M/s. Othello Developers, Baroda V. The Pr. CIT-1, Baroda

ITA 107/AHD/2022

AI Insights

The case involves Othello Developers, a real estate business, appealing against the order of the Pr. Commissioner of Income Tax, Vadodara, which revised the assessment order under section 263 of the Income Tax Act, 1961 for the assessment year 2017-18. The revision was based on the grounds that the assessee had not reported any income from completed units, which should have been taxed under 'income from house property' as per section 22 of the Act. The Tribunal examined whether the Pr. CIT was correct in his revision, considering various High Court decisions, particularly focusing on whether the income from such completed units should be taxed under 'income from house property' or 'income from business and profession'. The Tribunal concluded that the income should be taxed under 'income from business and profession', aligning with the decision of the jurisdictional High Court in Neha Builders P. Ltd.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133512 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-03-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 20-04-2022
• Other Referred Cases: CIT Vs. Ansal Housing Finance & Leasing Co. Ltd., Azimganj Estate P.Ltd. vs. 206 taxman 308, Neha Builders P.Ltd. vs. (2007) 164 taxman 342 (Guj)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Assessment record; Set aside
• Section: 263; 143(3); 142(1); 22

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘B’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No.107/Ahd/2022 Assessment Year : 2017-18 Othello Developers 402, 4 th Floor R.K. Centre, Fatehgunj Main Fatehgunj, Vadodara. PAN : AABFO 4301 M Vs. Pr.CIT-1 Vadodara. (Applicant) (Responent) Assessee by : Shri Bhavin Marfatia, AR Revenue by : Shri Sudhendu Das, CIT-DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 2 8 / 0 3 / 2 0 2 3 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 1 7 / 0 4 / 2 0 2 3 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order passed by the ld.Pr.Commissioner of Income Tax, Vadodara-1 [hereinafter referred to as “Ld.Pr.CIT”]dated 30.3.2022 passed under section 263 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short]for the Asst.Year 2017-18. 2. The grounds raised are as under: “Invalid Revision u/s 263: 1. The learned PCIT erred in fact and in law in assuming jurisdiction u/s. 263 without satisfying the conditions u/s. 263 of the Income Tax Act, 1961 ("the Act"). 2. The learned PCIT erred in fact and in law in not dropping the proceedings u/s 263 despite the fact that the original order passed by the AO was not erroneous nor was prejudicial to the interest of the Revenue. ITA No.107/Ahd/2022 2 3. The learned PCIT erred in fact and in law in not dropping the proceedings u/s 263 despite the fact that issue for which revision proceedings were initiated was settled in favour of the Appellant by the decision of the jurisdictional High Court on the date of initiating the revision proceedings and also on the date of passing the order u/s. 263 of the Act. 4. The learned PCIT erred in fact and in law in not dropping the proceedings u/s 263 and observing that the order passed u/s. 143(3) was made without proper verification and inquiry. 5. The learned PCIT erred in fact and in law in setting aside the assessment u/s. 143(3) and directing the Assistant Commissioner of Income Tax, Circle 1(2)(1), Vadodara ("the AO") to frame fresh assessment. Without Prejudice to above 6. The learned PCIT erred in fact and in law in holding that the notional rent from stock-in-trade held for purpose of business was chargeable to tax under the head "Income from House Property". 7. The learned PCIT erred in fact and in law in not appreciating the provisions of Section 22 in proper perspective. - 8. The learned PCIT erred in fact and in law in not appreciating the fact that the inventory of units was held by the Appellant for its business and that the provisions of section 22 were not applicable. 9. The learned PCIT erred in fact and in law in not appreciating the fact that the provision of section 23(5) of the Act charging notional rent from the property held as stock in trade is not applicable for the year under consideration i.e. A.Y. 2017-18. Without Prejudice to above 10. The learned PCIT erred in fact and in law in not allowing vacancy allowance in accordance with the provisions of section 23(1) (c) of the Act. 11. The learned PCIT erred in fact and in law in estimating annual letting value of closing inventory @ 7% despite the fact that in the case of the Appellant, the annual letting value would be NIL as per provision of section 23(1) (c) of the Act. 12. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the grounds of appeal. 3. As transpires from the order of the ld.Pr.CIT, jurisdiction to revise order of the AO passed under section 143(3) was invoked by the ld.Pr.CIT, noting from the assessment record that the assessee being in the business of real estate, had closing stock of completed units, but no income therefrom had been returned in terms of ITA No.107/Ahd/2022 3 deemed annual letting value (ALV) under section 22 of the Act, to be subjected to tax as Income from house property. As per the ld.Pr.CIT, as per the decisionof the Hon’ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance & Leasing Co. Ltd. (ITA No.18 of 1999 and others) dated 31.10.2012 and the decision of Hon’ble Calcutta High Court in the case of Azimganj Estate P.Ltd. 206 taxman 308, the rental income of such completed units was assessable under the head “Income from house property” as long as the assessee continued to be the owner of the vacant flats, and the basis of the assessment had to be at ALV on rational and scientific basis. The ld.Pr.CIT noted that the AO having made no verification regarding the issue and having not considered the judicial decisions of the Hon’ble High Courts on the issue during the assessment proceedings, the assessment order passed therefore by him was erroneous causing prejudice to the Revenue. The show cause notice issued by the ld.Pr.CIT (copy of which was placedbefore us at page no.87) brings out the above reasons, as under: ITA No.107/Ahd/2022 4 ITA No.107/Ahd/2022 5 4. During the proceedings before the ld.Pr.CIT, the assessee pointed out that the AO had rightly not invoked the provisions of section 22 of the Act on the unsold completed units of the assessee, since the units constituted stock-in-trade of the assessee and income if any from the same was assessable to tax under the head “Income from business and professions” and not under the head “Income from house property”. He referred to the decision of the Hon’ble jurisdictional High Court in the case of Neha Builders P.Ltd., (2007) 164 taxman 342 (Guj) in support of his contention. Several other decisions were also cited before the ld.Pr.CIT. However, the ITA No.107/Ahd/2022 6 ld.Pr.CIT was not convinced with the explanation of the assessee and held the assessment order erroneous causingprejudice to the Revenue on account of the issue of the taxation of income from completed units of the assessee under section 22 of the Act being not looked into by the AO, considering various decisionsof the Hon’ble High Courts as noted by him. He further distinguished the decision of jurisdictional High Court in the case of Neha Builders P.Ltd. (supra) stating that it was rendered in different set of facts, and therefore, was not applicable to the case of the assessee. Accordingly, he set aside the assessment order passed under section 143(3) of the Act with direction to the AO to pass fresh assessment order after taking into consideration the issues, as were already considered together with the issues discussed in his revisionary order, afresh. 5. We have heard the contentions of both the parties; we have also gone through order of the ld.Pr.CIT and have also gone through various decisions cited by the ld.counsel for the assessee before us. 6. The error noted by the ld.Pr.CIT, at the cost of repetition we may state, is that the assessee being in the business of real estate had certain completed units reflected as stock-in-trade in its balance sheet. As per the ld.Pr.CIT, the assessee ought to have returned deemed rental income on the same ,equivalent to its Annual Letting Value ,under the head “Income from house property” in terms of provisions of section 22 of the Act . The assessee having not done so, and the AO have not examined the issue in this light, the ld.Pr.CIT held the assessment passed by the AO ,not bringing to tax ALV of the constructed units of the assessee, as error in the order of the AO causing prejudice to the Revenue. ITA No.107/Ahd/2022 7 The repeated contentions of the ld.counsel for the assessee before the ld.Pr.CIT and even before us, was that the jurisdictional High Court in the case of Neha Builders P.Ltd. (supra) had categorically held that income from units of real estate which were held as stock-in-trade were assessable under the head “business income” and not “income from house property” as held by the ld.Pr.CIT in the present case. This decision was cited even before the AO during the assessment proceedings, who it was contended by the Ld.Counsel for the assessee had therefore taken a possible view following the decision of jurisdictional High Court, in not subjecting to tax the income from these constructed units under the head “income from house property” under section 22 of the Act. 7. We find merit in the contentions of the ld.counsel for the assessee. We have gone throughthe order of the ld.Pr.CIT, where while rejecting this contention of the assessee made before him, he has distinguished this decision of the Hon’ble jurisdictional High Court at para 8.4 and 8.4of his order. We find that he has miserably failed in this exercise and that even as per his noting of the facts in both the cases and the finding of the Hon’ble High Court in the case of Neha Builders P.Ltd. (supra), the decision was clearly applicable to the facts of the present case ,as rightly applied by the AO. The para 8.4 & 8.5 of the ld.Pr.CIT’s order are reproduced hereunder: ITA No.107/Ahd/2022 8 Stock-in-trade therefore the property would partake the character of the stock and any income derived from the stock cannot be taken to be income from property.” 8. At para 8.5 the ld.Pr.CIT has noted the facts in the case of Neha builders (Supra) stating that in that case the assessee was in the business of construction of property and one of the building property was included in the closing stock in the balance sheet ITA No.107/Ahd/2022 9 drawn for the business and the assessee had earned income on rent from such constructed properties and returned it under the head “income from house property”. The Ld.PCIT has noted that the AO in the said case however had held that property being in the nature of stock-in-trade, rental income as earned thereon was to be taxed from “income from business and profession”. He further notes thatthe Hon’ble High Court upheld the finding of the AO that the constructed units of the assessee ,who is in the business of construction of property, being in the nature of stock-in-trade, income earned therefrom was assessable under the head “Income from business and profession” and not “Income from house property”. 9. The proposition of law laid down by the Hon’ble High Court, admittedly as per the Ld.PCIT also, is that from units of properties held as stock-in-trade, the income earned was assessable under the head “income from business” and not “income from house property.The only relevant fact therefore for applicability of the said proposition is the nature of the property held, whether as stock in trade or otherwise. The distinction noted by the Ld.PCIT however, of the facts before the Hon’ble High Court and that of the present case is that while in the present case before us, the constructed properties are vacant, in the case before the Hon’ble High Court, the property was let out on rent, in both the cases however the properties are held as stock in trade. The said fact would make no difference to the applicability of the proposition of law laid down by the jurisdictional High Court in the case of Neha Builders P.Ltd. (supra) ,the only relevant fact admittedly for applicability of the proposition being nature of the building units, whether held as stock in trade or not. ITA No.107/Ahd/2022 10 Therefore, we hold that that there was no distinction between the facts of the case before the Hon’ble jurisdictional High Court in the case of Neha Builders(supra) and that before the Ld.PCIT and the decision the Hon’ble jurisdictional High Court squarely applied to the facts of the present case. Further applying the rule of judicial precedence, the said decision being that of the jurisdictional High Court, was applicable to the present case. Accordingly, we hold, that the income from constructed units of the assessee held as stock-in- trade was not assessable under the head “income from house property” as held by the ld.Pr.CIT. 10. We have noted that even before the AO this issue was raised by the AO vide his notice issued under section 142(1) of the Act dated 10.12.2019 specifically asking the assessee to show cause as to why notional income from house property under section 22 of the Act should not be worked out and added to the income of the assessee for the impugned year. Copy of the notice was placed before us at PB 67. In reply to the same by the assessee dated 17.12.2019, the assessee had drawn attention of the AO to the decision of jurisdictional High Court in the case of Neha Builders P.Ltd. (supra). The reply of the assessee is placed before at PB Page no.68 to 74. Therefore, since we have held above that the decisionof the jurisdictional High Court in the case of Neha Builders(supra) was squarely applicable to the facts of the case, we hold, that there was no error in the order of the AO who had accepted the explanation of the assessee that no income from completed units was assessable under the head “income from house property” following the decision of jurisdictional High Court in the case of Neha Builders P.Ltd. (supra). ITA No.107/Ahd/2022 11 11. In view of the above, the order passed by the ld.Pr.CIT under section 263 of the Act is set aside, and the appeal of the assessee is allowed. 12. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 17 th April, 2023 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 17/04/2023