M/S AKSHAR COMMERCIAL COMPLEX LLP,MUMBAI vs. DCIT CIRCLE 15(1)(1), MUMBAI

2. The only issue in this appeal of assessee is against the order of CIT(A) in confirming the addition made by the Assessing Officer in regard to notional rental income on commercial property under section 23(1)(a) of the Act. For this assessee has raised the following 2 grounds: - “1. Because, the CIT(A) has erred in law and on facts confirming the addition of ₹56,66,976 on account of notional rental income on unsold stock u/s 23(1)(a) made by the Assessing Officer by following the decision of the Hon’ble Delhi High Court in the case of CIT v. Ansal Housing Finance & Leasing Ltd. 354 TR 180 (Delhi).

Because, the CIT has failed to appreciate that calculation of notional rental income on commercial property is outside the scope of season 24 of the Act.”

Brief facts are that the assessee constructed a commercial building name ‘Proxima’ at Vashi, Navi Mumbai under a Akshar Commercial Complex Ltd.; AY 2015-16 Page | 3 development agreement dated 29.10.2007 with US Roof Limited and developed total area of 6500 Sq. ft. This property was originally given to Andhra Pradesh Industrial Development Corporation in short (APIDC) and the remaining area was shared between the assessee and US Roof Ltd. in the ratio of 60:40. The total area developed was 39,567 sq. ft. out of which 6500 sq. ft. was given to original lessor, APIDC. Out of the balance area of 33,061 sq. ft., the assessee was entitled to 60%, which worked to 19,840 sq. ft. The assessee has leased out these area to M/s Kalyan Jewellers and Red Consulting i.e. 8,596 sq. ft. The balance area of 11,244 sq. ft. remains unoccupied and no rental receipt was declared. The Assessing Officer as in Assessment Year 2014-15 computed the ALV under the provision of section 23(1)(a) of the Act and he made addition of the rental income ad deemed income from house property of ₹56,66,976/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the Assessing Officer. The CIT(A) relied on the Delhi High court decision in the case of CIT v Ansal Housing Finance & Leasing Co. Ltd. (2013) 354 ITR 180 (Delhi).

At the outset, the learned Counsel for the assessee Ms. Ritika Aggarwal stated that the issue is squarely covered in favour of assessee by the Tribunal’s decision in assessee’s own case for Assessment Year 2014-15 in vide order dated 28.01.2020, wherein Tribunal has considered this issue vide Para 10 to 13 as under: - Akshar Commercial Complex Ltd.; AY 2015-16 Page | 4 “10. We have considered the rival submissions of the parties and have gone through the orders of the authorities below. There is no dispute that the assessee has undertaken development/construction of commercial building namely ‘Proxima’ at plot No. 19, sector 30A, Vashi. Project was undertaken by the assessee on ‘assignment cum development’ agreement dated 29.10.2007 with M/s. U.S. Roof Limited. Under the agreement the assessee was entitled to retain an area of 19,840 square feet of developed area. There is no dispute that the assessee let out 8170 square feet to M/s. Kalyan Jewellers India Pvt. Ltd. in the same developed complex. During the assessment the Assessing Officer asked the assessee as to why remaining unoccupied commercial area should not be considered for deeming let out purposes u/s. 23(1)(a) of the Act. On the basis of decision of Hon'ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance & Leasing Co. Ltd. (supra). The assessee in its reply dated 24.12.2016 has stated that the SLP had been Akshar Commercial Complex Ltd.; AY 2015-16 Page | 5 admitted by Hon'ble Apex Court against the decision of Hon'ble Delhi High Court. The Assessing Officer not accepted the contention of the assessee and worked out deemed letting out value of unoccupied area and worked out the gross rental income and after allowing 30% deduction made addition of Rs. 5,81,176/- to the total income of the assessee under the head ‘income from house property’.

Before learned CIT(A) the assessee urged that the property/vacant portion is stock-in-trade, the same would partake character of stock in trade and any income derived therefrom would be income from business and not income from house property. It was also urged that the business of the assessee was to construct property and sale it and not to let out. Submission of the assessee was not accepted by learned CIT(A) as the assessee had leased out part of unsold property on commercial to M/s. Kalyan Jewellers India Pvt. Ltd., and learned CIT(A) affirmed the action of the Assessing Officer.

In the case in hand a show-cause notice for cancellation of lease was issued on 25.8.2013 and ultimately lease of plot was cancelled vide order dated 31.12.2015, therefore, we find force in the submission of learned AR of the assessee that after issuance of show-cause notice for cancellation of lease on which building was developed, the assessee was not entitled to let out occupied/constructed portion. Therefore, we find force in the submission of the learned AR that after issuance of show- cause notice the assessee was not entitled to let out the property. Hence, taxing notional income of unoccupied portion of building on the basis of deemed annual letting value is not justified by the Assessing Officer. Hence, we direct the Assessing Officer to delete the