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Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeals filed by the assessee are directed against the respective orders passed by the CIT(A)-52, Mumbai, dated 31.10.2017 for A.Y. 2013-14 and A.Y. 2014-15, which in turns arises from the respective assessment orders passed under Sec.143(3) of the Income Tax Act, 1961 (for short „I-T Act‟). As common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first advert to the appeal of the assessee for A.Y. 2013-14. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:
P a g e | 2 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2) “1. On facts and in the circumstances of the case and in law, the Commissioner of Income Tax (Appeals) has grossly erred in law as well as on facts in confirming the action of the Assessing Officer (AO) in charging notional income as income from house properties in respect of unsold units (both residential/commercial), which were held by the appellant as its stock in trade.
2. Without prejudice to the ground taken above, the CIT(A) has grossly erred in upholding the ALV of the unsold units (both residential/commercial) held by the appellant as stock in trade at Rs.7,43,420/-, the estimation so made is highly exorbitant.
The appellant reserves its right to add to, alter, amend, modify or delete any of the grounds taken in this appeal.”
Briefly stated, the assessee company which is engaged in the business of developer of real estates had filed its return of income for A.Y. 2012-13 on 30.11.2013, declaring income of Rs.18,38,950/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I.T Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
3. During the course of the assessment proceedings, it was observed by the A.O that the assessee had developed a property i.e a Plot No. 16, 30-A, Vashi, under the name and style of Vashi Infotech Park. It was observed by the A.O that the „Closing stock‟ in respect of the completed units not sold during the year under consideration amounted to Rs. 87,46,11,119/-. Insofar the project at 39/3/30-A viz. Haware Infotech ParK was concerned, the same was under construction and was yet not completed during the year. The A.O being of the view that the „Annual lettable value‟ (for short „ALV‟) of the aforesaid „closing stock‟ of finished unsold completed units of the project viz. Vashi Infotech Park was liable to be brought to tax under the head “Income from house property”, thus called upon the assessee to put forth its explanation as regards the same. The A.O while concluding as hereinabove took support of the judgment of the Hon’ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance & Leasing Company Ld. (2013) 354 ITR 180 (Del) and the P a g e | 3 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2) orders of the ITAT, Mumbai, in the case of Omprakash & Company (2004) 87 TTJ 183 (Mum) & Chemmeck Pvt. Ltd. (2002) 83 ITD 427(Mum). In the backdrop of his aforesaid deliberations, the A.O called upon the assessee to furnish the details along with working of the “ALV” of the aforesaid units. In reply, the assessee submitted that as the aforesaid units were held by it as a developer, therefore, the „ALV‟ of the same could not be brought to tax under the head “income from house property”. However, the aforesaid contention of the assessee did not find favour with the A.O. In fact, the A.O was of the view that as the assessee was the „Owner‟ of the aforesaid completed units and was occupying the said properties with the full right to sell the same, therefore, the „ALV‟ of the same was liable to be brought to tax under the head „income from house property‟. As the assessee failed to provide the details as regards the „ALV‟ of the aforesaid shops and units, therefore, the A.O estimated the same @ 8.5% of the cost of construction of the said property. On the basis of his aforesaid observations, the A.O worked out the total deemed „income from house property‟ at Rs.7,43,420/-(i.e @ 8.5% of Rs.87,46,129/-). Accordingly, after allowing deduction under Sec. 24(b) i.e @ 30% of the „ALV‟ of Rs.7,43,420/-, the A.O made a net addition of Rs. 5,20,394/- [Rs.743,420/- (-) 30% of Rs.7,43,420/-].
Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) observing that the issue involved was squarely covered by the judgment of the Hon‟ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Del), thus after necessary deliberations upheld the view taken by the A.O and sustained the addition of Rs.5,20,394/- made by him.
P a g e | 4 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2) 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee, at the very outset of the hearing of the appeal submitted that the issue involved in the present case was squarely covered by the judgment of the Hon’ble High Court of Bombay in the case of Pr. CIT, Central-1 Vs. M/s Classique Associates Ltd. (ITA No.1216 of 2016, dated 28.01.2019) (Bom). It was submitted by the ld. A.R that the Hon‟ble High Court in its aforementioned judgment had after referring to the judgment of the Hon‟ble High Court of Gujarat in the case of CIT Vs. Neha Builder (P) Ltd. (2008) 296 ITR 661 (Guj) had concurred with the view therein taken, and had observed that the income generated by an assessee who was engaged in the business of acquiring and holding properties would be its „business income‟ and not income under the head “house property”. Apart there from, the ld. A.R relied on the judgment of Hon‟ble High Court of Gujarat in the case of CIT Vs. Neha Builder (P) Ltd. (2008) 296 ITR 661 (Guj). Further, it was submitted by the ld. AR that a similar issue had been adjudicated in the case of its „sister concerns‟ viz.(i) Haware Engineers & Builders Pvt. ltd. Vs. ACIT, Central Circle-4(2), Mumbai, (ITA No.282 &283/Mum/2018; and (ii) ACIT Vs. Haware Construction Pvt. ltd. (ITA No. 3321/Mum/2016 & 3172/Mum/2016, dated 31.08.2018). It was thus submitted by the ld. A.R that the lower authorities had gravely erred in concluding that the „ALV‟ of the properties held by the assessee as „closing stock‟ of its business of developer of real estate was to be brought to tax under the head “income from house property”.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities.
P a g e | 5 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2) 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.
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/-. 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 P a g e | 6 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2) 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”.
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.”
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 P a g e | 7 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2) by the Hon‟ble High Court of 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 P a g e | 8 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2) 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).
We thus in the backdrop of our aforesaid deliberations, respectfully following the aforesaid settled position of law, vacate the addition of 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.
The appeal of the assessee is allowed. ITA No. 291/Mum/2018 A.Y. 2014-15 13. We shall now advert to the appeal of the assessee for A.Y. 2014- 15. Briefly stated, the assessee company had e-filed its return of income for A.Y. 2014-15 on 14.11.2014, declaring total income of Rs.21,12,227/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I.T Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
During the course of the assessment proceedings the A.O observed that the assessee was holding „closing stock‟ of finished unsold units in the project, viz. (i) Vashi Infotech Park; and (ii) Haware Infotech Park of a value (cost of construction) of Rs.54,29,432/- and Rs.43,72,09,039/-, respectively. The A.O relying on the judgment of P a g e | 9 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2) Hon‟ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Del) and the decisions of the ITAT, Mumbai in the case of Omprakash & Co. (2004) 87 TTJ 183 (Mum) & Chemmech Pvt. ltd. (2002) 83 ITD 42(Mum), was of the view that the „ALV‟ of the finished unsold units held by the assessee in the aforesaid projects i.e Vashi Infotech Park & Haware Infotech Park were liable to be brought to tax under the head “Income from house property”. On the basis of his aforesaid observations, the „ALV‟ of the properties i.e @ 8.5% of their respective cost of construction was brought to tax by the A.O under the head „Income from house property‟. Accordingly, the total deemed income of the assessee from “house property” was worked out at Rs.3,76,24,270/-. Further, after allowing deduction under Sec. 24(b) i.e@ 30% of the „ALV‟ of Rs.3,76,24,270/-, the net addition of Rs.2,63,36,989/- was made to the total income of the assessee.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee upheld the aforesaid addition.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that as the facts and the issue involved in the present appeal remains the same as were there before us in the appeal of the assessee for the immediately preceding year i.e A.Y. 2013-14 in , therefore, our order passed while disposing off the aforesaid appeal shall apply mutatis mutandis for the purpose of disposing off the present appeal i.e A.Y. 2014-15 in ITA No. 291/Mum/2018. 17. Accordingly, the appeal filed by the assessee is allowed in terms of our aforesaid observations.
P a g e | 10 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2) 18. The appeals filed by the assessee for A.Y. 2013-14 in A.Y. 2014-15 in ITA No. 291/Mum/2018 are allowed in terms of our aforesaid observations. Order pronounced in the open court on 08.05.2019 Sd/- Sd/- (Shamim Yahya) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER भ ुंफई Mumbai; ददन ुंक 08.05.2019 Ps. Rohit आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to : अऩीर थी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आम क्त(अऩीर) / The CIT(A)- 3. आमकय आम क्त / CIT 4. विब गीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भ ुंफई / 5. DR, ITAT, Mumbai ग र्ड प ईर / Guard file. 6. सत्म वऩत प्रतत //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीऱीय अधिकरण, भ ुंफई / ITAT, Mumbai.
P a g e | 11 & 291/Mum/2018 A.Ys. 2013-14 & 2014-15 Haware Infotech Ltd. Vs. ACIT, CC-4(2)