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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya
O R D E R Per Shri Shamim Yahya (AM) :-
This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-38 dated 22.03.2019 and pertains to assessment year 2015-16.
Grounds of appeal read as under:- Ground No. 1 a. Under the facts and circumstances of the case and in law, the ld.CIT(A) has erred in confirming the addition made by AO being the difference between Agreement Value and Stamp Duty Value of Rs. 23,48,590/- determined on the date of registration as against actual date on which the flats were agreed to be sold by invoking the provision of Section 43CA, and as such the same being bad in law, the same should be deleted. b. Under the facts and circumstances of the case and in law, the ld.CIT(A) has erred in confirming the addition made by AO on account of deemed rent on unsold flats of Rs. 15,12,847/-, without appreciating the fact that the appellant is a developer, and as such the same should be deleted. "
Relief Claimed:
1. 1. Addition of Rs.23,48,590/- on account of difference between Agreement Value and Stamp Duty Value determined on the date of registration as against actual date on which the flats were agreed to be sold by invoking the provisions of Section 43CA should be deleted.
2. Addition of Rs. 15,12,847/-on account of deemed rent on unsold flats, should be deleted.
3. Brief facts of the case are that the appellant is a partnership firm engaged in real estate business and filed its Return of Income declaring income at Rs.3,89,270/- on 30.09.2015. The return was processed u/s, 143(1) of the Income Tax Act. 1961. Later, the case was selected for Limited Scrutiny under CASS. Accordingly notices u/s 143(2) was issued on 28.07.2016 and duly served on the appellant. Further notice u/s 142(1) was issued on 10.07.2017 and 04.09.2017 along with questionnaire which was duly served on the appellant. Subsequently an order u/s, 143(3) has been passed by the assessing officer assessing total income at Rs.42,50,710/-after making addition of Rs. 38,61,437/-.
Apropos ground No.1
Brief facts of the issue are that during, the year under consideration, the assessee had entered into an agreement for sale in respect of 6 parties in whose case the value as per stamp duty on the date of registration was higher than the amount of sale price shown by the assessee. The assessee was asked to explain why the addition u/s 43CA should not be made in respect of the same. The appellant submitted that, these Flats were booked earlier and payments were also received and were already forming part of the audited accounts and therefore it was submitted that if the value of the stamp duty was taken as of the booking date the same was not higher than the value of agreement price and therefore no addition should have been made. Not satisfied with the explanation and considering the fact that in some eases earnest money was received in cash and as such argument of the assesses was not acceptable, the AO accordingly made addition of Rs.23,48,540/-.
The Ld.CIT(A) noted the assessee’s submission that flats have earlier been duly allotted and part money was also paid in that account. That assessee has also shown the stamp value rate when the booking was done and allotment letter issued. Despite noting the same ld.CIT(A) passed following order.
I have perused the assessment order and submission of the appellant and find that the AO observed difference between stamp duty valuation and agreement value in respect of 6 flats mentioned in Para No. 4.1 of the assessment order. I find that the AO has applied the provisions of section 43CA in respect of the appellant who is engaged in the business of real estate development. However, the appellant contended that the AO ought to have considered the stamp duty valuation on allotment date and not as on the date of registration. I have considered this submission of the appellant and find that the AO has correctly applied the provisions of Section 43CA because the appellant is a real estate developer. As regards, the contention of the appellant that the stamp duty valuation on the date of allotment should be considered, I find that this contention is not correct because mere allotment is not agreement u/s,43CA(3). Section 43CA(3) refers to two different agreements and not the letter of allotment. Moreover Section 43CA(4) refers to a condition that the earlier agreement referred to u/s.43CA(3) must be accompanied by proof of payment by any mode other than cash. However, even at this stage, the appellant has neither produced the first agreement nor the proof of payment by any mode other than cash. Accordingly, the contention of the appellant is found untenable in law on both the counts. I, therefore, confirm the addition of Rs.23,48,590/- made by the AO u/s. 43CA. Accordingly, ground 1 is Dismissed.
Against the above order, assessee is in appeal before the ITAT.
Heard both the parties. It is clear from the facts on record that assessee is claiming that assessee has given an allotment letter in earlier year. That there was an agreement for sale that part payment also been made. In these circumstances, in my considered opinion, authorities below are not correct in rejecting the contention that the agreement date should be considered in this regard. For this proposition, I rely upon the decision of Hon’ble Supreme Court in the case of Sanjeev lal vs CIT in Civil Appeal Nos.5899-5900 of 2014wherein Hon’ble Apex Court has held that for the 4 purpose of computation of capital gains transfer would include an agreement and part payment thereof. In this view of the matter, I remit the issue to the file of AO to examine the issue afresh in light of the assessees contentions read with the order Hon’ble Supreme Court as above.
Apropos ground No.2
Brief facts of the issue are that during the year under consideration AO also observed that in case of buildings where the assessee had already received the occupation certificate and some of the flats were lying in stock on which assessee had not declared notional rent as income in its return. The AO relying on the decision of Delhi High Court in case of Ansal Housing Finance and Leasing Company Limited reported in 354 ITR 180 made an addition of Rs. 15,12,847/- as deemed rent.
Assessee in appeal before the ld.CIT(A) inter-alia submitted that further amendment in section 23 is made by inserting subsection 5 w.e.f. 01.04.2018 and hence the same is not applicable to the appellant's case and therefore in the instant case addition made by the AO on unsold flats held as stock in trade is out of the purview of provisions of section 22 and hence addition should be deleted. Further the fact that the legislature has brought the amendment in Act itself indicate that prior to such amendment no notional rent was chargeable to tax and if that would not have been the case then there is no reason for the legislature to bring such amendment in the Act.
However, ld.CIT(A) did not consider the submissions of the assessee regarding the amendment and held as under:-
“I have gone through the assessment order as well as detailed submission of the appellant. On perusal of the same I find that all the contentions raised by the appellant. have been duly considered by the Hon'ble Delhi High Court in the case of M/s. Ansal Housing Finance and Leasing Company Ltd, (354 ITR 180 DEL). In the said judgment it is duly observed that there is no bar in estimating deemed rent even in the case of a real estate developer. The contention of the AO that stock in trade is also liable to be assessed in respect of deemed rent also finds recognition in the judgment of Hon'ble Delhi High Court(supra). The reliance placed by the appellant on the case laws are clarly distinguishable on the facts of the case of the appellant. It is therefore clear that the AO has rightly assessed deemed rent 8% of the actual cost and taxed the same after allowing due deduction u/. 24(a). Accordingly, ground 2 is dismissed.”
Against the above order, assessee is in appeal before the ITAT.
Heard both the parties and perused the records. I find that on this issue of deemed rent there has been amendment in the Act w.e.f. 01.04.2018 by insertion of sub section 5. This was meant to bring into ambit of taxation, the deemed rent an unsold stock. The plea of the ld. Counsel of the assessee is that amendment is prospective and it has been so held in ITAT decisions. I find considerable cogency in the submission. I note that sub section 5 was inserted in section 23 by Finance Act, 2017 w.e.f 01.04.2018. The said section reads as under:-
“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 [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, shall be taken to be nil.”
A plain reading of the above shows that the same has not been meant to be retrospective. In this view of the matter, I deem it appropriate to remit the issue to the file of AO. AO is directed to consider the issue in light of the insertion of the amendment and the ITAT ruling that this amendment is perspective.
14 In the result, appeal by the assessee stands allowed for statistical purposes.
Pronounced in the open court on 30.03.2022