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Income Tax Appellate Tribunal, ‘C‘ BENCH
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y.2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-52, Mumbai in appeal No.CIT(A)-52/DC CC-4(1)/IT-396/16-17 dated 06/12/2017 (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) by the ld. Deputy Commissioner of Income Tax, Central Circle-4(1), Mumbai (hereinafter referred to as ld. AO).
M/s. Palm Grove Beach Hotels Pvt. Ltd.
2. At the outset, we find that the assessee had preferred appeals for both the A.Yrs. 2014-15 and 2015-16 before us with delay of 382 days and 233 days respectively.
We find from the affidavit filed by the assessee for the condonation of delay that assessee was not having any clarity on the issue whether the annual letting value of unsold flats in case of builders and the construction companies would be taxable under the head „Income from House Property‟ or not in view of the divergent views taken by the Tribunal. Thereafter, the very same issue was decided by the Co-ordinate Bench of this Tribunal in several other cases which are listed in para 3 of the Memorandum of condonation of delay filed by the assessee. Accordingly, the assessee pleaded that the subsequent decisions of this Tribunal on the impugned issue of taxability of annual letting value in respect of unsold stocks in the case of builder / construction companies would tantamount to sufficient cause for the delay and accordingly, prayed for the condonation of delay in filing of the appeals before this Tribunal. The ld. DR vehemently objected to the said condonation on the ground that assessee had adopted “wait and watch approach”. The decision not to file any appeal originally was a conscious decision taken by the assessee and merely because this Tribunal had rendered favourable decision in some other assessee‟s case on the very same issue, the assessee also wanted to take the benefit out of it and accordingly, had preferred appeals before this Tribunal. This practice of the assessee, if accepted, would only opening up pandora box and every assessee would resort to the same.
M/s. Palm Grove Beach Hotels Pvt. Ltd.
3.1. We find that this Tribunal in the following decisions had decided the issue in dispute before us in these impugned appeals in favour of the assessee in the following cases:-
Respondent (2) ITA No. (3) A.Y. (5) Appellant Order Date (4) (1) C.R. Developments Pvt. Ltd. JCIT-8(1)(OSD), 4277/Mum/2012 13.05.2015 2009-10 Mumbai
Runwal Constructions 5408/Mum/2016 22.02.2018 2012- 13 ACIT Central Circle-4(1) Mumbai. Progressive Homes 5082/MUM/2016 16.05.2018 2012-13 ACIT, Circle -4(4), Mumbai. ACIT -15(2)0), Mumbai. 31.08.2018 Haware Construction Pvt. 3321/MUM/2016 2009-10 Ltd. 3172/Mum/2016 2011 -12
7155/Mum/2016 10.10.2018 2012-13 Haware Engineers & Builders DCIT, Central Circle -4(2), Pvt. Ltd, Mumbai.
Ferani Hotels Pvt. Ltd. 6332/M/2016 21.12.2018 2012-13 ACIT, Central Circle -4(1), Mumbai. 3.2. We also find that the Hon‟ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd., reported in 296 ITR 661 had decided the issue in favour of the assessee. Now, the decision of the Hon‟ble High Court is in favour of the assessee would constitute sufficient cause for explaining the delay in filing of the appeal by the assessee. In this regard, we find that the Hon‟ble Andhra Pradesh High Court in the case of Venkataramana Chuduva & Muramura Merchant reported in 159 ITR 59 (AP) and Hon‟ble Calcutta High Court in the case of CIT vs. Sothia Mining & Manufacturing Corporation Ltd., reported in 186 ITR 182 (Cal) had held that the subsequent decision of the Hon‟ble High Court or Hon‟ble Supreme Court which changed the position, the interpretation or the understanding of law, constituted sufficient cause for condoning the M/s. Palm Grove Beach Hotels Pvt. Ltd. delay. We find that the Coordinate Bench of Kolkata Tribunal in the case of G.G. Super Cement Pvt. Ltd. Vs. ACIT in AY 2008-09 dated 02.03.2016 had held on condonation of delay as under: “……..it is observed that the Hon’ble Supreme Court in the case of Collector Land Acquisition –vs.- Mst. Katiji & Others reported in 1987 AIR 1353 and the Hon’ble Calcutta High Court in the case of Indian Oil Corporation Limited –vs.- CEGAT & Others 2002 (104) ECR 609 have laid down the following guidelines for evaluating the applications for condonation of such delay:- Guidelines laid down by the Hon’ble Supreme Court in the case of Collector Land Acquisition –vs.- Katiji & Others: “The legislature has conferred the power to condone delay by enacting Section 51 of the Indian Limitation Act of 1963 in order to enable the Courts to do substantial justice to parties by disposing of matters on 'merits'. The expression "sufficient cause" employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice -that being the life-purpose for the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy. And such a liberal approach is adopted on principle as it is realized that:- "Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period”.
Ordinarily a litigant does not stand to benefit by lodging an appeal late.
Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner.
4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non- deliberate delay.
5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.
6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
M/s. Palm Grove Beach Hotels Pvt. Ltd.
Guidelines laid down by the Hon’ble Calcutta High Court in the case of Indian Oil Corporation Limited – vs.- CEGAT & Others:- “11. Rules of limitation are not meant to destroy the rights of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. The law of limitation fixes a life span for such legal remedy for the redress of the legal injury so suffered. Time is precious and wasted time would never revisit. During the efflux of time, newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a lifespan must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. The law of limitation is thus founded on public policy. It is enshrined in the maxim 'interest reipublicae up sit finislitium' (it is for the general welfare that a period be put to litigation). Rules of limitation are not meant to destroy the rights of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time.
A court knows that refusal to condone delay would result in foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the Court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal constitution so as to advance substantial justice vide Shakuntala Devi Jain v. Kuntal Kumari and State of W.B. v. Administrator, Howrah Municipality.
It must be remembered that in every case of delay, there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy, the Court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time, then the court should lean against acceptance of the explanation. While condoning the delay, the court should not forget the opposite party altogether. It must be borne in mind that he is a loser and he too would have incurred quite large litigation expenses. It would be a salutary guideline that when courts condone the delay due to latches on the part of the applicant, the Court shall compensate the opposite party for his loss”. 3.3. We find that there is also nothing on record to show that such delay is occasioned deliberately or on account of culpable negligence or on account of malafide. There is also nothing to show that the assessee has resorted to dilatory tactics. Keeping in view all these facts of this case and the guidelines laid down by the Hon‟ble Supreme court and Hon‟ble Calcutta and Andhra Pradesh High Courts, we hereby condone the delay of 382 and 233 days for Asst Years 2014-15 and 2015-16 respectively in filing the appeals, in the interest of M/s. Palm Grove Beach Hotels Pvt. Ltd.
substantial justice and admit those appeals of the assessee for adjudication.
4. The only identical issue in all these appeals is that whether the ld. CIT(A) was justified in confirming the action of the ld. AO in charging notional income considering annual letting value of unsold flats (closing stock of assessee) under the head „income from house property‟ in the facts and circumstances of the instant case.
5. We have heard rival submissions and perused the materials available on record. Both the parties before us agreed that the issue in dispute before us had been decided by this tribunal in favour of the assessee in its own case in dated 13/03/2019 for Asst Year 2013-14. The relevant operative portion of the said order is reproduced hereunder:- “4. Issue nos. 1 & 2 are inter-connected, therefore, are being taken up together for adjudication. Under these issues the assessee has challenged the confirmation of the addition in sum of Rs.39,75,545/- under the head of income form house property on account of deemed income from unsold unit/flats which was the closing stock of the assessee under the year of consideration in view of the provisions u/s 22 & 23 of the Act. At the very outset, the Ld. Representative of the assessee has argued that the assessee was carrying the business of construction and builder and development of project and was having finished unit in three project namely Wanwadi Project- Pune in sum of Rs.6,97,95,580/-, Vakola Project in sum of Rs.43,01,115/- & Radhanarayan in sum of Rs.1,13,38,000/-, the total in sum of Rs.8,54,34,695/- but the AO has wrongly assessed the notional income and assessed the tax in view of the provisions u/s 23/ 24 of the Act and added in sum of Rs.39,75,545/- to the income of the assessee, hence, the finding of the CIT(A) confirming the order of the AO is wrong against law and facts and are liable to be set aside. The Ld. Representative of the assessee has argued that the case of the assessee has duly being covered by the decision of the Hon’ble ITAT in the case of Ferani Hotels Pvt. Ltd. Vs. ACIT Central Circle 4(1) in ITA. No. 6332/M/2016 dated 21.12.2018, therefore, the claim of the assessee is liable to be allowed. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. On appraisal of the record and considering the argument advanced by the Ld. Representative of the parties, we observed that the assessee is carrying the business of construction and builder and developing the project. He was having the finished unit of M/s. Palm Grove Beach Hotels Pvt. Ltd.
three project situated at Wanwadi Project- Pune in sum of Rs.6,97,95,580/-, Vakola Project in sum of Rs.43,01,115/- & Radhanarayan in sum of Rs.1,13,38,000/-, the total in sum of Rs.8,54,34,695/- The notional income was assessed in sum of Rs. 39,75,545/- and added to the income of the assessee. Before going further, we deem it necessary to advert the finding of the Hon’ble ITAT in dated 21.12.2018 titled as Ferani Hotels Pvt. Ltd. The relevant finding has been given in para no. 6 to 8 which are hereby reproduced as under.: - “Under this issue the assessee has challenged the confirmation of the addition of Rs.13,22,90,044/- under the head of income from house property on account of deemed income from unsold unit/ flat which was closing stock of the appellant as per provisions of Sections 22 and 23 of the Act. At the very outset, the Ld. Representative of the assessee has argued that the assessee is deriving its income from hotel business and construction. The assessee was also deriving income from dividend, share of profit and sale of flats and due to the recession, the assessee failed to sold out all the flats, therefore, some flats remain vacant which was being treated as stock in trade. The AO has wrongly assessed the notional rent and assessed the rent in view of the provision u/s 24 of the Act wrongly which can only be treated under the head of income from business, therefore, the finding of the CIT(A) is wrong against law and facts and is liable to be set aside. It is also argued that the case of the assessee has duly been covered in case of Runwal Construction Vs. ACIT in ITA. No. 5408/M/2016 & C.R. Developments Vs. JCIT in ITA. No. 4277/M/2012 dated 13.05.2015. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. On appraisal of the facts of the case and relevant record on the file, we noticed that the object of the assessee is deriving of income from Hotel Business and Construction. The assessee company is running a five star hotel in the name and style of The Carlton at Kodaikannal, Tamil Nadu, having rooms and other facilities. The assessee also derived income from dividend, share of profit from partnership firm and profit from sale of flats. The assessee failed to sold the flat which was being treated by him as stock in trade. The AO assessed the notional income and brought to tax as income as house property which has no doubt confirmed by CIT(A). It is to be seen whether the income of the assessee is liable to be treated as house property or business income. It is necessary to discuss the finding in the case of M/s. Runwal Constructions Vs. ACIT in ITA. No.5409/M/2016 dated 22.02.2018 which has been given in para no. 7 to 10 and are hereby reproduced 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)
M/s. Palm Grove Beach Hotels Pvt. Ltd. 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: - “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 'stockin-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 A.Y.2012-13 10 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-intrade'. 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'.”
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 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., ITA Nos.3228 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.
On the other hand, ld. DR relied
M/s. Palm Grove Beach Hotels Pvt. Ltd. on the order of Hon‟ble Delhi High Court in the case of Ansal Housing F A.Y.2012-13 11 Supreme 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 the letting out of the properties is assessable as income from business. On the very 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.”
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.
In the case of titled as M/s. C.R. Developments P. Ltd. Vs. JCIT. The relevant para in 5 is hereby reproduced as under.: - “5. We have considered rival contentions and perused the record. The issue under consideration has been restored by the CIT(A) to the file of AO to compute the annual value. Recently the Hon‟ble Supreme Court in the case of M/s Chennai Properties & Investments Ltd. Vs. CIT, reported in (2015) 42 SCD 651, vide judgment dated 9- 4-2015 has held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of AO treating the rental income as income from house property in place of income from business shown by the assessee was held to be not justified. The Hon‟ble Supreme 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 the letting out of the properties is assessable as income from business. On the very 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 stockin-trade. Estimating rental income by the M/s. Palm Grove Beach Hotels Pvt. Ltd.
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 the factual position of the present case is quite similar to the facts of the case mentioned above. In view of the law relied upon the law representative of the assessee i.e. M/s. Runwal Constructions Vs. ACIT and M/s. C.R. Developments P. Ltd. Vs. JCIT (supra), we are of the view that the finding of the CIT(A) on this issue is wrong against law and facts whereas the case of the assessee has duly been covered by the law mentioned above, therefore, by honoring the orders mentioned above. We deleted the addition raised by assessee on account of notional income of vacant flats. Accordingly, this issue is decided in favour of the assessee against the revenue.”
On appraisal of the above mentioned finding, we noticed that the factual position of the present case is quite similar to the factual position of decision of the Hon’ble ITAT in the case of Ferani Hotels Pvt. Ltd. (supra). Since the case of the assessee has duly been covered by the decision of the Hon’ble ITAT in the case of Ferani Hotels Pvt. Ltd, therefore, in the said circumstances by honoring the said decision, we deleted the addition raised by AO on account of notional income of the vacant flats. Accordingly, these issues are decided in favour of the assessee against the revenue.
6. In the result, the appeal of the assessee is hereby ordered to be allowed.”
5.1. Respectfully following the said decision, the grounds raised by the assessee are allowed.
In the result, appeals of the assessee are allowed.
Order pronounced on 01/07/2021 by way of proper mentioning in the notice board.