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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
(Applicant) (Responent) : Shri Bhavin J. Marfatia, AR Assessee by Revenue by : Shri Anshu Prakash, CIT-DR सुनवाई क� तार�ख/Date of Hearing : 10/11/2022 घोषणा क� तार�ख /Date of Pronouncement: 16/11/2022 आदेश/O R D E R
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER
The present appeal has been filed by the assessee against order passed by the Pr.Commissioner of Income-Tax, Vadodara (hereinafter referred to as “ld.Pr.CIT”) dated 19.3.2020 by invoking revisionary power under section 263 of the Income Tax Act, 1961 ("the Act" for short) pertaining to Assessment Year 2015-16.
As emanates from order of the ld.Pr.CIT, the revisionary power was exercised finding the assessment order passed in the present case for the impugned assessment year 2015-16 to be erroneous so as to cause prejudice to the Revenue on account of annual letting 2 value of unsold flats of the assessee not being subjected to tax as per the provisions of section 23 of the Act. The ld.Pr.CIT noted that the assessee is a real estate developer and had certain completed unsold units and as per the provisions of section 23 of the Act, the annual letting value (ALV) of these units had to be computed and brought to tax as “income from house property” under section 23 of the Act. He noted that the AO having not made any inquiry on this issue, the assessment order passed by him has been rendered erroneous causing prejudice to the Revenue. The ld.Pr.CIT, on the legal proposition in this regard, relied upon the decision of Hon’ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance & Leasing Co. Ltd., in IT Appeal Nos.18 of 199 and others dated 31.10.2012 which answered the question of law as to whether the assessee was liable to pay income-tax on the ALV on unsold flats owned by it under the head “income from house properties”, in affirmative. Accordingly, the ld.Pr.CIT noted that finished stock of the assessee amounting to Rs.13,54,29,727/- had to be considered for its ALV computed at the rate of 7% return on cost therein amounting to Rs.94,80,080/- ,which was required to be returned under the head “income from house property” and taxed accordingly. The ld.Pr.CIT noted that the assessee’s income accordingly had been under assessed to the extent of Rs.94,80,080/- and there was a consequent short levy of tax at Rs.38,37,442/-, rendering the assessment order erroneous as well as prejudicial to the interest of the Revenue. The ld.Pr.CIT accordingly directed the AO to decide the issue afresh after giving reasonable opportunity of hearing to the assessee in accordance with law in this regard. The relevant finding of the ld.Pr.CIT from para 2 to 5 of the order is as under:
Aggrieved by the same, the assessee has come up before us raising the following grounds:
“Order u/s 263 passed without giving proper opportunity:
1. 1. The learned Principal Commissioner of Income Tax, Vadodara-1 ["PCIT"] erred in fact and in law in passing revisional order u/s. 263 of the Income Tax Act, 1961 ("the Act") exparte.
2. The learned PCIT erred in fact and in law in passing revisional order u/s. 263 without giving proper opportunity of being heard.
5 3. The learned PCIT erred in fact and in law in passing the order u/s 263 without considering the submissions filed by the Appellant during the revision proceedings.
4. The learned PCIT erred in fact and in law in passing order u/s 263 without controverting the facts and legal submissions filed by the Appellant during the revision proceedings. Invalid Order u/s 263: 5. The learned PCIT erred in fact and in law in passing revisional order u/s. 263 of the Act and thereby revising the assessment u/s 143(3) without mentioning the ground of revision in the notice issued u/s 263.
6. The learned PCIT erred in fact and in law in passing order u/s 263 without giving an opportunity to rebut the ground on which revision is made in order passed u/s 263.
The learned PCIT erred in fact and in law in observing that the assessment u/s. 143(3) was framed without proper enquiry and verification without giving an opportunity to rebut the said observation.
The revisional order u/s. 263 passed by the Id. PCIT being bad in law needs to be quashed.”
The ld.counsel for the assessee before us has challenged exercise of revisionary jurisdiction in the present case on several grounds as under:
• That the case was selected under limited scrutiny criterion and this issue of ALV of unsold stock was not one of the criteria for limited scrutiny. The AO therefore could not have exceeded his brief and inquired on this issue. The assessment order so passed, in this background, could not have been held as being erroneous so as to cause prejudice to the Revenue. Reliance in this regard was placed on the following case laws: i) Chaitanya Bansibhai Nagori Vs. PCIT-4, ii) M/s.Suraj Diamond Dealers P.Ltd. V. PCIT, ITA No.3098/Mum/2019 iii) M/s.Storewell Construction & Engineers Vs. PCIT-2, ITA No.768/Pun/2019 iv) Antariksh Realtors P.Ltd. Vs. ITO, ITA No.1626/Mum/2020 6 v) Balvinder Kumar Vs. PCIT, 125 taxmann.com 83 (Del)
• There were contrary decisions on the issue of ALV on unsold stock of builders being calculated and assessed for tax under the head “income from house property”. Hon’ble Gujarat High Court had ruled in favour of the assessee to the effect that unsold units being business stock-in-hand, the income there from was to be assessed under the head “income from business and profession” and not under the head “income from house property”. Reference in this regard was made to the decision in the case of CIT Vs. Vs. Neha Builders (P) Ltd., (2007) 164 Taxmann 342(Guj). • That section 23 of the Act was amended by introducing sub-clause (5) therein stating that unsold stock-in-trade of builders was to be taxed under the head “income from house property”, which provision was brought to the statute from the assessment year 2018-19. Impugned year being Asst.Year 2015-16 this provision could not be invoked in any case in the impugned year. Reliance was placed on the following case laws: i) Pegasus Properties P.Ltd. Vs. DCITR, 135 taxmann.com 294 (mum) ii) ACIT Vs. Haware Construction P.Ltd., 101 taxmann.com 168 (mum) • The ld.counsel for the assessee further pleaded that there were decisions of the ITAT to the effect that in the case of assessee-builder/developers no addition of deemed rent on unsold inventory could be made even by invoking provisions of section 23(5) of the Act. Reliance was placed on the following decisions: i) Kumar properties and Real Estate P.Ltd. Vs. DCIT, 128 taxmann.com 364 (Pune) ii) Sheth developers P.Ltd. Vs. DCIT, ITA No.1953/Mum/2020. • It was further submitted that even otherwise as per provisions of section 23(5) the assessee did not fulfill criterion mentioned therein of deemed rent being subject to tax one year after the completion of the such unit, since units were completed in Asst.Year 2014-15 only and could have been brought to tax only in Asst.Year 2016-17 onwards and not in the impugned year 2015-16.
• The ld.counsel for the assessee further stated that directly on this issue, whether section 263 can be invoked on account of deemed rent of unsold inventory not being subjected to tax, the ITAT has ruled that the issue being debatable, revisionary power could not have been exercised.Reliance was placed on the following decisions: i) SD Corporation P.Ltd. Vs. Pr.CIT, 102 taxmann.com 226 (Mum)
The ld.counsel for the assessee further pointed out that the ld.Pr.CIT has passed ex parte order dispute the fact that the submission as made before us were also made to the ld.Pr.CIT during the revisionary proceedings and filed well in time before passing of the order by the ld.Pr.CIT. He pointed out that the assessee had filed a submission on 9.3.2020 while ld.Pr.CIT had passed the order on 8 19.3.2020. As evidence, he filed a print out of e- proceedings response acknowledgment, mentioning the date of filing submissions as 9.3.2020 and the response type- “full response” along with several annexures attached therewith. He further drew our attention to Paper Book containing response of the assessee to the ld.Pr.CIT filed before us in PB Page No.54-63 along with annexures at PB Page Nos.64 to 68. Drawing our attention to reply filed to the notice under section 263 placed at PB Page 54-63, the ld.counsel for the assessee pointed out that all the above objections to the revisionary powers being exercised by the ld.Pr.CIT were made to the ld.Pr.CIT also, but the ld.Pr.CIT passed the order without considering the reply of the assessee.
We have gone through the order of the ld.Pr.CIT and the contentions of the ld.counsel for the assessee. The order under section 263 in the present case undoubtedly has been passed ex parte. The ld.counsel for the assessee has demonstrated before us that due reply was filed by the assessee in response to the show cause notice issued by the ld.Pr.CIT under section 263, though not on the appointed date for filing response, but well before the passing of the order of the ld.Pr.CIT. The assessee had raised objections to exercise of revisionary power on several grounds, as argued before us above. Since the ld.Pr.CIT in the present case has passed the order without considering and dealing with the objections of the assessee, in all fairness the Ld.PCIT ought to first deal with these objections/contentions and only thereafter the matter should come up before us. We therefore consider it fit to restore the issue back to the ld.Pr.CIT to pass order afresh, after giving due opportunity of 9 hearing to the assessee and considering and dealing with all contentions raised by the assessee in accordance with law.
In the result, appeal of the assessee is allowed for statistical purpose.
Order pronounced in the Court on 16th November, 2022 at Ahmedabad.