DCIT, CEN. CIRCLE-4(1), MUMBAI, MUMBAI vs. M/S. RUNWAL DEVELOPERS PVT. LTD., MUMBAI

O R D E R PER AMARJIT SINGH (JM): The assessee as well as revenue have filed the above mentioned appeals against the order dated 20.06.2019 passed by the Commissioner of Income Tax (Appeals) -52, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2016-17.

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in restricting the disallowance u/s 14A upto the amount of exempt income earned without considering the Circular No.5 of 2014 dated 11.02.2014 and decision of Hon‟ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (328 ITR 81).?

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance u/s 14A of the IT Act while computing the book profits u/s 115JB without appreciating the provision of clause (f) of the Explanation 1 to Section 115JB of the IT Act ?.”

4. The brief facts of the case are that the assessee filed its return of income on 17.10.2016 declaring total income to the tune of Rs.3,36,02,130/-. Thereafter, the assessee received the defective notice u/s 139(9) of the I. T. Act, 1961. In response to the notice, the assessee filed return of income on 01.05.2017 declaring total income to the tune of Rs.3,71,72,858/-. The case was selected for scrutiny. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The AO assessed the income from Annual Letting Value of furnished property as stock-in-trade as income from house property and raised the addition to the tune of Rs.2,15,31,160/-. The AO also disallowed the expenses to earn the exempt income in view of the provisions u/s 14A r.w. Rule 8D to the tune of Rs.1,70,01,211/-. The total income of the assessee was assessed to the tune of Rs.7,57,05,230/-. Feeling aggrieved, the assessee filed an appeal

5294/M/2019 A.Y. 2016-17 before the CIT(A) who treated the income from the Annual Letting Value of finished property as stock-in-trade as income from business and also restricted the addition u/s 14A r.w. Rule 8D to the extent of exempt income. Feeling aggrieved, the revenue has filed the present appeal before us.

ISSUE NO. 1

5. Under this issue the revenue has challenged allowance of the disallowance of u/s 14A r.w. Rule 8D to the extent of exempt income. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:

“6.2 It is observed that the assessee claims that during the relevant year it has not incurred any expenditure and has earned dividend income of only Ps. 2,8551-, therefore, the action of the AO of making the said disallowance u/s. 14A of Ps. 1,7001,211/- is not correct. It is observed that on this issue as to whether the disallowance u/s. 14A has to be restricted to the amount of exempt/dividend income, there was some debate. However, the position has been settled by the recent decision of the Hon'ble Supreme Court dated 08.11.2018 reported in 99 taxmann.com 286 wherein the decision of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala (99 taxmann.com 285) for AY 2010-11 holding that the disallowance u/s 144 has to be restricted to the amount of exempt I dividend income, has been upheld. In the said case of State Bank of Patiala for AY 2010-11. the AO had restricted the disallowance u/s 14A to Ps 7,03,46,029/- to the amount of dividend income earned. However, the FAA enhanced the said disallowance u/s 14A to Ps 12,67,00,000/- as per Rule 8D on the ground that the said disallowance is not required to be restricted to the amount of dividend income earned. On the facts of the case of the said assessee for AY 2010-11. the Hon'ble P & H High Court followed its own decision

5294/M/2019 A.Y. 2016-17 in the case of the said assessee for AY 2009-10 reported in 88 taxmann.com 667 to hold that the disallowance u/s 14A cannot exceed the amount of exempt/dividend income. The relevant portion of the said decision of the Hon'ble P & H High Court in the case of State Bank of Patiala for AY 2010-11 is reproduced as under:-

4. It is not disputed by the Id. Counsel for the appellant-revenue that the issue involved in the present case stands concluded against the revenue in of 2016. Pr CIT vs. State Bank of Patio/a (2017) 393 ITR 476/88 taxmann.com 667 (Punj &Har.) decided on 27.02.2017 wherein after considering the relevant provision and the case law on the point, it was recorded as under- 'After hearing learned counsel for the parties, we notice that the issue on merits has been decided in favour of the assessee in State Bank of Patiala's case (supra) (2017) 78 taxman. corn 3. The amount of disallowance tinder section 14A was restricted to the amount of exempt income only and not at a higher figure. Once that was so, we do not consider it appropriate to discuss the scope of Sec. 263 of the Act as the same has been rendered academic in view of the issue being answered in favour of the assessee on merits. Thus, no substantial question of law arises. Consequently, the appeal stands dismissed Similar decision was taken by this Court in of 2017, Pr. CIT vs. State Bank of Patiala decided on 22.05 2017.

5. In view of the above, no substantial question of law arises in the present appeal and consequently, the appeal stands dismissed".

6.3 It can be observed that the Hon'ble P & H High Court in the aforesaid case of State Bank of Patiala for AY 2010-11 had followed its own decision in the case of said assessee itself for AY 2009-10 and while giving its decision for AY 2009-10, the Hon'ble P & H High Court had relied upon its own decision in the case of the said assessee itself for AY

5294/M/2019 A.Y. 2016-17 2008-09. Therefore, the ratio laid out by the Hon'ble P&H High Court in the case of State Bank of Patiala and its ultimate fate, becomes crucial. It is noted that the Hon'ble Supreme Court vide order dated 12.02.2018 had some time back decided the case of the said assessee i.e. State Bank of Patiala for AY 2008-09 along with the case of Maxopp Investments (91 taxmann.com 154).

6.4 The facts of the case of the said assessee i.e State Bank of Patiala for AY 2008-09 were that the AO had restricted the disallowance u/s 14A to the extent of exempt / dividend income. However, the FAA enhanced the addition which was subsequently set aside by the Hon'ble Tribunal. Subsequently, the appeal of the Department was also dismissed by the Hon‟ble Punjab & Haryana High Court on the basis of "dominant intention test" by holding that "stock-in-trade" is not to be considered while computing the disallowance u/s 14A. The Hon'ble Supreme Court while deciding the appeal of the Department in the said case of State Bank of Patiala for AY 2008-09 held that the view of the Hon‟ble P & H High Court that "stock-in-trade" is not to be considered while computing the disallowance u/s 14A is not correct. The Hon'ble Supreme Court held that regardless of whether the shares are held as investments or "stock- in-trade" the same have to be considered while computing the disallowance u/c 14A. However, the Hon'ble Supreme Court went on to hold that the action of the AO of restricting the disallowance to the extent of exempt / dividend income was the correct and the FAA's action of enhancing the disallowance u/s 14A as per Rule 8D was untenable. The relevant extract of the decision of the Hon'ble Supreme Court in the said case of State Bank of Patiala for AY 2003-09 is reproduced as under:

"We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO CIT(A) disallowed

5294/M/2019 A.Y. 2016-17 untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arri,9d at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to deaf in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in Slate Bank of Patiala also fail, though law in this respect has been clarified hereinabove.

6.5 From the aforesaid discussion, it can be observed that in the case of State Bank of Patiala for AYs 2008-09 as well as 2010-11, the Hon‟ble Supreme Court has approved the view that the amount of disallowance u/s 14A has to be restricted to the amount of exempt / dividend income earned. Thus, it can be observed that the Hon'ble Supreme Court has approved the ratio of the decision of the Hon'ble Delhi High Court in the case of Joint Investments (P) Ltd (59 taxmann.com 295) that the 5294/M/2019 A.Y. 2016-17 disallowance u/s 14A cannot exceed the amount of dividend income earned during the relevant year.

6.6 Further, the issue as to whether no disallowance u/s. 14A can be made if during the relevant year, the assessee has not earned any exempt income has subsequent to the decision of the Hon'ble Supreme Court in the case of Maxopp Investments Ltd (402 ITR 640) also been adjudicated by the Hon'ble Delhi High Court in the case of Mcdonald's India P. Ltd. (101 taxmann.com 86). In this decision, the Hon'ble High Court held that the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. (supra) cannot be said to have over-ruled their decisions in the cases of Cheminvest Ltd. (supra) and Holcim India P. Ltd. (supra) holding that disallowance u/s. 14A can only be made if some exempt income has been earned. The Hon'ble Delhi High Court that in the case of State Bank of Patiala 391 ITR 218 which was also decided along with the case of Maxopp Investment Ltd. (supra), it has been held by the Hon‟ble Supreme Court that the action of the CIT A of enhancing the disallowance as per Rule 80 is not correct and the action of the AO of restricting the said disallowance to the amount of exempt income is the right course of action. The relevant the decision of the Hon'ble Delhi High Court is reproduced as under:-

"8. The decision in the case of Maxopp Investment Ltd (Supra) is significant and does answer the question in issue. This decision does not support the Revenue as the Assessing Officer in the case of Maxopp Investment Ltd. (Supra) had himself restricted the disallowance to the extent of exempt income. After referring to Walfort Share & Stock Brokers (P.) Ltd. (Supra) it was held—Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includable in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure 5294/M/2019 A.Y. 2016-17 would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as pail of the total income."

9. The position becomes clear and beyond doubt when we refer to the factual position in the appeal preferred by the Revenue against the decision of the Punjab and Haryana High Court in the case of Pr CIT v. State Bank of Patiala (2017] 391 1TR 2187245 Taxman 273/78 taxman.com which was also decided with the decision in Maxopp Investment Ltd (Supra). In State Bank of Patiala (Supra) the Assessing Officer had applied Rule 80 of the Income Tax Rules 1962, but had restricted the disallowance to the amount claimed as exempt income. The Commissioner of Income-tax (Appeals) had enhanced and increased this disallowance as per Rule 80 of the Income Tax Rules, 1962. The said disallowance was more than exempt income. The Tribunal had reversed the finding of the Commissioner of Income-tax (Appeals) and restored the disallowance as made by the Assessing Officer i.e. restricted the disallowance to the extent of exempt income. Decision in the case of State Bank of Patiala (supra) of the Punjab and Haryana High Court was affirmed by the Supreme Court as the correct conclusion, though the Supreme Court did not agree with the reasoning of the Punjab & High Court on the theory dominant intention. It was held that the view of the Commissioner of Income Tax (Appeals) disallowing expenditure beyond and above the exempt income earned by applying Rule 80 was clearly untenable and rightly rejected by the Tribunal.

5294/M/2019 A.Y. 2016-17 D.B. Corp Ltd In this case the Gujarat High Court had refused to admit the appeal on proposed question no.2 - whether disallowance under Section 14A could be made when assessee during the particular assessment year had not earned any exempt income, observing that there was no infirmity in the approach adopted by the Tribunal warranting interference. The Tribunal had restored the matter to the file of the Assessing Officer to verify the claim of the assessee that it did not claim any income to be exempt from payment of income tax.

6.7 Similarly, the Hon'ble ITAT, Mumbai in the case of Kotak Securities Ltd (ITA No. 6666lMuml2015 dated 19.09.2018) has also relied upon the said decision of the Hon'ble Supreme Court in the case of Maxopp Investments (supra) wherein the case of the said assessee for AY 2008-09 was also adjudicated, to hold that the disallowance u/s 14A cannot exceed the quantum of exempt / dividend income. The relevant portion of the decision in the case of Kotak Securities Ltd is as under:

"4.6 However, in terms of the decision of Special Bench of the Tribunal rendered in ACIT Vs Vireet Investment P Ltd (82 Taxmann.com 415) we find strength in the plea of Ld Counsel that only exempt income yielding investments were to be considered for the purpose of computation of disallowance u/s 14A. Drawing analogy from the decision of Hon'ble Supreme Court rendered in Maxopp investment Ltd. Vs CIT(supra), we also find strength in the plea that the quantum of disallowance could not exceed the exempt income earned by the assessee during the impugned AY Further, those investments which were not capable of yielding any exempt income were also to be excluded while arriving at the disallowance.

4.7 Keeping the above principles in mind, we have perused the nature of investments held by the assessee which are extracted at Page 14 of the impugned order. We find that the investments have been classified by the assessee as Strategic investments, stock-in-trade & investments in other

5294/M/2019 A.Y. 2016-17 shares / Venture Capital Fund. The assessee has already offered suo- moto disallowance @ 0.5% against investment in other shares Venture Capital Fund and therefore, there is no dispute against his category of investment. Therefore, the disallowance tinder dispute is against strategic investments & stocks-in-trade, In the absence of adequate data before us, we direct the Ld AO to compute disallowance @ 0.5% against strategic investments & stocks-in-trade after excluding therefrom those investments which have not yielded any exempt income during impugned AY or which were not, at all, capable of yielding any exempt income subject to a further condition that overall disallowance, in no case, shall exceed exempt income of Ps 131.46 lacs earned by the assessee during the impugned A Y This ground stands partly allowed in terms of our above order"

6.8 In view of the aforesaid discussion the contention of the assessee that the disallowance u/s 14A should be restricted to the quantum of exempt / dividend income earned during the year, is accepted to be the correct position of law. The AO is therefore directed to restrict the disallowance u/s. 14A to an amount of Rs. 2.855/- being the exempt/dividend income earned by the assessee during the relevant year Accordingly, Ground No. 2 of the appeal is partly allowed.”

5294/M/2019 A.Y. 2016-17 2018 (91 taxmann.com 154) & Kotak Securities Ltd. (ITA. No.6666/Mum/2015 dated 19.09.2018. In the said cases, the expenses to earn the exempt income was restricted to the extent of exempt income. The facts are not distinguishable at this stage. No law contrary to the law relied by the Ld. Representative of the CIT(A) has been produced before us. The finding of the CIT(A) is quite reasonable and justifiable which is not liable to be interfered with at this appellate stage. Accordingly, we affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue.

ISSUE NO.2

“7.1 I have carefully considered the stand of the AO as per the assessment order as well as the submissions furnished by the AR of the appellant. The AO after determining the disallowance u/s 14A at Rs.1,70,01.211/- as per the regular provisions of the I.T. Act, has also proceeded to add the said disallowance while computing the book profit as per 115JB. The assessee contends that this action of the AO is incorrect since it has not debited any expenditure in its accounts as related to earning of exempt income. Moreover, the assessee has placed reliance on a number of judicial decisions. 7.2 While adjudicating the issue as to whether the disallowance computed u/s 14A as per the regular provisions of the I T Act can be added while computing the book profits as per 115JB, the Hon'ble 'TAT, Mumbai in the case of JSW Energy Ltd (60 Taxmann.com 303), observed

5294/M/2019 A.Y. 2016-17 that it is a well-settled proposition of law that the AO does not have much scope to tinker with the accounts of the assessee which have been prepared in accordance with the provisions of the Companies Act, 1956 and which have been approved by the Registrar of Companies. The Hon'ble ITAT thereafter went on to hold that if the assessee has not debited any expenditure relating to the earning ot exempt income, the provisions of section 14A cannot be imported into computation of hook profits u/s 115JB since clause (f) of explanation to section 115JB only refers to those amounts which have been debited by the assessee to its P L account. Accordingly, the Hon'ble ITAT held that if no expenditure related to earning of exempt income has been debited / claimed by the assessee in its accounts, the disallowance computed u/s 14A cannot be added while computing the book profits u/s 11 5J8. The appeal filed by the Department against the decision of the Hon'ble ITAT in the case of JSW Energy Ltd has been dismissed by tangible Jurisdictional High Court.

7.3 On this issue, the Spl Bench of ITAT, Delhi vide its order dated 16.06.2017 in the case Of Vireet Investments P Ltd (82 Taxmann.com 415) after considering the various decisions on this issue has also taken a similar view that disallowance u/s 14-A cannot be added while computing the book profits u/s 115,15. This view has also been taken by the Hon‟ble Delhi High Court 'In the case of Bhushan Steel Ltd in ITA. No.593/2014. Respectfully following the said decision of the Hon‟ble Delhi High Spl Bench ITAT Delhi and the decision of (TAT. Mumbai wherein the appeal of the Department has been dismissed, the contention of the assessee that the disallowance made u/s 14A cannot be considered while computing the book profits u/s 115JB is accepted Accordingly, the addition made by the AO of the disallowance u/s 14A while computing the book profits u/s 115JB, is deleted.”

5294/M/2019 A.Y. 2016-17 8. On appraisal of the above mentioned finding, we find that the issue has been decided by the CIT(A) on the basis of the decision in the case of Vireet Investments Pvt. Ltd. 82 taxmann.com 415 and Bhushan Steel Ltd. in ITA. No.593/2015. No law contrary to the law relied by the Ld. Representative of the CIT(A) has been produced before us. No disallowance u/s 14A r.w. Rule 8D is required while computing the book profit u/s 115JB of the Act. The facts are not distinguishable at this stage. The issue has squarely covered by the decision in case of Vireet Investments Pvt. Ltd. (supra), Bhushan Steel Ltd. (supra), therefore, we are of the view that the finding of the CIT(A) is quite justifiable which is not liable to be interfered with at this appellate stage. Accordingly, we decide this issue in favour of the assessee against the revenue.

In the result, the appeal filed by the revenue is hereby dismissed.

9. The assessee has filed the present appeal against the order dated 20.06.2019 passed by the Commissioner of Income Tax (Appeals) -52, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2016- 17.

10. The assessee has raised the following grounds: -

1. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of Rs.2,15,31,160/- on account of alleged Notional Annual Letting value of unsold flat held as stock in trade, without considering the facts and circumstances of the case.

5294/M/2019 A.Y. 2016-17 2. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in bringing to tax Notional Annual Letting value of unsold flats held as stock in trade, under the head 'Income from House Property', in terms of section 22 r.w.s. 23 of Income Tax Act, 1961, without considering the facts and circumstances of the case. The appellant craves leave to add, amend, alter or delete the said ground of appeal

.”

11. The facts of the present case are quite similar to the facts of the case mentioned above bearing therefore, there is no need to repeat the same.

ISSUE Nos. 1 & 2 12. Issue nos. 1 & 2 are inter-connected, therefore, are being taken up together for adjudication. In brief, the assessee raised the issue on account of confirmation of treating the income in sum of Rs.2,15,31,160/- on account of alleged Notional Annual Letting Value of unsold flat held as stock-in-trade under the head of income of house property. The AO assessed the annual letting value as per Section 22 & 23 of the Act by treating the same as income from house property. The CIT(A) has confirmed the same. It is on record that the finished unsold property worth to the tune of Rs.13,94,11,423/- has been shown as stock-in-trade in books of accounts. The Ld. Representative of the assessee has argued that the issue has squarely been covered by the sister concern case titled as Runwal Builders Pvt. Ltd. Vs. ACIT-CC-4(1), Mumbai on 22.02.2018. The assessee has also placed reliance upon the decision of CIT Vs. Neha Builders Pvt. Ltd. 296 ITR 661

5294/M/2019 A.Y. 2016-17 Gujarat High Court. The assessee was carrying out the business of construction and was a builder and developer of project in the case of sister concern titled as Runwal Builders Pvt. Ltd. Vs. ACIT-CC-4(1), Mumbai on 22.02.2018. The relevant finding is hereby as under.:-

“7. We have heard the rival submissions and perused the orders of the authorities below and the decisions relied upon. It is an undisputed fact that the assessees are in the business of builders, developers and construction. Both the assessees have constructed various projects and the projects were treated as stock in trade in the books of account. Flats sold by the assessees were assessed under the head ‘income from business’. There were certain unsold flats in stock in trade which the AO treated as property assessable under the head ‘income from house property’ and computed notional annual letting value on such unsold flats placing reliance on the decision in the case of Ansal Housing Finance & Leasing Co. Ltd. (supra). The action of the AO was upheld by the learned CIT(A).

