HAWARE INFRASTRUCTURE PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER 15(2)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, “H” BENCH MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 2543/Mum/2019 for Assessment Years: 2013-2014 Haware Infrastructure Pvt. Ltd. ITO- 15(2)(1), Room No. 452, 4th Floor, 413-416, Vardhaman Market, Sector-17, Vashi, Vs Aayakar Bhavan, M.K. Road, Navi Mumbai-400705. Mumbai-400020. PAN : AABCH3852R (Appellant) (Respondent) ITA No. 4021/Mum/2019 for Assessment Years: 2013-2014 ITO- 15(2)(1), Haware Infrastructure Pvt. Ltd. Room No. 452, 4th Floor, 413-416, Vardhaman Market, Aayakar Bhavan, M.K. Road, Vs Sector-17, Vashi, Mumbai-400020. Navi Mumbai-400705. PAN : AABCH3852R (Appellant) (Respondent) Appellant by : Shri J.P. Bairagra (AR) Respondent by : Shri B. Srinivas (CIT-DR) & Chaudhary Arun Kumar Singh Sr DR Date of Hearing : 26/08/2019 Date of Pronouncement : 30/08/2019 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. These cross appeal are directed against the order of ld. Commissioner of

Income Tax (Appeals)-24, [CIT(A)], Mumbai dated 18.03.2019 for Assessment Year 2013-14. The assessee has raised the following grounds of

appeal: On facts & circumstances of the case and in law, the CIT(A) has erred in:

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1) Upholding the disallowance of Rs.59.15 Crores paid by the appellant during the year to the Reddy Family in respect of development of the project -Fantasia Business Park at Plot No.47, Sector 30-A, Vashi, Navi Mumbai. 2) Upholding that the amount paid of Rs.59.15 Crores by the appellant was towards purchase of equity shares of the company Mohan Entertainment Co. Ltd. (MECL) from the Reddy family and not as part of the Project Cost as claimed by the appellant for improving & betterment of its Development Rights of the project Fantasia Business Park at Plot No.4 7, Sector 30-A, Vashi, Navi Mumbai. The CIT(A) has further erred in not accepting the appellant's plea that the value of purchase consideration paid in respect of the equity shares of MECL, acquired from the Reddy family was Rs.39,99,000/- only, and that the amount of Rs.59.15 Crores paid to the Reddy Family by the appellant was for improving & betterment of its Development Rights of the project Fantasia Business Park at Plot No.47, Sector 30-A, Vashi, Navi Mumbai. The payment of Rs.59.15 Crores being part of the Project Cost should have been allowed. 3) Upholding the disallowance of expenditure of Rs.3.07 crores pertaining to certain finishing work and addressing grievances of the customers post receipt of Occupancy Certificate (OC) vide letter dtd. 29/10/2011 for the project 40 / 30A, Vashi Site Fantasia. 2. The revenue in its cross appeal has raised the following grounds of appeal:

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business of Real Estate Development and Construction, filed its return of

income for Assessment Year 2013-14 on 30.11.2013 declaring total income

at Rs. 3,96,673/- under the normal provisions of the Act and Rs.

18,96,884/- under the provisions of section 115JB. Subsequently, the

assessee revised its return of income 01.03.2014. The assessment was

completed under section 143(3) on 30.03.2016 assessing total income at Rs.

68,66,28,860/-. The Assessing Officer while passing the assessment order

made addition/disallowance on account of expenses of Rs. 59,15,26,586/-.

The Assessing Officer also added notional rent on closing stock of unsold

units at Rs. 6,39,66,266/- and addition of other expenses of Rs.

3,07,43,337/-. On appeal before the ld. CIT(A), the addition on account of

disallowance of direct expenses of Rs. 59.15 crore and other expenses of Rs.

3.07 crore was upheld, however, the addition on account of notional rent on

closing stock of unsold units at Rs. 6.39 crore was deleted. Further,

Aggrieved by the order of ld. CIT(A), both the parties have filed their

respective appeal by raising the grounds of appeal as referred above. 4. We have heard the submission of ld. Authorized Representative (AR) of the

assessee and ld. Departmental Representative (DR) for the revenue and

perused the material available on record.

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& 2 raised by assessee are covered in assessee’s own case for A.Y. 2012-13

in ITA No. 1208/Mum/2018 dated 31.05.2019. The ld. AR for the assessee

submits that the assessee was developing a commercial project “Fantasia

Business Park”, Plot No. 47, Sector 30A, Vashi, Navi Mumbai. The

assessee acquired development right in the project from Mohan

Entertainment Company Ltd. (MECL) in the year 2003. The MECL group

was controlled by Reddy family. The Reddy Group, who owned MECL

entered into series of agreement with assessee group through Late Satish

Kashinath Haware (promoter of assessee). During the progress of project

the promoter of both the group died. After death of promoter directors of

both the group, the successor directors of both the groups started claiming

control on the management of MECL through Board which were disputed

by the other group i.e. MECL was claimed by Reddy Group and Haware

Group. Subsequently, with the intervention of well-wisher and common

friends, the entire dispute and difference between Haware Group and

Reality Group were resolved as per the agreement of settlement/ substituted

agreement for settlement dated 05.02.2012 with addendum dated

18.03.2012 and further addendum dated 18.05.2012. As per the substituted

agreement for settlement dated 15.02.2012, the assessee group agreed to pay

a lump sum compensation of Rs. 110 Crore for (i) transfer of share of Real

Optimist India Ltd. (earlier known as MECL), (ii) settlement of all pending 4

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issues in various Forums, (iii) acquisition of acquire development right

regarding the plot in order to buy peace. As a result of settlement, the ratio

of obligation and retention of 60:40 between the assessee and MECL were

changed to 90:10. Under these circumstances, the total composition of cost

underwent changed retrospectively and therefore, the loan of Rs. 60 Lakhs

from assessee, which was utilized for incurring the cost then by MECL is

now transfer in the books of assessee. Similarly, as a result of 40%

contribution, Rs. 9.48 Crore were attributed to MECL and its books, the

same has to be changed in consonance with 90:10 ratio and therefore,

brought into cost of the assessee-company. The assessee-company made the

following payments to family members of Reddy family mentioned as

below:

Sr.No. Name of person Assessment Assessment Total year 2012-13 year 2013-14 i Harishvardhan Reddy 20,90,50,000 - 20,90,50,000 ii Muthu Pratima Reddy 11,25,00,000 15,00,00,000 26,25,00,000 iii MuthuRohit Reddy 17,44,23,414 44,15,26,586 61,59,50,000 iv Nitya Reddy 1,25,00,000 - 1,25,00,000 Total 50,84,73,414 59,15,26,586 110,00,00,000 6. The ld. AR of the assessee further submits that the assessee has paid Rs.

50.84 Crore during the relevant period of AY 2012-13 and remaining of Rs.

59.15 Crore was paid in AY 2013-14. The Tribunal in assessee’s own case

for A.Y. 2012-13 has allowed relief in respect of Rs. 50.84 Crore and given

clear fining that the payment made to Reddy family was for removing

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encumbrance/settlement of pending issues and for acquisition of clear title

and revenue in nature. Therefore, the remaining payment of Rs. 59.15 Crore

paid during the assessment year 2013-14 is liable to be allowed as revenue

expenditure. The ld AR for the assessee accordingly claimed that the

ground of appeal raised by the assessee covered in favour of assessee and is

liable to be allowed. 7. On the other hand, the ld. DR for the revenue supported the order of

Assessing Officer. The ld. DR for the revenue submits that the Tribunal in

earlier year has given finding in respect of Rs. 50.84 Crore only and there is

no finding for allowance of Rs.59.15 Crore. 8. We have considered the rival submission of the parties and perused the

material available on record. We have noted that the Assessing Officer

disallowed the expenses of Rs. 59.15 crore, which was balance amount of

total agreed compensation of Rs. 110 Crore paid in earlier years to Reddy

family. It is an admitted fact that the Assessing Officer disallowed a sum of

Rs. 50.84 crore in A.Y. 2012-13 and remaining amount of Rs. 59.15 crore in

A.Y. 2013-14. We have further noted that the amount of Rs. 50.84 crore out

of Rs. 110 crore paid in A.Y. 2012-13 was allowed as revenue expenditure

in appeal for A.Y. 2012-13. The relevant part of order of Tribunal for A.Y.

2012-13 is extracted below: 29. We have considered the rival submission of the parties and have gone through the orders of authorities below. The Income Tax Act does not define the terms “Capital Expenditure” and “Revenue Expenditure”, one has to depend upon their 6

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nature meaning as well as decided cases. It is settled position that Capital Expenditure is incurred for extending or improving its fixed assets, whereas Revenue Expenditure is incurred in the normal course of business as a routine expenditure. Capital Expenditure provides benefit for several previous years, whereas Revenue Expenditure is consumed within a previous year. Similarly Capital Expenditure makes improvement in earning capacity of a business and on the other hand, the Revenue Expenditure, maintains the profit making capacity of business. For determining whether expenditure is of capital or revenue in nature, it is immaterial how the recipient treated the money in their hand. Though, the dividing line between the capital and revenue expenditure is real, yet some time it become difficult to draw that line. Therefore, a decision has to be taken in each case on the facts and surrounding circumstances. 30. During the assessment, the Assessing Officer received letter from DIT (Inv.)/133A/2014-15 dated 05.03.2015 that assessee has claimed revenue expenditure of Rs. 109.60 Crore as revenue expenditure (for F.Y. 2011-12 Rs. 49.65 Crore and F.Y. 2012-13 Rs. 59.94 Crore) toward project cost. It was noted by Assessing Officer that the said payments were made for acquisition of share of MECL. On verification of break-up of work-in-progress furnished during the course of assessment, the Assessing Officer recorded that assessee claimed payment of Rs. 50.84 Crore for payment of development rights from Reddy Group. The assessee was issued show-cause notice as to why the claim of Rs. 50.84 Crore should not be disallowed. The assessee filed its detailed reply dated 25.03.2015. The sum and substance of reply is the same as explained by ld. AR of the assessee in his submission. The assessee claimed that the expenses were incurred exclusively, solely and only for the purpose of betterment of its development right which were wrongfully denied by Reddy’s after the death of their founder Director. The assessee under duress and to get rid of various cases as well as prohibitory order passed by Civil Court and Occupancy Certificate was stayed by Administrator of Navi Mumbai, the payments were made, it was nothing but revenue expenditure. The explanation of assessee was not accepted by Assessing Officer. The Assessing Officer concluded that in the survey conducted under section 133A on the Reddy Group, the investigation wing came to conclusion that the payment is nothing but payment made for acquisition of share of MECL. The Assessing Officer also recorded the bifurcation of payments 7

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received by various family members was disallowed. The assessing officer reduced the said expenses from the work-in-progress shown by the assessee. 31. During first appellate stage the assessee filed detailed written submissions, which are recorded by ld. CIT(A)in his order. It was explained that that the assessee paid compensation of Rs. 110 crore to Reddy group. The entire payments consist on account of transfer of share of MECL, settlement of all pending issues in various courts, acquisition of clear development rights regarding the plot where the assessee was undertaking development project and for the smooth functioning of its project. The payments to Reddy group were made in various trenches, as explained in the substituted agreement and were shown to learned CIT(A). It was claimed that on payment of compensation the assessee would got the right title of the project along with the shareholding of MECL. It was further explained that the assessee was in receipt of advance of Rs. 8090 Crores from various customers for project it had completed work of Rs. 38.90 Crores. Had the assessee not entered into settlement agreement, it would have a long run dispute and would have created a huge financial losses to the assessee. The assessee also explained that only Rs. 39,90,9000/-was paid for acquisition of shares and the balance consideration of Rs. 109,60,01,000/-was effectively and essentially for the project “fantasia”, without payment of this money the assessee was not in a position to carry out further development at site. All details of Criminal Complaints, Civil suits and other litigation pending in various other legal forums were also explained. After considering the submission and explanations furnished by assessee, the learned CIT(A) appeal concluded that once the payment is made for acquisition of shares, it is the payment for capital investment and therefore, capital in nature. The assessee explained that compensation of Rs. 110 Crore was paid to ensure that it run the project fantasia smoothly and to acquire the share of MECL and that all complaints lodged against the assessee were withdrawn. The reliance by assessee on case law of Hon’ble Bombay High Court in Chemosyn Ltd. (Appeal No. 361 of 2013) was also distinguished by ld. CIT(A) holding that facts of the said case are different. Issues involved in the said case were of family settlement, however, in the present case, the additional amount incurred to acquire further step in MECL. The other case law relied by assessee in Empire Jute Company Ltd. (1980) 3 Taxman 69 (SC) was also distinguished. The ld. CIT(A) concluded that issue in that case was the nature of purchase of looms was capital 8

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or revenue, whereas in the present case, the issue is complete acquisition of share of another group in assessee’s favour. Thus, the ld. CIT(A) concurred with the finding of Assessing Officer. 32. Now let us examine the facts of the case and the circumstances under which assessee paid/incurred the expenses of Rs. 50.84 crore was made by the assessee. From the facts as narrated above, it is brought on record that complete project namely Fantasia on the plot was handled including financial, contractual, legal and other technical inputs. There was no significant value remained with MEPL. Due to dispute between the Reddy Group and assessee group, Civil Court restrained the assessee from selling unit or creating any third party interest. The disputes were ultimately settled on payment of Rs. 110 Crore by assessee group to Reddy Group. The Reddy Group while acknowledging the receipt of, part of settlement amount clearly mentioned on the receipt that the payments were made towards development right. The assessee has appropriated a sum of Rs. 39.99 lakhs as paid to Reddy family on account of acquisition of shares. The balance amount of Rs. 109.06 Crore was claimed by the assessee as paid on account of commercial expediency and claim exclusively incurred for the purpose of business. As we have noted earlier that during the survey action on the Reddy Group. The Reddy Group claimed that the said amount was received on account of transfer of shares. As per the substituted agreement executed on 15.02.2012, the assessee agreed to pay Rs. 110 Crore to Reddy Group against transfer of equity share of MEPL, settlement of all pending litigation before various Forums, acquisition of clear development right and to buy peace. The ld. AR of the assessee also vehemently submitted that the assessee has made huge investment in the project and a number of investor invested substantial investment. The assessee under the compelling circumstances has no option except to accept the unreasonable demand and payment of Rs. 110 Crore, out of which only Rs. 39.90 lakhs was paid for transfer of shares. The amount was incurred for commercial expediency and allowable as business expenses for the previous year. 33. The Hon’ble Supreme Court in Shahazada Nand & Sons (supra) held that if the payment is made through commercial expediency, the same would be allowed as business expenditure. Further Hon’ble Supreme Court in Malayalam Plantation (supra) held that the expression wholly and exclusively laid out or expended for the purpose of business need not necessarily be construed for the purposes of 9

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earning profits. For the purpose of business is wider than the scope of expression for the purposes of earning profits. Its range is so wide, it may take in not only the day to day running of a business and for protection of its assets and property from expropriation coercive process or assertion of hostile title. 34. Further, in Meenakshi Mills Ltd. (supra) the Hon’ble Supreme Court held that the expression for the purposes of business is wider than the purpose of earning income. The former would include within its scope expenditure incurred on the grounds of commercial expediency. 35. In Dalmia Jain Co. Ltd. (supra), the Hon’ble Supreme Court held that where litigation expenses are incurred by an assessee for the purposes of creating, curing or completing the assessee's title to capital, then the expenditure incurred must be considered as capital but if litigation expenses are incurred to protect the business of the assessee they must be considered as revenue expenditure. 36. The Hon’ble Delhi High Court in South Asia Industries Pvt. Ltd. (supra) held that expenditure incurred to protect business and reputation of the company is a amounts spent for safeguarding and saving the assets of the assessee's business and keeping it on a sound footing expenditure incurred for this purpose is allowable expenditure. 37. Further, Hon’ble Delhi High Court in Gopaldass Estates & Housing Pvt. Ltd. (supra) held that compensation paid by the assessee developer to allotees of commercial spaces for surrender of their rights, therein could not be set to be disallowed on the grounds of such payments having being made for extraneous considerations. Assessee has a plausible explanation for making such payments of compensation to protect its business interest. While it is true that there was no contractual obligation to make payment, it is plain that the assessee was also looking to build its own reputation in the real estate market. The court further held that the recipients treated the said payments as capital gains in their hands in their returns would not be relevant in deciding the issue whether the payment by the assessee should be treated as business expenditure. The Hon’ble Delhi High Court relied on the decision of Shahazada Nand & Sons (supra), Nainital Bank Ltd. (62 ITR 638), Sharada Binding Works (102 ITR 187). 38. In CIT Vs. Nainital Bank Ltd. (supra) the Hon'ble Supreme Court held that "a large quantity of jewellery pledged with assessee bank by its constituents were stolen by dacoits from premises of bank. Bank paid the market value of the 10

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jewellery pledged by the constituents and claimed the same as expenditure which is allowed" 39. The Hon’ble Supreme Court in CIT V/s. Panbari Tea Co. Ltd. (supra) held that "It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the court, having regarding to the other circumstances, to ascertain the intention of the parties." 40. In Sumati Dayal V/s. CIT, (supra), the Hon’ble Apex Court held that that apparent must be considered real until it is shown that there are reasons to believe that apparent is not real and that taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying real test of human probabilities. 41. The Hon'ble Bombay High Court in the case of CIT V/s. Chemosyn Ltd. (371 ITR 427), held that "Due difference between groups, assessee company was directed to buy 34 per cent of shareholding of one of warring group, as said expenditure was incurred only to enable smooth running of business, it was a deductible expenditure". 42. Keeping in view the above referred case law vis a vis the facts and surrounding circumstances of the present case. We are of the view that assessee incurred/paid expenses of Rs. 50.84 Crore for removing encumbrances, settlement of pending issues in various legal Forums, acquisition of clear development right pertaining to clock underneath the project Fantasia. Therefore, the disallowance made by Assessing Officer and reducing the same from work-in-progress was not justified. Thus, he we set-aside the order of lower authorities and direct the Assessing Officer to treat the expenses as Revenue Expenditure. In the result, the grounds of appeal raised by assessee are allowed. 43. In the result, appeal of assessee is allowed.” 9. Considering the above factual discussion that out of total compensation of

Rs. 110 Crore, the assessee has paid Rs. 50. 84 Crore in AY 2012-13 and

remaining of Rs. 59.15 Crore was paid in relevant period of AY 2013-14.

We have noted that the Tribunal has already allowed relief to the assessee in

appeal for AY 2012-13, thus, respectfully following the decision of co- 11

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ordinate bench of Tribunal, the ground no. 1 & 2 of the appeal are allowed in favour of assessee with similar directions. 10. Ground No.3 relates to disallowance of expenses of Rs 3.07 Crore. The ld. AR of the assessee during the course of submission, made his submission that he is not pressing this ground of appeal. Therefore, this ground of

appeal is dismissed as not pressed. 11. In the result, appeal of the assessee is partly allowed.

ITA No. 4021/Mum/2019 by revenue 12. At the outset of hearing, the ld. AR of the assessee submits that grounds of

appeal raised by revenue are covered in assessee’s group in case for A.Y. 2009-10 & 2011-12 in ITA No. 3172/Mum/2016 dated 31.08.2018, copy of

which is placed on record. The ld. AR of the assessee further submits that

similar issue was decided in assessee’s other group case for A.Y. 2012-13 in ITA No. 7155/Mum/2016 dated 10/10/2018. 13. On the other hand, the ld. DR for the revenue supported the order of Assessing Officer. 14. We have considered the rival submissions of the parties and have gone

through the order of the lower authorities. We have also gone through the

order of the Tribunal in assessee’s group case in ACIT vs. M/s Haware

Constructions Pvt. Ltd. for AY 2009-10 & 2011-12 in ITA No.3321/Mum/2016 dated 31.08.2018. We have also perused the order of

Tribunal in assessee’s group case in M/s Haware Engineers Pvt Ltd. vs. 12

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DCIT in ITA No. 7155/Mum/2016 dated 10.10.2018 for AY 2012-13

wherein the order of M/s Harware Constructions Pvt. Ltd. (supra) in ITA

No. 3321/Mum/2016 dated 31.08.2018 was followed. We have noted the

coordinate bench of Tribunal is assessee’s group case in M/s Haware

Constructions Pvt. Ltd. for in appeal for AY 2009-10 has passed the

following order:

“4. The 2nd ground of appeal raised by the revenue is that the ld. CIT(A) erred in holding the unsold flats as stock-in-trade used for purpose of business relying on the decision of the Hon'ble Supreme Court in the case of M/s. Chennai Properties and Investment Ltd. vs.CIT ,231 Taxman 336. It is stated that the above decision pertains to assessee is engaged in the business of letting out properties.

4.1. As stated earlier, the assessee is a builder and developer and at the end of the year it had inventory of stock-in-trade which are not sold and lying vacant of Rs.12,10,05,508/-. The AO relied upon the judgment of the Hon'ble Delhi High Court in CIT vs. Ansal Hsg. Finance & Leasing Co. Ltd., (ITA No.18/1999 dtd. 31/10/2012) and computed deemed income from house property by estimating @8.5% of cost of construction and after allowing the deductions of 30%, computed the income.

4.2. Aggrieved by the order of the AO, the assessee filed appeal before the ld. CIT(A). We find that the Ld. CIT(A), relying on the decision in Shyam Burlap Co. Ltd. vs. CIT, 61 taxmann.com 121 (Calcutta High Court), M/s. Chennai Properties and Investment Ltd. (supra) and the order of the Tribunal in C.R. Development Pvt. Ltd. (ITA No.4277/Mum/2012 dtd. 13/05/2016), deleted the addition as per para 2.4.60 of his appellate order dtd.01/02/2016.

4.3. The ld. DR relies on the decision in Ansal Hsg. Finance & Leasing Co. Ltd., (supra), and submits that the order passed by the AO may be restored.

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4.4. On the other hand, the ld. counsel of the assessee relies on the judgement of the Hon'ble Gujarat High Court in CIT vs. Neha Builders Pvt. Ltd. 296 ITR 661 (Guj.) and the order of the Tribunal in M/s. Runwal Constructions vs. ACIT (ITA No.5408/Mum/2016 dtd.22/02/2018) and Progressive Homes vs. ACIT (ITA No.5082/Mum/2016 dtd. 16/05/2018).

4.5. We have heard the rival submissions and perused the relevant materials on record. On the above issue, we come across one decision for the assessee and another decision for the revenue. The decision in Neha Builders Pvt. Ltd.(supra) is for the assessee, whereas the decision in Ansal Hsg. Finance & Leasing Co. Ltd., (supra) is for the Revenue. The Hon'ble Supreme Court in the case of CIT vs. Vegetable Products 88 ITR 192 (SC) has held that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the tax payer must be adopted."

In view of the above position of law, we shall follow the decision in Neha Builders Pvt. Ltd.(supra).

4.5.1. We now come to the relevant provisions in the Act. The following sub- section (5) has been inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 01.04.2018:

"(5) Where the property consisting any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to nil."

Thus, in order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his stock-in- trade which is not let out for the whole or part of the year, the annual value of such property will be considered as Nil for a period up to one year from the end of the

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financial year in which a completion certificate is obtained from the competent authority.

In view of the above amendment to section 23, we are not adverting to the other case laws relied on by the Ld. counsel.

In the instant case, the assessee is a builder and developer. The issue of taxability is with regard to unsold flats. The AY is 2009-10. In view of the insertion of sub-section (5) in section 23 by the Finance Act, 2017, w.e.f. 01.04.2018 narrated hereinbefore, we uphold the order of the Ld. CIT(A) and dismiss the 2nd ground of appeal filed by the revenue.

ACIT in ITA No. 281 & 291/Mum/2018 for AY 2013-14 & 2014-15 the

Tribunal vide order dated 08.05.2019 on similar grounds of appeal passed

the following order;

“7. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record and judicial pronouncements relied upon by them. Admittedly, the assessee who is a developer of real estate had developed a property viz. project at Plot No. 16- 30-A, Vashi, under the name and style of Vashi Infotech Park. As is discernible from the orders of the lower authorities, the assessee was holding ‘closing stock’ of finished unsold units in Vashi Infotech Park of Rs.87,46,129/-. In sum and substance, there is no dispute on the fact that the finished unsold units in Vashi Infotech Park were held by the assessee as the ‘closing stock’ of its business as that of a developer of real estate. 8. We find that our indulgence in the present appeal has been sought by the assessee for adjudicating, as to whether the CIT(A) is right in law and the facts of the case in concurring with the A.O that the ‘Annual Lettable Value’ of the vacant unsold units held by the assessee as stock-in-trade of its business of a real estate developer, were liable to be brought to tax under the head “Income from house property”, or not. Admittedly, the assessee on 31.03.2013 was holding stock-in-trade of vacant unsold completed flats/shops of Rs.87,46,129/-. 15

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The A.O drawing support from the judgment of the Hon’ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del), had concluded that the ‘ALV’ of the aforesaid vacant properties held by the assessee as stock-in-trade of its business of real estate developer, was liable to be assessed under the head “Income from house property”. As the assessee failed to furnish the details as regards the ‘Annual Rateable Value’ of the aforementioned properties, therefore, the A.O estimated the ‘ALV’ of the said properties @ 8.5% of the aggregate cost of their construction and worked out the same at Rs.7,43,420/- (i.e 8.5% of 87,46,129/-). Further, after allowing the statutory deduction under Sec. 24(b) @ 30% of the ALV of Rs. 7,43,420/-, the A.O brought the balance amount of Rs.5,20,394/- to tax under the head “Income from house property”. 9. We have deliberated at length on the issue under consideration, in the backdrop of the observations of the lower authorities. We find that the Hon’ble High Court of Gujarat in the case of CIT Vs. Neha Builders (P) ltd. (2008) 296 ITR 661 (Guj), had observed that if the business of the assessee is to construct property and sell it or to construct and let out the same, then any income derived from the immovable properties held by it as its stock-in-trade cannot be assessed under the head “Income from house property”. The Hon’ble High Court while concluding as herein above, had 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 '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 p 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.” 10. Further, we find that the Hon’ble High Court of Bombay in the case of PCIT, Central-1 Vs. M/s Classique Associate Ltd. (ITA No.1216 of 2016, dated 28.01.2019) concurring with the view taken by the Hon’ble High Court of 16

ITA No. 2543 & 4021 Mum 2019-Haware Infrastructure Pvt. Ltd.

Gujarat in the case of CIT Vs. Neha Builders Pvt. ltd. (2008) 296 ITR 661 (Guj), and further relying on the judgment of the Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd. Vs. CIT (2015) 377 ITR 673 (SC), had observed, that the income generated by an assessee who was engaged in the business of acquiring and holding properties from such source would be its ‘business income’ and not its income under the head ‘house property’. Also, we find that the Tribunal while disposing off the appeal in the case of the ‘sister concern’ of the assessee in Haware Engineers and Builders Pvt. Ltd. Vs. DCIT, Central Circle-4(2), Mumbai [ITA No. 7155/Mum/2016, dated 10.10.2018], had concluded that if an immovable property in the shape of flats/shops is held by the assessee as stock-in-trade of its business, then it becomes part of its trading operations, and any income derived there from would be its ‘business income’ and not ‘Income from house property’. On the basis of the aforesaid deliberations, the Tribunal while disposing off the aforesaid appeal had vacated the addition of the ‘ALV’ that was made by the lower authorities in respect of the flats/shops which were held by the assessee before them as stock-in-trade of its business of a real estate developer. In fact, the Tribunal while concluding as hereinabove, had primarily relied on the view earlier taken by it in the case of another ‘sister concern’ of the assessee viz. ACIT Vs. Haware Construction Pvt. ltd. [ITA No.3321/Mum/2018 & 3172/Mum/2016, dated 31.08.2018]. Apart there from, the Tribunal had also drawn support from the orders of the coordinate benches of the tribunal viz. (i) M/s Runwal Construction Vs. ACIT [ITA No. 5408/Mum/2016, dated 22.02.2018]; and (ii). Progressive Homes Vs. ACIT [ITA No.5082 /Mum/2016, dated 16.05.2018]. In the backdrop of the aforesaid facts, we are of the considered view that the issue involved in the present appeal is squarely covered in favour of the assessee. It may also be relevant and pertinent to point out that the Tribunal while disposing off the appeal in the case of the ‘sister concern’ of the assessee viz. ACIT Vs. Haware Construction Pvt. Ltd. [ITA No.3321/Mum/2018 & 3172/Mum/2016, dated 31.08.2018] had duly considered the judgment of the Hon’ble High Court of Delhi in CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Del). 11. We thus in the backdrop of our aforesaid deliberations, respectfully following the aforesaid settled position of law, vacate the addition of 17

ITA No. 2543 & 4021 Mum 2019-Haware Infrastructure Pvt. Ltd.

Rs.5,20,394/- (i.e net ‘ALV’) made by the A.O towards deemed income from ‘house property’, which thereafter was sustained by the CIT(A). The order of the CIT(A) is set aside in terms of our aforesaid observations. 12. The appeal of the assessee is allowed.” 16. Further, we have noted that the ld. CIT(A) while granting relief to the

assessee followed the decision of assessee’s group case in Haware

Construction Pvt. Ltd. for A.Y. 2010-11 in appeal no. CIT(A)-24/ACIT-

15(2)(1)/IT-435/2015-16 allowed relief to the assessee, which have been

confirmed by the co-ordinate bench of Tribunal as referred above.

Therefore, considering the above factual and legal discussion, we do not

find any infirmity in the order passed by ld. CIT(A), which we affirms.

Order pronounced in the open court on this 30/08/2019. Sd/- Sd/- (R.C. SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 30.08.2019 SK Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT BY ORDER Assistant Registrar ITAT Mumbai