M/S RAJ LANDMARK PRIVATE LIMITED,JAIPUR vs. INCOME TAX OFFICER, WARD-3-2, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 242/JP/2018 fu/kZkj.k o"kZ@Assessment Year :2013-14 cuke M/s Raj Landmark Private Limited, Income Tax Officer, Vs. D-38A, Ahinsa Circle, Subhash Marg, C- Ward 3(2), Scheme, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCR 0840 F vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vishal Gupta (CA) jktLo dh vksj ls@ Revenue by : Smt. Roshanta Meena (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 21/08/2018 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 24/08/2018 vkns'k@ ORDER

PER: VIJAY PAL RAO, J.M.

This appeal by the assessee is directed against the order dated

13/12/2017 of ld. CIT(A)-I, Jaipur for the A.Y. 2013-14. The assessee has

raised following grounds of appeal: “1. On the facts and circumstances of the case and in law, The Ld. Commissioner of Income Tax (Appeals) - 1 has erred in confirming addition of Rs 223621.00 without considering the submissions of the assessee and by passing a non speaking order. The same was most arbitrary, unjust, untenable and bad in fact and in law and in the alternative excessive due to following factors related to the assessment made: a. The findings of a non-comparable case were invoked

ITA 242/JP/2018_ 2 Raj Landmark P Ltd. Vs ITO

b. The additions was made without have any specific provisions in The Income Tax Act, 1961 for taxing unsold stock of commercial space lying with the builder. c. Arbitrary mode of calculation has been adopted by taking a non comparable lease agreement as base. d. The addition was purely unconstitutional since the power to levy income tax comes from Entry No. 82 of The Union List or List 1 which does not cover the relevant part of case of the assessee e. No consideration was given to the fact that the premise was being used by the assessee for the purpose of its own business and profession till it was finally sold. 2. The appellant crave leave to add, amend, alter, vary and / or withdraw any or all the above grounds of appeal.

The appellant prays that the addition of Rs 223621.00 made to the total income of the assessee act and confirmed by the Ld CIT (Appeals) be deleted.”

estate development. During the course of assessment proceedings, the

Assessing Officer noted that the assessee company is having 29,299 sq.ft.

of furnished commercial space. The Assessing Officer accordingly,

proposed to assessee the income from house property as per the

provisions of Section 23(1)(a) of the Income Tax Act, 1961 (in short the

Act) keeping in view the decision of the Hon’ble Delhi High Court in the

case of Cit Vs. M/s Ansal Housing Finance & Leasing Company judgment

dated 31/10/2012. The Assessing Officer applied notional income for

unsolved stock @ Rs. 93 per Sq.ft for ground floor, for first floor Rs. 46.50

ITA 242/JP/2018_ 3 Raj Landmark P Ltd. Vs ITO per sq.ft and Rs. 31 per sq.ft for 2nd and upwards floors. Hence the

Assessing Officer has computed the notional rental income of Rs.

9,68,859/- for the month of March, 2013. The Assessing Officer has

determined the rental income only for one month due to the reason that

the project in question was completed only in the month of February,

2013.

the ld. CIT(A) but could not succeed.

assessee engaged in the business of builders and developers which is the

main object of the company purchased and constructed the property as

stock in trade and income from such developed property is assessable as

business income. Therefore they cannot be brought to tax under the head

‘Income from House Property’ simply because the stock / offices remain

unsold at the end of the year. The unsold offices have been treated as

stock in trade in books of accounts which is well accepted during the

assessment proceedings and thus an undisputed fact. Income derived

from the property would always be termed as ‘income from the property’

but if the property is used as stock in trade, then the said property would

become or partake the character of the stock, and any income derived

ITA 242/JP/2018_ 4 Raj Landmark P Ltd. Vs ITO

from the stock would be income from the business and not income from

the property. If the business of the assessee is to construct the property

and sell it or to construct and let out the same, then that would be the

business and the business stocks, which may include movable and

immovable, would be taken to be ‘stock in trade’ and any income derived

from such stocks cannot be termed as ‘income from property’. In support

of his contention, he has relied on the following decisions:

(i) Chennai Properties & Investments Ltd. Vs CIT 373 ITR 673. (ii) Rayala Corporation Private Ltd. (2016) 386 ITR 500 (SC). (iii) M/s Chennai Properties & Investments Ltd. Vs. CIT (2015) 42 SCD 651, wherein it was held that where the assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of treating the rental income as income from house property in place of income from business as shown by the assessee was held not to be justified. The Apex Court held that since the assessee company’s main object is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from letting out the properties is assessable as income from business.

(iv) CIT Vs. Neha Builders Pvt. Ltd. 296 ITR 661 (Guj).

authorities below and submitted that the Assessing Officer has followed

the decision of the Hon’ble Delhi High Court and therefore, when

ITA 242/JP/2018_ 5 Raj Landmark P Ltd. Vs ITO

commercial space was lying vacant, the provisions of Section 22 and 23 of

the Act are applicable.

material on record. There is no dispute that the commercial space in the

project in question was held by the assessee as stock in trade. Further the

project was completed in the month of February itself, which is not in

dispute as the Assessing Officer has also accepted this fact and assessed

the income from house property only for the month of March, 2013. As far

as the issue of assessing the property held as stock in trade by applying

notional annual value as per the provisions of Section 23(1)(a) of the Act is

concerned, there are divergent views of different Hon'ble High Courts. The

Hon’ble Delhi High Court has taken a view that even if the property held as

stock in trade and the same is lying vacant from year after year, the

income from house property is assessable as per the provision of Sections

22 and 23 of the Act and therefore, the vacancy allowance as per

provisions of Section 23(1)(c) of the Act is not available to the assessee as

the property was never let out. Whereas the Hon’ble Gujarat High Court in

the case of CIT Vs. Neha Builders Pvt. Ltd. (supra) has taken a view that

the property held as stock in trade cannot be assessed to tax for notional

annual value computed U/s 23(1)(a) of the Act. Further in the case in

ITA 242/JP/2018_ 6 Raj Landmark P Ltd. Vs ITO

hand, it is not the allegation that the assessee has deliberately not let out

the property in question during the year under consideration. Without

going into the controversy of applicability of the provisions of Section 23 in

respect of the property held as stock in trade, we find that this is not a

case of keeping the property vacant from year after year but the project

itself was completed in the month of February, 2013 and therefore, as per

provisions of Section 23(1)(a) of the Act, the annual letting value (ALV) of

any property shall be deemed to be a sum for which the property might

reasonably be expected to let from year to year. Thus, the annual letting

value of the property is a sum for which the property might reasonably be

expected to let out from year to year. In other words, the fair market rent

of the property expected to be fetched if let out from year to year shall be

deemed to be an annual letting value for the purpose of determining

income from house property. This reasonably expected rent itself signifies

the possibility of letting out of the property. However, there is a time lag

between the acquisition of property or completion of construction of

property and letting out the property thereafter. It is not practically not

possible to let out the property on the next day of completion of

construction or acquisition of the property. Therefore, when there is no

possibility of any deliberate or unreasonable delay in letting out the

property then it is not expected to fetch a reasonable rent just after

ITA 242/JP/2018_ 7 Raj Landmark P Ltd. Vs ITO

completion of the project in question. Further it is not a case of letting out

a small space of house property but it is the entire project which was

completed by the assessee in the month of February itself, therefore,

provisions of Section 23(1)(a) of the Act itself would not be workable in

such a case for want of immediate letting out the property just after its

completion. The Legislature has also recognized this aspect while inserting

sub-section (5) to Section 23 by the Finance Act, 2017 w.e.f. 01/4/2018

allowing the vacancy allowance of one year from the end of the financial

year in which certificate of completion of construction of the property is

obtained from the competent authority. Therefore, even otherwise the

notional annual letting value can be determined only from the end of the

financial year in which the completion certificate of construction of the

property is obtained from the competent authority. Though, sub-section

(5) is not applicable for the assessment year under consideration,

however, it is not a case of allowing the vacancy allowance in respect of

the property held as stock in trade but it is the fundamental issue of

determination of notional annual letting value just after completion of the

construction of the property held as stock in trade. Therefore, we find that

without allowing a reasonable period or time gap from the completion of

construction of the property held as stock in trade to let out the same, the

property cannot reasonably expect to let from year to year and fetch fair

ITA 242/JP/2018_ 8 Raj Landmark P Ltd. Vs ITO market rent just after completion of construction. Hence, in the facts and

circumstances, we find that for the year under consideration, the

provisions of Section 23(1)(a) of the Act cannot be applied in the property

in question due to the peculiar reason that the completion certificate was

obtained only in the month of February, 2013 and it is not expected to let

out the property just after the completion of the project and therefore, the

reasonable expected rent to be fetched by the property in question is not

possible immediately after the completion without allowing a reasonable

period, which is also recognized by the Legislature. Accordingly, we delete

the addition made by the Assessing Officer on this account.

Order pronounced in the open court on 24/08/2018.

Sd/- Sd/- ¼foØe flag ;kno½ ¼fot; iky jko½ (VIKRAM SINGH YADAV) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 24th August, 2018

*Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- M/s Raj Landmark Private Limited, Jaipur. 1. izR;FkhZ@ The Respondent- The ITO, Ward 3(2), Jaipur. 2. vk;dj vk;qDr@ CIT 3.

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सहायक पंजीकार@Aेेज. त्महपेजतंत