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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This two appeal by assessee are directed against the separate orders of ld. Commissioner of Income Tax (Appeals)-51 [the ld. CIT(A)], Mumbai dated 21.09.2017 for Assessment Year 2013-14 & 2014-15.
The assessee has raised certain common grounds of appeal
. Therefore, both the appeals were clubbed, heard and are decided by common order. For appreciation of fact, the appeal for Assessment Year 2013- 14 was treated as lead case. The assessee has raised following grounds of appeal:
1. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) erred in confirming the addition of 1 & 7029 Mum 2017-M/s Vijay Grihnirman Pvt. Ltd Rs. 1,38,916/ - made by the Ld. AO on account of Annual Letting Value of unsold flats held as stock in trade.
2. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of Ld. A.O. in disallowing' a sum of Rs. 4,21,039/- on adhoc basis being 10% of the expenses claimed in Profit and Loss Account on account of communication expenses, travelling and conveyance expenses, power and fuel expenses and conveyance expenses as per the grounds stated in the order or otherwise.
The Appellant craves leaves to add, to amend, alter, modify and / or withdraw any or all of the above grounds of appeal
, each of which are without prejudice to one another.
2. Brief facts of the case are that the assessee is a company engaged in the business of construction, builder and developers, filed its return of income for Assessment Year 2013-14 on 30.09.2013 declaring total income at Rs. 2.95 crore. The scrutiny assessment was completed under section 143(3) on 28.03.2016. The Assessing Officer during the assessment proceeding noted that assessee has shown closing stock of finished goods i.e. flats lying unsold of Rs. 4.82 crore. The assessee was issued show-cause notice as to why the Annual Letting Value (ALV) of such unsold flat be not considered as “Income from House Property” in the hands of assessee. The assessee filed its reply stating therein that assessee is in the business of construction of building and not in the business of letting out of the property. The unsold flats are stock-in-trade being a part of inventory and no investment or fixed & 7029 Mum 2017-M/s Vijay Grihnirman Pvt. Ltd assets. The assessee has not let out these properties. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer while relying on the decision of Hon’ble Delhi High Court in CIT vs. Ansal Housing Finance & Leasing Co. Ltd. (2013) 354 ITR 180 (Del) determined the ALV of unsold flat at the hand of assessee under section 23 of the Act. The ALV of such unsold flat was worked out by assessing officer at Rs. 1,38,916/- and after giving statutory deduction of 30%, the Assessing Officer added Rs. 97,242/- under the head ‘income from house property’. The Assessing Officer also noted that the assessee has shown Travelling Expenses, Power & Fuel Expenses and Conveyance Expenses and that majority of expenses were incurred through self-made vouchers and that no business element of expenses involved in those expenditure. The Assessing Officer disallowed 10% of the expenses.
3. On appeal before the ld. CIT(A), both the action of Assessing Officer was upheld. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
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. Ground No.1 relates to addition on account of deemed ALV of unsold flat. The ld. ITA No. 7028 & 7029 Mum 2017-M/s Vijay Grihnirman Pvt. Ltd AR of the assessee submits that the Assessing Officer relied upon the decision of Hon’ble Delhi High Court in Ansal Housing Finance & Leasing Co. Ltd. (supra), however, there is contrary decision of Hon’ble Gujarat High Court in case of CIT vs. Neha Builders Pvt. Ltd. (2008) 296 ITR 661 (Guj.) it was held that where the property was held as stock-in-trade of the assessee, than the said property would partake character of stock and any income derived from stock would be Income from Business and not from House Property. The ld. AR of the assessee further submits that this tribunal in a number of decisions followed the decision of Hon’ble Gujarat High Court. The ld. AR further submits that if there are two divergent view taken by two different non-jurisdictional High Court, then the decision favourable to assessee should have to be adopted as per the decision of Hon’ble Supreme Court in CIT vs. Vegetable Products (88 ITR 192 (SC). The ld. AR further made the reliance on the following decision:
1. 1. ITO vs. Arihant Estates Pvt. Ltd. in ITA No. 6037/Mum/2016. 2. Runwal Constructions vs. ACIT in & 5409/Mum/2016. 3. C.R. Development Pvt. Ltd. vs. JCIT in ITA No. 4277/Mum/2012. 4. Chamber Construction Pvt. Ltd. vs. DCIT in ITA No. 4418/Mum/2017.
5. ACIT vs. Haware Construction Pvt. Ltd. in ITA No. 3321 & 3172/Mum/2016. & 7029 Mum 2017-M/s Vijay Grihnirman Pvt. Ltd
Progressive Homes vs. ACIT in ITA No. 5082/Mum/2016.
Saranga Estates Pvt. Ltd. vs. DCIT in ITA No. 4420/Mum/2017. 5. On the other hand, the ld. Departmental Representative (DR) for the revenue strongly relied upon the decision of Hon’ble Delhi High Court in Ansal Housing Finance & Leasing Co. Ltd. (supra) and the finding of lower authorities. 6. We have considered the submission of both the parties and have perused the material available on record. We have also deliberated on various case laws relied by lower authorities and the ld. representative of the parties. We are conscious of the fact that amendment brought in section 23 by inserting new sub-section (5) is applicable w.e.f.
01.04.2018. The amendment in section 23(5) is effective from Assessment Year 2018-19 onward and cannot apply retrospectively.
The Assessing Officer made the addition by making reliance on the decision of Hon’ble Delhi High Court in CIT vs. Ansal Housing Finance & Leasing Co. Ltd. (supra). The ld. CIT(A) confirmed the action of Assessing Officer holding that the assessee has not objected about the working of ALV of the assessee. The ld. CIT(A) also relied upon the decision of Karanpura Development Co. Ltd. vs. CIT [1962] 44 ITR 362 (SC). Admittedly, the assessee has treated the unsold flat as stock-in-trade.There is no dispute that assessee not let out the unsold flat to any person, rather the unsold flat are in possession of assessee as 5 & 7029 Mum 2017-M/s Vijay Grihnirman Pvt. Ltd stock-in-trade for the purpose of its business. The ld. AR of the assessee vehemently submitted that the decision of Hon’ble Gujarat High Court in case of Neha Builders Pvt. Ltd. (supra) is in favour of assessee. It is settled law that when there are contrary view taken by two different non-jurisdictional High Courts on similar issue, then the decision favorable to the assessee should be followed as held by Hon’ble Supreme Court in CIT vs. CIT vs. Vegetable Products (supra).
7. We have further noted that the co-ordinate bench of Tribunal in Saranga Estates Pvt. Ltd. (supra) while considering the similar ground of appeal
deleted the addition made on account of ALV in respect of unsold flat. The similar view was taken in Runwal Constructions vs. ACIT, ACIT vs. Haware Construction Pvt. Ltd. & Chamber Construction Pvt. Ltd. (supra). Therefore, respectfully following the decision of co-ordinate benches of Tribunal, we direct the Assessing Officer to delete the addition made on account of ALV of unsold/stock-in-trade flat of the assessee.
8. In the result, ground no.1 of the appeal is allowed.
9. Ground no.2 relates to adhoc disallowance of various expenses claimed in Profit & Loss Account. The ld. AR of the assessee submits that assessee is a corporate entity and incurred various expenses. The Assessing Officer made disallowance of 10% of expenses without ITA No. 7028 & 7029 Mum 2017-M/s Vijay Grihnirman Pvt. Ltd valid reasons. The Assessing Officer took the view that the expenses were incurred through self-made vouchers. The Assessing Officer has not identified the deficiencies of the vouchers. The ld. CIT(A) also confirmed the action of Assessing Officer despite the fact that assessee brought to the notice of CIT(A) that no such disallowance was made by Assessing Officer in subsequent years.
10. We have considered the submission of both the parties and gone through the orders of authorities below. We have noted that the assessee has debited Communication Expenses of Rs. 9,57,828/-, Travelling and Conveyance Expenses of Rs. 12,52,140/-, Power & Fuel Expenses of Rs. 9,86,881/- and Conveyance Expenses of Rs. 5,78,908/-. The Assessing Officer disallowed 10% of aggregate of the expenses. The Assessing Officer disallowed the expenses by taking view that expenses were incurred through self-made vouchers. We have noted that no specific reason was given by Assessing Officer to disallow 10% of the expenses. Before the ld. CIT(A), the assessee besides other contention, contended that the Assessing Officer has not made any addition in subsequent year. The ld. CIT(A) rejected the contention of assessee holding that the assessee can relied upon the assessment order of preceding and not the subsequent years. & 7029 Mum 2017-M/s Vijay Grihnirman Pvt. Ltd
11. In our view, without specifying any specific reason, the disallowance on adhoc basis is not sustainable. Therefore, keeping in view that the assessee is a corporate entity and without specifying the specific reason for adhoc disallowance, the disallowance is not sustainable in the eyes of law. Hence, we direct the Assessing Officer to delete the adhoc disallowance of 10% on account of various expenses.
In the result, appeal of the assessee is allowed. for A.Y. 2014-15.
Ground no.1 of appeal is identical to the ground no.1 in appeal for Assessment Year 2013-14 except variation of figures. Considering our decision on identical ground which we have allowed. Therefore, following the principle of consistency, the ground of appeal raised by assessee is allowed.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 17/07/2019.