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Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
Appellant by: Shri Nikhil Bajaj, A.R Respondent by: Shri Manoj Kumar Singh, D.R Date of Hearing: 24.04.2019 Date of Pronouncement: 26.04.2019 O R D E R
PER RAVISH SOOD, JM
The present appeals filed by the assessee are directed against the consolidated order passed by the CIT(A)-52, Mumbai, dated 31.10.2017, which in turn arises from the respective orders passed by the A.O under Sec.143(3) of the Income Tax Act, 1961 (for short „I-T Act‟), for A.Y 2013-14 and A.Y 2014-15, dated 28.03.2016 and 29.12.2016, respectively. As common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off together 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 the following grounds of appeal before us :
P a g e | 2 & 283/Mum/2018 AYs. 2013-14 & 2014-15 Haware Engineers & Builders Pvt. Ltd. Vs. ACIT, CC-4(2) “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 (A.O) 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. 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.3,21,15,588/-, the estimation so made is highly exorbitant.”
Briefly stated, the assessee company which is engaged in the business of a real estate developer had e-filed its return of income for A.Y. 2013-14 on 30.11.2013, declaring total income of Rs.4,41,51,060/-. Subsequently, the return of income was revised by the assessee on 24.01.2014 at an income of Rs.6,36,07,490/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I.T Act. Thereafter, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
During the course of the assessment proceedings it was observed by the A.O that the assessee was holding vacant unsold flats/shops as „stock–in-trade‟ of its business of real estate developer. The aggregate cost of construction of the said unsold flats/shops held by the assessee as stock-in-trade amounted to Rs.37,78,30,452/-. On a specific direction by the A.O the assessee furnished the details of the unsold stock of completed flats/shops lying in the inventory. In the backdrop of the aforesaid facts, the A.O drawing support from the judgment of the Hon‟ble High Court of Delhi in the case of CIT Vs. Ansal Housing Financing & Leasing Company Ltd. (2013) 354 ITR 180 (Del) called upon the assessee to explain as to why the „Annual Lettable Value‟ (for short „ALV‟) of the unsold stock of completed units lying vacant with it may not be brought to tax under the head “Income from house property”. The explanation of the assessee that as the said units were held by it as stock-in-trade of its business of a real estate developer, therefore, the ALV of the same could not be brought to tax P a g e | 3 & 283/Mum/2018 AYs. 2013-14 & 2014-15 Haware Engineers & Builders Pvt. Ltd. Vs. ACIT, CC-4(2) under the head “Income from house property”, however, did not find favour with the A.O. As the assessee failed to provide the Annual Rateable Value of the aforementioned flats/ shops, therefore, the A.O estimated the same @ 8.5% of the cost of construction and worked out the deemed “Income from house property” at Rs.3,21,15,588/- [i.e 8.5% of Rs. 37,78,30,450/-]. Further, the A.O after the allowing the statutory deduction under Sec. 24(b) of Rs. 96,34,676/- (i.e @ 30% of the ALV of Rs.3,21,15,588/-), therein brought the balance amount of Rs.2,24,80,912/- [Rs. 3,21,15,588/- (-) Rs. 96,34,676/-] to tax under the head “Income From House Property”.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) after deliberating on the contentions advanced by the assessee was not persuaded to accept the same. The CIT(A) subscribed to the view taken by the A.O and observed that he had rightly assessed the deemed income i.e the „ALV‟ of the unsold completed units as per the provisions of Sec. 22 and Sec. 23 of the I-T Act. Insofar the quantification of the „ALV‟ of properties under consideration was concerned, it was observed by the CIT(A) that the same was not assailed by the assessee before him. Accordingly, the addition of Rs. 2,24,80,912/- made by the A.O after adopting the annual lettable value at Rs. 3,21,15,588/- in respect of the aforementioned properties was upheld by the CIT(A).
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 order of a coordinate bench of the Tribunal in the assesses own case for the immediately preceding year i.e. A.Y. 2012-13 viz. Haware Engineers & Builders Pvt. ltd. Vs.
P a g e | 4 & 283/Mum/2018 AYs. 2013-14 & 2014-15 Haware Engineers & Builders Pvt. Ltd. Vs. ACIT, CC-4(2) DCIT, Central Circle-4(2), Mumbai [ITA No. 7155/Mum/2016, dated 10.10.2018]. The ld. A.R taking us through the aforesaid order, submitted that the Tribunal while disposing off the said appeal had after necessary deliberations and drawing support from certain judicial pronouncements had concluded that as the unsold completed flats/shops held by the assessee as its stock-in-trade became a part of its trading operations, therefore, as a natural corollary any income derived there from could only be brought to tax as its “business Income” and not as “Income from house property”. Further, the ld. A.R in support of his aforesaid contention also relied on the judgment of the Hon‟ble High Court of Gujarat in the case of CIT Vs. Neha Builders Pvt. Ltd. (2008) 296 ITR 661 (Guj). Apart there from, support was also drawn by him from the orders of coordinate benches of the Tribunal in the following cases: (1). ACIT Vs. Haware Construction Private Ltd. (ITA Nos. 3321/Mum/2016 & 3172/Mum/2016 dated 31.08.2018) (2). Runwal Construction Vs. ACIT (ITA No. 5408/Mum/2016 dated 22.02.2018) (3). Progressive Homes Vs. ACIT (ITA No.5082/Mum/2016 dated 16.05.2018) (4). Chamber Construction Private Limited Vs. Deputy Commissioner of Income Tax CC, 3(3), Mumbai (ITA Nos.6901/Mum/2017 and 6902/Mum/2017) (5). Saranga Estates Private Limited Vs. Deputy Commissioner of Income Tax CC-3(4), Mumbai (ITA No.4420/Mum/2017) It was thus submitted by the ld. A.R that the issue involved in the present appeal was squarely covered in favour of the assessee by the order of the Tribunal in the assesses own case for the immediately preceding year i.e A.Y. 2012-13.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R that the CIT(A) had rightly upheld the view taken by the A.O that „ALV‟ of the unsold completed flats/shops held by the assessee as P a g e | 5 ITA Nos.282 & 283/Mum/2018 AYs. 2013-14 & 2014-15 Haware Engineers & Builders Pvt. Ltd. Vs. ACIT, CC-4(2) its stock-in-trade was liable to be brought to tax under the head “Income from house property” in its hands.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. 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 flats/shops held by it as stock-in-trade of its business of a real estate developer, was 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.37,78,30,452/-. As per the details filed by the assessee, the aforesaid unsold stock of completed units lying vacant with the assessee comprised of various units in viz. Haware City Building., Nisarg Padghe , Airoli Mahalaxmi, 16/30A VIP, 8/8A CBD Belapur, 46/30 Silicon Tower, 29-37 Balaji Tower, 15/22 I-Kamothe, Estate, 92/96 Ghansoli, 12A/8 Shantiniketan Karghar, 17/20 Shrimik, 19/1 Mauli, 53/21 Sankalp and 56/8a Gurukrupa. 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.3,21,15,588/- (i.e 8.5% of 37,78,30,452/-). Further, after allowing the statutory deduction under Sec.24(b) @ 30% of the ALV of Rs.
P a g e | 6 & 283/Mum/2018 AYs. 2013-14 & 2014-15 Haware Engineers & Builders Pvt. Ltd. Vs. ACIT, CC-4(2) 3,21,15,588/-, the A.O brought the balance amount of Rs.2,24,80,912/- [Rs.3,21,15,588/- (-) Rs.96,34,676/-] 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 hereinabove, 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 Tribunal while disposing off the appeal in the assesses own case for the immediately preceding year viz. A.Y. 2012- 13 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 P a g e | 7 & 283/Mum/2018 AYs. 2013-14 & 2014-15 Haware Engineers & Builders Pvt. Ltd. Vs. ACIT, CC-4(2) while disposing off the appeal of the assessee for the said preceding year i.e A.Y 2012-13, 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 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 the assesses „sister concern‟ 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). We thus on the basis of our aforesaid deliberations, respectfully following the view taken by the Tribunal in the assessee own case for the immediately preceding year i.e A.Y. 2012-13 vacate the addition of Rs. 2,24,80,912/- 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.
P a g e | 8 & 283/Mum/2018 AYs. 2013-14 & 2014-15 Haware Engineers & Builders Pvt. Ltd. Vs. ACIT, CC-4(2) A.Y. 2014-15 10. We shall now advert to the appeal of the assessee for A.Y. 2014- 15. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal: “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 (A.O) 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. 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.12,30,51,935/-, the estimation so made is highly exorbitant.”
11. Briefly stated, the assessee company had e-filed its return of income for A.Y. 2014-15 on 02.04.2015, declaring total income of Rs.20,96,66,360/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
During the course of the assessment proceedings it was observed by the A.O that the assessee was holding vacant unsold flats/shops as „stock–in-trade‟ of its business of real estate developer. The aggregate cost of construction of the said unsold flats/shops held as stock-n- trade by the assessee amounted to Rs.144,76,69,828/-. The A.O being of the view that the „ALV‟ of the aforesaid property was liable to be brought to tax under the head “Income from house property”, thus called upon the assessee to furnish the Annual Rental Value of the said respective properties. However, as the assessee failed to provide the requisite details, therefore, the A.O estimated the ALV @ 8.5% of the cost of construction of the aforesaid units. In the backdrop of the aforesaid facts, the A.O worked out the deemed “Income from house property” at Rs.12,30,51,935/- (i.e 8.55% of Rs.144,76,69,828/-) Further, after allowing the statutory deduction under Sec.24(b) of 30% of the ALV, the A.O made an addition of the balance amount of P a g e | 9 & 283/Mum/2018 AYs. 2013-14 & 2014-15 Haware Engineers & Builders Pvt. Ltd. Vs. ACIT, CC-4(2) Rs.8,61,36,354/- [i.e Rs.12,30,51,935/- (-) Rs.3,69,15,581/-] under the head “Income from house property” in the hands of the assessee.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee did not find favour with the same and upheld the order passed by the A.O in context of the issue under consideration.
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 A.Y. 2013-14 shall apply mutatis mutandis for disposal of its present appeal for A.Y. 2014-15 i.e ITA No. 283/Mum/2018. In terms of our aforesaid observations, the addition of Rs. 8,61,36,354/- made by the A.O towards deemed “Income from house property” which thereafter was sustained by the CIT(A) is deleted.
The appeal of the assessee is allowed in terms of our aforesaid observations.
That both the appeals of the assessee for A.Y. 2013-14 i.e A.Y. 2014-15 i.e are allowed in terms of our aforesaid observations.