VRINDA SHARAD BAL,MUMBAI vs. PR. CIT- 21 , MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F” MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA No. 2846/MUM/2019 Assessment Year: 2014-15 Smt. VrindaSharad Bal, A-7, Pr. Commissioner of Income Tax- Kamdar Building, Gokhale 21, Mumbai, Room No. 364, 3rd Vs. Road, Dadar, Mumbai- floor, AayakarBhavan, M.K. Road, 400028. Mumbai-400020. PAN No. AEZPB8307E Appellant Respondent

Assessee by : Mr. Mihir Naniwadekar, AR Revenue by : Mr. D.G. Pansari, DR Date of Hearing : 14/08/2019 Date of pronouncement : 28/08/2019

ORDER PER N.K. PRADHAN, AM This is an appeal filed by the assessee. The relevant assessment year is 2014-15. The appeal is directed against the order u/s 263 of the Income Tax Act 1961, (the ‘Act’) passed by the Pr. Commissioner of Income Tax-21 Mumbai [in short ‘Pr. CIT’]. 2. The grounds of appeal filed by the assessee read as under :

Smt. Vrinda Sharad Bal 2 ITA No. 2846/Mum/2019 the provisions of Section 263 of the Act. Hence the order dated 28.02.2019 may kindly be set aside. 2. On the facts &. circumstances of the case and in law, the Pr. CIT has erred in concluding that the order passed by the Assessing Officer under section 143(3) of the Act dated 30.12.2016 is erroneous and prejudicial to the interest of the revenue. The appellant prays that the conclusion reached by the Pr. CIT is erroneous and contrary to the facts of the case. Hence the order dated 28.02.2019 may kindly he set aside. 3. The Pr. CIT erred in concluding that in respect of the unsold flats the Assessing Officer should have considered the calculation of income from house property. The amendment in the law is effective from 1/4/2018 and is not applicable to A.Y. 2014-15 and in view of this it cannot be construed that order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. The appellant prays that order passed by the Pr. CIT under section 263 with reference to computation of income from house property is illegal and bad in law as well as not justified and hence should be annulled. 4. On the facts &circumstances of the case and in law, the Pr. CIT has erred in concluding that the assessment is erroneous as well as prejudicial to the interest of the revenue, is not justified on the facts of the case. Hence the same should be annulled/ set aside. 5. On the fads & circumstances of the case and in law, the Pr. CIT has erred in holding that the Appellant ought to have disclosed the income from House Property in respect of two unsold flats valued at Rs.2,06,78,345/-.

Smt. Vrinda Sharad Bal 3 ITA No. 2846/Mum/2019 Rs.67,96,240/-. The assessee is engaged in development and re- development of house property in the name and style of M/s Shree Bal Developers and M/s Shree Bal Land Developers. The Pr. CIT, on perusal of the balance sheet of Shree Bal Land Developers observed that the assessee had two unsold flats at Kapil Tranquil amounting to Rs.2,06,78,345/-. Further, the Pr. CIT observed that as per the decision of the Hon’ble Delhi High Court in the case of CIT v. M/s Ansal Housing Finance & Leasing Co. Ltd., the unsold inventory shall be liable to be assessed as income from house property. Therefore, he held that the assessment order dated 30.12.2016 passed by the AO is erroneous and prejudicial to the interest of revenue within the meaning of Explanation 2 to section 263(1) of the Act. Consequently, he cancelled the said assessment order and directed the AO to reassess the income of the assessee. 4. Before us, the Ld. counsel for the assessee files a copy of the decision in the case of Pr. CIT v. M/s Classique Associates Ltd. (ITA No. 1216 of 2016) of Bombay High Court and the order of the Tribunal in the case of S.D. Corporation (P.) Ltd. v. Pr. CIT (2019) 102 taxmann.com 226 (Mumbai-Trib). Relying on the above decisions the Ld. counsel submits that the order dated 28.02.2019 passed by the Pr. CIT be set aside. 5. On the other hand, the Ld. Departmental Representative (DR) relies on the decision in M/s Ansal Housing Finance & Leasing Co. (supra) and submits that the order passed by the Pr. CIT be confirmed.

Smt. Vrinda Sharad Bal 4 ITA No. 2846/Mum/2019 6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The Pr. CIT has relied on the decision in M/s Ansal Housing Finance & Leasing Co. Ltd. (supra) for the proposition that “unsold inventory” shall be liable to be assessed as income from house property. On the other hand, the Hon’ble Gujarat High Court in CIT v. Neha Builders (P.) Ltd. (2008) 296 ITR 66 (Guj) has held that a property used as stock- in-trade would become or partake the character of stock and any income derived from such stock would be “income from business” and not from “income from house property”. In the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC), the Hon’ble Supreme Court has held that “where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue”. A perusal of the above two decisions clearly indicates that two views are possible on the above issue and the AO has taken one view, which may not be treated as an order prejudicial to the interest of revenue. 6.1 In the case of M/s Classique Associates Ltd. (supra), the Hon’ble Bombay High Court, after discussing the decision in Neha Builders (P.) Ltd. (supra) and Chennai Properties & Investment Ltd. v. CIT (2015) 377 ITR 673 (SC) observed as under :

Smt. Vrinda Sharad Bal 5 ITA No. 2846/Mum/2019 “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 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 stock cannot be termed as ‘income from property’.” 6.2 We may deal here with the relevant provisions of 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 financial year in which a completion certificate is obtained from the competent authority.

Smt. Vrinda Sharad Bal 6 ITA No. 2846/Mum/2019 In the instant case, the assessee is a builder and developer. The issue here is taxability with regard to unsold flats. We are concerned here with AY 2013-14. In view of the insertion of sub-section (5) in section 23 by the Finance Act, 2017 w.e.f. 01.04.2018, the finding arrived at by the Pr. CIT on the assessment of unsold inventory to be assessed as ‘income from house property’ is not applicable to the impugned assessment year i.e. AY 2014-15. 6.3 In view of the above reasons, we set aside the order of the Pr. CIT on the issues raised in the grounds of appeal filed by the assessee. 7. In the result, the appeal is allowed. Order pronounced in the open Court on 28/08/2019. Sd/- Sd/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 28/08/2019 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai