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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI D.T. GARASIA & SHRI N.K. PRADHAN
Per D.T. GARASIA, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 10.10.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2008-09.
The short facts of the case are that assessee is a builder and developer. On verification of the assessment record it was observed that assessee has completed the building project in A.Y. 2008-09 and 2 & 7135/M/2014 M/s. Kamala Brothers showing the closing stock at Rs.1,32,68,169/-. In view of the decision of the Hon’ble Delhi High Court in the case of CIT vs. Ansal Housing Finance & Leasing Co. Ltd. (2013) Taxmann 143(Del.) the ALV of the unsold flats is to be taxed as income from house property. The flats constructed by the assessee were lying unsold. Therefore, the ALV of the unsold flats is to be taxed as income from house property. But the Assessing Officer (hereinafter referred to as the AO) has not taxed any income from house property from the unsold flats. In this view of this, AO’s order was prejudicial to the interest of Revenue and show cause notice under section 263 of the Act was issued and assessee replied as under: “i) The assessee has shown/treated unsold flats as on 31st March as stock-in-trade in its Financial Statement and the same is duly accepted by the Assessing Officer in past assessments. ii) Taxability of closing stock of unsold flats under the head 'income from house property' is unwarranted in view of the Gujarat High Court's decision in the case of CIT vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj.) iii) The Allahabad High Court in the case of Late (Smt.) Nirmala Sahu vs. CIT, Appeal No.4853 of 2007 dated 19.12.2013 held that when unsold units in the stock-in-trade were already treated as business assets, then the rental income from unsold unit in complex is taxable under the head 'income from business. iv) As per decision of Supreme Court in CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) if two reasonable constructions of a taxing provision are possible, that construction which favours the Assessee must be adopted.”
After considering the reply the Commissioner has set aside the order of AO and directed to verify the issue in detail and pass the fresh order.
3 & 7135/M/2014 M/s. Kamala Brothers 4. The Ld. A.R. submitted before us that the order passed by the AO was erroneous nor prejudicial in the interest of revenue. Hence, the revision is bad in law. Assessee has shown unsold flats as stock- in-trade in his books of accounts as well as in audited report. During the assessment proceeding, the AO has verified about the details. While completing the reassessment proceedings under section 143(3) r.w.s. 148 department had accepted the unsold flats as stock in trade and held that same is pertains to inventories by applying his mind. The AO has not discussed in assessment order. Therefore, it is to be presumed that AO has applied his mind. For that proposition he relied upon the decision of CIT vs. Fine Jewellery (India) Ltd. (2015) 372 ITR 303 (Bom.) HC. The Ld. A.R. also submitted that in case of CIT vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj.) wherein it has been held that if the property is used as stock in trade then said property would become or partake character of stock and any income derived from stock would be ‘income from business’ and not ‘income from property’. The Ld. A.R. also relied upon the decision of Hon’ble Supreme Court in the case of Channai Properties & Investments Ltd. vs. CIT (2015) 373 ITR 673 (SC) and submitted that in terms of memorandum of association main object of assessee- company was to acquire properties and earn income by letting out same, said income was to be brought to tax as business income and not as income from house property. The Ld. A.R. submitted that there are two conflicting judgments of different high courts. In view of this, the judgment in favour of assessee should be taken i.e. CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). He relied uon
4 & 7135/M/2014 M/s. Kamala Brothers the decision of Hon’ble Allahabad High Court in the case of CIT vs. Rashid Exports Industries (2016) 389 ITR 293 (All.) (HC) wherein the High Court has held that when there is a conflict decision of High Courts, the order of the AO is not erroneous and revision is not bad in law.
The Ld. D.R. relied upon the order of the Ld. CIT(A).
We have heard the rival contentions of both the parties. We find that in this case the facts of the case are that assessee is a builder and developer. On verification of the closing stock it was found that assessee has shown closing stock of unsold flats at Rs.1,32,68,169/-. As per the decision of the Hon’ble Delhi High Court in the case of CIT vs. Ansal Housing Finance & Leasing Co. Ltd. (2013) Taxmann 143(Del.) the ALV of the unsold flats is to be taxed as income from house property. Flats constructed by the assessee were lying unsold. Therefore, ALV of unsold flats is to be taxed as income from house property. The Hon’ble Gujarat High Court in the case of CIT vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj.) has taken a view that if the property is used as stock in trade then said property would become or partake character of stock and any income derived from stock would be ‘income from business’ and not ‘income from property’. But as per the decision of Hon’ble Delhi High Court this income is to be taxed as income from house property. Therefore, there is a conflict between the judgments of two High Courts. Therefore, section 263 can be invoked or not for that proposition
“Section 263 of the Income-tax Act, 1961cannot be invoked unless it is found that the order is also prejudicial to the interests of the Revenue. The Supreme Court in MALABAR INDUSTRIAL CO. LTD. v. CIT [2000] 243 ITR 83(SC) held that the phrase “prejudicial to the interests of Revenue” has to be read in conjunction with erroneous order passed by the Assessing Officer and thus every loss of revenue as a consequence of an erroneous order of the Assessing Officer could not be treated as prejudicial to the interests of the Revenue. The Supreme Court further held that where two views are possible and the Income-tax Officer has taken one view the same cannot be treated as an erroneous order which is prejudicial to the interests of the Revenue merely because the Commissioner does not agree with the order unless the view taken by the Income-tax Officer was not sustainable in law. Held that the Assessing Officer after considering the matter in detail had passed an assessment order by applying his mind. The Assessing Officer had allowed the deduction under sections 80HHC and 80-IB of the Act to the extent of the amount of profits and gains as contemplated under section 80-IA(9) of the Act. The question as to whether the deduction under section 80HHC was to be computed after reducing the deduction under section 80-IB of the Act from the profits and gains was a legal consideration. The Assessing Officer granted deduction under sections 80HHC and 80-IB of the Act taking the same figure of profits. On the other hand, the Department's case was that the deduction under section 80HHC of the Act was required to be computed after reducing the amount of deduction under section 80-IB of the Act from profits and gains. On this score, there was a divergence of views taken by different High Courts. Hence, the Tribunal was justified in setting aside the order of the Commissioner passed under section 263.”
Respectfully following the same, we are of the view that Commissioner is not justified in invoking section 263 in this matter.
In the result, both the appeals are allowed.
Order pronounced in the open court on 29.01.2018.