in response to the summons issued by the DDIT during the post- search proceedings. In this reply, the appellant has submitted the details of closing stock as on 31.03.2010, 31.03.2011 and 31.03.2012. The details of the Closing stock are reproduced as under:- Annexure Stock in Trade as on 31.03.2010 Moraj Palm Paradise, Palm Beach Road S.No. Name of the project Wing Unit No. 1 Moray Palm Paradise A 401 2 Moray Palm Paradise A 501 3 Moray Palm Paradise A 502/3 4 Moraj Palm Paradise A 601 5 Moray Palm Paradise A 602/3 6 Moraj Palm Paradise A 801 7 Moraj Palm Paradise A 901
10 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation S.No. Name of the project Wing Unit No. 8 Moraj Palm Paradise A 1301 9 Moraj Palm Paradise A 1302/3 10 Moraj Palm Paradise A 1701 11 Moraj Palm Paradise A 1702/3 12 Moraj Palm Paradise A 2201 13 Moraj Palm Paradise A 2202 14 Moray Palm Paradise A 2501/2502/2503 15 Mo raj Palm Paradise B 402/3 16 Mo raj Palm Paradise B 502/3 17 Moral Palm Paradise B 601 18 Moraj Palm Paradise B 1201 19 Moral Palm Paradise B 1401 20 Moraj Palm Paradise B 1402/3 21 Moray Palm Paradise B 1701 22 Moraj Palm Paradise B 1801 23 Moraj Palm Paradise B 1802/3 24 Moraj Palm Paradise B 2001/2002/2003 25 Moraj Palm Paradise B 2101 26 Moraj Palm Paradise B 2102/2103 27 Moraj Palm Paradise B 2201 28 Moraj Palm Paradise B 2202/03 29 Moraj Palm Paradise B 2301 30 Moraj Palm Paradise B 2302/3 31 Moray Palm Paradise B 2401 32 Moray" Palm Paradise B 2402 33 Moraj Palm Paradise B 2501/2502/2503 34 Moray Palm Paradise Showroom A-1 35 Moraj Palm Paradise Showroom A-2 36 Moraj Palm Paradise Showroom 8-3 37 Moraj Palm Paradise Showroom 8-4
Annexure Stock in Trade as on 31.03 2011 Moraj Palm Paradise, Palm Beach Road S.No. Name of the project Wing Unit No. 1 Moraj Palm Paradise A 501 2 Moraj Palm Paradise A 502/3 3 Moraj Palm Paradise A 601 4 Moraj Palm Paradise A 602/3 5 Moraj Palm Paradise A 801 6 Moral Palm Paradise A 1301
11 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation S.No. Name of the project Wing Unit No. 7 Moray Palm Paradise A 1302/3 8 Moray Palm Paradise A 1702/3 9 Moray Palm Paradise A 2201 10 Moray" Palm Paradise A 2202 11 Moray Palm Paradise A 2501/2502/2503 12 Moray Palm Paradise B 402/3 13 Moraj Palm Paradise B 502/3 14 Moraj Palm Paradise B 1201 15 Moraj Palm Paradise B 1401 16 Moraj Palm Paradise B 1801 17 Moraj Palm Paradise B 1802/3 18 Moraj Palm Paradise B 2001/2002/2003 19 Moraj Palm Paradise B 2101 20 Moraj Palm Paradise B 2102/2103 21 Moraj Palm Paradise B 2201 22 Moraj Palm Paradise B 2202/03 23 Moray Palm Paradise B 2301 24 Moray Palm Paradise B 2302/3 25 Moray Palm Paradise B 2401 26 Moray Palm Paradise B 2402 27 Moray Palm Paradise B 2501/2502/2503 28 Moray" Palm Paradise Showroom A-1 29 Moray Palm Paradise Showroom A-2 30 Moray Palm Paradise Showroom B-3 31 Moray Pa/m Paradise Showroom B-4 Annexure Stock in Trade as on 31.03.2012 MorajPalm Paradise, Palm Beach Road No. Name of the project Wing Unit No. 1 Moray Palm Paradise A 401 2 Moray Palm Paradise A 501 3 Moray Palm Paradise A 502/3 4 Moray Palm Paradise A 601 5 Moray Palm Paradise A 602/3 6 Moray Palm Paradise A 1301 7 Moray Palm Paradise A 1302/3 8 Moray Palm Paradise A 1702/3 9 Moray Palm Paradise A 2201 10 Moray Palm Paradise A 2202 11 Moray Palm Paradise A 2501/2502/2503 12 Moray Palm Paradise B 402/3
12 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation No. Name of the project Wing Unit No. 13 Moraj Palm Paradise B 502/3 14 Moray Palm Paradise B 1201 15 Moraj Palm Paradise B 1401 16 Moraj Palm Paradise B 1801 17 Moraj Palm Paradise B 2101 18 Moraj Palm Paradise B 2102/2103 19 Moraj Palm Paradise B 2201 20 Moraj Palm Paradise B 2202/03 21 Moraj Palm Paradise B 2301 22 Moraj Palm Paradise B 2302/3 23 Moraj Palm Paradise B 2401 24 Moraj Palm Paradise B 2402 25 Moraj Palm Paradise B 2501/2502/2503 26 Moraj Palm Paradise Showroom A-1 27 Moraj Palm Paradise Showroom A-2 28 Moraj Palm Paradise Showroom B-3 29 Moraj Palm Paradise Showroom B-4 From the above table, it is seen that as on 31.03.2010, total 37 units of flats/shops were shown by the appellant as stock-in- trade (closing stock). Therefore, the appellant's own submissions made before the DDIT(Inv) contradicts the argument of the appellant that there was no closing stock of flats/shops as on 31.03.2010. 5.5 With respect to the ownership, the claim of the appellant that the ownership was divested when the allotment letters were issued to the buyers of the flats/shops. This proposition is completely against the accounting policies followed by the builders and real estate sector. The appellant itself is showing 37 units as closing stock as on 31.03.2010 and on other hand it is claiming that the ownership in respect of these 37 units was not with the appellant. Thus, this argument of the appellant is rejected. The appellant has requested to adopt standard rent to estimate the value of ALV instead of the Municipal Property Tax as adopted by the AO. The AO has adopted one of the available methods of determination of ALV of the House Property. The appellant cannot force the AO to adopt a particular method of estimating the ALV. Therefore, this argument is also rejected. 5.6. The appellant has also submitted that the premises in question remained vacant throughout the year and hence the appellant is eligible for vacancy allowance under proviso to section 23(1) of the Act as against the adjusted ALV. For this the appellant has relied upon the decision in the cases of Premsutha Export Ltd.
13 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation 110 ITD 158 (Mum), Sachin R. Tendulkar 172 ITD 266 (Mum), Saif Ali Kan, 172 ITD 345 (Mum), Vikas K. Garud 160 ITD 7 (Pune), Mehta Oxide P. Ltd. 172 ITD 235 (Mum), Dr. Prabha Sandhi 139 ITD 404 (Del) and Kamal Mishra 19 SOT 251 (Del.) Whether the assessee is eligible for vacancy allowance in respect of the house property which remained vacant during the entire year, has been decided by Hon'ble High Court of Punjab and Haryana in the case of SushamSingla v. CIT [2016] 76 taxmann.com 349 (Punjab & Haryana). In this case the Hon'ble court has held that the annual value of more than one properties, owned by assessee and which admittedly remained vacant throughout previous year would not be assessed under section 23(1)(c) but under section 23(1)(a) and annual value would be determined notionally. The Hon'ble High Court has held as under:- “As per section 23(1)(a), the annual value of any property shall be deemed to be thesum for which the property might reasonably be expected to let from year to year. Section23(1)(b) provides that where any property or any part of such property is let and theactual rent received or receivable by the owner in respect thereof is in excess of the sum,which the property might reasonably be expected to let from year to year, then the annualvalue of such property would be the actual amount so received or receivable. Section23(1)(c) is to the effect that where any property or part of such property is let butremained vacant during the whole or any part of the previous year and owing to suchvacancy, the actual rent received or receivable is less than the sum, which such propertymight reasonably be expected to yield on being let out, then the amount so received orreceivable would be the annual value of the property in question. [Para 8] Section 23(2) is to the effect that where the property consists of a house or part of a house, which is in the occupation of the owner for the purposes of his own residence or could not actually be occupied by him for the reason that on account of his employment, business or profession, he had to reside at other places in a building, which is not owned by him, in that situation, the annual value of such house or part of the house is required to be taken as 'Nil". [Para 9] According to section 23(4)(a), where the property referred to in section 23(2) consists of more than one
14 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation house, then section 23(2) is to apply only in respect of one of such houses and section 23(4)(b) provides that the annual value of the house or houses, other than the house in respect of which the assessee had exercised an option under section 23(4)(a) shall be determined under section 23(1) as if such house or houses had been let. [Para 10] A harmonious reading of the above provisions indicates that in case the assessee owns more than one house, then the annual value of one of such houses, which is in his occupation as his own residence or which was not occupied by him for the reason that on account of his employment, business or profession, he had to reside at other places in a building not owned by him, is to be taken as 'Nil'. For the other houses that the assessee may own which are under his occupation or could not be occupied by him for the reason that on account of his employment, business or profession he had to reside at other places in a building not owned by him, their annual value is to be determined under section 23(4) read with section 23(1). [Para 11] Section 23(1) has three sub sections. Section 23(1)(b) and (c) would apply only to those properties which were actually let out and for which rent was actually received or receivable by the assessee. These provisions deal with the concept of real income and not notional income. [Para 12] Thus, the annual value of the properties like the ones in the instant case which are more than one, owned by the assessee and which admittedly remained vacant throughout the previous year would not be assessed under section 23(1)(c) but under section 23(1)(a). The annual value would, therefore, be determined notionally as done in the case in hand by the Assessing Officer and concurrently upheld by the Commissioner and the Tribunal. [Para 13] In view of the above, all the appeals are dismissed. [Para 15]" In view of the facts of the case of the appellant and respectfully following the decision of Hon'ble High Court of Punjab and Haryana in the case of SushamSingla v. CIT(supra). I am of the considered
15 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation opinion that the appellant is not eligible for vacancy allowance in respect of the house properties for which the AO has determined deemed rental income u/s 23(1)(a) of the Act. 5.7 The facts of the decision of the Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. (supra) are applicable to the facts of the case of the appellant. Therefore, the AO is right in his approach to follow the decision of the Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. (supra). In view of the above discussion, the addition of Rs. 42,83,312/- made by the AO is upheld.” 7. Aggrieved assessee filed appeal before us and raised following grounds in its appeal: - “GROUND NO. 2: ADDITION OF RS. 42,83,312/- AS NOTIONAL INCOME FROM HOUSE PROPERTY U/S. 22 [Para 5, Page no. 11 to 19 of CIT(A) Order dt. 30.11.2021] The ld. CIT(A) erred in law and on facts in confirming the action of the ld. AO in treating work in progress of flats/shops/offices under construction as closing stock of finished goods and making addition on estimation basis of annual let-able value, net of all deductions at Rs. 42,83,312/- and in the alternative in not allowing the vacancy allowance u/s 23(1)(c) of the Act and further erred in law in denying the benefit of s. 23(5) of the Act where the property was held as stock in trade and in assessing the notional income for a period of 12 months instead of 5 months and in ignoring the standard rent specified by the Municipal Authorities.”
At the time of hearing, Ld. AR submitted that the Assessing Officer has calculated notional rent on the flats which were work in progress in A.Y. 2010-11 whereas the same flats were sold in A.Y. 2011-12. In this regard he relied on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Neha Builders (P) Ltd. [296 ITR 661] no notional income on the work-in-progress.
16 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation 9. Further, he brought to our notice Page No. 37 of the Paper Book which is the details of work-in-progress as on 31.03.2011, in order to submit that assessee has declared opening work-in-progress and the same was sold in F.Y. 2010-11. Further, he brought to our notice Page No. 54 of the Paper Book which is the balance sheet for the financial year end 31.03.2012 wherein there is no closing stock, he submitted that all the stocks were sold. Therefore, he prayed that the decision of CIT v. M/s. Ansal Housing Finance and Leasing Company Limited (supra) cannot be applied in the case of the assessee.
Ld. AR submitted that the facts are similar for the other appeals relating to next Assessment Years also.
On the other hand, Ld.DR submitted that the assessee has declared closing stock before the Assessing Officer and the Investigation Wing, as per which the flats were unsold. Therefore, the decision of the CIT v. M/s. Ansal Housing Finance and Leasing Company Limited (supra) applicable in the case of the assessee.
Considered the rival submissions and material placed on record, we observe that during the search, the assessee had declared closing stock as per their books to the Investigation Wing. The same was
17 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation submitted before the AO. From the above details submitted by the assessee, we observe that the assessee had closing stock of flats which are ready to occupy. According to the assessee, these are the flats which are already sold by issue of allotment letter to the prospective buyers and taken certain advances. It declared as the closing stock based on the method of account maintained by it. However, they now claim that they have shared the list with the revenue which are actually work in progress and it sold the flats in the next year i.e., in the following assessment year, the whole project was complete and the closing stock in the A.Y. 2012-13 is nill. According to the assessee, the flats were sold in the subsequent year, the ratio of Ansal Housing (supra) will not apply to the facts of its case. Whereas the revenue argument is that the assesse itself declared before them that the flats are in stock and not let them on rent. Therefore, the decision of Ansal Housing (supra) will apply to case of the Assessee.
We carefully considered the facts in the Case of Ansal Housing (supra) and the Hon’ble High Court has discussed the facts and their decision in the para no 13 of the order, for the sake of clarity, it is reproduced below: -
18 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation “13. 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, Sultan, and Karanpura, 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 indicates that in ITA 18/99, 56,57,105, 107, 109,114, 177/01, 88/02 111, 321, 498/03, 227, 336, 529, 690/04, 212/05 every case, the Court has to discern the intention of the assessee; in this case the intention of the assesse 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 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 is clearly not the case”
In the above para, the Hon’ble High Court have observed that the assessee is engaged in the building activities, flats are held as part of its inventory of stock in trade and are not let out. It clearly indicate that the flats ownership was not passed on to the buyers and the assessee continue to own the above said flats at the yearend of the impugned
19 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation assessment year. From the above, we observe that the assessee acquires the land and builds the flats then sells the same, the assessee had the option to let out those properties but are not let out holding clear ownership. The facts in the present case is completely different. In the given case, the assessee no doubt in the business of real estate development, acquires the land and builds flats. The variation in this case is that the assessee as per their books of account, the flats which are not complete declared as closing stock but the assessee has already issued the allotment letters to the prospective buyers and taken advances also. It clearly indicate that the assessee does not have the complete and clear ownership on the flats which are in their possession as closing stock. Once the flats are allotted to the allottee, the assessee has no right to let out the above said flats on which the assessee has taken advances and given commitment to complete the flats for them. Therefore, considering the above distinguishable facts on record, the decision in the Ansal Housing (supra) will not apply to the case of the assessee.
From the facts we also observe that the claim of the assessee was not verified by any authority below and it is only claim made by the
20 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation assessee that these flats were already sold and assessee is only a custodian and constructing the flats on behalf of the allottees. Therefore, in our considered view, this aspect has to be verified by the Assessing Officer and we direct Assessing Officer to verify the claim of the assessee that on the date as on 31/3/2010, the assessee has already issued the allotment of the flats to the allottee, then the decision of the Ansal Housing (supra) will not apply to those flats. For the other flats where the ownership is still with the assessee then the Ansal Housing (supra) will apply. Accordingly, we remit this issue back to the file of Assessing Officer to verify the above aspect and allow the claim of the assessee as per the above direction. It is needless to say that the assessee may be given proper opportunity of being heard. Accordingly, the ground raised by the assessee is allowed for statistical purpose.
With regard to Ground no 3, this ground also dismissed as the counsel for the assessee has not made any submissions hence treated as not pressed.
With regard to ground no 4, which is consequential in nature, hence dismissed.
In the result, appeal filed by the assessee is partly allowed as per above direction.
21 ITA NOs. 153, 154 & 155/MUM/2022 (A.Ys: 2010-11, 2011-12 & 2012-13) MorajFinanz Corporation 19. The facts in the appeal filed by the assessee for the AY 2011-12 and 2012-13 are identical, the decision given in Para No. 14 are applicable mutandis mutatis. Hence these appeals also partly allowed as decided in the AY 2010-11.
In the result, all the appeals filed by the assessee are partly allowed for statistical purpose.
Order pronounced in the open court on 08th December, 2022
Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 08/12/2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum