Swastik Build Solutions P.Ltd, New Delhi V. ITO, Ward-22(4), New Delhi

ITA 1653/DEL/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2386 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 28-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MANOJ PATWARI
• Keywords: Cost of acquisition
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER I.T.A. NO.1653/DEL/2019 ASSESSMENT YEAR: 2013-14 SWASTIK BUILD SOLUTIONS P. LTD., 101, P-27, 1 ST FLOOR, MALVIYA NAGAR, NEW DELHI. VS. ITO, WARD-22(4), NEW DELHI. TAN/PAN: AAACS 3179B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI MANOJ PATWARI, CA RESPONDENT BY: SHRI N.K. BANSAL, SR.D.R. DATE OF HEARING: 17 09 2019 DATE OF PRONOUNCEMENT: 08 11 2019 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 23.01.2019 PASSED BY COMMISSION OF INCOME TAX (APPEALS)-31, NEW DELHI FO R THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2013-14. IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS RAISED FOLLOWING TWO ISSUES: FIRSTLY, ADDITION OF RS.1 CRORE ON ACCOUNT OF ALLEGED UNDERVALUATION OF CLOSING STOCK; AND SECONDLY; ADDITION OF RS.20,59,417/- ON ACCOUNT OF NO TIONAL RENT U/S. 23(1)(A) OF THE ACT. I.T.A. NO.1653/DEL/2019 2 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF BUILDING S, ROADS, DAMS AND ALL KIND OF CIVIL CONSTRUCTION WORK. APART FROM THAT, IT IS ALSO ENGAGED IN INVESTMENT IN PROPERTIES, SAL E AND PURCHASE OF PROPERTIES AND RENTAL BUSINESS FROM PRO PERTIES. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS, FROM THE PERUSAL OF THE BALANCE-SHEET AND THE STATEMENTS MADE BY THE ASSESSEE-COMPANY NOTED THAT VALUE OF THE CLOSING STOCK HAD BEEN CHANGED FROM RS. 6,44 ,22,979/- AS ON 31.03.2012 TO RS.7,43,51,279/- AS ON 31.03.20 13. THE ASSESSEE HAD FILED THE BREAKUP OF THE CLOSING STOCK AND FROM SUCH DETAILS OF THE INVENTORY, ASSESSING OFFICER NO TICED THAT THE PROPERTY AS PER W-54, GREATER KAILASH WHICH WAS THE REAR PORTION OF THE BUILDING WAS VALUED LESSER BY RS. 1 CRORE WHICH THAN THE PREVIOUS YEAR VALUE, THAT IS, FROM RS.4,37 ,63,104/- TO RS.3,37,63,104/-. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT MARKET RATE OF THE PROP ERTY IN THAT LOCALITY HAD DEPRECIATED IN THE YEAR UNDER REF ERENCE AND HENCE IT WAS VALUED AT COST OR MARKET VALUE, WHICHE VER IS LESS. FURTHER, AS PER THE ACCOUNTING STANDARDS, IT WAS SU BMITTED THAT IN THE FINANCIAL YEAR 2011-12 AMOUNT OF INTERE ST OF RS.1,99,13,104/- WAS CAPITALIZED TO THE COST AND AF TER CONDUCTING MARKET SURVEY FOR THE SELLING PRICE OF T HE SAME PROPERTY, IT WAS REALIZED THAT THE SAME HAS BEEN OV ER VALUED DUE TO CAPITALIZATION OF INTEREST COMPONENTS. AFTER CONSIDERING ALL THESE FACTORS LIKE MARKET VIABILITY THE INTERES T COMPONENTS FOR THE FINANCIAL YEAR 2012-13 THE VALUATION OF THE CLOSING I.T.A. NO.1653/DEL/2019 3 STOCK WAS REVALUED AND COST WAS REDUCED BY RS.1 CRO RE AND SAME WAS TAKEN AT A NET REALIZABLE VALUE, WHICH WOR KED OUT AT RS.3,37,63,104/-. THE LD. ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES EXPLANATION AND OBSERVED THAT, FIRSTLY, ASSESSEE HAD TAKEN A LOAN FROM NBFC, M/S. RELIGARE HOME LOAN S OF RS.5,41,71,490/- FOR THE SAME PROPERTY WHICH THE AS SESSEE CLAIMED TO HAVE REVALUED ON ACCOUNT OF DECREASE IN MARKET VALUE. THE LOAN OFFER AMOUNT OF RS.5,41,71,490/- WA S CLEARLY HIGHER THAN THE COST OF PROPERTY RECORDED IN THE BO OKS WHICH WAS AT RS.4,37,63,104/-. HE WAS OF THE OPINION THAT NBFCS AFTER EXTENSIVE VERIFICATION AND TAKING THE MARKET RATE OF THE PROPERTY AS COLLATERAL CALCULATES THE LOAN AMOUNT O N THE BASIS OF CIRCLE RATE AND OTHER PARAMETERS, AND AFTER LOOK ING TO THESE FACTORS THE LOAN AMOUNT IS SANCTIONED, THEREFORE, T O ACCEPT THE ASSESSEES CONTENTION THAT MARKET RATE OF THE PROPE RTY IS LOWER, IS NOT ACCEPTABLE. SECONDLY, HE ALSO TOOK TH E STAMP VALUE RATE OR THE CIRCLE RATE OF THE PROPERTY AS IS SUED BY GOVERNMENT OF NCT OF DELHI EFFECTIVE FROM 05.12.201 2 AND FOUND THAT THE SAME WAS HIGHER THAN THE COST OF PRO PERTY RECORDED IN THE BOOKS OF THE ASSESSEE-COMPANY. HE O BSERVED THAT THE AREA OF PROPERTY AT W-54, 1 ST FLOOR, REAR PORTION OF GREATER KAILASH WAS 990 SQ. YARDS OR 827.8 SQ. MTS. AND APPLYING THE SAID RATE CONSIDERING THE MULTIPLICATI VE FACTOR AND ACCORDINGLY, HELD THAT THE CIRCLE RATE OF THE S AID PROPERTY WOULD COME TO RS.5,25,65,300/- WHICH IS CONSIDERABL E HIGH COMPARED TO THE VALUE OF RS.4,37,63,104/- RECORDED IN THE BOOKS OF ACCOUNT. LASTLY, HE ALSO OBSERVED THAT THE RE WAS A I.T.A. NO.1653/DEL/2019 4 SALE AGREEMENT OF THE AFOREMENTIONED PROPERTY, I.E. , W54, 1 ST FLOOR, BOTH REAR AND FRONT PORTION WHICH HAS BEEN SOLD FOR RS.7,50,00,000/- ON 16.06.2015 WHICH IS RS.71,74,89 6/- HIGHER THAN THE ORIGINAL COMBINED COST OF RS.6,78, 25,104/-. HAD THERE BEEN DOWNWARD TREND OF THE PROPERTY RATES , THE ASSESSEE COMPANY WOULD NOT HAVE EARNED SO MUCH PROF IT. ACCORDINGLY, IN VIEW OF THESE FINDINGS, HE HELD THA T VALUE OF THE PROPERTY AS RECORDED IN THE STOCK IS INCORRECT AND HE MADE THE ADDITION OF RS.1 CRORE ON ACCOUNT OF UNDER VALUATION. 3. LD. CIT (A) HAS CONFIRMED THE SAID ADDITION BASE D ON SAME REASONS ADOPTED BY THE ASSESSING OFFICER. HOWE VER, HE GAVE DIRECTION TO THE ASSESSING OFFICER THAT IN THE SUBSEQUENT ASSESSMENT YEAR, IF THE ASSESSEE HAS PAID TAX ON HI GHER INCOME ON SALE OF THE SAME PROPERTY AS THE COST OF ACQUISITION WAS DEDUCTED AT LOWER VALUE, THEN CORRECTION SHOULD BE MADE AND ASSESSING OFFICER SHOULD ALLOW CONSEQUENTIAL RE LIEF IN THE SUBSEQUENT YEARS. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, MR. MANOJ PATWARI SUBMITTED THAT FOR THE PROPERTY LOCATED AT W-54 (BOTH FRONT AND REAR PORTION), HUGE INTEREST WAS PAID ON SAID LOAN WHICH WAS CAPITALIZED BY THE ASSESSEE TO THE VALUE OF THE STOCK. A SUM AMOUNTING TO RS.1,99,13,104/- WAS ADDE D TO THE COST OF THE IMPUGNED PROPERTY (I.E. THE REAR PO RTION OF W- 54) IN EARLIER YEARS. THIS LED TO OVERVALUATION OF THE SAID PROPERTY MAKING ITS BOOK VALUE AT RS.4,37,63,104/-. AFTER CONSIDERING THE MARKET VIABILITY AND IN COMPLIANCE WITH I.T.A. NO.1653/DEL/2019 5 ACCOUNTING STANDARD-2 TO GIVE TRUE AND FAIR VIEW OF FINANCIAL STATEMENT, THE MANAGEMENT OF THE ASSESSEE-COMPANY MUTUALLY DECIDED TO REVALUE THE SAID PROPERTY AT MA RKET VALUE, AND THEREFORE, THE COST OF SAID PROPERTY WAS VALUED AS ON 31/03/2013 AT RS.3,37,63,104/-. THE REASON FOR S UCH REVALUATION WAS THAT THE COST OF THE IMPUGNED PROPE RTY WAS VERY HIGH COMPARED TO THE MARKET VALUE DUE TO CAPIT ALIZATION OF INTEREST PAID ON THE LOAN FOR THE PURCHASE THE S AID PROPERTY. HE FURTHER GAVE THE CALCULATION OF ANALYS IS ON MARKET VALUE AND THE CIRCLE RATE OF THE SAID PROPER TY AT THE TIME OF REVALUATION AS ON 31.03.2013 WHICH WAS AS U NDER: TOTAL AREA OF LAND COVERED BY THE REAR PORTION = 827.7 5 /10 =82.775 SQ. MT. -- (A) CIRCLE RATE OF PER SQ. MTRS. LAND (CATEGORY B) = RS. 2,04,600- (B) CIRCLE RATE OF PROPORTIONATE LAND OCCUPIED (REAR PORTI ON) = RS. 1,69,35,765/- --[(C)=(A)X(B)] CIRCLE RATE OF PER SQ. MTRS. CONSTRUCTION PER PB PAGE 26) = 17,400 -- (D) AREA OF CONSTRUCTED PROPERTY = 418 SQ. MTS.-- (E) CIRCLE RATE OF PROPORTIONATE CONSTRUCTED AREA (REAR POR TION) = 418.06/2 X 17400 = RS.36,37,122/- -[(F) = (D)X(E)/2 ] CIRCLE RATE OF IMPUGNED PROPERTY AS ON 31/03/2013 = RS.2,05,72,887/- --[(F)+ (C)] BOOK VALUE OF THE IMPUGNED PROPERTY AFTER REVALUATION AS ON 31/03/2013 = RS.3,37,63,104/- I.T.A. NO.1653/DEL/2019 6 FURTHER, EVEN AFTER REVALUING THE IMPUGNED PROPERTY , ITS MARKET VALUE (OR THE REVALUED BOOK VALUE) IS MORE T HAN ITS CIRCLE RATE. THIS FACT PROVES THAT THE APPELLANT CO MPANY WAS JUSTIFIED IN REVALUING THE SAID PROPERTY TO COME TO TERMS WITH THE MARKET CONDITIONS AND VALUED ITS STOCK AT THE L OWER OF ITS COST OR NET REALIZABLE VALUE. 5. HE FURTHER SUBMITTED THAT PROFIT EARNED ON SALE OF THE IMPUGNED PROPERTY HAS BEEN OFFERED TO TAX IN THE YE AR OF SALE, AND THEREFORE, ADDITION OF RS.1 CRORE MADE TO THE I NCOME OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WI LL CAUSE UNDUE HARDSHIP IN THE HANDS OF THE ASSESSEE BECAUSE TAX HAS ALREADY BEEN APPLIED TO THE REVENUE ON THE SAME AMO UNT IN THE FINANCIAL YEAR 2015-16. 6. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE REASONING OF THE ASSESSING OFFICER AND LD. CIT (A) AND SUBMITTED THAT ASSESSING OFFICER HAS GIVEN A VERY C ATEGORICAL FINDING TO THE REVALUATION DONE BY THE ASSESSEE OF THE SAID PROPERTY IN CLOSING STOCK WAS NOT JUSTIFIABLE FOR TH E REASON THAT EVEN THE CIRCLE RATE WAS HIGHER AND THE PROPER TY WHICH WAS SOLD WAS AT A MUCH HIGHER RATE, THEREFORE, UNDE RVALUATION WAS DONE TO SUPPRESS THE PROPERTY DURING THE YEAR. ACCORDINGLY, THE ORDER OF THE ASSESSING OFFICER AND LD. CIT(A) SHOULD BE CONFIRMED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS. THE ASSESSING OFFICER HAS DISTURBED THE REVALUATION OF THE CLOSIN G STOCK OF I.T.A. NO.1653/DEL/2019 7 THE INVENTORY OF THE REAR PORTION OF THE PROPERTY S ITUATED AT W- 54, 1 ST FLOOR, GREATER KAILASH, WHICH WAS VALUED AT RS.1 C RORE LESS THAN PREVIOUS YEAR, I.E., IT WAS REDUCED FROM RS.4,37,63,104/- TO 3,37,63,104/-. THE REASONING GI VEN BY THE ASSESSING OFFICER HAS ALREADY BEEN DISCUSSED AB OVE. THE ASSESSEES MAIN CONTENTION HAS BEEN THAT IT HAS TAK EN A BANK LOAN OF RS.7.56 CRORES TO PURCHASE THE PROPERTY FOR BOTH, FRONT AND REAR PORTION OF PROPERTY, W-54, 1 ST FLOOR, GREATER KAILASH AND THE INTEREST PAID IN THE SAID LOAN HAS BEEN CAP ITALIZED TO THE VALUE OF THE STOCK. THE SUM AMOUNTING TO RS.1,99,13,104/- WAS ADDED TO THE COST OF THE SAID PROPERTY BEING REAR PORTION OF W-54, 1 ST FLOOR, GREATER KAILASH IN THE EARLIER YEARS, BECAUSE OF THIS REASON THERE WAS AN OVERVALUATION OF THE SAID PROPERTY AND THE BOOK VAL UE GET ENHANCED OF THE SAID AMOUNT. AFTER CONSIDERING THE MARKET VIABILITY AND TO GIVE TRUE AND FAIR VIEW OF THE FIN ANCIAL STATEMENT, THE ASSESSEE HAD REVALUED THE SAID PROPE RTY AND THE VALUATION WAS REDUCED BY RS.1 CRORE, BECAUSE AS COMPARED TO THE MARKET VALUE DUE TO CAPITALIZATION OF INTEREST SHOWN IN THE AFFILIATED FIGURE. ONE OF THE CORE REA SONS OF THE ASSESSING OFFICER WAS THAT THE CIRCLE RATE OF THE I MPUGNED PROPERTY WAS HIGHER. 8. NOW BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS DEMONSTRATED THAT CIRCLE RATE OF PER SQ. METER OF C ATEGORY B CLASSIFIED FOR GREATER KAILASH WAS RS.2,04,600/- PE R SQ. METER. THE CIRCLE RATE OF THE PROPORTIONATE LAND OC CUPIED FOR THE REAR PORTION WILL WORK OUT TO RS.1,69,35,765/-. FURTHER, I.T.A. NO.1653/DEL/2019 8 CIRCLE RATE OF PER SQ. MTR FOR THE CONSTRUCTION WOU LD BE RS. 17,400 PER SQ. MTR WHICH WORKED OUT TO RS.36,37,122 /- AND ACCORDINGLY, THE ACTUAL CIRCLE RATE AS PER THE GOVE RNMENT NOTIFICATION AS ON 31.03.2013 WOULD BE AT RS.2,05,7 2,887/- AS COMPARED TO THE BOOK VALUE OF THE IMPUGNED PROPE RTY WHICH HAS BEEN TAKEN AT A MUCH HIGHER FIGURE, I.E., RS. 3,37,63,104/-. ACCORDINGLY, IT HAS BEEN ESTABLISHED BY THE ASSESSEE THAT MARKET VALUE OF THE REVALUED BOOK VAL UE WAS MORE THAN ITS CIRCLE RATE. APART FROM THAT, ONE IMP ORTANT FACT IS THAT IN THE SUBSEQUENT YEAR, THE ASSESSEE HAD SO LD THE PROPERTY AND HAS OFFERED TAX ON THE PROFIT AND IF A NY SUCH ENHANCEMENT IN THE VALUATION OF THE CLOSING STOCK I S MADE THEN IT WILL LEAD TO DOUBLE ADDITION WHICH WILL CAU SE UNDUE HARDSHIP TO THE ASSESSEE AND THAT IS THE REASON WHY THE LD. CIT (A) HAS DIRECTED THE ASSESSING OFFICER TO GIVE CONSEQUENTIAL RELIEF IN THE SUBSEQUENT YEAR IN WHIC H PROPERTY WAS SOLD. FURTHER, IT WAS NOTICED THAT ASSESSING OF FICER WHILE DETERMINING THE CIRCLE RATE HAS CONSIDERED, THE COV ERED AREA OF THE IMPUGNED PROPERTY WRONGLY AT 827.8 SQ. MTR AND VALUED THE COST OF THE PROPERTY AS PER CIRCLE RATE AT RS.5 ,25,65,300/-, WHEREAS THE TOTAL COVERED AREA OF THE IMPUGNED PROP ERTY IS 185.80 SQ. MTR. WHICH IS EVIDENT FROM THE PURCHASE DEED OF THE PROPERTY PLACED AT PAGES 55 TO 77 OF THE PAPER BOOK; AND IF THE CORRECT VALUE IS DETERMINED AS PER THE RATE USED BY THE ASSESSING OFFICER, THEN IT WOULD BE ONLY RS.1,17,98 ,300/-. THIS ALSO POINTS OUT THE FLAW/ERROR AND THE WORKING GIVEN BY THE ASSESSING OFFICER. THUS, THE REASONING GIVEN BY THE I.T.A. NO.1653/DEL/2019 9 ASSESSING OFFICER TO DISTURB THE REVALUATION OF THE PROPERTY IS NOT BASED ON CORRECT PREMISE. MOREOVER, IF THE ASSE SSEE HAS DEMONSTRATED THAT THE REVALUATION OF THE CLOSING ST OCK HAS BEEN DONE AS PER COST OR MARKET RATE WHICHEVER IS L OWER, WHICH IS AN ACCEPTABLE METHOD OF ACCOUNTING FOR THE CLOSING STOCK, THEN NO INTERFERENCE IS CALLED FOR. ACCORDIN GLY, THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINE D BY THE LD. CIT (A) IS DIRECTED TO BE DELETED. 9. AS REGARDS THE ADDITION ON ACCOUNT OF NOTIONAL R ENT OF RS.20,59,417/-, THE ASSESSING OFFICER NOTED THAT TH ERE WERE CERTAIN PROPERTIES WHICH WERE SHOWN AS PART OF CLOS ING STOCK AND ONE PROPERTY WAS TAKEN FROM STOCK-IN-TRADE TO C APITAL ASSET AND WAS SHOWN AS PART OF FIXED ASSET AS ON 31 .03.2011. AO HELD THAT PROVISION OF SECTION 23(1)(A) IS CLEAR LY APPLICABLE AND NO NOTIONAL RENT HAS BEEN OFFERED TO TAX EVEN F OR THE FLATS HELD AS STOCK-IN-TRADE. IN SUPPORT, HE RELIED UPON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL HOUSING FINANCIAL AND LEASING CO. LTD. (2013) 354 ITR 180 . IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSE ES SUBMISSION AS UNDER: 2. THE PROPERTY C-35, FIRST FLOOR AND SECOND FLOOR , HAVE BEEN GIVEN ON RENT FOR 2 MONTHS AND 3 MONTHS RESPECTIVEL Y FOR RELEVANT FINANCIAL YEAR BECAUSE THE ABOVE MENTIONED PROPERTY WAS UNDER CONSTRUCTION AND NOT READY FOR LET-OUT DURING THE R EMAINING PERIOD OF RELEVANT FINANCIAL YEAR, HENCE THERE IS N O RENTAL INCOME HAS BEEN EARNED DURING THAT PERIOD. I.T.A. NO.1653/DEL/2019 10 FURTHER WE WOULD ALSO LIKE TO CONVEY YOU THAT WE HA VE APPLIED FOR ELECTRICITY ON JULY, 2012. IN NORMAL PRACTICE, IT TAKES AT LEAST TWO TO THREE MONTHS FOR INSTALLATION OF COMMERCIAL METERS. FOR YOUR PERUSAL WE ARE ALSO PROVIDING ELECTRICITY APPL ICATION RECEIPT AND RENT AGREEMENT. HENCE THE SAME PROPERTY HAS BEEN CONVERTED IN TO FI XED ASSETS IN THE MONTH OF OCTOBER OF THE RELEVANT FINANCIAL Y EAR. ALSO IN VIEW OF THE PROVISION OF SECTION 23(3) OF INCOME TA X ACT, RENTAL INCOME IS ONLY RECOGNIZED FOR THE PERIOD FOR WHICH THE WHOLE OR PART OF THE PROPERTY IS ACTUALLY LET OUT. 3. THE PROVISIONS OF DEEMED RENT IS NOT APPLICABLE IN THE CASE OF PROPERTIES HELD AS STOCK IN TRADE DUE TO FOLLOWING REASONS: (A) IN OUR CASE BUSINESS ACTIVITY IS DIFFERENT FROM THE REFERRED CASE OF ANSAL HOUSING AND LEASING CO LTD I N OUR CASE BUSINESS ACTIVITIES ARE TO SALE PURCHASE OF THE HOU SE PROPERTY AND NOT INVOLVE ANY ACTIVITIES OF DEVELOPMENT OF TH E PROPERTIES. BUT IN LATTER COMPANY CASE DEVELOPMENT ACTIVITIES O F MINI TOWNSHIP ARE INVOLVED. (B) OUR SITUATION IS ALSO COVERED UNDER SECTION 23 (3) OF THE INCOME TEA ACT, 1961. AS PER THIS SECTION DEEMED RE NT IS ONLY APPLICABLE WHEN WHOLE OR PART OF THE HOUSE PROPERTI ES ARE ACTUALLY LET DURING THE WHOLE OR PART OF THE PREVIO US YEARS. (C) FURTHER OUT OF THE PROPERTIES SHOWN AS CLOSING STOCK, PROPERTY NO.B-100: SITUATED AT SARVODAYA ENCLAVE IS SELF OCCUPIED BY THE DIRECTORS OF THE COMPANY. PROPERTY W-54(FRONT & REAR PORTION): THE SAME PROPERTY IS UNDER CONSTRUCT ION FOR THAT PERIOD HENCE NOT READY FOR LET OUT. AFTER BECOMING READY TO MOVE, WE HAVE ALSO SOLD BOTH THE PORTION OF THE SAME (FRO NT & REAR) AS I.T.A. NO.1653/DEL/2019 11 ON 17* JUNE, 2015. THE PROFIT/LOSS ON SALE OF SAME PROPERTY HAS BEEN PROPERLY RECOGNIZED IN THE RELEVANT FINANCIAL YEAR (D) AS WE ARE INVOLVE IN THE SALE AND PURCHASE OF HOUSE PROPERTY, HENCE THE PROPERTY REMAIN AS CLOSING STOC K CANNOT BE LET-OUT FOR THE SHORT PERIOD DUE TO LIME CONSTRAINT AND THE NATURE OF THE BUSINESS. (E) FOR ANY REASON IF YOU CONSIDER ANY NATIONAL RE NTAL INCOME IN VIEW OF ANSAL HOUSING FINANCE & LEASING C O. PVT. LID JUDGMENT, THEN FULL VACANCY ALLOWANCE SHOULD BE ALL OWED UNDER SECTION 23(1)(C) 10. HOWEVER, THE ASSESSING OFFICER REJECTED THE ASS ESSEES CONTENTION AND WORKED OUT THE NOTIONAL RENT IN THE FOLLOWING MANNER: S. NO. PROPERTY DESCRIPTION AREA (SQ. YARDS) COST OF THE PROPERTY TYPE OF THE PROPERTY PERCENTAGE NOTIONAL RATE TOTAL NOTIONAL RENT PER YEAR (IN RS.) 1. B - 100, SARVODAYA ENCLAVE FIRST FLOOR 200 1,65,26,175 RESIDENTIAL 2% 3,30,523 2. W - 54, FIRST FLOOR, FRONT PORTION 990 1,65,26,175 RESIDENTIAL 2% 3,30,523 3. W - 54, FIRST FLOOR 990 4,37,63,104 RESIDENTIAL 2% 8,75,262 ANNUAL VALUE FRO M PROPERTIES DEEMED TO BE LET OUT TOTAL 16,87,025/ - 3.4 IN ADDITION TO THE ABOVE, IT WAS FURTHER SEEN T HAT RENTAL INCOME WAS OFFERED ON THE PROPERTY LOCATED AT C-75, FIRST & SECOND FLOOR ON WHICH RENTAL INCOME IS OFFERED ONLY FOR A PART OF THE YEAR. THE ASSESSEE AR STATED THAT APPLICATION F OR ELECTRICITY I.T.A. NO.1653/DEL/2019 12 CONNECTION WAS GIVEN ONLY IN THE MONTH OF JULY 2012 . AND IT TOOK 2-3 MONTHS FOR THE PROPERTY TO BE READY FOR LETTING . HOWEVER, IT IS SEEN THAT ASSESSEE-COMPANY HAS OFFERED RENTAL INCOM E ONLY FOR 2 TO 3 MONTHS. THEREFORE, EVEN RELYING ON THE ASSESSE ES CONTENTION AND ALSO BASED ON THE EARNING CAPACITY OF THE PROPE RTY WHICH ASSESSEE ITSELF HAS OFFERED, THE NOTIONAL RENT AS PER THE EXPECTED RENT IS CALCULATED FROM THE MONTH OF OCTOBER 2012 F OR BOTH THE PROPERTIES. ON THE PROPERTY AT FIRST FLOOR NOTIONAL RENT IS CALCULATED FOR 4 MONTHS AND FOR THE PROPERTY AT THE SECOND FLO OR IT IS CALCULATED FOR 3 MONTHS. THE DETAILED WORKING OF TH E NOTIONAL RENT IS AS UNDER: SL NO PROPERTY DESCRIPTION RENT PER MONTH RECEIVED N UMBER OF MONTHS RENT NOT OFFERED NOTIONAL RENT (IN RS.) 1 C-75, FIRST FLOOR, SHIVAIIK 1,90,000 4 7,60,000/-' 2 C-75, SECOND FLOOR, SHIVAJIK 1,65,000 3 4,95.000/- TOTAL 12,55,000/- TOTAL NOTIONAL RENT ADDS UP TO RS.29,42,025/-. AFTER ALLOWING STANDARD DEDUCTION OF 30% ON THE SAID NOTIONAL RENT, THE NET NOTIONAL RENT WORKS OUT TO RS.20,59,417/-. 11. THE SAID FINDING OF THE ASSESSING OFFICER HAS A LSO BEEN CONFIRMED BY THE LD. CIT (A). 12. BEFORE US, LD. COUNSEL SUBMITTED THAT THERE ARE THREE PROPERTIES INVOLVED IN WHICH ADDITION ON ACCOUNT OF NOTIONAL RENT HAS BEEN MADE BY THE ASSESSING OFFICER AS UNDE R. I.T.A. NO.1653/DEL/2019 13 1. W-54 [REAR PORTION RS.8.75 LAKHS AND FRONT PORT ION RS.4.81 LAKHS] 2. B-100 [RS.3.30 LAKHS 3. C-75 [1 ST FLOOR RS.7.6 LAKHS & 2 ND FLOOR RS.4.95 LAKHS] 13. WITH REGARD TO EACH PROPERTY HIS SUBMISSION ARE AS UNDER: 1. CONTENTION IN THE CASE OF W-54, REAR AND FRONT P ORTION IN THE CASE OF PROPERTY W-54, THE SAME WAS UNDER CONSTRUCTION AND NOT READY FOR USE. THIS FACT CAN BE VERIFIED FR OM THE FIRST ELECTRICITY BILL OF THE SAID PROPERTY DATED 11-12-2 014 WHICH ALSO DISCLOSES THE DATE OF INSTALLATION OR ENERGISATION DATE AS 01-11- 2014, WHICH IS AFTER THE RELEVANT PREVIOUS YEAR. THEREFORE, THE ADDITION ON ACCOUNT OF DEEMED RENT O F RS. 8,75,000/- (REAR PORTION) AND RS.4,81,000/- (FRONT PORTION) IN THIS CASE IS BASELESS AND LIABLE TO BE DELETED. 2. CONTENTION IN THE CASE OF B-100 IN THE CASE OF PROPERTY B-100, THE SAME WAS ALSO NOT READY FOR USE. THE FACTS IN THIS CASE CAN BE VERIFIED FROM TH E MUTATION CERTIFICATE DATED 19-07-20L2 ISSUED BY THE MUNICIPA L CORPORATION OF DELHI WHICH SHOWS THAT THE SAID PROPERTY WAS NOT READY TO LET OUT UNTIL THE ABOVE DATE.(COPY OF MUTATION CERTIFIC ATE AT PB PAGE.79). IT IS FURTHER SUBMITTED THAT THE SAID PRO PERTY WAS USED FOR BUSINESS PURPOSES RIGHT AFTER IT WAS READY FOR USE AND IT WAS ONLY LATER THAT IT WAS OCCUPIED BY THE DIRECTOR OF THE APPELLANT COMPANY. HENCE, THE DEEMED RENT FOR SUCH PROPERTY CANNOT BE ASSUMED FOR THE FULL YEAR. I.T.A. NO.1653/DEL/2019 14 3. CONTENTION IN THE CASE OF C-75 IN THE CASE OF PROPERTY C-75, FIRST FLOOR AND SECO ND FLOOR, THE CONSTRUCTION OF THE SAID PROPERTY AS WHOLE WAS COMP LETED W.E.F. 01.04.2013. THIS FACT CAN BE VERIFIED FROM ASSESSME NT ORDER UNDER SECTION 123-D OF DMC (AMENDMENT) ACT, 2003 PA SSED BY DEPUTY ASSESSOR & COLLECTOR, SOUTH ZONE, SOUTH DELH I MUNICIPAL CORPORATION. THEREFORE, THE IMPUGNED PROPERTIES WERE NOT READY F OR USE IN THE RELEVANT PREVIOUS YEAR AND APPLICABILITY OF PROVISI ONS PERTAINING TO DEEMED RENT DO NOT ARISE. THUS, THE ADDITION ON ACCOUNT OF DEEMED RENT OF RS.7,60,000/- (FIRST FLOOR) AND RS.4 ,95,000/- (SECOND FLOOR) IN THIS CASE IS BASELESS AND LIABLE TO BE DELETED. 14. THUS, HE SUBMITTED THAT THERE ARE ARBITRARY ASS UMPTION AND CALCULATION OF DEEMED RENT WITH THE IMPUGNED PR OPERTY, I.E., 2% OF THE COST AND THE ENTIRE ADDITION SHOULD BE DELETED. 15. LD. DR STRONGLY RELIED UPON THE ORDER OF THE AS SESSING OFFICER. 16. AFTER CONSIDERING THE RIVAL SUBMISSION AND PERU SAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS, WE F IND THAT, FIRST OF ALL, IN THE CASE OF PROPERTY, W-54, 1 ST FLOOR, GREATER KAILASH, THE SAME HAS BEEN UNDER CONSIDERATION AND WAS NOT READY FOR USE AND THIS IS EVIDENT FROM THE FIRST EL ECTRICITY BILL AND THE DATE OF INSTALLMENT, WHICH WAS INSTALLED IN THE MONTH OF DECEMBER, 2014. ONCE THE PROPERTY ITSELF WAS UND ER CONSTRUCTION STAGE WITH NO ELECTRICITY CONNECTION T HEN THERE CANNOT BE ANY DEEMED OR NOTIONAL RENT WHICH CAN BE ADDED I.T.A. NO.1653/DEL/2019 15 U/S. 23(1)(A). ACCORDINGLY, THE ADDITION OF RS.8.75 LAC FOR THE REAR PORTION OF THE PROPERTY AND RS.4.81 LAC FOR TH E FRONT PORTION OF THE PROPERTY IS DIRECTED TO BE DELETED. 17. REGARDING OTHER PROPERTY OF B-100, SARVODAYA EN CLAVE, FIRST FLOOR, SAME WAS ALSO NOT READY TO USE WHICH H AS BEEN PROVED BY WAY OF MUTATION CERTIFICATE DATED 19.07.2 012 ISSUED BY MCD WHICH SHOWS THAT IT WAS NOT READY TO LET OUT. FURTHER, THE SAID PROPERTY HAS BEEN USED FOR THE BU SINESS PURPOSE OF THE ASSESSEE WHEN IT WAS READY FOR USE W HICH WAS MUCH LATER AND HAD OCCUPIED BY THE DIRECTOR OF THE COMPANY. HENCE ON THIS PROPERTY ALSO, THERE CANNOT BE ANY AD DITION ON ACCOUNT OF DEEMED RENT. LASTLY, WITH REGARD TO THE PROPERTY AT C-75, 1 ST AND 2 ND FLOOR, SHIVALIK, AGAIN IT HAS BEEN BROUGHT ON RECORD THAT THE SAID PROPERTY WAS COMPLETED AFTER 0 1.04.2014 FOR WHICH LD. COUNSEL HAS FILED COPY OF THE ASSESSM ENT ORDER PASSED BY DEPUTY ASSESSOR & COLLECTOR OF SOUTH DELH I MUNICIPAL CORPORATION. ONCE, THIS PROPERTY WAS NOT READY FOR USE, THERE IS NO QUESTION OF ANY DEEMED RENT. ACCOR DINGLY, NO ADDITION ON ACCOUNT OF NOTIONAL DEEMED RENT U/S.23( 1)(A) CAN BE MADE, ONCE THE PROPERTY ITSELF WAS EITHER IN THE STAGE OF CONSTRUCTION OR WAS NOT READY FOR USE. ON THE FACTS OF THE PRESENT CASE, AS DISCUSSED ABOVE, THE RATIO OF THE PRINCIPLE OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL HOUSING FINANCIAL AND LEASING CO. LTD. (SUPRA) CANNOT BE APPLIED. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. I.T.A. NO.1653/DEL/2019 16 ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH NOVEMBER, 2019. SD/- SD/- [B.R.R. KUMAR] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 8 TH NOVEMBER, 2019 PKK: