M/s. Vishhram Developers, Pune V. Deputy Commissioner of Income-tax, Circle - 3, Pune

ITA 1479/PUN/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4927 (ITAT-PUNE)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 17-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K VERMA
• Assessee Lawyers: DEEPAK S SASAR
• Keywords: Business income; Deemed to accrue or arise in india
• Section: 143(3)

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE BEFORE SHRI ANIL CHATURVEDI, AM . / ITA NOS.1479 & 1480/PUN/2018 / ASSESSMENT YEAR : 2013-14 & 2014-15 M/S. VISHHRAM DEVELOPERS, OFFICE NO.101, ASHOK SANKUL II, ASHOK NAGAR, RANGE HILLS ROAD, PUNE 411 007. PAN : AAGFV0995F. . / APPELLANT V/S THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 3, PUNE. . / RESPONDENT ASSESSEE BY : SHRI DEEPAK S. SASAR. REVENUE BY : SHRI M.K. VERMA. / ORDER PER ANIL CHATURVEDI, AM : 1. THESE TWO APPEALS FILED BY THE ASSESSEE ARE EMANATING OUT OF SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX (AP PEALS) 3, PUNE, BOTH DATED 07.06.2018 FOR THE ASSESSMENT YEARS 2013-14 & 2014-15. 2. BEFORE ME, AT THE OUTSET, BOTH THE PARTIES SUBMITTED THAT THOUGH THE APPEALS FILED BY THE ASSESSEE ARE FOR DIFFERENT ASSESS MENT YEARS BUT THE FACTS AND ISSUES INVOLVED IN BOTH THE APPEALS ARE IDE NTICAL EXCEPT FOR THE ASSESSMENT YEARS AND THE AMOUNTS INVOLVED AND THEREFORE THE SUBMISSIONS MADE BY THEM WHILE ARGUING ONE APPEAL WOULD B E EQUALLY APPLICABLE TO THE OTHER APPEAL ALSO AND THUS, BOTH THE AP PEALS CAN BE / DATE OF HEARING : 31.01.2019 / DATE OF PRONOUNCEMENT: 14.02.2019 2 HEARD TOGETHER. IN VIEW OF THE AFORESAID SUBMISSIONS OF B OTH THE PARTIES, I, FOR THE SAKE OF CONVENIENCE, PROCEED TO DISPOSE OF BOTH THE APPEALS BY A CONSOLIDATED ORDER BUT HOWEVER, PROCEED W ITH NARRATING THE FACTS IN ITA NO.1479/PUN/2018 FOR ASSESSMENT YEAR 2013-14 . 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RE CORD ARE AS UNDER :- ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT. ASSESSEE FILED ITS RETURN O F INCOME FOR A.Y. 2013-14 ON 30.09.2013 DECLARING TOTAL INCOME OF RS.20,53 ,572/-. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND THER EAFTER ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER D T.21.03.2016 AND THE TOTAL INCOME WAS DETERMINED AT RS.26,37,372/-. AG GRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.C IT(A), WHO VIDE ORDER DT.07.06.2018 (IN APPEAL NO.PN/CIT(A)-3/CIR-3, PN/72/2 016-17) DISMISSED THE APPEAL OF ASSESSEE. AGGRIEVED BY THE ORDE R OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL AND HAS RAISED THE FOLLOWING E FFECTIVE GROUND : THE L EA RN E D CIT(A) ERRED IN CONFIRMING THE A DDITION O F R S.5,83,800/- ON ACCOUNT OF DEEMED RENTAL VALUE U/S 23(4) OF THE I.T . ACT, 1961 MADE BY THE LEARNED ASSESSING OFFICER. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICE D THAT ASSESSEE HAD CERTAIN FINISHED CLOSING STOCK OF 16 FLATS. A O WAS OF THE VIEW THAT AS PER THE PROVISIONS OF SEC.23(4) OF THE ACT, IF ASSESSEE IS OWNER OF TWO OR MORE HOUSES, THEN THE ANNUAL VALUE OF TH E HOUSE OTHER THAN THE HOUSE IN RESPECT OF WHICH ASSESSEE HAS EXERCIS ED OPTIONS, WOULD BE DEEMED TO HAVE BEEN LET OUT. THE ASSESSEE WA S THEREFORE ASKED TO EXPLAIN WHY THE DEEMED INCOME IN RESPECT OF THE UNSOLD UNITS 3 HELD BY ASSESSEE IN CLOSING STOCK NOT BE BROUGHT TO TAX . THE SUBMISSION OF THE ASSESSEE ABOUT NOT EARNING ANY RENTAL INCOME FROM THE AFORESAID FLATS AND THE FLATS BEING SHOWN AS UNSOLD ST OCK OF ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. AO REL YING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS . ANSAL HOUSING AND CONSTRUCTION REPORTED IN 354 ITR 180 (DELHI) [2013] HELD THAT DEEMED RENTAL INCOME ON 16 UNITS ARE CHARGEABLE TO TAX EVEN THOUGH SUCH UNITS WERE NOT ACTUALLY LET OUT. AO THER EAFTER WORKED OUT THE FAIR MARKET RENTAL VALUE OF 16 UNSOLD FLATS AT RS.5,83,8 00/- AND MADE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSE E CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO. AGGRIE VED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL. 5. BEFORE ME, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFO RE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT IT IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT AND THE UNSOLD FLATS AR E SHOWN AS STOCK-IN-TRADE AND INCOME FROM SALE OF SUCH FLATS IS ASSE SSABLE AS BUSINESS INCOME. IT WAS FURTHER SUBMITTED THAT THE UNS OLD FLATS THAT ARE HELD AS STOCK-IN-TRADE CANNOT BE BROUGHT TO T AX AS INCOME FROM HOUSE PROPERTY AND FURTHER THOSE FLATS HAVE NOT BEEN LET OUT AND NO INCOME HAS BEEN DERIVED BY ASSESSEE. HE FURTHER SUBM ITTED THAT THE ISSUE IN THE PRESENT APPEAL IS COVERED IN ASSESSEES FAV OUR BY THE DECISION OF PUNE TRIBUNAL IN THE CASE OF M/S. TRICON BUILDERS VS. ITO IN ITA NO.475/PUN/2018 ORDER DT.04.12.2018. HE THEREFORE SUB MITTED THAT NO ADDITION IS CALLED FOR. 6. LD.D.R. ON THE OTHER HAND, SUPPORTED THE ORDER OF AO AND LD.CIT(A). HE FURTHER PLACED RELIANCE ON THE DECISION OF HON BLE 4 BOMBAY HIGH COURT IN THE CASE OF MANGLA HOMES (P) LTD., VS . ITO REPORTED IN 325 ITR 281(BOM). HE ALSO PLACED ON RECORD THE AFORESAID DECISION. LD.A.R. IN THE REJOINDER SUBMITTED THAT THE FA CTS IN THE CASE OF MANGLA HOMES (SUPRA) ARE DISTINGUISHABLE AS IN THAT CASE THE UNSOLD FLATS WERE LET OUT AND ASSESSEE HAS EARNED RENTAL INCOME AND SUCH RENTAL INCOME WAS CONSIDERED BY THE ASSESSEE AS INCOME FROM BUSINE SS. HE SUBMITTED THAT IN THE PRESENT CASE, ASSESSEE HAS NO T LET OUT THE PROPERTIES AND THE QUESTION IS WITH RESPECT TO DEEMED RENTAL INCOM E. 7. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MA TERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO ADDITION UNDER THE HEAD INCOME FROM HOUSE PROPERTY ON 16 UNSOLD FLA TS BY THE ASSESSEE. IT IS AN UNDISPUTED FACT THAT ASSESSEE IS IN T HE BUSINESS OF CONSTRUCTION AND DEVELOPMENT AND HAD IN THE CLOSING STOC K THE 16 UNSOLD FLATS. IT IS ALSO AN UNDISPUTED FACT THAT THESE 1 6 FLATS WERE VACANT AND NO RENTAL INCOME WAS DERIVED BY THE ASSESSE E DURING THE YEAR UNDER CONSIDERATION. I FIND THAT THE CO-ORDINATE B ENCH OF PUNE TRIBUNAL IN THE CASE OF M/S. COSMOPOLIS CONSTRUCTION (IN ITA NOS.230 AND 231/PUN/2018 DT.12.09.2018) AFTER CONSIDERING THE DECIS ION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEHA B UILDERS (P) LTD., (2007) 164 TAXMANN 342, THE DECISION OF MUMBAI TRIBUNA L IN THE CASE OF C.R. DEVELOPMENTS PVT. LTD., (ITA NO.4277 OF 2012 OR DER DATED 13.05.2015) AND AFTER ALSO CONSIDERING THE DECISION IN THE CA SE OF CIT VS. ANSAL HOUSING AND CONSTRUCTION (SUPRA) HAS HELD THAT N O NOTIONAL ANNUAL RENTAL VALUE ON UNSOLD FLATS HELD IN STOCK-IN-TRADE C AN BE MADE IN ASSESSEES HANDS. THE RELEVANT FINDINGS OF THE CO-ORDIN ATE BENCH OF THE TRIBUNAL IS AS UNDER : 7. THE ISSUE BEFORE US FOR ADJUDICATION IS WHETHER THE NOTIONAL ANNUAL RENTAL VALUE ON UNSOLD FLATS HELD AS STOCK-IN-TRADE BY THE ASSESSEE IS TO 5 BE ASSESSED UNDER THE HEAD BUSINESS INCOME OR UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE HON BLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. NEHA BUILDER S (P.) LTD. (SUPRA) HAS HELD THAT WHERE THE PROPERTY IS HELD AS STOCK-I N-TRADE ANY INCOME DERIVED ROM STOCK WOULD BE INCOME FROM BUSINESS AND NOT INCOME FROM HOUSE PROPERTY . THE RELEVANT EXTRACT OF THE FINDINGS OF HON BLE HIGH COURT ARE AS UNDER : 7. FROM THE ORDER PASSED BY THE LEARNED CIT(A), IT WOULD CLEARLY APPEAR THAT THE CASE OF THE ASSESSEE WAS THAT THE C OMPANY WAS INCORPORATED WITH THE MAIN OBJECT OF PURCHASE, TAKE ON LEASE, OR ACQUIRE BY SALE, OR LET OUT THE BUILDINGS CONSTRUCT ED BY THE ASSESSEE. DEVELOPMENT OF LAND OR PROPERTY WOULD ALS O BE ONE OF THE BUSINESSES FOR WHICH THE COMPANY WAS INCORPORAT ED. 8. TRUE IT IS, THAT INCOME DERIVED FROM THE PROPERT Y WOULD ALWAYS BE TERMED AS 'INCOME FROM THE PROPERTY, BUT IF THE PROPERTY IS USED AS 'STOCK-IN-TRADE, THEN THE SAID PROPERTY WOULD B ECOME OR PARTAKE THE CHARACTER OF THE STOCK, AND ANY INCOME DERIVED FROM THE STOCK, WOULD BE 'INCOME FROM THE BUSINESS, AND NOT INCOME FROM THE PROPERTY. IF THE BUSINESS OF THE ASSESSEE IS TO CONSTRUCT THE PROPERTY AND SELL IT OR TO CONSTRUCT AND LET OU T THE SAME, THEN THAT WOULD BE THE 'BUSINESS AND THE BUSINESS STOCK S, WHICH MAY INCLUDE MOVABLE AND IMMOVABLE, WOULD BE TAKEN TO BE 'STOCK-IN- TRADE, AND ANY INCOME DERIVED FROM SUCH STOCKS CAN NOT BE TERMED AS 'INCOME FROM PROPERTY. EVEN OTHERWISE, I T IS TO BE SEEN THAT THERE WAS DISTINCTION BETWEEN THE 'INCOME FROM BUSINESS AND 'INCOME FROM PROPERTY ON ONE SIDE, AND 'ANY INCOME FROM OTHER SOURCES. THE TRIBUNAL, IN OUR CONSIDERED OPINION, WAS ABSOLUTELY UNJUSTIFIED IN COMPARING THE RENTAL INCOME WITH THE DIVIDEND INCOME ON THE SHARES OR INTEREST INCOME ON THE DEPO SITS. EVEN OTHERWISE, THIS QUESTION WAS NOT RAISED BEFORE THE SUBORDINATE TRIBUNALS AND, ALL OF SUDDEN, THE TRIBUNAL STARTED APPLYING THE ANALOGY. 9. FROM THE STATEMENT OF THE ASSESSEE, IT WOULD CLE ARLY APPEAR THAT IT WAS TREATING THE PROPERTY AS 'STOCK-IN-TRAD E. NOT ONLY THIS, IT WILL ALSO BE CLEAR FROM THE RECORDS THAT, EXCEPT FOR THE GROUND FLOOR, WHICH HAS BEEN LET OUT BY THE ASSESSEE, ALL OTHER PORTIONS OF THE PROPERTY CONSTRUCTED HAVE BEEN SOLD OUT. IF THA T BE SO, THE PROPERTY, RIGHT FROM THE BEGINNING WAS A 'STOCK-INT RADE. 8. IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANS AL HOUSING FINANCE AND LEASING CO. LTD. (SUPRA) THE HON BLE DELHI HIGH COURT TAKING A CONTRARY VIEW HAS HELD THAT ANNUAL RENTAL VALUE ON UNSOLD FLATS BUILT BY ASSESSEE ENGAGED IN CONSTRUCTION BUSINESS IS ASSESS ABLE AS INCOME FROM HOUSE PROPERTY. IT IS A WELL SETTLED LAW THAT WHEN TWO DIVERGENT VIEWS OF NON-JURISDICTIONAL HIGH COURTS ARE AVAILABLE AND TH ERE IS NO DECISION ON THE ISSUE FROM THE JURISDICTIONAL HIGH COURT, THE V IEW IN FAVOUR OF THE ASSESSEE HAS TO BE ADOPTED [COMMISSIONER OF INCOME TAX VS. VEGETABLE PRODUCTS LTD.(SUPRA)]. 9. IN SO FAR AS THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SANE & DOSHI ENTERPRI SES (SUPRA) IS CONCERNED WE FIND THAT THE FACTS IN THE SAID CASE A RE AT VARIANCE. IN THE SAID CASE THE ASSESSEE WAS ENGAGED IN CONSTRUCTION BUSINESS. THE ASSESSEE RENTED OUT UNSOLD FLATS AND SUO-MOTU OFFER ED RENTAL INCOME FROM THE FLATS UNDER THE HEAD INCOME FROM HOUSE PR OPERTY . ON THE CONTRARY THE REVENUE WANTED TO TAX RENTAL INCOME UN DER THE HEAD BUSINESS INCOME . THE MATTER TRAVELLED TO THE TRIBUNAL. THE TRIBUNA L HELD THAT THE INCOME EARNED BY THE ASSESSEE FROM RE NTING OF FLATS IS TO BE 6 ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE DEPARTMENT CARRIED THE MATTER IN APPEAL BEFORE THE HON BLE HIGH COURT. THE HON BLE HIGH COURT CONFIRMED THE FINDINGS OF TRIBUNAL A ND HELD THAT RENTAL INCOME RECEIVED FROM UNSOLD PORTION OF PROPE RTY CONSTRUCTED BY THE ASSESSEE, IS ASSESSABLE AS INCOME FROM HOUSE PROPER TY. THE CORE DIFFERENCE BETWEEN THE CASE OF THE ASSESSEE AND IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SANE & DOSHI ENTERPRI SES (SUPRA) IS THAT IN THE CASE OF ASSESSEE, IT IS NOTIONAL ANNUAL RENT AL INCOME ON FLATS HELD AS STOCK WHICH IS SOUGHT TO BE TAXED, WHEREAS IN TH E CASE OF COMMISSIONER OF INCOME TAX VS. SANE & DOSHI ENTERPRI SES (SUPRA) IT WAS THE CASE OF ACTUAL RENTAL INCOME EARNED BY THE ASSE SSEE FROM RENTING OF FLATS CONSTRUCTED BY IT. HENCE, THE DECISION RENDER ED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SANE & DOSHI ENTERPRI SES (SUPRA) WOULD NOT APPLY IN THE FACTS OF THE PRESENT CASE. 10. WE FURTHER FIND THAT MUMBAI BENCH OF THE TRIBUN AL IN M/S. C.R. DEVELOPMENTS PVT. LTD. VS. JCIT (SUPRA), M/S. RUNWA L CONSTRUCTIONS VS. ACIT (SUPRA) AND SHRI GIRDHARILAL K. LULLA VS. DCIT (SUPRA) UNDER SIMILAR SET OF FACTS HAVE TAKEN A CONSISTENT VIEW IN HOLDIN G NOTIONAL ANNUAL RENTAL VALUE ON UNSOLD FLATS HELD AS STOCK-IN-TRADE BY THE ASSESSEE ENGAGED IN CONSTRUCTION AND DEVELOPMENT ACTIVITIES AS BUSINESS INCOME . 8. I FURTHER FIND THAT THE RATIO OF THE DECISION RELIED BY LD .D.R. IN THE CASE OF MANGLA HOMES PVT. LTD (SUPRA) ARE NOT APPLICABLE BE CAUSE IN THAT CASE THE UNSOLD FLATS WERE LET OUT AND ASSESSEE HA D EARNED INCOME, WHICH IS NOT THE CASE IN THE PRESENT APPEAL. IN VIEW OF T HE AFORESAID FACTS, I FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THE PUNE TRIB UNAL IN THE CASE OF M/S. COSMOPOLIS CONSTRUCTION VS. ITO (SUPRA ) HOLD THAT IN THE PRESENT CASE NO ADDITION ON ACCOUNT OF DEEMED R ENT OF SIXTEEN UNSOLD FLATS CAN BE MADE IN HANDS OF THE ASSESSEE. I THER EFORE SET ASIDE THE ADDITION MADE BY AO. THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO.1479/PUN/2018 FOR A.Y. 2013-14 IS ALLOWED. 10. AS FAR AS THE GROUNDS RAISED IN APPEAL IN ITA NO.148 0/PUN/2018 FOR A.Y. 2014-15 IS CONCERNED, IN VIEW OF THE SUBMISSIONS OF BOTH THE PARTIES THAT THE FACTS OF THE CASE IN THE YEAR BEING IDEN TICAL TO THE FACTS AND ISSUE OF THE CASE IN ITA NO.1479/PUN/2018 FOR A.Y. 20 13-14, I 7 THEREFORE FOR THE REASONS STATED HEREIN WHILE DISPOSING OF THE APPEAL IN ITA NO.1479/PUN/2018 FOR A.Y. 2013-14, AND FOR SIMILAR RE ASONS, HOLD THAT NO ADDITION ON ACCOUNT OF DEEMED RENT OF SIXTE EN UNSOLD FLATS CAN BE MADE IN THE HANDS OF ASSESSEE AND THUS I ALLOW THE GROUNDS OF ASSESSEE IN ITA NO.1480/PUN/2018 FOR A.Y. 2014-15. THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 11. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO.1480/PUN/2018 FOR A.Y. 2014-15 IS ALLOWED. 12. TO SUM UP, BOTH THE APPEALS OF ASSESSEE ARE ALLOWE D. ORDER PRONOUNCED ON 14 TH DAY OF FEBRUARY, 2019. S SD/- ( ANIL CHATURVEDI ) ' / ACCOUNTANT MEMBER PUNE; DATED : 14 TH FEBRUARY, 2019. YAMINI #$%&'(' % / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4 5. 6. CIT(A) 3, PUNE. PR.CIT-2, PUNE. '#$ %%&',) &', *+ / DR, ITAT, SMC PUNE; $-.// GUARD FILE. / BY ORDER // TRUE COPY // 012%3&4 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.