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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI WASEEM AHMED & SHRI SIDDHARTHA NAUTIYAL
आदेश / O R D E R
PER BENCH:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income Tax, Rajkot-1, dated 08/02/2022 arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") relevant to the Assessment Year (A.Y.) 2017-18.
ITA No.96/RJT/2022 A.Y.2017-18
- 2 - 2. The only interconnected issue raised by the assessee is that the learned Principal CIT erred in holding the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of Revenue.
The brief facts are that the assessee is a partnership firm and engaged in the business of Real Estate. The Ld. PCIT, on examination of the assessment records, found that the assessee has closing stock of the properties as on 31 March 2017 at Rs. 11,66,89,586.00. Undisputedly, the BU permission was received by the assessee in the year under consideration. Accordingly the Ld. PCIT was of the view that the assessee was liable to declare the income under the head income from house property on notional basis under section 22 read with section 23 of the Act but the assessee has not done so. According to the Ld. PCIT, this fact was not verified by the AO during the assessment proceedings. Accordingly, the Ld.PCIT initiated the proceedings under section 263 of the Act vide show cause notice dated 13 January 2022.
3.1 The assessee in response to such show cause notice vide letter dated NIL submitted that there was the amendment brought under the statute by way of the Finance Act 2017 effective from 1 April 2018 corresponding to assessment year 2018-19 wherein it was held that the properties held as stock in trade will be subject to the provisions of section 22 read with section 23 of the Act. However, this amendment was applicable from the assessment year 2018-19 whereas the year under consideration is the assessment year 2017-18. Thus it was the primary contention of the assessee that there is no provision for the year under consideration for charging the notional rent with respect to units of properties held as stock in trade.
3.2 In addition to the above, the assessee also contended that the AO in the assessment proceedings after due verification and application of mind has framed
ITA No.96/RJT/2022 A.Y.2017-18
- 3 - the assessment without calculating the notional rent as alleged by the learned PCIT.
However, the learned PCIT was not convinced with the submission of the assessee on the reasoning that the properties held as stock in trade in respect of which BU permission has been obtained are chargeable to tax under the provisions of section 22 and 23 of the Act on notional basis. The learned PCIT has also referred the provisions of explanation 2 of section 263 of the Act and held the order of the AO as erroneous insofar prejudicial to the interest of Revenue.
Being aggrieved by the order of the learned PCIT, the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 34 and contended that the building completion certificate was issued by the competent authority dated 15 October 2016 and therefore the provisions of section 23(5) will be applicable after one year from the end of the financial year in which the certificate of completion of construction was obtained. Accordingly, the notional rental income is not chargeable to tax in pursuance to the provisions of section 22 read with section 23 with respect to the properties held as stock in trade for the year under consideration.
On the contrary, the learned DR before us vehemently supported the order of the learned PCIT.
We have heard the rival contentions of both the parties and perused the materials available on record. The Finance Bill 2017 seeks to amend section 23 of the Income Tax Act w.e.f. 1st April, 2018 which lays down the determination of annual value in case of house property for the purpose of calculating the Income
ITA No.96/RJT/2022 A.Y.2017-18
- 4 - under the head "House Property" income particularly in case of deemed let out property.
8.1 The legislature has proposed to insert a new sub-section (5) in section 23 which reads as under:
"(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 out during the whole of any part of the previous year, the annual value of such property or part of the property, for the period up to one year 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."
8.2 The Explanatory Memorandum released by the Finance Ministry for explaining the purpose of proposal is as under: Considering the business exigencies in case of real estate developers, it is proposed to amend the said section so as to provide that where the house property consisting of any building and 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 upto one year 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.
8.3 This amendment will take effect from 1st April, 2018 and will, accordingly apply in relation to assessment year 2018-19 and subsequent years.
8.4 A plain reading of the above provisions makes it clear that the amendment for charging the tax on the notional rent with respect to the properties held as stock in trade was applicable from the assessment year 2018-19 and subsequent assessment year. As such, the amended provision is not applicable for the year under consideration. Thus the question of calculating the rental income with respect to the units of the properties held as stock in trade does not arise. Thus we hold that there was no error in the order of the AO framed under section 143(3) of the Act which is causing prejudice to the interest of revenue. For invoking the provisions of section 263 of the Act, it is necessary that the twin conditions should be satisfied. The order should be erroneous and prejudicial to
ITA No.96/RJT/2022 A.Y.2017-18 - 5 - the interest of revenue. Once there is no error the order of the AO, the same cannot be subject to the provisions of section 263 of the Act. In view of the above and after considering the facts in totality, we hold that there is no error in the assessment framed by the AO under section 143(3) of the Act causing prejudice to the interest of revenue. Thus, the revisional order passed by the learned PCIT is not sustainable and therefore we quash the same. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
This Order pronounced in Open Court on 30/06/2022
-Sd- -Sd- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot, Dated 30/06/2022 manish