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Income Tax Appellate Tribunal, ‘SMC‘ BENCH
Before: SHRI VIKAS AWASTHY & SHRI M.BALAGANESH
आदेश / O R D E R PER BENCH: These appeals in 2193/Mum/2021, 2192/Mum/2021, 2190/Mum/2021, 2188/Mum/2021 & 2187/Mum/2021 for A.Y.2012-13, 2014-15 & 2015-16 respectively arise out of the order by the ld. Commissioner of Income Tax (Appeals)-53, Mumbai in appeal Nos.CIT(A)-53/IT-343/DCCC-5(4)/2016-17, CIT(A)-53/IT-300/DCCC- 5(4)/2016-17, CIT(A)-53/IT-100/DCCC-5(4)/2015-16, CIT(A)-53/IT- 342/DCCC-5(4)/2016-17, CIT(A)-53/IT-13/DCCC-5(4)/2017-18 & CIT(A)- 53/IT-344/DCCC-5(4)/2016-17 dated 26/08/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 23/12/2016 & 27/12/2017 respectively by the ld. Dy. Commissioner of Income Tax, Central Circle 5(4), Mumbai (hereinafter referred to as ld. AO).
2. At the outset, the ld. AR submitted that there is a delay of 743 days in filing of these appeals by the assessee. An affidavit in support of the condonation petition was duly filed for all the cases before us. In the said affidavit, it has been stated that the orders of ld. CIT(A) were received by the assessee on 19.9.2019 ; that the appellate orders were immediately sent by email to the Chartered Accountant on 19.9.2019 itself ; later the partner of the firm who is incharge of income tax affairs, got admitted in hospital on 19.9.2019 itself and discharged on 21.9.2019 ; later on 24.9.2019, the partner wrote another letter to the CA ; later the partner again got himself admitted in hospital for his treatment and got discharged on 15.11.2019 ; again on 15.11.2019, the partner wrote another letter to the CA seeking advice from the CA for preferring further appeals before the Tribunal. The copy of medical reports together with the discharge summary issued by the hospital and the copy of letters sent to CA are placed on record. At that time, the CA had apparently advised the partner that the probability of winning the appeals is very remote and hence no appeals are to be filed before the Tribunal. Meanwhile, when the partner was analyzing the issue, the lockdown was announced by the Government with effect from 24.3.2020 and thereafter due to Covid 19 Pandemic, the appeals were finally filed by the assessee only on 30.11.2021. Eventhough the delay in filing of appeals could be relaxed during the Covid 19 pandemic in view of orders of Hon’ble Supreme Court, still there would be delay of 124 days in filing of appeals by the assessee, which in our considered opinion, had been duly explained by the assessee as it was prevented from reasons beyond the control due to illness of the handling partner as detailed supra. In view of these, we hold that the assessees had practically explained the delay and they were prevented from reasonable cause in filing of appeals in time and hence we are condoning the delay in filing of appeals by the assessee before us especially in view of the fact that none of the contents of the affidavit had been found to be false by the revenue. Accordingly, the appeals of the assessee are hereby admitted and taken up for the purpose of adjudication.
Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience.
Both the parties mutually agreed to take up the appeal of the assessee in the case of Shree Sai Sagar Consultants in for the Asst Year 2014-15 first.
5. The Ground No.1 raised by the assessee is challenging the action of the ld. CIT(A) in confirming the addition made by the ld. AO on account of notional rent being 8% of the value of the property held as stock in trade in books of accounts. 5.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee is a partnership firm engaged in the business of construction and redevelopment of residential and commercial premises. The ld. AO observed that the assessee is the owner of premises namely ‘Ratna Rajul’ shown in the accounts as stock in trade representing unsold stock. The ld. AO sought to tax the deemed rental income on this unsold stock of property in view of decision of Hon’ble Delhi High Court in the case of CIT vs Ansal Housing Finance & Leasing Company Ltd reported in 354 ITR 180 (Del) , wherein it was held that the ld. AO was justified in bringing to tax the Annual Lettable Value (ALV) of unsold flats as income from house property. The ld. AO observed that the assessee furnished documents in order to derive the rateable value of the property. The ld. AO however determined the notional rent @ 8% of the value of the property as ALV for the year under consideration and granted statutory deduction at the rate of 30% u/s 24 of the Act under the head ‘Income from House Property’. We find that this action of the ld. AO is upheld by the ld. CIT(A).
5.2. We find that the issue in dispute is no longer res integra in view of the co-ordinate bench decision of this tribunal in the case of Shri Rajendra Godshalwar vs ITO in dated 31.1.2019 for Asst Year 2012-13 wherein after considering the various decisions of Hon’ble Gujarat High Court in the case of CIT vs Neha Builders Pvt Ltd reported in 296 ITR 661 (Guj) and Tribunal including the decision of Hon’ble Delhi High Court referred to supra, the tribunal had rendered the decision in favour of the assessee stating that the deemed rental income cannot be assessed on value of unsold stock of flats. For the sake of convenience, the entire tribunal order is reproduced hereinbelow:-
Although assessee has raised multiple Grounds of appeal
, but in sum and substance the solitary grievance is against an addition of ₹18,50,176/- sustained by the CIT(A) under the head „Income from House Property‟ representing Annual Letting Value of unsold flat.
3. Briefly put, the relevant facts are that the appellant is an individual who is, inter-alia, engaged in the business of real estate developers and builders under the name and style of „Godshalwar Project Consultants & Developers‟. During the year under consideration, the project undertaken by the assessee, namely, Bhola Bhagwan Project was completed. It was noted by the Assessing Officer that flats constructed by the assessee in the said project were sold except two flats. One of the flats was retained by the assessee for himself and the other flat remained unsold. Such unsold flats represented stock-in-trade of the assessee. The Assessing Officer proceeded to tax the notional Annual Letting Value (ALV) of both the flats in terms of Sec. 22 of the Act as deemed let out properties. An addition of ₹34,16,679/- was thus made, which has since been reduced to ₹18,50,176/- by the CIT(A). The CIT(A) allowed relief with regard to the value of the flat retained by the assessee for his self-occupation. The remaining flat having an area of 2022 sq. ft. has been treated as deemed let-out and its ALV has been calculated at ₹34,16,679/-, which is the subject matter of dispute before us.
4. Before us, the learned representative for the assessee vehemently pointed out that the flat in question represents stock-in-trade of the assessee, which has been constructed during the course of business. It has remained unsold at the end of the year, and being a stock-in-trade, it cannot be subject to tax under the head „Income from House Property‟. In this context, he has placed reliance on the decision of Mumbai Bench of the Tribunal in the case of C.R. Developments Pvt. Ltd. vs JCIT, 44 CCH 835 (Mum. Trib.) and M/s. Runwal Constructions & Anr. vs ACIT, & 5409/Mum/2016 dated 22.02.2018. The learned representative pointed out that the CIT(A) erroneously rejected the plea of the assessee by relying on the judgment of the Hon'ble Bombay High Court in the case of CIT vs Sane & Doshi Enterprises, 377 ITR 0165 (Bom.) wherein the issues were altogether different.
On the other hand, the ld. DR has defended the decision of the lower authorities by placing reliance on the same.
We have carefully considered the rival submissions. The short point involved in this appeal is the validity of addition sustained by the CIT(A) on account of notional ALV of the unsold flat, which is held by the assessee as stock-in-trade. Factually speaking, it is not in dispute that the flat in question is not yielding any rental income to the assessee, as it has not been let-out. It is also not in dispute that the project in question has been completed during the year under consideration, and the said flat is shown as stock-in-trade at the end of the year. At the time of hearing, the learned representative also pointed out that the flat has been ultimately sold on 06.11.2012. We find that our coordinate Bench in the case of C.R. Developments Pvt. Ltd. (supra) dealt with charging of notional income under the head „Income from House Property‟ in respect of unsold shops which were shown by assessee therein as part of „stock-in-trade‟. As per the Tribunal “The three flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by letting out the flats. The flats not sold was its stock-in-trade and income arising on its sale is liable to be taxed as business income. Accordingly, we do not find any justification in the order of AO for estimating rental income from these vacant flats u/s 23 which is assessee‟s stock in trade as at the end of the year. Accordingly, the AO is directed to delete the addition made by estimating letting value of the flats u/s 23 of the I.T. Act.”
