M/s. Anand Construction, Pune V. Income-tax Officer, Ward - 7(1), Pune

ITA 1711/PUN/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9870 (ITAT-PUNE)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 14-02-2019
• Assessment Year: 2015-2016
• Appeal Filed On: 01-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NITIN DESAI
• Keywords: Business income; Deemed to accrue or arise in india; Set aside
• Section: 192; 22

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE . , BEFORE SHRI D. KARUNAKARA RAO, AM . / ITA NO.1711/PUN/2018 / ASSESSMENT YEAR : 2015-16 M/S. ANAND CONSTRUCTION, SHAH KHANDELWAL JAIN & ASSOCIATES, LEVEL 3, RIVERSIDE BUSINESS BAY, PLOT NO.84, WELLESLEY ROAD, NEAR RTO, PUNE-411001. PAN : AAGFA9480Q . / APPELLANT VS. ITO, WARD-7(1), PUNE. . / RESPONDENT / APPELLANT BY : SHRI NITIN DESAI / RESPONDENT BY : SHRI M. K. VERMA / DATE OF HEARING : 14.02.2019 / DATE OF PRONOUNCEMENT: 03.04.2019 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-5, PUNE DATED 11.06.2018 FOR THE ASSESSMENT YEAR 2015-16. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER :- 1. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEME OF THE ACT IT BE HELD THAT, HONBLE COMMISSIONER OF INCOME TAX- (APPEALS) (HONBLE CIT(A)) ERRED IN CONFIRMING THE ADDITION MADE BY LEARNED ASSESSING OFFICER (LD. A.O.) ON ACCOUNT OF DEEMED RENT FROM UNSOLD UNITS LYING IN CLOSING STOCK UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ADDITION OF RS.87,941/- MADE BY LD. A.O. & SUSTAINED BY THE HONBLE CIT(A) IS IMPROPER, UNWARRANTED, UNJUSTIFIED AND CONTRARY TO THE PROVISION OF THE ACT AND FACTS PREVAILING IN THE CASE. THE ADDITION SO MADE BE DELETED. THE APPELLANT BE GRANTED JUST AND PROPER RELIEF IN THE RESPECT. 2. WITHOUT PREJUDICE TO THE ABOVE, ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEME OF THE ACT IF AT ALL IT IS HELD THAT THE ANNUAL LETTING VALUE HAS TO BE ASSESSED AS INCOME OF THE APPELLANT, IT BE HELD THAT SAID INCOME ARISING OUT OF UNSOLD UNITS OF 80IB(10) COMPLIANT HOUSING PROJECT AND THE SAME IS ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT WHILE COMPUTING THE TOTAL INCOME. THE APPELLANT BE GRANTED JUST AND PROPER RELIEF IN THIS RESPECT. ITA NO.1711/PUN/2018 - 2 - 3. WITHOUT PREJUDICE TO GROUND NO.1, ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS AND SCHEME OF THE ACT, IF FOR ANY REASON, THE ADDITION MADE BY THE A.O. IS HELD TO BE SUSTAINABLE THEN THE ASSESSEE BE ALLOWED TO CLAIM DEDUCTION OF INTEREST ON BORROWED CAPITAL AMOUNTING TO RS.87,941/- AS PER SECTION 24(B) OF THE ACT. THE APPELLANT BE GRANTED JUST AND PROPER RELIEF IN THIS RESPECT. 4. WITHOUT PREJUDICE TO GROUND NO.1, ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEME OF THE ACT IT BE HELD THAT, HONBLE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ANNUAL LETTABLE VALUE CONSIDERED BY THE LD. A.O. FOR COMPUTING THE DEEMED INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE DEEMED INCOME COMPUTED BY CONSIDERING THE FAIR RENTAL VALUE OF THE PROPERTY IS ON THE HIGHER SIDE. THE MUNICIPAL VALUE OF THE PROPERTY BE CONSIDERED AS THE ANNUAL LETTABLE VALUE OF THE PROPERTY AND THE APPELLANT BE GRANTED JUST AND PROPER RELIEF IN THIS RESPECT. 5. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE, RAISE ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. BRIEFLY STATED THE RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS A BUILDER AND DEVELOPER. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING GROSS TOTAL INCOME OF RS.26,42,039/- AFTER CLAIMING THE DEDUCTION U/S 80IB(10) OF THE ACT. OTHERWISE, NIL INCOME RETURNED BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THERE WAS A TRANSACTION INVOLVING TWO UNSOLD FLATS. FURTHER, THE ASSESSING OFFICER NOTICED THAT THE PROJECT IS INCOMPLETE. ACCORDINGLY, THE CLAIM OF DEDUCTION U/S 80IB(10) OF THE ACT AMOUNTING TO RS.26,42,039/- REJECTED BY THE ASSESSING OFFICER. FURTHER, WITH REFERENCE TO THE SAID TWO UNSOLD FLATS, THE ASSESSEE USED ONE OF THEM FOR THE PURPOSE OF STORAGE OF MATERIAL OF THE ASSESSEE AND ALSO FOR OFFICE PURPOSES AND ASSESSEE USED ANOTHER FLAT AS GUEST HOUSE FOR USE/STAY OF THE EMPLOYEES AND GUESTS OF THE ASSESSEE. THE ASSESSING OFFICER COMPUTED THE ANNUAL LETTABLE VALUE (ALV) OF THESE TWO FLATS INVOKING THE PROVISIONS OF SECTION 23(1)(A) OF THE ACT AND WORKED OUT THE ALV AT RS.87,941/- AFTER GRANTING DEDUCTION U/S 24(1) OF THE ACT. 4. AGGRIEVED WITH THE SAID ACTION OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE TREATMENT OF THE SAID UNSOLD FLATS AND THE INCOME THEREOF IS THE CORE ISSUE FOR THE ASSESSEE TO FILE THE PRESENT APPEAL BEFORE THE TRIBUNAL. OTHERWISE, THE CIT(A) DISCUSSED THIS ISSUE IN PARA 19 OF HER ORDER ITA NO.1711/PUN/2018 - 3 - AND UPHELD THE VIEWS TAKEN BY THE ASSESSING OFFICER IN THE MATTERS OF TAXATION OF NOTIONAL RENT UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THUS, IT IS A CASE OF COMPUTATION OF NOTIONAL RENT OF THE TWO FLATS, WHICH WERE NOT ONLY ACTUALLY RENTED OUT AND NEVER HAPPENED TO EARN THE RENTAL INCOME OUT OF THE SAID TWO FLATS. 5. AGGRIEVED WITH THE ABOVE VIEWS OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE ABOVE EXTRACTED GROUNDS. 6. THE GROUNDS RAISED BY THE ASSESSEE WERE RAISED WITHOUT PREJUDICE TO ONE ANOTHER. OTHERWISE, THE MAIN ISSUE RAISED IN GROUND NO.1 AND THE SAME RELATES TO THE INCORRECTNESS OF THE DECISION OF THE ASSESSING OFFICER AND THE CIT(A) IN TAXING THE DEEMED RENT ON NOTIONAL BASIS QUA THE UNSOLD FLATS OF THE BUILDER UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS IS A CASE WHERE THE COUPLE OF UNSOLD FLATS WERE BEING USED FOR STORAGE PURPOSES AS WELL AS FOR THE PURPOSE OF GUEST HOUSE. OTHERWISE, THE ASSESSEE DID NOT EARN ANY INCOME FROM THE SAID FLATS. AS PER THE LD. COUNSEL FOR THE ASSESSEE, THIS IS NOT A FIT CASE FOR INVOKING THE PROVISIONS OF SECTIONS 22 TO 24 OF THE ACT. IN THIS REGARD, HE RELIED ON THE VARIOUS DECISIONS OF THE TRIBUNAL TO HOLD THAT FOR THE PURPOSE OF PROVISIONS RELATING TO THE SAID INCOME FROM HOUSE PROPERTY ARE NOT APPLICABLE. REFERRING TO THE VARIOUS OTHER DECISIONS WHICH SUPPORT THE VIEW OF TAXING SUCH NOTIONAL INCOME AS BUSINESS INCOME OF THE ASSESSEE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID UNSOLD FLATS CONSTITUTE STOCK-IN-TRADE AND NOT THE DEPRECIABLE FIXED ASSETS OF THE COMPANY. LD. COUNSEL TOOK ME THROUGH VARIOUS DECISIONS ON THIS SUBJECT SUCH AS (I) HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEHA BUILDERS PVT. LTD., 296 ITR 661 (GUJ.-HC); (II) HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SANE & DOSHI ENTERPRISES, 377 ITA NO.1711/PUN/2018 - 4 - ITR 165 (BOM.-HC); AND, (III) HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL HOUSING FINANCE AND LEASING CO. LTD., 354 ITR 180 (DEL.-HC) ETC. LD. AR SUBMITTED THAT THE JUDGEMENTS OF THE GUJARAT HIGH COURT AND THE BOMBAY HIGH COURT WERE DECIDED IN THE FACTS OF CASES WHERE UNSOLD FLATS WERE ACTUALLY LET OUT FOR EARNING THE RENT INCOME. BOTH THESE HIGH COURTS HELD THAT SUCH INCOME IS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSING OFFICER ATTEMPTED TO CHANGE THE HEAD OF INCOME AND THE SAME WAS NOT APPROVED BY THE SAID HIGH COURTS. 8. FURTHER, REFERRING TO THE VARIOUS ORDERS OF THE TRIBUNAL, SUCH AS (I) COSMOPOLIS CONSTRUCTION VS. ITO IN ITA NOS.230 & 231/PUN/2018 FOR THE ASSESSMENT YEARS 2013-14 & 2014-15 ORDER DATED 12.09.2018; (II) M/S. C.R. DEVELOPMENTS PVT. LTD. VS. JCIT IN ITA NO.4277/MUM/2012 FOR THE ASSESSMENT YEAR 2009-10 ORDER DATED 13.05.2015; (III) M/S. RUNWAL CONSTRUCTIONS VS. ACIT IN ITA NO.5408/MUM/2016 FOR THE ASSESSMENT YEAR 2012-13 ORDER DATED 22.02.2018; AND, (IV) SHRI GIRDHARILAL K. LULLA VS. DCIT IN ITA NO.1604/MUM/2016 FOR THE ASSESSMENT YEAR 2011-12 ORDER DATED 17.11.2017, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE DECISIONS WERE PRONOUNCED IN THE CONTEXT OF FACTS WHERE UNSOLD FLATS WERE NEVER LET OUT AND NOTIONAL INCOME WAS TAXED AS BUSINESS INCOME. 9. NARRATING THE PRESENT FACTS OF THE CASE, LD. COUNSEL SUBMITTED THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER OR THE CIT(A) THAT THE NOTIONAL INCOME IS TAXABLE AS UNDER THE HEAD BUSINESS INCOME. LD. AR EMPHASIZED THE POINT THAT THE ASSESSING OFFICER ERRONEOUSLY INVOKED THE PROVISIONS OF SECTIONS 22 TO 24 OF THE ACT. THEREFORE, THE SAID PROVISIONS OF THE ACT ARE INAPPLICABLE AS HELD BY THE ABOVE-SAID SERIES OF DECISIONS OF THE TRIBUNAL (SUPRA). ITA NO.1711/PUN/2018 - 5 - 10. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE AUTHORITIES BELOW. 11. ON HEARING THE ABOVE SUBMISSIONS OF BOTH THE PARTIES, I FIND THIS CASE STANDS COVERED BY SERIES OF DECISIONS OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. COSMOPOLIS CONSTRUCTION (SUPRA) IS RELEVANT TO THE PRESENT FACTS OF THE CASE AND UNDERSIGNED IS PARTY TO THE SAID ORDER OF THE TRIBUNAL (SUPRA). SIMILAR VIEWS ARE TAKEN IN THE CASE OF KUMAR BEHARAY RATHI IN ITA NO.327/PUN/2018 FOR THE ASSESSMENT YEAR 2014-15, WHERE THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. COSMOPOLIS CONSTRUCTION (SUPRA) WAS HEAVILY RELIED. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PARAGRAPHS OF THE SAID ORDER OF THE TRIBUNAL IN THE CASE OF KUMAR BEHARAY RATHI (SUPRA) ARE EXTRACTED HEREUNDER :- 9. ON HEARING BOTH THE SIDES AND PERUSED THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. COSMOPOLIS CONSTRUCTION (SUPRA), I PROCEED TO EXTRACT THE RELEVANT PARAS OF THE SAID ORDER OF THE TRIBUNAL (SUPRA) AS UNDER :- 5. THE LD. AR CONTROVERTING THE SUBMISSIONS OF THE DR SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE DEPARTMENT IS DISTINGUISHABLE. THE LD. AR POINTED THAT IN THE INSTANT CASE THE ADDITION HAS BEEN MADE BY DETERMINING NOTIONAL ANNUAL RENTAL VALUE ON UNSOLD UNITS. WHEREAS, IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SANE & DOSHI ENTERPRISES (SUPRA) THE ASSESSEE HAD ACTUALLY RENTED OUT THE FLATS AND HAD OFFERED THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE DEPARTMENT INTENDED TO TAX THE AMOUNT UNDER THE HEAD BUSINESS INCOME. THE TRIBUNAL RULED IN FAVOUR OF THE ASSESSEE. THE DEPARTMENT CARRIED THE MATTER IN APPEAL BEFORE THE HON BLE HIGH COURT, THE HON BLE HIGH COURT UPHELD THE FINDINGS OF TRIBUNAL. IN THE PRESENT CASE, THE ASSESSEE HAS NOT RENTED OUT THE FLATS . THE ASSESSING OFFICER HAS DETERMINED NOTIONAL ANNUAL RENTAL VALUE. IN RESPECT OF DECISION RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANSAL HOUSING FINANCE AND LEASING CO. LTD. (SUPRA) THE LD. AR FAIRLY ADMITTED THAT THE DECISION IS AGAINST THE ASSESSEE. HOWEVER, THE LD. AR SUBMITTED THAT IN VIEW OF THE DECISION OF HON BLE SUPREME COURT OF INDIA IN THE CASE OF COMMISSIONER OF INCOME TAX VS. VEGETABLE PRODUCTS LTD. REPORTED AS 88 ITR 192 THE RATIO LAID DOWN BY THE HON BLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. NEHA BUILDERS (P.) LTD. (SUPRA) HAS TO BE FOLLOWED. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE SOLITARY ISSUE IN THE APPEAL BY ASSESSEE IS AGAINST THE ADDITION OF RS.75,50,995/- UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN RESPECT OF NOTIONAL RENTAL INCOME ON THE FLATS HELD AS STOCK-IN-TRADE. IN SO FAR AS THE FACTS NARRATED BY THE LD. AR OF THE ASSESSEE, THERE IS NO DISPUTE. 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 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 BUILDERS (P.) LTD. (SUPRA) HAS HELD THAT WHERE THE PROPERTY IS HELD AS STOCK-IN-TRADE ANY INCOME DERIVED ITA NO.1711/PUN/2018 - 6 - FROM 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 COMPANY WAS INCORPORATED WITH THE MAIN OBJECT OF PURCHASE, TAKE ON LEASE, OR ACQUIRE BY SALE, OR LET OUT THE BUILDINGS CONSTRUCTED BY THE ASSESSEE. DEVELOPMENT OF LAND OR PROPERTY WOULD ALSO BE ONE OF THE BUSINESSES FOR WHICH THE COMPANY WAS INCORPORATED. 8. TRUE IT IS, THAT INCOME DERIVED FROM THE PROPERTY WOULD ALWAYS BE TERMED AS 'INCOME FROM THE PROPERTY, BUT IF THE PROPERTY IS USED AS 'STOCK-IN-TRADE, THEN THE SAID PROPERTY WOULD BECOME 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 OUT THE SAME, THEN THAT WOULD BE THE 'BUSINESS AND THE BUSINESS STOCKS, WHICH MAY INCLUDE MOVABLE AND IMMOVABLE, WOULD BE TAKEN TO BE 'STOCK-IN-TRADE, AND ANY INCOME DERIVED FROM SUCH STOCKS CANNOT BE TERMED AS 'INCOME FROM PROPERTY. EVEN OTHERWISE, IT 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 DEPOSITS. 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 CLEARLY APPEAR THAT IT WAS TREATING THE PROPERTY AS 'STOCK-IN-TRADE. 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 THAT BE SO, THE PROPERTY, RIGHT FROM THE BEGINNING WAS A 'STOCK-INTRADE. 8. IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANSAL 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 ASSESSABLE AS INCOME FROM HOUSE PROPERTY. IT IS A WELL SETTLED LAW THAT WHEN TWO DIVERGENT VIEWS OF NON-JURISDICTIONAL HIGH COURTS ARE AVAILABLE AND THERE IS NO DECISION ON THE ISSUE FROM THE JURISDICTIONAL HIGH COURT, THE VIEW 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 ENTERPRISES (SUPRA) IS CONCERNED WE FIND THAT THE FACTS IN THE SAID CASE ARE AT VARIANCE. IN THE SAID CASE THE ASSESSEE WAS ENGAGED IN CONSTRUCTION BUSINESS. THE ASSESSEE RENTED OUT UNSOLD FLATS AND SUO-MOTU OFFERED RENTAL INCOME FROM THE FLATS UNDER THE HEAD INCOME FROM HOUSE PROPERTY . ON THE CONTRARY THE REVENUE WANTED TO TAX RENTAL INCOME UNDER THE HEAD BUSINESS INCOME. THE MATTER TRAVELLED TO THE TRIBUNAL. THE TRIBUNAL HELD THAT THE INCOME EARNED BY THE ASSESSEE FROM RENTING OF FLATS IS TO BE 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 AND HELD THAT RENTAL INCOME RECEIVED FROM UNSOLD PORTION OF PROPERTY CONSTRUCTED BY THE ASSESSEE, IS ASSESSABLE AS INCOME FROM HOUSE PROPERTY. THE CORE DIFFERENCE BETWEEN THE CASE OF THE ASSESSEE AND IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SANE & DOSHI ENTERPRISES (SUPRA) IS THAT IN THE CASE OF ASSESSEE, IT IS NOTIONAL ANNUAL RENTAL INCOME ON FLATS HELD AS STOCK WHICH IS SOUGHT TO BE TAXED, WHEREAS IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SANE & DOSHI ENTERPRISES (SUPRA) IT WAS THE CASE OF ACTUAL RENTAL INCOME EARNED BY THE ASSESSEE FROM RENTING OF FLATS CONSTRUCTED BY IT. HENCE, THE DECISION RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SANE & DOSHI ENTERPRISES (SUPRA) WOULD NOT APPLY IN THE FACTS OF THE PRESENT CASE. 10. WE FURTHER FIND THAT MUMBAI BENCH OF THE TRIBUNAL IN M/S. C.R. DEVELOPMENTS PVT. LTD. VS. JCIT (SUPRA), M/S. RUNWAL CONSTRUCTIONS VS. ACIT (SUPRA) AND SHRI GIRDHARILAL K. LULLA VS. DCIT (SUPRA) UNDER SIMILAR SET OF FACTS HAVE TAKEN A CONSISTENT VIEW IN HOLDING NOTIONAL ANNUAL RENTAL VALUE ITA NO.1711/PUN/2018 - 7 - ON UNSOLD FLATS HELD AS STOCK-IN-TRADE BY THE ASSESSEE ENGAGED IN CONSTRUCTION AND DEVELOPMENT ACTIVITIES AS BUSINESS INCOME. 11. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISION RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. NEHA BUILDERS (P.) LTD. (SUPRA) WE FIND MERIT IN THE SUBMISSIONS OF ASSESSEE AND ALLOW THE APPEAL. 12. IN THE RESULT, THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF ASSESSEE IS ALLOWED. 10. FROM THE ABOVE EXTRACTS, IT IS EVIDENT THAT THE TAXATION OF RENTAL INCOME EARNED OUT OF STOCK-IN-TRADE I.E. UNSOLD FLATS OF THE CONSTRUCTION COMPANY, DEPENDS ON VARIOUS FACTS SUCH AS IF THE FLATS ARE RENTED OUT ACTUALLY OR NOT. AS HELD BY VARIOUS DECISIONS, THE RENTAL INCOME CAN BE ACTUAL RENT RECEIVED BY THE ASSESSEE OUT OF RENTING OF THE UNSOLD FLATS OR DEEMED RENTAL/NOTIONAL RENTAL INCOME CALCULATED BY THE ASSESSING OFFICER ATTRIBUTABLE TO SUCH UNSOLD FLATS WHICH WERE NOT ACTUALLY RENTED OUT. FROM THE JUDGEMENTS IN THE CASE OF CIT VS. SANE & DOSHI ENTERPRISES, 377 ITR 165 (BOM) AND IN THE CASE OF CIT VS. ANSAL HOUSING FINANCE AND LEASING CO. LTD., 354 ITR 180 (DELHI), THE CASES WHERE THE UNSOLD FLATS ARE ACTUALLY LET OUT FOR EARNING SUCH RENT INCOME, IT IS HELD THAT THE RENTAL INCOME IS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN THESE CASES, THE REVENUES ARGUMENT IS THAT SUCH INCOME SHOULD BE TAXABLE UNDER THE HEAD BUSINESS INCOME. THIS ARGUMENT OF THE REVENUE STANDS REJECTED BY THE HONBLE BOMBAY HIGH COURT (SUPRA). 11. FLAT NOT ACTUALLY RENTED OUT: IN CASE OF NOTIONAL/DEEMED RENTAL INCOME CALCULATED BY THE ASSESSING OFFICERS IN VARIOUS CASES, THE TRIBUNAL TOOK A CONSISTENT VIEW THAT SUCH NOTIONAL/DEEMED RENTAL INCOME IS TAXABLE UNDER THE HEAD BUSINESS INCOME AND NOT UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE DECISION OF THE TRIBUNAL IN THE CASES OF (I) M/S. C. R. DEVELOPMENTS PVT. LTD. VS. JCIT IN ITA NO.4277/MUM/2012 FOR THE ASSESSMENT YEAR 2009-10, ORDER DATED 13.05.2015 (MUM.-TRIB.); (II) M/S. RUNWAL CONSTRUCTIONS VS. ACIT IN ITA NO.5408/MUM/2016 FOR THE ASSESSMENT YEAR 2012-13, ORDER DATED 22.02.2018 (MUM.-TRIB.); AND, (III) SHRI GIRDHARILAL K. LULLA VS. DCIT IN ITA NO.1604/MUM/2016 FOR THE ASSESSMENT YEAR 2011-12, ORDER DATED 17.11.2017 (MUM.-TRIB.) SUPPORT THE TAXATION OF SUCH NOTIONAL RENTAL INCOME UNDER THE HEAD BUSINESS INCOME. THE UNDERSIGNED ARE PARTY TO THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. COSMOPOLIS CONSTRUCTION (SUPRA). 12. IN THE PRESENT CASE, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE NEVER LET OUT THE UNSOLD FLATS HELD AS STOCK-IN-TRADE. FURTHER, IT IS THE CASE OF THE ASSESSING OFFICER THAT THE PROVISIONS OF SECTIONS 22 TO 23 OF THE ACT SHOULD BE INVOKED FOR TAXING THE NOTIONAL INCOME ON SUCH FLATS. I ALSO PERUSED ALL THE FOUR GROUNDS REVOLVED AROUND THE PROVISIONS OF SECTIONS 22 TO 23 OF THE ACT RELATING TO THE HEAD OF INCOME I.E. INCOME FROM HOUSE PROPERTY. FURTHER, IT IS AN UNDISPUTED FACT THE PROVISIONS OF SECTION 23(5) OF THE ACT WAS AMENDED BY THE FINANCE ACT, 2017 W.E.F. 01.04.2018 AND, THEREFORE, THESE PROVISIONS WILL NOT COME TO THE RESCUE OF THE ASSESSING OFFICER FOR BRINGING THE DEEMED INCOME ON SUCH UNSOLD FLATS TO TAXATION UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN ABSENCE OF ENABLING THE PROVISIONS OF THE INCOME TAX ACT, I AM OF THE OPINION THAT CALCULATING THE NOTIONAL INCOME IN RESPECT OF THE PROPERTIES WHICH WERE NOT RENTED OUT AND RENTAL INCOME WAS NEVER EARNED ACTUALLY, THE ASSESSING OFFICERS POLICY TO TAX SUCH INCOME IS UNSUSTAINABLE IN LAW IN VIEW OF THE VARIOUS DECISIONS CITED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 12. CONSIDERING THE ABOVE, I FIND THIS IS NOT A CASE WHERE ASSESSING OFFICER INVOKED THE PROVISIONS RELATABLE TO THE HEAD OF INCOME I.E. PROFITS AND GAINS FROM BUSINESS OR PROFESSION. THE UNSOLD FLATS WERE NEVER LET OUT ITA NO.1711/PUN/2018 - 8 - AND ASSESSEE NEVER EARNED RENTAL INCOME. AS THE ASSESSING OFFICER MERELY ATTEMPTED TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND THE SAME IS NOW NOT APPROVED BY VARIOUS BENCHES OF THE TRIBUNAL (SUPRA). THEREFORE, ON MY OPINION, THE GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 13. CONSIDERING THE RELIEF GRANTED IN GROUND NO.1, THE ADJUDICATION OF THE REST GROUNDS WITHOUT PREJUDICE BECOME AN ACADEMIC EXERCISE. ACCORDINGLY, THE REST GROUNDS ARE DISMISSED AS ACADEMIC. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 03 RD DAY OF APRIL, 2019. SD/- (D. KARUNAKARA RAO) / ACCOUNTANT MEMBER / PUNE; DATED : 03 RD APRIL, 2019. SUJEET / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-5, PUNE; 4. THE CCIT, PUNE; 5. , , - / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE