ARIHANT VASTUNIRMAN PRIVATE LIMITED,RATNAGIRI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, KOLHAPUR

Assessment Year: 2017-18 Arihant Vastunirman Private Vs. ACIT, Circle-1, Kolhapur. Limited, Office No.1, Siddhivinayak Community Hall, Shivaji Nagar, Siddhivinayak Nagar, Ratnagiri- 415612. PAN : AAKCA4408K Appellant Respondent Assessee by : Shri Pramod S. Shingte Revenue by : Shri Ramnath P. Murkunde Date of hearing : 14.08.2024 Date of pronouncement 23.10.2024 : आदेश / ORDER

PER VINAY BHAMORE, JM:

1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the addition by the A.O. of Rs.34,14,922/- representing notional rental income in respect of unsold flats forming part of closing inventory of the appellant.

The appellant craves leave to add to, amend, alter, delete or modify all or any of the above ground of appeal or raise a new ground of appeal before or at the time of hearing.”

3. The facts of the case, in brief, are that the assessee is a private limited company engaged in the business of construction of residential and commercial projects. The assessee has e-filed its return of income on 31.10.2017 declaring total income at Rs.3,75,91,950/-. The case was selected for scrutiny under CASS. Notices u/s 143(2) and 142(1) were issued to the assessee along with questionnaire. During the course of assessment proceedings, the Assessing Officer found that number of unsold flats and commercial property (shops) were held as unsold stock in hand. Accordingly, the Assessing Officer asked the assessee in the light of section 23(4) of the IT Act that why not deemed rental income is declared by the assessee on unsold flats and commercial property (shops) held as stock in trade. In reply, the assessee submitted that he is engaged in the business of construction of residential and commercial projects and whatever unsold stock is held as per the balance sheet is related to business and admittedly stock in trade. It was also submitted that regarding calculation of deemed rent on unsold stock in trade a new section 23(5) of the IT Act has been introduced w.e.f. assessment year 2018-19 only & no such section was in existence during the relevant period under consideration. Being unsatisfied with the reply of the assessee, the Assessing Officer determined deemed rent of Rs.15,06,808/- on unsold flats and deemed rent of Rs.22,27,496/- was determined on unsold commercial property (shops) and gave relief of Rs.4,19,832/- towards rent declared by the assessee himself. Accordingly, the Assessing Officer in the light of section 23(4) of the IT Act determined taxable deemed rent of Rs.34,14,922/- and completed the assessment vide order dated 30.12.2019 by determining total taxable income at Rs.4,10,06,872/- as against the income returned by the assessee at Rs.3,75,91,950/-.

4. After considering the reply of the assessee ld. CIT(A)/NFAC dismissed the appeal vide order dated 16.02.2024. It is this order against which the assessee is in appeal before this Tribunal.

5. Ld. AR submitted before us that the order passed by ld. CIT(A)/NFAC is not correct. It was submitted by ld. AR that the assessee company is engaged in the business of construction of residential and commercial projects. At the end of the year under consideration, the assessee company was holding closing stock of unsold residential flats as well as commercial shops. It was submitted by ld. AR that deemed rent/notional rent should not be determined on either residential flats or commercial shops since they are stock in trade and whenever they are sold the income generated will be business income. Alternatively, it was also submitted by ld. Counsel of the assessee that the notional rent/deemed rent was calculated on the annual letting value determined by the Assessing Officer is on higher side. Ld. Counsel of the assessee also submitted that a new section i.e. section 23(5) of the IT Act was introduced w.e.f. assessment year 2018-19 only, which suggest to calculate deemed rent/notional rent on the unsold closing stock held in stock in trade. It was submitted that the introduction of this new section itself suggests that prior to assessment year 2018-19 Legislature does not intend to calculate any notional rent/deemed rent on the value of closing stock held as stock in trade. It was also submitted that section 23(4) of the IT Act talks about the property (i.e. house) and do not use word commercial property (i.e. shops) or “stock in trade”. It was also submitted that the property held as stock in trade was used for the purposes of business, therefore, section 23(4) does not apply. Ld. Counsel of the assessee further submitted that when the Hon’ble High Court decided the case of CIT vs. Ansal Housing Finance Ltd, section 23(5) was not on statute book. Ld. Counsel of the Co-ordinate Bench of this Tribunal :- (i) Jayant Avinash Dave vs. DCIT, 156 taxmann.com 458. (ii) Malpani Estates vs. ACIT, dated 09.12.2022. (iii) Sai Spaceon India Pvt. Ltd. vs. DCIT, dated 10.01.2022. (iv) M/s Cosmopolis Construction vs. ACIT, ITA No.191/PUN/2022 dated 11.01.2023.

6. In the light of above decisions, ld. AR requested before the bench to delete the deemed/notional rents determined by the Assessing Officer and sustained by ld. CIT(A)/NFAC.

7. Ld. DR vehemently relied on the order passed by ld. CIT(A)/NFAC and requested to confirm the same.