In our view, the aforesaid observation of our coordinate Bench squarely applies to the facts of the present case. In the case of M/s. Runwal Constructions (supra) also, similar issue has been dealt with by our coordinate Bench. In the case of M/s. Runwal Constructions (supra), the Bench noted the judgment of the Hon'ble Gujarat High Court in the case of CIT vs Neha Builders Pvt. Ltd., 296 ITR 661 (Guj.) as also the judgment of the Hon'ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd., 354 ITR 180 (Delhi) and finally observed as under :- “10. In the case on hand before us it is an undisputed fact that both assessees have treated the unsold flats as stock in trade in the books of account and the flats sold by them were assessed under the head „income from business‟. Thus, respectfully following the above said decisions we hold that the unsold flats which are stock in trade when they were sold they are assessable under the head „income from business‟ when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect of those unsold flats under the head „income from house property‟. Thus, we direct the AO to delete the addition made under Section 23 of the Act as income from house property.” Following the aforesaid precedents, we find merit in the plea of the assessee, which deserves to be upheld.
8. Insofar as the judgment of the Hon'ble Bombay High Court in the case of Sane & Doshi Enterprises (supra) relied by the CIT(A) is concerned, the same, in our view, does not help the case of the Revenue. Quite clearly, the case before the Hon'ble High Court was relating to actual rental income received on letting out of unsold flats. The dispute pertained to the head of income under which such income was to be taxed – whether as „Business Income‟ or as „Income from House Property‟. In the present case, the facts are quite different inasmuch as the unsold flat in question has not yielded any rental income as the flat has not been let-out, and is being held by the assessee purely as stock-in-trade; and, what the Assessing Officer has tried to do is to assess only a notional income thereof. Thus, the ratio of the judgment of the Hon'ble Bombay High Court in the case of Sane & Doshi Enterprises (supra) has been rendered in the context of qualitatively different facts, and is not applicable in the present case.
9. Apart therefrom, we find that Sec. 23(5) of the Act has been inserted by the Finance Act, 2017 w.e.f. 01.04.2018. In terms of the said section, it is prescribed that “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”. Though the said provision is effective from 01.04.2018, yet even if one is to see the present case from the standpoint of Sec. 23(5) of the Act, no addition is permissible in the instant year. It may be relevant to note that the completion certificate is stated to have been obtained on 28.11.2011 and going by the provisions of Sec. 23(5) of the Act, no addition is permissible in the instant assessment year. Be that as it may, we are only trying point out that the assessability of notional income in respect of unsold flat, which is taken as stock-in-trade, is not merited in the instant case. Thus, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the addition.
In the result, appeal of the assessee is allowed, as above.”
5.3. We find that similar views were expressed by the Pune Bench of Tribunal in the case of Shree Balaji Ventures vs ITO in /PUN/2018 dated 19.2.2019 for Asst Year 2015-16 ; Pune Bench of Tribunal in the case of Rafiahamad Rasul Patel vs ITO in ITA No. 898 /PUN/2019 dated 23.12.2019 for Asst Year 2015-16 ; Mumbai Bench of Tribunal in the case of Osho Developers vs ACIT in ITA Nos. 2372 & 1860/Mum/2019 dated 03.11.2020 for Asst Years 2014-15 and 2015-16 respectively ; Delhi Bench of Tribunal in the case of Shivsagar Builders P Ltd vs ACIT in ITA No. 1554 /Del/2019 dated 28.06.2019 for Asst Year 2015-16 ; Pune Bench of Tribunal in the case of Cosmopolis Construction vs ITO in ITA Nos. 230 & 231 /PUN/2018 dated 12.09.2018 for Asst Years 2013-14 and 2014-15 respectively.
5.4. Respectfully following the aforesaid judicial precedents, we hold that the addition made towards deemed rental income is hereby directed to be deleted. Accordingly, the Ground No. 1 raised by the assessee is allowed.
6. The last issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the addition made on account of interest on fixed deposits earned by the assessee by treating the same as ‘Income from Other Sources’ in the facts and circumstances of the instant case.
6.1. We have heard the rival submissions and perused the materials available on record. The ld. AO noted that during the year, the assessee had earned interest income on its fixed deposits amounting to Rs 17,74,906/-. The said interest income was credited by the assessee to the running project accounts. In other words, interest income was credited to work in progress by the assessee in the books of accounts. The assessee explained before the ld. AO that the fixed deposits were placed as a margin provided to the banks for securing Bank Guarantees from the Bank in favour of third parties and it was pleaded that the said Guarantees had to be issued by the assessee for the smooth conduct and running of the business. The purpose of issuing Performance Guarantees and Financial Guarantees by the Banks in favour of various third parties including the Government Agencies, for which purpose, the assessee had to necessarily invest cash margins in the form of fixed deposits, were duly explained by the assessee before the lower authorities and the same are duly captured in pages 3 to 5 of the order of the ld. CIT(A). The same are not reiterated for the sake of brevity. Hence the assessee pleaded that the deposits were invested out of business exigencies. It was specifically pointed out that it is not a case of surplus funds available with the assessee which were placed as fixed deposits. It was pointed out that the interest income earned on fixed deposits are inextricably linked with the running projects undertaken by the assessee and therefore the said receipt partakes the character of capital receipt. Accordingly, the assessee had credited the interest on fixed deposits to the capital work in progress treating it as capital receipt and recovery of the part of the capital cost of project incurred by the assessee.
6.2. We find that the lower authorities however did not heed to the aforesaid contentions of the assessee and treated the interest income on fixed deposits as income from other sources.
6.3. We find that the aforesaid facts are not in dispute and hence the same are not reiterated for the sake of brevity. We find that since the bank guarantees (both performance and financial guarantees) were obtained for the purpose of project, investment in fixed deposits also would have to be construed for the purpose of the project undertaken by the assessee, as admittedly the fixed deposits were invested only as cash margins for the purpose of obtaining those bank guarantees. Hence the business nexus is clearly proved. Under these circumstances, the interest income earned on fixed deposits should have to be construed as inextricably linked with the project and should be treated as recovery of part of the project cost and cannot be treated as income from other sources. We find that the ld. AR had rightly placed reliance on the decision of the Hon’ble Apex Court in the case of CIT vs Karnal Cooperative Sugar Mills Ltd reported in 243 ITR 2 (SC) . The relevant operative portion of the judgement is reproduced hereunder:-
"2. In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172, will not be attracted. The more appropriate decision in the factual situation in the present case is in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC). The appeal is dismissed. There will be no order as to costs.” 6.4. Similar views were expressed by the Hon’ble Supreme Court in the case of CIT vs Bokaro Steel Ltd reported in 236 ITR 315 (SC) ; Hon’ble Supreme Court in the case of Bongaigaon Refinery and Petrochemicals Ltd vs CIT reported in 251 ITR 329 (SC); Hon’ble Jurisdictional High Court in the case of Shree Maheshwar Hydel Power Corporation Ltd vs CIT reported in 96 taxmann.com 167 (Bom) and Hon’ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd vs ITO reported in 315 ITR 255 (Del).
6.5. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that the interest income earned on fixed deposits should be treated as capital receipt and to be reduced from the project cost. Hence we do not find any infirmity in the treatment given by the assessee in the instant case. Accordingly, the Ground No.2 raised by the assessee is allowed.
7. The Ground No. 3 raised by the assessee is general in nature and does not require any specific adjudication.
The above decisions rendered in the case of Shree Sai Sagar Consultants shall apply mutatis mutandis to other assessees also in view of identical facts and issues, except with variance in figures. Accordingly, a) In the case of Sai Siddhi Developers in for Asst Year 2014-15 - The Ground raised herein is similar to Ground No. 1 disposed of hereinabove in the case of Shree Sai Sagar Consultants in ITA No. 2194/Mum/2021 for Asst Year 2014-15. b) In the case of Shree Sai Consultants in ITA No. 2187/Mum/2021 for Asst Year 2014-15 - The Ground raised herein is similar to Ground No. 2 disposed of hereinabove in the case of Shree Sai Sagar Consultants in ITA No. 2194/Mum/2021 for Asst Year 2014-15. c) In the case of Shree Sai Consultants in Asst Year 2015-16 - The Ground raised herein is similar to Ground No. 2 disposed of hereinabove in the case of Shree Sai Sagar Consultants in ITA No. 2194/Mum/2021 for Asst Year 2014-15. d) In the case of Sai Siddhant Developers in ITA No. 2192/Mum/2021 for Asst Year 2014-15 - The Ground raised herein is similar to Ground No. 2 disposed of hereinabove in the case of Shree Sai Sagar Consultants in ITA No. 2194/Mum/2021 for Asst Year 2014-15. e) In the case of Sai Siddhant Developers in ITA No. 2193/Mum/2021 for Asst Year 2012-13 - The Ground raised herein is similar to Ground No. 2 disposed of hereinabove in the case of Shree Sai Sagar Consultants in ITA No. 2194/Mum/2021 for Asst Year 2014-15.
In the result , all the appeals of the assessee are allowed.
Order pronounced on 15/07/2022 by way of proper mentioning in the notice board.