8. The Hon'ble Gujarat High Court in the case of Neha Builders Pvt. Ltd. (supra) considered the question whether the rental income received from any property in the construction business can be claimed under the head ‘income from property’ even though the said property was included in the closing stock. The Hon'ble Gujarat High Court held that 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 house property. While holding so the Hon'ble High Court observed as under: - 5294/M/2019 A.Y. 2016-17 “8. True it is, that 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 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'. Even otherwise, it is to be seen that there was distinction between the 'income from business' and 'income from property' on one side, and 'any income from other sources'. The Tribunal, in our considered opinion, was absolutely unjustified in comparing the rental income with the dividend income on the shares or interest income on the deposits. Even otherwise, this question was not raised before the subordinate Tribunals and, all of sudden, the Tribunal started applying the analogy.

9. From the statement of the assessee, it would clearly appear that it was treating the property as 'stock-in-trade'. Not only this, it will also be clear from the records that, except for the ground floor, which has been let out by the assessee, all other portions of the property constructed have been sold out. If that be so, the property, right from the beginning was a 'stock-in-trade'.”

9. Similarly the Coordinate Bench has considered similar issue as to whether the unsold property which is held as stock in trade by the assessee can be assessed under the head ‘income from house property’ by notionally computing the annual letting value from such property and the Coordinate Bench considering the decision of the Hon'ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. (supra) which the AO relied upon and the decision of the Hon'ble Supreme Court

5294/M/2019 A.Y. 2016-17 in the case of Chennai Properties & Investments Ltd. vs. CIT reported in 373 ITR 673, held that unsold flats which are in stock in trade should be assessed under the head ‘business income’ and there is no justification in estimating rental income from those flats and notionally computing annual letting value under Section 23 of the Act. While holding so the Coordinate Bench observed as under: - “3. The ld. AR placed the order of Bombay Tribunal in the case of M/s Perfect Scale Company Pvt. Ltd., to 3234/Mum/2013, order dated 6-9-2013, wherein it was held that in respect of assets held as business, income from the same is not assessable u/s.23(1) of the IT Act.

5294/M/2019 A.Y. 2016-17 same analogy in the instant case, assessee is engaged in business of construction and development, which is main object of the assessee company. 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.”

The Hon’ble Gujarat High Court in the case of CIT Vs. Neha Builders Pvt. Ltd. 296 ITR 661. The relevant finding is hereby as under.:-

“6. We have heard Mr. Naik at length. None appears for the respondent despite service of notice.

5294/M/2019 A.Y. 2016-17 7. From the order passed by the learned CIT(A), it would clearly appear that the case of the assessee was that the company was incorporated with the main object of purchase, take on lease, or acquire by sale, or let out the buildings constructed by the assessee. Development of land or property would also be one of the businesses for which the company was incorporated.

5294/M/2019 A.Y. 2016-17 10. Agreeing with the submissions made by Mr. Naik, learned counsel for the Revenue, we hold that the Tribunal was not correct in granting the appeal of the assessee.”

13. The issue is squarely covered by the decision of the sister concern case titled as Runwal Builders Pvt. Ltd (supra) in which the income has been assessed as income from business in similar circumstances. The Hon’ble Gujarat High Court in the case of CIT Vs. Neha Builders Pvt. Ltd also speaks the same thing in the same sense. If, the property is used stock-in-trade then the said property would be become or part take the stock. Any income derived in stock would be the income from business and not the income from the house property. The assessee business is to construct the property and to sell and to construct and let out the same then it would be the income from business and accordingly liable to be treated. In view of the said discussion, we are of the view that the finding of the CIT(A) is not correct, hence, we set aside the finding of the CIT(A) and direct the AO to treat the said income as income from the business. Accordingly, these issues are decided in favour of the assessee against the revenue.

ISSUE No.3 14. Issue no.3 is formal in nature which is not required to be adjudication.