KRISHNA BUILD HOME PRIVATE LIMITED,JAIPUR vs. ASST. COMMISSIONER OF INCOME TAX (HOLDING CHARGE OF ITO WARD 4(2)), JAIPUR

PER SANDEEP GOSAIN, JM :

These two appeals by the assessee are directed against two separate orders of ld. CIT (Appeals), National Faceless Appeal Centre, Delhi both dated 01.08.2021 for the assessment years 2010-11 and 2011-12 respectively. Common grounds have been raised in both the appeals except quantum of addition, therefore, both the appeals are being decided by this consolidated order for the sake of convenience. Grounds raised in ITA No. 142/JP/2021 are as under :- 1. On the facts, in totality of the circumstances and in law, and in view of detailed objections filed before the learned AO, the reassessment proceeding is illegal, bad in law, without jurisdiction and is based on wrong facts, and on change of opinion and in gross violation of proviso to s. 147 of the IT Act, which says no action can be taken

2 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

for reopening of an assessment after four years unless the AO has reason to believe that income had escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment; thus all the proceedings deserve to be declared void ab-initio.

The assessee has also raised an additional ground along with an application under

Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963, which reads as under :-

“ On the facts and in the circumstances of the case and in law the assessment order passed by AO u/s 143(3) r.w.s. 147 of Income Tax Act dated 18.12.2017 is bad in law, void ab initio and deserves to be annulled as the reassessment order passed without disposing off the objections raised by the assessee against reopening/initiating reassessment proceedings vide letter dated 17.11.2017.”

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additional ground. The additional ground raised by the assessee is nothing but new

legal plea arose out of reassessment proceedings initiated by ld. AO which was

under challenge before this Tribunal. The new legal plea does not require

investigation into factual aspects before either accepting or rejecting the

contentions. The appellant submits that the new plea go to the very basis of

assuming jurisdiction for passing the assessment order u/s 147/143(3) of the

Income Tax Act, 1961. Consequently, as per the ratio laid down by the Hon’ble Apex

Court in the case of NTPC vs. CIST (1998) 229 ITR 383 (SC) the new plea is

admissible. Therefore, this issue raised by the assessee can be adjudicated on the

basis of the facts and material available on the assessment record. Thus when the

additional ground is not raising a new issue or plea, then in the facts and

circumstances of the case, we admit the additional ground raised by the assessee for

adjudication on merit. Since the additional ground raised by the assessee is purely

legal in nature and goes to the root of the matter, therefore, first we take up for

adjudication of the additional ground.

and developer and the dispute is regarding commercial complex, namely, ‘Krishna

Square’ developed by the assessee at Jaipur. The assessee filed its original returns

of income under section 139(1) of the IT Act for these two assessment years and

scrutiny assessments for AY 2010-11 under section 143(3) of the IT Act was passed

by the AO on 28.03.2013. Subsequently the AO has reopened the assessments by

recording the reasons which are common for both these years except the relevant

date of filing of the returns and completion of the assessments under section 143(3)

4 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

to assess the income from house property in respect of the closing stock in the said

commercial complex in view of the finding that the assessee has failed to declare

rental income of Rs. 30,35,256/- for the assessment year 2010-11 and Rs.

48,14,460/- for the assessment year 2011-12. The AO completed the reassessments

under section 147 read with section 143(3) for both the years and made the

additions on account of income from house property by determining the annual

letting value of the closing stock being 25,810 sq. ft. of constructed area @ Rs. 24/-

per sq. ft. for the A.Y. 2010-11 and 19,105 sq. ft. of constructed area @ Rs. 30/- per

sq. ft. for the A.Y. 2011-12 of the said commercial complex. The assessee

challenged the action of the AO before the ld. CIT (A) and also objected to the

validity of the reopening of the assessments. The ld. CIT (A) placing reliance on the

decision of Hon’ble Mumbai High Court in the case of Yuvraj vs. Union of India

(2009) 315 ITR 84 (Bombay) rejected the ground raised objecting to reopening of

assessment. The ld. CIT (A) has also placed reliance on the judgment of the Hon’ble

Supreme Court in the case of Susham Singla vs. CIT (2017) 81 taxmann.com 167

(SC) and Ansal Housing & Construction Ltd. vs. ACIT (2018) 89 taxmann.com 238

(Delhi) and upheld the order of A.O. in assessing the income from house property by

applying notional rent on the closing stock.

A/R of the assessee has submitted that the objection raised by the assessee was not

disposed. In the objections filed vide letter dated 17.11.2017 the following issues

were raised :-

“that the assessment of the assessee has already been completed u/s 143(3) of Income Tax Act, 1961 vide order dated 28.03.2013 (Copy enclosed herewith) and during the course of assessment proceedings

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the assessee disclosed fully and truly all the primary or material facts and submitted the complete details required by ld. AO during assessment proceedings for his satisfaction. The proceeding u/s 147 of the I.T. Act initiated in-spite of the fact that no income chargeable to tax has escaped assessment for the assessment year 2010-11 by the reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the said assessment year.

“It is further relevant to mention here that the obligation of the assessee is to disclose fully and truly the primary or material facts during the course of assessment proceedings which has been done by the assessee during the course of assessment proceedings u/s 143(3) of Income Tax Act, 1961. It is not obligation of the assessee to indicate and state what legal inference can be drawn from such facts. In the present case, there was no indication that the assessee had failed or omitted to disclose the material or primary facts and all these facts were already available on record. As we understand your honour also recorded the reasons for reassessment proceedings by collecting the facts from such assessment. There is no allegation in the reasons so recorded that there was any subsequent factual information on the basis of which it was found that the assessee had not fully disclosed the primary facts or had falsified or disclosed incorrect primary facts.

The facts on the basis of which the assessment of the assessee is reopened was already available with ld. AO at the time of assessment proceedings and the same was duly examined in the assessment of the assessee completed u/s 143(3) of Income Tax Act, 1961. It is further relevant to mention here that during the course of assessment proceedings completed u/s 143(3) of Income Tax Act, 1961 the ld. AO herself treated the rental income shown by the assessee as income from business & profession which shows that this issue has already examine during the assessment proceedings and during the course of assessment proceedings the ld. AO was in conscious view that no deemed rental should be taxed on stock in trade.

In view of above submission this is to submit that reassessment proceedings initiated u/s 148 of Income Tax Act, 1961 is bad in law, void-ab initio and deserve to be annulled.”

The ld. A/R has submitted that this objection of the assessee was not disposed off

by the ld. AO while passing the order dated 20-11-2017 disposing of the objection

raised against the issuance of notice u/s 148 of the I.T. Act. The copy of the said

6 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

order is placed at Paper Book pages 99-104. In this regard the ld. A/R placed

reliance on the decision of Hon'ble Supreme Court in the case of GKN Driveshafts

(India) Ltd. Vs. ITO 259 ITR 19 (SC). The ld. A/R further relied on the following

decisions: -

(i) Pushpak Bullion Pvt. Ltd. Vs. DCIT 371 ITR 81 (Guj) (ii) General Motors India P. Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj) (iii) Allana Cold Storage Ltd. Vs. ITO and others (2006) 287 ITR 1 (Bombay) (iv) Hon’ble ITAT Jaipur in the case of M/s Girraj Prasad Gilara HUF Vs ITO ward 6(5) Jaipur (ITA No 354/JP/2019 order dated 06/10/2020

Therefore in view of the above cited decision of jurisdictional ITAT in the case of M/s

Girraj Prasad Gilara HUF wherein several decisions including decision of Hon’ble

Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO were

discussed, the assessment order deserves to be quashed.

Act the ld. A/R submitted that the proceedings have been initiated in violation of

proviso to section 147 of I.T Act in-spite of the fact that no income chargeable to

tax has escaped assessment for the assessment year 2010-11 by the reasons of

failure on the part of the assessee to disclose fully and truly all material facts

necessary for his assessment for the said assessment year. The ld. A/R submitted

that in view of the proviso to sec. 147 of the IT Act, no action can be taken

for reopening of an assessment after four years unless the AO has reason

to believe that income had escaped assessment by reason of failure on the

7 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

part of the assessee to disclose fully and truly all material facts necessary

for assessment. The relevant assessment year is AY 2010-11 and four years

expires on 31/03/2015 from the end of relevant assessment year. The assessment

of the assessee for AY 2010-11 has been already been completed u/s 143(3) of

Income Tax Act, 1961 vide order dated 28.03.2013. Therefore, after 31/03/2015 the

reassessment proceeding in this case can be taken only if income chargeable to tax

has escaped assessment for such assessment year by the reason of failure on the

part of the assessee (i) to make the return u/s 139/142(1)/148 or (ii) to disclose

fully and truly all material facts necessary for his assessment for that assessment

year. The ld AO has not pointed out any default of assessee as contemplated in

proviso to section 147 of the Income Tax Act in the reasons recorded for reopening

of the assessment as well as in the order passed for disposing off the objection

raised by the assessee for reopening the assessment proceedings. The proceeding

u/s 147 of the I.T. Act initiated in violation of proviso to section 147 of I.T Act in-

spite of the fact that no income chargeable to tax has escaped assessment for the

assessment year 2010-11 by the reasons of failure on the part of the assessee to

disclose fully and truly all material facts necessary for his assessment for the said

assessment year.

5.1 The ld. A/R further submitted that the obligation of the assessee is only

to disclose facts and no obligation to indicate legal inference and no

allegation of ld AO that the assessee had not fully disclosed the primary

facts or had falsified or disclosed incorrect primary facts. It is further

relevant to mention here that the obligation of the assessee is to disclose fully and

8 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

truly the primary or material facts during the course of assessment proceedings

which has been done by the assessee during the course of assessment proceedings

u/s 143(3) of Income Tax Act, 1961. The details of inventories were filed before the

ld AO wherein the finished stock has been disclosed at 25810 Sq Ft. The value of

finished stock has been disclosed in Balance sheet at Rs. 5,50,67,312/-. The

assessee has fulfilled their duties by disclosing fully and truly all material fact and

documents/books necessary for assessment. It is not obligation of the assessee to

indicate and state what the legal inference can be drawn from such facts. In the

present case, there was no indication that the assessee had failed or omitted to

disclose the material or primary facts and all these facts were already available on

record. The ld. AO recorded the reasons for reassessment proceedings by collecting

the facts from such assessment. There is no allegation in the reasons so recorded

that there was any subsequent factual information on the basis of which it was

found that the assessee had not fully disclosed the primary facts or had falsified or

disclosed incorrect primary facts.

5.2. The ld. A/R further stated that the facts were already available with ld.

AO at the time of assessment proceedings and the same was duly

examined in the assessment of the assessee completed u/s 143(3) of I

Tax Act, 1961 and the ld AO has no power to review his own assessment

order. The assessee has produced before the ld AO accounts books or document

as desired which tantamount to disclosure contemplated by law. It is further relevant

to mention here that during the course of assessment proceedings completed u/s

143(3) of Income Tax Act, 1961 the ld. AO herself treated the rental income shown

by the assessee as income from Business & Profession which shows that this issue

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was already examined during the assessment proceedings and during the course of

assessment proceedings the ld. AO was in conscious view that no deemed rental

should be taxed on unsold offices held as stock in trade. In this regard the reliance

is placed on the following decisions:-

(i) CIT V/s Bhanji Lavji [1971] 79 ITR 582 (SC)

Held that:-Reassessment under s. 34(1)(a) of 1922 Act—Full and true disclosure—In original assessment, all primary facts were disclosed—It was stated that payments were received by cheques and transferred to Porbandar—ITO had passed an order in effect holding that assessee had no income in British India chargeable to tax—He could not now seek to reassess the assessee on the ground of failure to disclose fully and truly the facts necessary for assessment

(ii) Hon’ble Rajasthan High Court in the case of Commissioner of Income Tax, Udaipur v/s M/s Hindustan Zinc Ltd 393 ITR 264. (PB page 179-186)

Hon’ble Rajasthan High Court discussed the various issues and case laws in para 4 to 11 and concluding findings were made in para 12 and 13 as under:-

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Section 143(3) after conscious consideration of the material on record. It is not even the case of the Revenue that the formation of the belief regarding the escapement of the assessment by the AO is based on any new material coming on record. Apparently, the formation of the belief by the AO regarding escapement of the assessment is based on re- appreciation of the material already available on record at the time of scrutiny assessment which amounts to mere change of opinion. Obviously, in the garb of purported exercise of the power to reassess, the AO cannot be permitted to review his own order or the order passed by his predecessor. Thus, the finding arrived at by the ITAT that the reassessment proceedings initiated by the AO by mere change of opinion is patently illegal, cannot be faulted with.

(iii) DCIT v/s Purolator [2012] 343 ITR 155 (Del), (iv) Kimplas Trenton Fittings Ltd V/s ACIT [2012] 340 ITR 299 (Bom.) (v) Desai Bros. Ltd v/s DCIT (2005) 272 ITR 335 (Bomb.), (vi) Bhot Industries Ltd V/s ACIT (2004) 267 ITR 161 (Bomb.), (vii) CIT (Addl) V/s IFCI (2001) 248 ITR 192 (Del.) (viii) CIT V/s Elgi Ultra Industries Ltd (2008) 296 ITR 573 (Mad.)

The ld. A/R stated that the ld. CIT(A) has relied upon the decision of Yuvraj Vs

UOI [2009] 315 ITR 84 (Bom). The facts of this case are distinguishable. In the

case of assessee proviso to section 147 is applicable whereas in the cited case the

Assessment Year was AY 1996-97 and the case was re-opened on 17-05-2000 which

is within four years from the end of assessment year. Therefore the proviso to

section 147 is not applicable in the case cited by ld CIT(A).

11 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

5.3. In view of above submissions, the ld. A/R prayed that the order passed u/s

143(3) read with section 147 of Income Tax Act, 1961 is bad in law, void-ab initio

and deserve to be annulled.

immovable property held as stock-in-trade, the ld. A/R of the assessee

submitted detailed submissions as under :-

a) The assessee is a builder and constructed a building naming Krishna Square and the saleable area in this building was offices situated at first floor, second floor and third floor and unsold offices were held by it as stock in trade. The assessee has also obtained booking advance from the customers against the sale of office. The assessee’s business was not to let out the properties and it has constructed the offices with intention not to let out the same but the same were constructed with intention to sell the same. However, out of the units/space remained unsold (in stock), a few areas was let out in order to motivate the customers for buying the units and occupying the units. The whole intention was to show the prospective buyers that people are occupied the units and very soon the market rate of the units will jump. This motivates the marketing of the units as well as stops the cancellation of booking. However, the area was let out on temporarily basis. This fact can be verified from the assessment records of the assessee that wherein the units which were given on rent to M/s Mobitel Telelink Private Limitedonly for 51 days and in next year to M/s Birla Hospitals only for one month . No other unit except roof top was let out by the assessee. This also shows that the intention of the assessee was not to earn rental income but was to earn profit from sales of units so constructed by the assessee. The year wise details of the area let out by the assessee is as under:-

12 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

S/No. Particular Name Area AY 2010-11 AY 2011-12 AY 2012-13 of of Property Tenant Sq Ft Period Amount Period Amount Period Amount 1 Roof Top Grab 7000 01/09/09 560000 01/04/10 858000 01/04/11 628500 Business to to to Venture 31/03/10 31/03/11 31/01/12 2 S 219 and Mobitel 1246 11/12/09 51000 Nil Nil Nil Nil 220 Telelink to (Second Private 31/01/10 Floor) Limited 3 F 117 to F CK 3077 NA NA 01/03/11 88458 01/04/11 348448 122 (First Birla to to Floor) Hospital 31/03/11 31/07/11

611000 946458 976948

S/No. Particular Name Area AY 2013-14 AY 2014-15 AY 2015-19 of of Property Tenant Sq Ft Period Amount Period Amount Period Amount NIL

S/No. Particular Name Area AY 2016-17 AY 2017-18 AY 2018-19 of of Property Tenant Sq Ft Period Amount Period Amount Period Amount NIL

S/No. Particular Name Area AY 2019-20 AY 2020-21 AY 2021-22 of of Property Tenant Sq Ft Period Amount Period Amount Period Amount NIL

The units held by the assessee were stock in trade of the assessee which is duly in reflected in books of accounts & balance sheet as stock in trade and also accepted by the department as stock in trade of the assessee in the assessment proceedings of the AY 2010-11. The total stock of unsold offices/shops was 25810 sq. ft as on 31.03.2010 out of which 23,154.56 sq. feet stock has been sold by the assessee during the period from 01.04.2010 to 31.03.2017.

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Thus, the assessee’s business is not letting out the properties and it constructed the units not with intention to let out but the same was constructed with the intention to sell the same.

b) The charging section for income from house properties is section 22 of I. Tax Act. As per provisions of section 22 of Income Tax Act, 1961 the Income from House Property is: -

“The Annual value of property consisting of any building or lands appurtenant thereon of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income tax, shall be chargeable to income tax under the head “Income from House Property”.

Thus, as per charging section of Income from House Property, the property for the purposes of any business or profession will not be covered under the provision of computing the income under head Income from house property. In the case of the assessee profit derived from sale of unsold stock is taxable as Income from Business or Profession. The unsold units so constructed are part of stock in trade of the assessee i.e. the same is business assets of the assessee, therefore the provisions of “Income from House Property” cannot be applied thereon. Whenever the unsold stock of this year was sold, the income therefrom was shown as income from business or profession not under Income from Capital Gain which is clear from the following chart:-

Financial Assessment Area in Sale Income offered as Year Year sq ft sold Consideration business income (Rs) (Rs) 2010-11 2011-12 6705.75 2,04,27,000 17,60,590.70 2011-12 2012-13 5535.25 1,81,36,000 19,33,726.88 2012-13 2013-14 1934.75 69,13,000 -3,17,251.40 2013-14 2014-15 341.00 15,00,000 46,694.64 2014-15 2015-16 990.00 48,62,000 16,89,933.37 2015-16 2016-17 1501.50 93,00,000 4,97,844.41 2016-17 2017-18 6146.25 3,86,94,000 94,38,914.00 2017-18 2018-19 1470.00 85,00,000 32,01,507.00 2020-21 2021-22 300.00 24,25,000 7,48,836.00 Total 24,924.50 11,07,57,000 1,90,00,795.60

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Since the provisions “Income from House Property” are not applicable on the properties lying as stock in trade the provisions of taxing the deeming rent (ALV) will also be not applicable on the assessee as held by Hon’ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd. (296 ITR 661) (Gujarat) (Copy at PB Page No. 140-141). Further, for year under consideration, there is no provision in computation of income from Business & Profession for charging the deemed income on unsold stock in trade.

c) The notional ALV of units held as stock in trade is not chargeable as income in case of a builder since the property is not meant for letting out and same is held for sale, clause (a) of sub-section (1) of section 23 of Income-tax Act envisages that the property should be in a position to let out and, therefore, it has been provided that annual value is to be taken equivalent to the sum for which the property might reasonably be expected to be let out. The use of the words “expected to be let out” would mean that the property should be meant for let out or it can be let out. In case of a builder, the property is not meant for let out and since their intention is to sell the propertythey cannot let out the property otherwise it will be difficult for them to sell the property for which they had constructed the same. Therefore, it cannot be said that such case is covered in clause (a) of sub-section (1) of section 23 of the Act. In case clause (a) is not applicable, as its income will not be chargeable to tax on notional basis under the head Income from House Property.

It is further relevant to mention here that the assessee is a builder and has taken the booking advance from several parties against units and the assessee is under obligation to deliver possession of unsold stock to the concerning parties and such units cannot be let out by the assessee. In case the stock is let out and possession from the tenant is not taken back the buyers of the units may create a legal problem. After executing the agreement of booking or taking the advance against booking the possession of the assessee on such units remain for limited purpose which is only for completing the construction work or some pending formalities and such booked units cannot be used by the assessee for any other purposes. Therefore, technically for the units which has been agreed to be sold by the assessee by accepting the advance, the same cannot be let out to others and no ALV of such units can be charged as tax in the

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hands of the assessee. Further the remaining units also cannot be let out because the same were constructed with intention to sales, therefore the same has to be keep vacant to handing over the possession to the buyer as and when the some buyer ready to buy such units.

d) In this regard we would like to draw your kind attention towards the provisions of section 23(5) of Income Tax Act, 1961 which were inserted by Finance Act, 2017 and made applicable w.e.f. 01.04.2018: - (Copy at PB Page No. 168)

“Following sub-section (5) shall be inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 1-4-2018 : (5) Where the property consisting of 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 *[two years] 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 be nil.” * substituted by two years from one year w.e.f. 01/04/2020

The ld AO has given finding that the assessee has declared its rental incomeas income from house property, therefore, the assessee also have finished units which were ready for sale and ALV of unsold stock is taxable in the hand of assessee. In this regard, we submit that out of the units/space remained unsold (in stock), some area was let out in order to motivate the customers for buying the units and occupying the units. The whole intention was to show the prospective buyers that people are occupied the units and very soon the market rate of the units will jump. This motivates the marketing of the units as well as stops the cancellation of booking. This was only a marketing strategy.

e) Prior to 01-04-2018, there is no provision in the Income Tax Act, 1961 which provide for taxability of ALV of immovable property which held as stock in hand of business.

f) Reopening of AY 2009-10 and Assessment u/s 143(3) for AY 2012-13.

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(i) AY 2009-10:- The ld AO has initiated the 148 proceedings for AY 2009-10 on 22-03-2016 on the same ground i.e. taxability of ALV on unsold stock. The ld AO himself has dropped the 148 proceedings by passing the order on 07-12-2016. The copy of the order is enclosed at PB page 178/Vol II.

(ii) AY 2012-13 The ld AO made the assessment u/s 143(3) for AY 2012-13. Here the ld AO has not assessed the ALV against the unsold stock as Income from House Property. In this assessment order at page 2 of Assessment Order, the ld AO has held that any income earned from business assets of the assessee is assessable as Income from Business. The copy of assessment order for AY 2012-13 has been filed in Paper Book for AY 2011-12 (ITA No 143/JPR/2021) at page 80-84 of Paper Book.

g) The ld AO has relied upon i) R.B. Jodhamal Vs CIT 82 ITR 570 (SC) and (ii) S.G.Mercantile Corp Pvt Ltd Vs CIT AIR 1972 SC 732. The facts of these cases are distinguishable. (i) In the case of R.B. Jodhamal the issue involved was to determine whether the assessee is owner of the property or not. In the case of the assessee there is no dispute over the ownership of the property but the issue involved in the case of assessee is taxability of ALV on unsold stock held as business stock.

(ii) In the case of S. G. Mercantile Corp. (P) Ltd the issueinvolved was taxability of income as business income or income from other source. In this case the assessee took a property on lease, set up a market thereon and letting out shops and stalls in that market. The issue involved was - since assessee was not owner of property in question and taking of property on lease and sub-letting portions thereof was part of business and trading activity of assessee, income from said property was assessable under section 10 of 1922 Act as business income – or income from other source u/s 12 of 1922 Act.

h) We place the reliance on following decisions: -

i) In the case of CIT vs. Neha Builders Pvt. Ltd. (296 ITR 661) (Gujarat) (Copy at PB Page No. 140-141) held that if the business of the assessee is to construct the property and sell it 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". ii) 2021 (9) TMI 1069 - ITAT Mumbai in the case of Dy. Commissioner of Income Tax, Central Circle – 4 (1) , Mumbai Versus M/S Kanakia Spaces Pvt. Ltd In ITA No. 323/Mum/2020 Dated 24/08/2021. Held as under:- (Copy At PB Page No 142-151)

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iii) 2018 (6) TMI 1781 - ITAT Mumbai M/S Sarang Property Developers Pvt. Ltd. Versus ACIT, Central Circle 4 (1) , Mumbai Held as under:- (Copy at Pb Page No 152-155) iv) 2018 (7) TMI 655 - ITAT Mumbai:-Income Tax Officer 2 (1) (1) , Mumbai Versus M/S. Arihant Estates Pvt. Ltd. Held as under:- (Copy At Pb Page No 156-160) v) 2015 (5) TMI 1161 - ITAT Mumbai M/S C.R. Developments Pvt. Ltd. Versus JCIT-8 (1) (OSD) , MUMBAI held as under:- (Copy at PB Page No 126-130) vi) 2017 (12) TMI 519 - ITAT Mumbai Shri Girdharilal K. Lulla Versus DCIT, (Copy at PB Page No 131-133) vii) 2018 (2) TMI 1707 - ITAT Mumbai M/S. Runwal Constructions Runwal And Omkar Esquare Versus ACIT (Copy at PB Page No. 135- 139) viii) 2019 (4) TMI 368 - ITAT PUNE M/S. Anand Construction Versus ITO, PUNE.(Copy at PB Page No. 187-193/Vol-II) ix) 2019 (4) TMI 389 - ITAT PUNE Kumar Beharay Rathi Versus ITO, WARD-7 (5) , PUNE(Copy at PB Page No. 194-199/Vol-II) x) 2019 (5) TMI 675 - ITAT PUNE M/S. Kolte Patil Developers Limited Versus DCIT (Copy at PB Page No. 200-208/Vol-II)

i) The section 23(1)(a) stipulates that 23(1)(a):- The sum for which the property might reasonably be expected to let from year to year; or Therefore, the ALV should be estimated considering the reasonably expected let out value from year to year. It cannot be based on rent received for short period.

j) Construction completed on 31/08/2009 it cannot be lettable with immediate after the completion of construction. Even section 23(4)(5) of I. Tax Act envisages the gestation period of 2 years from completion of the project for taxability of ALV of unsold stock of builder.

The ld AO has not allowed any gestation period after the completion of the project. The construction of the project was completed on 31/08/2009 and the ld AO worked out the ALV from 01/09/2009 to 31/03/2010 @ Rs. 24/- per Sq ft per month for the unsold area of 25810 sq ft as on 31/03/2010 by assuming the immediate after the completion of the construction the entire unsold are can be let out at Rs. 24/- per sq ft per month. Such assumption is beyond the ground realty. Even section 23(4)(5) of

18 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

I.Tax Act envisages the gestation period of 2 years from completion of the project, and this gestation period was allowed after considering the business exigencies. Therefore, the estimation of ALV by the AO is mere presumption and not based o proper inquiries.

(k) On the basis of rental income from few buildup area, it cannot be presumed that whole of the project was lettable.

The assessee’s business was not to let out the properties and it has not constructed the offices with intention to let out the same but the same were constructed with intention to sell the same and on sale the profit from the office was taxable under business income. However, out of the units/space remained unsold (in stock), a few areas was let out in order to motivate the customers for buying the units and occupying the units. The whole intention was to show the prospective buyers that people are occupied the units and very soon the market rate of the units will jump. This motivates the marketing of the units as well as stops the cancellation of booking. However, the area was let out on temporarily basis.

It is further relevant to mention here that the assessee is a builder and has taken the booking advance from several parties against units and the assessee is under obligation to deliver possession of unsold stock to the concerning parties and such units cannot be let out by the assessee. In case the stock is let out and possession from the tenant is not taken back the buyers of the units may create a legal problem. After executing the agreement of booking or taking the advance against booking the possession of the assessee on such units remained with assessee for limited purpose which is only for completing the construction work or some pending formalities and such booked units cannot be used by the assessee for any other purposes. Therefore, technically for the units which has been agreed to be sold by the assessee by accepting the advance, the same cannot be let out to others and no ALV of such units can be charged as tax in the hands of the assessee.

l) The ALV of Rs. 24/- per sq feet per month was estimated arbitrarily Without prejudice to above this is to submit the ld. AO charged the ALV at the rate of Rs. 24/- per sq. feet per month for entire offices situated at first floor, second floor,

19 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

and third floor which is stated to be based on the rent received from M/s Birla Hospital & Medical Research Centre. The ld AO has ignored the following facts:-

(i) During the AY 2010-11, no any property was let out on rent to M/s Birla Hospital & Medical Research Centre. In AY 2011-12 Office No F-117 to F-122 total area 3077 sq ft situated at first floor was let out for one month i.e. for 1/03/2011 to 31/03/2011 for Rs. 88458/- and AY 2012-13 for the period 01-04-11 to 31-07-2011 on the rent of Rs. 348448/-. After 31/07/2011, this property could not be let out by the assessee. Therefore, the rent given by M/s Birla Hospital & Medical Research Centre for few offices at first floor that too for very short period cannot be adopted as sample/basis to estimate ALV for the other offices at first floor, second and third floor. (ii) During this year roof measuring 7000 sq ft over third floor was given for Roof Top restaurant to M/s Grab Business Venture for monthly rent of Rs. 80000/- per month which gives rent of Rs. 11.40/- per sq ft per month. This roof area was vacated on 31/01/2012 and after 31/01/2012, this area could not be let out.This area was given to run restaurant and other units in the project was for office. The rent of restaurant always remains very high than rent of office space. Therefore, the rent received for running a restaurant cannot be a basis to estimate the ALV for other units meant for office. (iii) During this year, the assessee received rent of Rs. 51000/- for the period 11/12/09 to 31/01/2010 from M/s Mobitel Telelink Pvt. Ltd. Against letting of S-219 and S-220 total area 1246 sq ft at second floor. This was only casual letting only for 51 days. Therefore, the rent given by M/s Mobitel Telelink Pvt. Ltd. for two offices at second floor that too only for one month cannot be adopted as basis to estimate ALV for the other offices at first floor, second and third floor. The rate of rent of particular property let out to particular partycannot be applied on the whole units because of factor of location of property its floor, area of property and period for which the property is to be let out. etc..Therefore the ALV of entire building cannot be estimated on the basis of rent received against single property that too for few periods. (iv) The ld AO has not carried out any independent inquiry to ascertain the lettable value of the property in nearby other properties located in the area.

20 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

He has also not made any inquiry from local authorities to know municipal value or rental value estimated by them for house tax purposes. Therefore the rate of Rs. 24/- per sq. feet cannot be charged on the all units as the letting rate of each units depends on its size, location and floor on which situated. m) The ld AO assessed the ALV for 25810 sq ft area @ Rs. 24/- per sq ft per month for 7 months at Rs. 43,36,080/- which gives monthly rental income of Rs. 619440/- on the cost of 25810 sq ft area at Rs. 5,40,99,512/-which gives income @ 13.74% per annum. Rental income @ 13.74% much higher than the normal rate of rental income on property which generally comes to 4% to 5%.

n) The ld AO assessed the ALV for 25810 sq ft area @ Rs. 24/- per sq ft per month for 7 months at Rs. 43,36,080/-. He miserably failed to appreciate the area 25810 sq ft also includesthe area of 1246 sq ft which was let out during the year for the period 11/12/09 to 31/01/10 for which rent of Rs. 51000/- was received and offered as income for taxable. On this property the notional rent @ 24/- per sq ft per month was also again assessed for the period 01/09/2009 to 31/03/2010.

n) The project comprises several independent units of offices situated on first floor, second floor and third floor. The ALV cannot be assessed of all the independent units on the basis of rental income of few offices considering them a single unit:-

The lower authorities have assessed the ALV on the ground that the assessee has rental income but the fact remains that such rental income was only in respect of few units. Since each unit is separate and independent unit, the ALV of the entire units in the project cannot be assessed merely on the ground few units were let-out for some period.

Further the ld AO assessed the ALV for 25810 sq ft by treating various offices as single property and in such situation vacancy allowance as stipulated u/s 23(c) should be given. The case of the assessee is fully covered under section 23(1)(c) which has the following stipulation:-

(i) Where the property or any part of the property is let. (ii) And was vacant during the whole or any part of the previous year.

21 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

(iii) And owing to such vacancy the actual rent received or receivable is less than the sum referred to in clause (a). In clause (ii) the word “whole or any part of the previous year is used by the legislature meaning thereby that the legislature seeks not to tax the notional income from the property which is vacant throughout the previous year.

The provisions relating to vacancy allowance are pari material to section 23(4)(5) of I. Tax which envisages the no taxability of ALV of unsold stock for one year/two years by allowing gestation period one year/two years considering the business exigencies.

o) The ld CIT(A) has relied upon the following decisions and the ratio laid down in these decisions are not applicable to the case of assessee:-

i) CIT v/s Ansal Housing Finance & Leasing Co Ltd (Delhi High Court) In this case charging section 22 has not been discussed in the case. Further the SLP filed by the assessee has been admitted in Hon’ble Supreme Court which is pending as on today. Further so many benches of Hon’ble ITAT has followed the ratio laid down by Hon’ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Neha Builders (P.) Ltd. (supra) for deciding this issue. Further the ratio laid down by Hon’ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Neha Builders (P.) Ltd. (supra)should be followed in view of decision of Hon’ble Supreme Court of India in the case of CIT Vs. Vegetable Products Ltd. reported as 88 ITR 192. It is a well settled law that when two divergent views of non-jurisdictional High Courts are available and there is no decision on the issue from the Jurisdictional High Court, the view in favour of the assessee has to be adopted. ii) Susham Singla Vs CIT 247 Taxman 312 (SC) The facts of this case are distinguishable. In this case also the issue was not on taxability of notional income on unsold business stock in view of charging section 22. Hon’ble Apex Court dismissed the SLP filed by the assessee against the decision of Hon’ble Punjab & Haryana High Court in the case of Susham Singla Vs CIT 244 Taxman 302 (Punjab and Haryana) and the issue involved was vacancy allowance u/s 23(1)(c) In view of above submission this is to submit addition sustained by ld CIT(A) deserve to be deleted.

22 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

below. The ld. D/R has submitted that as it is clear from the reasons recorded by

the AO that the Assessing Officer has reopened the assessment in view of the fact

that the assessee has failed to declare rental income of Rs. 30,35,256/- and Rs.

48,14,460/- for the assessment years 2010-11 and 2011-12 respectively which

escaped assessment within the meaning of section 147 of the IT Act, 1961 and it

has failed to disclose fully and truly all material facts necessary for assessment. The

ld. D/R has also placed reliance on the decision of Hon’ble Delhi High Court in case

of CIT vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. (supra) and, therefore, a

subsequent decision of Hon’ble High Court would constitute a tangible material for

forming the belief that income assessable to tax has escaped assessment.

record. The original return of income filed under section 139(1) for the assessment

year 2010-11 was subjected to scrutiny assessment under section 143(3) and no

scrutiny assessment was made for the A.Y. 2011-12. Subsequently the AO has

proposed to assess the income being notional rent in respect of the closing stock in

the commercial complex, namely, “Krishna Square”. The said space which was to be

assessed as Income from House Property is at First Floor 9533 sq. ft., Second Floor

2258 sq. ft. and Third Floor 14019 sq. ft. total 25,810 sq. ft. for A.Y. 2010-11 and of

the First Floor 6379 sq. ft., Second Floor 965 sq. ft. and Third Floor 11,761 sq. ft.

total 19,105 sq. ft. for A.Y. 2011-12 of the said commercial complex. The AO has

recorded reasons for the assessment year 2010-11 are as under :-

23 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

“The assessee company filed its return income declaring income of Rs. 22,55,930/-on 08.09.2010. The case was assessed u/s 143(3) on 29.03.2013 on total income of Rs. 1,60,17,160/-. The assessee company has derived income from construction/development and sale of building. During the year under consideration, the assessee has completed construction of commercial complex namely Krishna Square. It has been found that the construction of building was completed on 31.08.2009. The assessee has rented 1246 sq. ft. area for Rs.30,000/- per month which gives Rs. 24/- per sq. ft. per month but no income was declared for remaining construction area of 25,810 sq. ft. adopting the fair market value of Rs. 24/- per sq. ft. per month, the ALV of unsold stock work out at Rs. 43,36,080/-. After deduction u/s 24(a), the rental income which needs to be brought to tax worked out to Rs. 30,35,256/-as construction of property was completed on 31.08.2009. Thus, I have reason to believe that the assessee has failed to declare rental income of Rs.30,35,256/- and it has failed to disclose fully and truly all material facts necessary for assessment. Looking to the facts discussed above, I have reasons to believe that income to the extent of Rs.30,35,256/- has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961”.

Accordingly, the AO issued notices under section 148 of the IT Act for the assessment year 2010-11 on 31st March, 2017 and for the assessment year 2011-12 on 19th September, 2017 which were duly served. In response to the notices, the

assessee filed returns of income for the assessment year 2010-11 & assessment

year 2011-12 on 08.11.2017 & 05.10.2017 respectively declaring total income of Rs.

22,50,740/- and Rs. 14,81,982/- respectively. Reasons recorded for reopening were

communicated to the assessee on 09.11.2017 and 07.07.2018 respectively. In

response the assessee filed objections vide letters dated 17.11.2017 and 28.08.2018

which were disposed off by the AO on 20.11.2017 & 14.09.2018 respectively by

following the Judgment of the Hon’ble Supreme Court in the case of GKN Driveshafts

(India) Ltd. Thus the notices issued under section 148 for A.Y. 2010-11 is after the

expiry of four years from the end of the respective assessment year hence the

24 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

proviso to section 147 of the IT Act is applicable for this year. The revenue has not

disputed this fact that the reopening in respect of A.Y 2010-11 is after the expiry of

four years from the end of the assessment year. It is apparent from the reasons

recorded by the AO that the AO proposed to assess the notional rent after

determining the ALV of the unsold space at “Krishna Square” of the commercial

complex in question in view of the decision of Hon’ble Supreme Court in the case of

GKN Driveshafts (India) Ltd. (supra). The reasons do not indicate that the AO has

received any fresh factual information but all the relevant facts, information and

record were available with the AO at the time of framing the scrutiny assessment for

all these assessment years. Though the assessments under section 143(3) for the

assessment years 2010-11 was completed prior to the reopening of the assessment

and therefore, the said assessment orders for the assessment year 2010-11 may

constitute tangible material apart from the decision of the Hon’ble Supreme Court in

case of GKN Driveshafts (India) Ltd. (supra) for forming the belief that income

assessable to tax on account of notional rent in respect of unsold stock of the

assessee escaped assessment. However, even if the decision of Hon’ble Supreme

Court and the assessment orders passed under section 143(3) for the assessment

year 2010-11 may constitute tangible material for forming the belief, the same shall

be subject to the fulfillment of the conditions as prescribed in the first proviso to

section 147 of the IT Act. There is no allegation by the Assessing Officer in the

reasons recorded that the income proposed to be assessed in the reassessment

proceedings has escaped assessment due to the failure on the part of the assessee

to disclose fully and truly all material facts necessary for assessment. Even

otherwise, we find that all the relevant material in respect of the issue of assessment

25 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

of rental income of the unsold stock was already available with the Assessing Officer

at the time of scrutiny assessment. Hence, when the original assessment was

framed under section 143(3) and the reopening is after the expiry of four years from

the end of the relevant assessment year then the Assessing Officer is not permitted

to reopen the assessment until and unless the conditions prescribed in the proviso to

section 147 are satisfied. The Assessing Officer himself has not alleged that the

income proposed to assess has escaped assessment for want of disclosure of all

material facts necessary for assessment. The ld. Commissioner of Income Tax

(Appeals) has simply considering the decisions of the Hon’ble Bombay High Court in

the case of Yuvraj vs. UOI (2009) 315 ITR 84 (Bombay) rejected the legal ground

raised by the assessee. The assessee has controverted the decision in the case of

Yuvraj vs. UOI (supra) by stating that proviso to section 147 is not applicable in the

cited case by ld. CIT (A). Thus, in view of the above facts and circumstances as

well as the binding precedents on the issue being decision of Hon’ble Supreme Court

in the case of GKN Driveshafts (India) Ltd, (supra) and decision of Hon’ble Rajasthan

High Court in the case of CIT Udaipur vs. Hindustan Zinc Ltd. (supra), we are of the

considered view that the assessee deserves to succeed and the impugned order of

the ld. CIT (A) for A.Y. 2010-11 is set aside. So far as A.Y. 2011-12 is concerned it is

a fact that no scrutiny assessment for this year was made and the benefit of proviso

to section 147 of IT Act is not available. No any material was placed to show that

reassessment proceedings for A.Y 2011-12 was initiated on the basis of change of

opinion. Therefore, the finding of ld. CIT (A) on the legal issue for A.Y. 2011-12 is

sustained. Thus, appeal for AY 2010-11 is allowed and appeal for A.Y. 2011-12 is

partly allowed.

26 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

ON MERITS :

additions sustained by the ld. CIT (A).

material on record. We note that the AO has made the addition of the respective

amounts by determining the ALV in respect of unsold stock of the assessee at

“Krishna Square” the commercial complex in question. There is no dispute that the

space at “Krishna Square” was vacant except for some units which were given on

rent to M/s. Mobitel Telelink Private Ltd. for 51 days and in next year to M/s. Birla

Hospitals only for one month and subsequently the said tenants also vacated the

premises. The AO has proposed to assess the notional rent after determining the

ALV of the unsold space at “Krishna Square” of the commercial complex in question.

On merit, the ld. CIT (A) sustained the addition by considering the decision of

Hon’ble Delhi High Court in case of Ansal Housing & Construction Ltd. vs. ACIT

(2018) 89 taxmann.com 238 (Delhi) and Susham Singla vs. CIT, (2017) 81

taxmann.com 167 (SC). The ld. A/R of the assessee has controverted the finding of

the ld. CIT (A) on merit by stating that in the case of CIT vs. Ansal Housing Finance

& Leasing Co. Ltd. (supra) the charging section 22 has not been discussed. Further

the SLP filed by the assessee has been admitted in Hon’ble Supreme Court which is

pending decision. The ld. A/R submitted that the benches of the ITAT has followed

the ratio laid down by Hon’ble Gujarat High Court in the case of CIT vs. Neha

Builders (P) Ltd. 296 ITR 661 (Guj.) for deciding this issue. Further the ratio laid

down by Hon’ble Gujarat High Court in the case of CIT vs. Neha Builders (Pvt.) Ltd

27 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

(supra) should be followed in view of the decision of Hon’ble Supreme Court in the

case of CIT vs. Vegetable Products Ltd., 88 ITR 192 (SC). The ld. A/R further

submitted that it is a well settled law that when two divergent views of non-

jurisdictional High Courts are available and there is no decision on the issue from the

Jurisdictional High Court, the view in favour of the assessee has to be adopted.

submitted that the facts of this case are distinguishable. In this case also the issue

was not on taxability of notional income on unsold business stock in view of charging

section 22. Hon’ble Apex Court dismissed the SLP filed by the assessee against the

decision of Hon’ble Punjab & Haryana High Court in the case of Susham Singla vs.

CIT (supra) and the issue involved was vacancy allowance under section 23(1)(c).

At the outset, we note that this Tribunal in the case of M/s. Silver Sand Builders Pvt. Ltd. for the assessment year 2012-13 in ITA No. 284/JP/2017 vide order dated 27th

April 2018 has considered and decided this issue in para 7 to 7.2 as under :-

“7. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee has shown the unsold space in the commercial complex, namely, Silver Square as stock-in-trade. The AO proposed to determine the ALV of the unsold space which is not let out by taking into consideration the rent in respect of the portion let out at ground floor of the complex. As regards the question of taxability of notional rental income in respect of unsold space held as stock-in-trade, there are divergent views on this issue. The Hon’ble Delhi High Court in the case of CIT vs. Ansal Housing Finance and Leasing Pvt. Ltd. (supra) has taken a view against the assessee and in favour of the revenue by holding that the incident of charges of tax under section 22 and 23 is because of

28 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

the fact of ownership and not because of the nature of the property as stock-in-trade or capital asset. Whereas the Hon’ble Gujarat High Court in case of CIT vs. Neha Builders Pvt. Ltd. (supra) has taken a contrary view and held that the income derived from the property would always be termed as Income from property but if the property is used as stock-in-trade, then the said property would become or partake the character of stock and any income derived from the stock would be income from business and not income from property. 7.1. Therefore, in view of the contrary decisions on this issue, we would first consider the factual aspect of the matter whether the unauthorized construction at 4th floor which is also temporary in nature can be considered as property consisting of any building as per section 22 of the Act and consequently the annual value of such an unauthorized construction can be determined under section 23(1) of the Act. The revenue has not disputed this fact that the 4th floor of the property is unauthorized construction as beyond the sanctioned plan and, therefore, the Municipal Authorities have already proposed action for demolition of the said property against which the assessee has approached the Hon’ble High Court for protection of the property in question. Further, it is also not disputed that the solitary tenant at the 4th floor had already vacated the premises after the local authorities have proposed to demolish the said construction. Thus in view of the fact that the 4th floor of the property is facing the demolition action by the local authorities for being unauthorized, the ALV of such property cannot be determined by considering the rent for which the ground floor of the property or the other portion of the said complex was let out. The income from house property is measured as annual value of the property and section 23(1) contemplates the manner in which annual value of the property has to be determined. Since the property in question is newly constructed property and has never been let out, therefore, the provisions of section 23(1)(a) envisages the method for

29 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

determining the ALV of such property. The AO has to determine the sum for which the property might reasonably be expected to fetch the rent from year to year. Thus the fair market rent as expected to be fetched by the property by letting out from year to year is the relevant facts to be taken into consideration. There is no method provided in the Income Tax Act for determination of the reasonable rent expected to be fetched by the property. However, there are judicial precedents on this issue wherein the Hon’ble Supreme Court in a series of decisions has held that the standard rent of the property is a relevant criteria and basis for determination of the annual letting value. In case of Mrs. Sheela Kaushik vs. CIT, 131 ITR 435 (SC), the Hon’ble Supreme Court has held that for determination of annual value standard rent should be the basis and the annual rent received by the landlord is not relevant. Further, in case of Deewan Daulat Rai Kapoor vs. NDMC, 122 ITR 700 (SC), the Hon’ble Supreme Court has again while deciding the issue of computation of rateable value of the property held that even if the standard rent was not fixed, the annual value of the building should be determined for the purpose of levy of house tax as per the provisions of Rent Control Act as the landlord cannot reasonably expect to receive rent from hypothetical tenant anything more than the standard rent determinable under the provisions of Rent Control Act. The Hon’ble Calcutta High Court in the case of CIT vs. Smt. Prabhabati Bansali, 141 ITR 419 (Cal.) as well as the Hon’ble Bombay High Court in case of M.V. Sonavala vs. CIT, 177 ITR 246 (Bom.) have taken a consistent view that annual value of the property for the purpose of municipal taxes should be computed as per the provisions of Rent Control Act for computing the standard rent. Therefore, it is mandate that the AO has to determine the annual letting value by considering the reasonable rent expected to be fetched by the property on the basis of the method provided for fixation of standard rent or computation of rateable value. Since in the case in

30 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur. hand the 4th floor of the property is not eligible for fixation of standard rent being unauthorized construction and subjected to demolition action of the Municipal authorities, therefore, in the normal circumstances the reasonable rent expected to be fetched by such property would be nil. 7.2. There is another aspect in the matter that since the property in question is newly constructed and held as stock-in-trade, therefore the vacancy of the property being not let out is not intentional or deliberate act on the part of the assessee but it is beyond the control of the assessee to find a tenant for such unauthorized construction. Once the non-letting of the property is not due to the reason of intentionally keeping vacant by the assessee but it is because of the fact and circumstances that the said space could not be let out despite the best efforts of the assessee, the benefit of vacancy under section 23(1)(c) would be available to the assessee. For ready reference, we quote the provisions of section 23(1) as under :-

“ 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be— (a) the 57sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let57 and the actual rent57 received or receivable57 by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable”

There is no dispute on the point that the property was vacant during the whole of the previous year and, therefore, owing to such vacancy the sum referred in clause (1) of section 23 shall be the actual rent received or receivable by the assessee which no doubt is Nil. There is no denial of the fact that the process of letting out may take some time in searching the suitable tenant and for settling the terms and

31 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

conditions of letting out. Therefore, even if for the sake of argument it is presumed that the house was ready for occupation, if the same is not kept vacant intentionally by the assessee then vacancy allowance under section 23(1)(c) would be available to the assessee. The revenue would argue that the benefit of section 23(1)(c) is available only when the property was let out at first place and then remain vacant. However, as per the provisions of section 23(1)(c) the property can be vacant during the whole of relevant previous year and, therefore, both situation cannot co-exist that the property is actually let out and also the same is vacant during the whole year. Accordingly, in the facts and circumstances of the case when it was not possible for the assessee to let out the property, then the benefit of section 23(1)(c) would be available to the assessee. Hence the initial delay in letting out the property first time cannot be considered as deemed let out as per the provisions of section 23 of the Act. Accordingly, in the facts and circumstances of the case, we are of the considered view that the ALV of the property in question would be Nil as it was not possible to let out the property during the year under consideration and further the unauthorized construction of the property is otherwise not eligible for determination of standard rent or rateable value and consequently there is no basis for determination of ALV of the property under section 23(1)(a) of the Act. Hence we delete the addition made by the AO.”

Thus the facts and the issue for all two years are identical to the facts and issue

involved for the assessment year 2010-11 and 2011-12. Further, the notional ALV of

the units held as stock in trade cannot be chargeable as income in the case of

builder since the property is not constructed for letting out but the same is held for

sale and actually was sold out on subsequent dates. Further, the builders take

booking advance from several parties against the units and is under obligation to

32 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

deliver possession of unsold stock to the concerned parties and such units cannot be

let out by the builder. Therefore in absence of any specific provision in law ALV of

stock in trade cannot be taxed. The sub-section (5) of section 23 was inserted by

Finance Act 2017 with effect from 01.04.2018. The amended provision of sub

section (5) of section 23 allows relaxation from taxability of ALV on unsold stock for

the period upto 2 (two) years from the end of the financial year in which the

certificate of completion of construction of the property is obtained. In the case of

the assessee, construction of the property was completed on 31.08.2009. Therefore,

even if we consider the relaxation period upto two years as envisaged in section

23(5), the ALV on unsold stock cannot be taxed for assessment year 2010-11 and

2011-12. Accordingly, following the earlier order of this Tribunal and considering the

decisions of other Benches of Bombay and Pune ITAT, we decide this issue against

the revenue and in favour of the assessee and consequently the additions made by

the AO and sustained by the ld. CIT (A) for A.Y. 2010-11 and 2011-12 are deleted

and the order of the ld. CIT (A) is set aside.

appeal for A.Y. 2011-12 is partly allowed.

Order is pronounced in the open court on 29/03/2022.

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33 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

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सहायक पंजीकार@Aेेज. त्महपेजतंत

34 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

The reasons do not indicate that the AO has received any fresh factual information but all the relevant facts, information and record were available with the AO at the time of framing the scrutiny assessment for all these assessment years. Though the assessments under section 143(3) for the assessment years 2010-11 and 2011-12 were completed prior to the reopening of these assessments and therefore, the said assessment orders for the assessment years 2010-11 & 2011-12 may constitute tangible material apart from the decision of the Hon’ble Supreme Court in case of GKN Driveshafts (India) Ltd. (supra) for forming the belief that income assessable to tax on account of notional rent in respect of unsold stock of the assessee escaped assessment. However, even if the decision of Hon’ble Supreme Court and the assessment orders passed under section 143(3) for the assessment years 2010-11 and 2011-12 may constitute tangible material for forming the belief, the same shall be subject to the fulfillment of the conditions as prescribed in the first proviso to section 147 of the IT Act. There is no allegation by the Assessing Officer in the reasons recorded that the income proposed to be assessed in the reassessment proceedings has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Even otherwise, we find that all the relevant material in respect of the issue of assessment of rental income of the unsold stock was already available with the Assessing Officer at the time of scrutiny assessment. Hence, when the original assessment was framed under section 143(3) and the reopening is after the expiry of four years from the end of the relevant assessment year then the Assessing Officer is not permitted to reopen the assessment until and unless the conditions prescribed in the proviso to section 147 are satisfied. The Assessing Officer himself has not alleged that the income proposed to assess has escaped assessment for want of disclosure of all material facts necessary for assessment.

35 ITA No. 142 & 143/JP/2021 M/s. Krishna Build Home Pvt. Ltd., Jaipur.

The notional ALV of units held as stock in trade is not chargeable as income in case of a builder since the property is not meant for letting out and same is held for sale. Clause (a) of sub-section (1) of section 23 of IT Act envisages that the property should be in a position to let out and, therefore, it has been provided that annual value is to be taken equivalent to the sum for which the property might reasonably be expected to be let out. The use of the words “expected to be let out” would mean that the property should be meant for let out or it can be let out. In case of a builder, the property is not meant for let out and since their intention is to sell the property they cannot let out the property otherwise it will be difficult for them to sell the property for which they had constructed the same. Therefore, it cannot be said that such case is covered in clause (a) of sub-section (1) of section 23 of the Act. In case clause (a) is not applicable as its income will not be chargeable to tax on notional basis under the head Income from House Property. The Hon’ble Gujarat High Court in case of CIT vs. Neha Builders Pvt. Ltd. 296 ITR 661 (Guj.) has held that since the provisions “Income from House Property” are not applicable on the properties lying as stock in trade, the provisions of taxing the deeming rent (ALV) will also not applicable on the assessee.