NAHALCHAND LALOOCHAND PVT. LTD, MUMBAI V. DY.COMM OF INCOME TAX, CIRCLE 5(2) (1) , MUMBAI

ITA 1661/MUM/2022

AI Insights

The case involves Nahalchand Laloochand Pvt. Ltd., a real estate development company, appealing against the order of the CIT(A) which sustained an addition of INR 1,30,46,556 as deemed income from house property for unsold flats held as stock-in-trade. The appellant argued that such income should be considered business income, not house property income, and that the flats were not let out, thus should not attract any notional rent. The CIT(A) had partly allowed the appeal but did not fully address the appellant's arguments, leading to the current appeal before the Tribunal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113442 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 06-02-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 22-06-2022
• Other Referred Cases: DCIT Central CIT-4(2) vs. M/s Inorbit Malls Pvt. Ltd. (ITA No. 2220/Mum/2021, dated 11/10/2022), 354 ITR 180 (Delhi) in case of M/s. Ansal Housing Finance & Leasing Co. Ltd., 377 ITR 165 (Bombay) in case of M/s. Sane & Doshi Enterprises
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Deemed to accrue or arise in india
• Section: 143(3); 142(1); 115JB; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1661/MUM/2022 (Assessment Year: 2017-18) Nahalchand Laloochand Pvt. Ltd., Ground Floor, Kantilal House, 14, Mama Parmanand Marg, Opera House, Mumbai - 400004 [PAN: AAACN4472C] Deputy Commissioner of Income Tax, Circle 5(2)(1), Mumbai, Room No. 571, 5 th Floor, Aaykar Bhavan, M.K. Road, Mumbai - 400020 ............... Vs ................ Appellant Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Devendra Jain Shri Chetan Kacha Date Conclusion of hearing Pronouncement of order : : 07.02.2023 13.04.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 22/12/2019, passed by the Ld. Commissioner of Income Tax (Appeals)-52, Mumbai, [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2017-18, whereby the Ld. CIT(A) had partly allowed the appeal filed by the Appellant against the Assessment Order, dated 22/12/2019, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). ITA. No. 1661/Mum/2022 Assessment Year: 2017-18 2 2. The Appellant has raised the following grounds of appeal: “1.1 On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in sustaining the addition of INR 1,30,46,556/- made by the Ld. AO, being deemed income from house property in respect of unsold flats held by the appellant as stock-in-trade of its real estate development business. 1.2 The Ld. CIT(A) failed to appreciate, and ought to have held, that provisions of section 22 of the Act are not applicable to unsold flats held by a builder as stock- in-trade in ordinary course of his business of real estate development. 1.3 The Ld. CIT(A) failed to appreciate, and ought to have held, that even otherwise, u/s. 23(1)(c) of the Act annual value of these unsold flats was 'nil' as the same were not actually let out during the relevant year. 1.4 The Ld. CIT(A) further erred in not giving a clear direction to the Ld. AO to rectify the mistake committed by the Ld. AO in computing the cost of unsold flats on which notional rent was computed, inasmuch as the cost of open plots was added to the closing stock, instead of reducing the same. 1.5 The Ld. CIT(A) failed to appreciate, and ought to have held, that deduction u/s.80 IB(10) was allowable for the notional rent assessed in respect of the unsold flats in the appellant's 'Shivalaya Project', which was admittedly a housing project eligible for claiming deduction u/s.80-1B(10). Your appellant, therefore, prays that the aforesaid addition of INR 1,30,46,556/- be deleted. Alternatively, your appellant prays that such other relief(s) may be allowed as the Hon'ble Tribunal may consider fit and proper in the circumstances of the case.” 3. Brief facts of the case are that the Appellant is engaged in the business of real estate development. For the Assessment Year 2017-18, the Appellant filed return of income on 28/10/2017, declaring total income of INR 17,60,96,260/-.The case of the ITA. No. 1661/Mum/2022 Assessment Year: 2017-18 3 Appellant was selected for scrutiny and notices under Section 143(2) and 142(1) of the Act were issued. The Assessing Officer completed the assessment under Section 143(3) of the Act on 22/12/2019 determining total income of INR 18,91,42,820/- after making certain additions/disallowance. 4. Being aggrieved, the Appellant preferred appeal before the CIT(A) on the following issues: (a) addition of INR 1,30,46,556/- made by the Assessing Officer holding the same to be deemed income from House Property from unsold flats held by the Appellant as stock-in-trade, (b) addition of INR 11,26,383/- made to Book Profits by computing Book Profits under Section 115JB of the Act at INR 17,36,53,007/- as against INR 17,25,26,694/- computed by the Appellant, and (c) Disallowance of MAT credit of INR 51,24,262/- by allowing MAT credit of INR 2,20,91,990/- as against MAT credit of INR 2,62,16,251/- claimed by the Appellant. The CIT(A), vide order dated 22/12/2019, partly allowed the appeal. 5. Since, the Appellant was not satisfied with the relief granted by the CIT(A), the Appellant preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above which pertain to addition of INR 1,30,46,556/- made by the Assessing Officer being deemed income from house property in respect of unsold flats held by the Appellant as stock-in-trade of its real estate development business. 6. The Ld. Authorised Representative for the Appellant appearing before us submitted that before the CIT(A) it was contended by the Appellant that unsold flats were held by the Appellant as ITA. No. 1661/Mum/2022 Assessment Year: 2017-18 4 stock-in-trade of the business, and therefore, any rental income arising from the same, would be business income, and not house property income. Since these flats were vacant during the year, no rental income was received. The Assessing Officer has erred in computing notional annual value under Section 22 of the Act in respect of these unsold flats at INR 1,86,37,937/- based on 8% of the cost thereof, and has incorrectly determined income from house property at INR 1,30,46,556/- after allowing standard deduction under Section 24(1) of the Act for expenses @30%. Without prejudice to the aforesaid, it was also contended before CIT(A) that the Assessing Officer has incorrectly included cost of open plots amounting to INR 2,03,81,466/- while computing the cost of unsold flats (made for four months period between December, 2016 and March 2017). Further, the ‘Shivalaya' project undertaken by the Appellant was eligible for deduction under Section 80IB(10) of the Act. Four flats in this project, having aggregate cost of INR 1,49,40,714/-, were included in the closing stock of unsold flats as on 31/03/2017. Even if the addition of notional rental income in respect of these flats was to be sustained, the rental income therefrom would be eligible for deductible under Section 80IB(10) of the Act. The Ld. Authorised Representative for the Appellant submitted that the CIT(A) sustained the order passed without dealing with the contentions raised by the Appellant. He submitted that additions made by the Assessing Officer was not sustainable in view of the judicial precedents cited before the CIT(A) by the Appellant and reproduced in the order impugned as part of the submissions of the Appellant. 7. Per contra, the Ld. Departmental Representative relied upon the ITA. No. 1661/Mum/2022 Assessment Year: 2017-18 5 paragraph 4 of the Assessment Order and relied upon the judicial precedents on which reliance was placed by the Assessing Officer while rejecting the contention of the Appellant and making addition of INR 1,30,46,556/- and also recent decision of the Tribunal in the case of DCIT Central CIT-4(2) vs. M/s Inorbit Malls Pvt. Ltd. (ITA No. 2220/Mum/2021, dated 11/10/2022). 8. We have considered the rival submissions and perused the material on record. We note that the CIT(A) has disposed of the ground related to addition of INR 1,30,46,556/-, being deemed income from house property raising from unsold flats held as stock-in-trade by the Appellant, without dealing with the contentions raised by the Appellant. While in paragraph 5.1.1 to 5.1.4 the CIT(A) has summarized the contentions raised by the Appellant, the CIT(A) has failed to consider the same and has disposed of the grounds raised by the Appellant in paragraph 5.1.6 with the directions to the Assessing Officer to carry out verification. We note that the other grounds raised by the Appellant were also disposed by the CIT(A) by issuing similar directions for verification. The relevant extract of the decision of the CIT(A) read as under: “5.1 Ground No. 1.1 to 1.5 are related to one another and challenge addition of Rs. 1,30,46,556 as deemed income from house property in respect of unsold flats. 5.1.1 In this regard, out of submission of the appellant (reproduced entirely in Para no. 4 supra following points being relevant for adjudication of this Ground are as under: xx xx 5.1.2 All the facts and circumstances of the case related to impugned addition of Rs. 1,30,46,556/- as deemed from ITA. No. 1661/Mum/2022 Assessment Year: 2017-18 6 house property in respect of unsold flats are duly considered. It is found that appellant closing stock as on 31.03.2017 included unsold flats. Further, these unsold flats were held as stock-in-trade of the business of the appellant (real estate business) and therefore, any rental income on those unsold flats could be assessed as business income and not as Income from House Property. Furthermore the appellant, did not receive any rental income as these flats were vacant during the year. 5.1.3 It is also noted that the Appellant's such submission was rejected by Ld. A.O. without any cogent reason and that, the Ld. A.O. computed notional Annual Value in respect of those unsold flats, @ 8% of their value. Appellant was allowed standard deduction@ 30% of A.L.V. u/s 24(1) of the Act and the Income from House Property was determined at Rs.1,30,46,556. 5.1.4 Lastly it was submitted that four flats of another project were included in the closing stock of unsold flats. This other project was named as 'Shivalaya' and was eligible for deduction u/s 80 IB (10) of the Act. The aggregate cost of those 4 flats was stated to be Rs 1,49,40,714. 5.1.5 It will be not out of place to mention that with respect to above discussion, there are case laws not only of Hon'ble Delhi High Court but also those of jurisdictional High Court Le. Hon'ble Mumbai High Court where the judicial opinion has been against the appellant company like assessees engaged in construction business and in favour of Revenue in matters where ALV (Annual Lettable/Rental Value) on unsold flats was held to be assessable under the head, 'Income from House Property' and not Business Income as was claimed by the Ld. A/R of the appellant company in this case. As rightly pointed out by the Ld. AO in page no 3 of the impugned Assessment Order dated 22.12.2019; the famous landmark cases that can be referred to, in this regard, are as under: 1. 354 ITR 180 (Delhi) in case of M/s. Ansal Housing Finance & Leasing Co. Ltd. 2. 377 ITR 165 (Bombay) in case of M/s. Sane & Doshi Enterprises 5.1.6 Now in light of entire discussion made supra from sub-para no. 5.1 to 5.1.5, it is clear that this is totally a matter of verification and which the Ld. A.O. is directed to undertake ITA. No. 1661/Mum/2022 Assessment Year: 2017-18 7 while giving effect to this order. Ld. A/R is also required to cooperate the Ld. A.O. otherwise the computation of Income from House Property may not be completed correctly to meet the ends of Justice' and 'Fair Play. Thus, Ground No.1.1 to 1.5 are partly allowed. 5.2 Ground No.2 challenges addition of Rs. 11,26,383 on account of difference in computation of Book Profit u/s 115JB of the Act.. It was alleged by Ld. A/R of the appellant company that no detail of any adjustment was given by Ld. A.O. while computing such Book Profit. This cannot be ascertained as alongwith the Asst. Order no computation of 115 JB Income was uploaded. In the impugned Asst. Order also there is no such mention. Later in the written submission dated 19.02.2021[in the 'Statement of Facts' (in 1 page) uploaded as Annexure -1 to the Appeal Memo (Form no 35) nothing was mentioned in this regard], it has been stated that "Deferred Tax Provision" of Rs. 11,26,383 was not reduced while computing the Book Profit u/s 115JB of the Act. Thus, it is clear that this is totally a matter of verification and can be done by only the Ld. A.O. Therefore, he/she is directed to undertake this exercise while giving effect to this order. Ld. A/R is also required to cooperate the Ld. A.O. otherwise the computation of Income u/s 115 JB may not be completed correctly to meet the ends of Justice' and 'Fair Play. Therefore, Ground No 2 is partly allowed. 5.3 Ground No.3 challenges addition of Rs.51,24,262 as disallowance of excess claim of MAT Credit i.e. against claim of Rs.2,62,16,251 credit was given for Rs2,20,91,990 only. It is also clear that this is totally a matter of verification and which the Ld. A.O. may be directed to undertake while giving effect to this order. Ld. A/R is also required to cooperate the Ld, A.O. otherwise the computation of MAT Credit allowable to the appellant Company may not be completed correctly to meet the ends of 'Justice' and 'Fair Play'. Therefore, Ground No 3 is partly allowed. 6.0 In the result, this Appeal is partly allowed, for statistical purposes” 9. Since the CIT(A) has failed to deal with the contentions raised by the Appellant, we deem it appropriate to remand the issue raised in the present appeal back to the file of CIT(A) for adjudication ITA. No. 1661/Mum/2022 Assessment Year: 2017-18 8 afresh after giving the Appellant reasonable opportunity of being heard. Since the issue has been remanded to the file of CIT(A) for adjudication afresh, all the rights and contentions of the parties in relation to the merit of the issue involved are left open. In terms of the aforesaid, all the grounds raised by the Appellant stand disposed. In result, the present appeal treated as being allowed for statistical purposes. Order pronounced on 13.04.2023. Sd/- Sd/- (Om Prakash Kant) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 13.04.2023 Alindra, PS (Rahul Chaudhary) Judicial Member ITA. No. 1661/Mum/2022 Assessment Year: 2017-18 9 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai