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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI INTURI RAMA RAO & SHRI S.S. VISWANETHRA RAVI
आदेश / ORDER
PER S.S. VISWANETHRA RAVI, JM :
This appeal by the assessee against the order dated 12-03-2020 passed u/s. 263 of the Act by the Pr. Commissioner of Income Tax-2, Pune (“PCIT”) for assessment year 2015-16.
We find that this appeal was filed with a delay of 493 days. Upon hearing both the parties, we find that the delay of 493 days is saved by the decision of Hon’ble Supreme Court passed during National Lockdown
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imposed on account of pandemic Covid-19. Therefore, the delay of 493 days is condoned.
At the outset, we note that the PCIT held that the order dated 07-12- 2017 passed by the AO u/s. 143(3) of the Act is erroneous and prejudicial to the interest of revenue and directed the AO to assess the issue afresh by placing cogent evidence on record, by holding that the AO has not taken into account income on notional basis in respect of property held by the assessee stock-in-trade and no provision would be made for expenses on some works of common area like entrance lobby, compound wall, main gate, etc.
Before us no arguments advanced by the ld. AR in respect of ground No. 1 and in view of the same, ground No. 1 raised by the assessee is treated as not pressed.
Ground Nos. 2, 3 and 4 are in respect of deemed rent on unsold units. The ld. AR submits that the assessee is a real estate builder and shown unsold unsold flats as closing stock. The PCIT held that the assessee did not offer the income from the said unsold flats as income from house property and argued that the assessee shown unsold flats as stock- in-trade in its account, the PCIT erred in holding that the deemed rental income as income from house property is not justified as the said flats were neither given on rent nor as the assessee any intention to earn rent by letting out the said flats. The ld. AR vehemently argued that the flats which were remained unsold by the assessee as stock-in-trade and income arising there from on its sale taxable as business income but not as house property income.
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The ld. AR placed on record decisions of this Tribunal in the case of M/s. Mangal Murti Developers Ganesham in ITA No. 980/PUN/2019 for A.Y. 2015-16 and referred to Para No. 2 of M/s. Mangal Murti Developers Ganesham (supra) and submitted that the issue therein is similar to the issue raised in the present case and the Tribunal by placing reliance in the case of Cosmospolis construction in ITA Nos. 230 & 231/PUN/2018 and also considering the amendment brought in w.e.f. 01-04-2018 to Sub- section (5) of Section 23 of the Act held that the income from unsold flats could be considered only under the head “Profits and Gains from business or profession” and not “Income from House Property”. He reiterated that the assessee treated the said unsold flats as stock-in-trade in the Balance sheet and taxable on its sale in the next subsequent years as business income. The ld. DR did not dispute the treatment of unsold flats as stock- in-trade by the assessee and also offering as same as business income in the subsequent years. Therefore, following the same the assessment year being 2015-16, we, by holding the amendment brought in by Finance Act, 2017 w.e.f. 01-04-2018 is not applicable and no addition is maintainable on account of deemed rent on unsold flats which is treated as stock-in- trade by the assessee. Thus, the order of CIT(A) is not justified and it is set aside. Accordingly, ground Nos. 2, 3 and 4 raised by the assessee are allowed.
Ground Nos. 5 and 6 are relating to holding the provision made for pending work is not an allowable deduction.
According to the PCIT that the assessee made provision for expenses to be incurred on works of common area like entrance lobby, compound wall, main gate, etc., but however, no evidence for the same was adduced before the AO. The PCIT held the said expenses claimed on contingent
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basis cannot be allowed and the said provision is made in an adhoc manner without any scientific method. The ld. AR placed on record the order dated 14-12-2020 of this Tribunal in the case of M/s. Rohan Developers in ITA No. 459/PUN/2020 for A.Y. 2015-16 and drew our attention to para 7 of the said order and argued that the satisfaction of PCIT should not be subjective but it must be based on the material on record in order to hold that an assessment order is erroneous and prejudicial to the interests of the revenue. It is not the case of PCIT that the AO had not enquired into this issue during the course of scrutiny assessment proceedings and no enquiry was made by the AO. The ld. AR argued that the facts and circumstances of the present case are similar to the facts and circumstances in the case of M/s. Rohan Developers (supra) and vehemently argued that the PCIT had no jurisdiction to exercise power of revision u/s. 263 of the Act. The ld. DR relied on the order of PCIT. We note that as rightly pointed by the ld. AR that the AO in scrutiny assessment proceedings asked the assessee to submit all the details which is evident from para 4 of the assessment order and it is also not the case of PCIT that the AO did not enquire into the issues relating to the subject of show cause notice to 263 proceedings. On perusal of the impugned order in respect of the issue of provision made for expenses to be incurred in the case of un-finished works which were claimed through profit and loss account is allowable which were made on adhc basis. As held by this Tribunal in the case of M/s. Rohan Developers (supra) that the twin conditions of erroneous and prejudicial to the interest of revenue should exist simultaneously and the PCIT should satisfy before coming to a conclusion as to exercise jurisdiction u/s. 263 of the Act by placing a material on record. On an examination of impugned order passed by the PCIT u/s. 263 of the Act is clear that there was no material placed on record by the PCIT suggesting the provision made for future expenses is
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disallowable. We find no evidence brought on record by the PCIT that the contingent liability in respect of provision for future expenses is not based on any material. Therefore, the findings of this Tribunal in the case of M/s. Rohan Developers (supra) is applicable to the present case and the PCIT holding assessment order is passed u/s. 143(3) of the Act is erroneous and prejudicial to the interest of revenue is not justified. Thus, ground No. 5 raised by the assessee is allowed.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 15th December, 2022.
Sd/- Sd/- (Inturi Rama Rao) (S.S. Viswanethra Ravi) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; दिनाांक / Dated : 15th December, 2022. रदव
आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : अपीलार्थी / The Appellant. 1. प्रत्यर्थी / The Respondent. 2. 3. The Pr. CIT-2, Pune दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, 4. पुणे / DR, ITAT, “A” Bench, Pune. गार्ड फ़ाइल / Guard File. 5. //सत्यादपत प्रदत// True Copy// आिेशानुसार / BY ORDER,
वररष्ठ दनजी सदचव / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune