M/s. Kolte Patil Developers Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 2206/PUN/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6312 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 23-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 143(3); 14A

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.2206/PUN/2016 / ASSESSMENT YEAR : 2012-13 M/S. KOLTE PATIL DEVELOPERS LIMITED, 2 ND FLOOR, CITY POINT, DHOLE PATIL ROAD, PUNE 411 001. PAN : AAACK7310G. . / APPELLANT V/S THE DY.COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 1(1), PUNE. . / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK. REVENUE BY : SHRI SUDHENDU DAS. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (A) PUNE 11 DATED 29.07.2 016 FOR THE ASSESSMENT YEAR 2012-13. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUS INESS OF REAL ESTATE DEVELOPMENT. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2012-13 ON 29.09.2012 DECLARING TOTAL INCOM E OF RS.32,74,69,918/-. THE CASE WAS SELECTED FOR SCRUTINY AN D THEREAFTER / DATE OF HEARING : 04.02.2019 / DATE OF PRONOUNCEMENT: 03.05.2019 2 ITA NO.2206/PUN/2016 ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER D T.27.03.2015 AND THE TOTAL INCOME WAS DETERMINED AT RS.37,66,84,050/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.29.07.2016 (IN APPEAL NO.PN/CIT(A)-11/DCIT, CEN. CIR.1(1), PUNE/101/2015-16) GRANTED PARTIAL RELIEF TO THE ASSE SSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APP EAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.1.40 CRS. ON ACCOUNT OF INDIRECT EXPENDITURE U / S 14A R.W . R. 8D(2)(III) AS AGAINST RS . 5,00,000/- MADE BY THE APPELLANT COMPANY. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE DISALLOWANCE MADE BY TH E A.O. ON ACCOUNT OF INDIRECT EXPENDITURE WAS NOT JUS TIFIED SINCE THE LEARN E D A.O . HAD NOT RECORDED ANY OBJECTIVE SATISFACTION T O DEMONSTRATE THAT THE DISALLOWANCE MADE OF RS.5,00,000/- BY THE APPELLANT COMPANY WAS NOT CORRECT AND ACCORDINGLY , THE DISALLOWANCE CONFIRMED BY CIT(A) SHOULD B E DELETED. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAD NOT INCURRED ANY INDIRECT EXPENDITURE OF RS.1.40 CRS. F OR EARNING EXEMPT INCOME AND HENCE, THE DISALLOWANCE OF RS.5,00,000/- OFFERED BY THE ASSESSEE WAS MOR E THAN SUFFICIENT TO COVER THE INDIRECT EXPENDITURE INCURRED, IF ANY, FOR E ARNIN G EXEMPT INCOME AND HENCE , THE DISALLOWANCE CONFIRMED BY THE CIT(A) SHOULD BE DELETED. 4. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEAR NED CIT(A) ERRED IN NOT APPRECIATING THAT THE INVESTMENTS MADE BY THE APPEL LANT COMPAN Y IN PARTNERSHIP FIRMS AND GROUP COMPANIES WERE OUT OF C OMMERCIAL EXPEDIENC Y AND THE SAME WAS NOT MADE WITH AN INTENTION TO EARN TAX FREE INCOME AN HENCE, IF AT ALL, ANY DISALLOWANCE U / S 14A R.W.R 8D IS TO BE MADE , TH E N THE AMOUNT OF INVESTMENTS MADE IN GROUP CONCERNS SHOULD BE EXCLUDED OF COMPUTING THE DISALLOWANCE . 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEAR NED CIT(A) FAIL E D T APPRECIATE THAT THE INVESTMENTS ON WHICH NO TAX FRE E INCOME WAS EARNED B THE ASSESSEE IN THIS YEAR SHOULD HAVE BEEN EXCLUD ED WHILE DETERMINING THE DISALLOWANCE U / S 14A R.W . R. 8D. 6. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASSE SSEE SUBMITS THAT THE INVESTMENT MADE IN PARTNERSHIP FIRMS IS NOT A TAX F REE INVESTMENT SINCE THE INCOME EARNED BY THE FIRM IS SUBJECTED TO INCOM E TAX AND HENCE, THE INVESTMENT IN PARTNERSHIP FIRM MAY BE EXCLUDED FROM THE AMOUNT OF TAX FREE INVESTMENTS WHILE COMPUTING THE DISALLOWANCE U/S 14A AS PER RULE 8D(II). 7. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASSE SSEE SUBMITS THAT THE DISALLOWANCE MADE U/S 14A IS VERY HIGH AND MAY BE REDUCED SUBSTANTIALLY. 3 ITA NO.2206/PUN/2016 8. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.14,10,590/-- U/S 22 R . W.S. 23(4) ON ACCOUNT OF DEEMED RENT IN RESPECT OF UNSOLD UNIT HELD AS STOCK IN TRADE BY THE APPELLANT COMPANY IN VARIOUS PROJECTS. 9. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT COMPANY HAD HELD THESE UNSOLD UNIT AS STOCK IN TRADE AND HENCE, AS THESE UNITS WERE OCCUPIED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE, THERE WAS NO REASON TO TAX THE ANNUAL VALUE OF SUCH UNSOLD UNITS U/S 22 OF THE ACT . 10. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASSESSE E SUBMITS THAT ASSUMING WITHOUT ADMITTING THAT THE INCOME OF SUCH UNSOLD UNITS WAS TAXABLE AS INCOME FROM HOUSE PROPERTY U/S 22, IT IS SUBMITTED THAT THE UNSOLD UNITS WERE VACANT FOR THE ENTIRE YEAR AND AC CORDINGLY, THE INCOME THEREON WAS TO BE CONSIDERED AT RS. NIL IN VIEW OF THE PROVISIONS OF SECTION 23(1) (C) AND HENCE, THE ENTIRE ADDITION MA DE BY THE LEARNED CIT(A) MAY KINDLY BE DELETED. 11. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASS ESSEE SUBMITS THAT THE NET ANNUAL RETABLE VALUE ADOPTED BY THE A.O. IS ON AN ADHOC BASIS AND THE SAME SHOULD BE SUBSTITUTED BY THE MUNICIPAL RETABLE VALUE DETERMINED FOR THE VARIOUS UNITS BY THE LOCAL AUTHO RITIES. 12. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ASSUMIN G WITHOUT ADMITTING THAT THE ADDITION MADE TOWARDS INCOME FROM HOUSE PR OPERTY IS JUSTIFIED, THE ASSESSEE SUBMITS THAT THE DEDUCTION U/S 24 AND MUNICIPAL TAXES MAY BE ALLOWED TO THE ASSESSEE WHILE COMPUTING THE ANNU AL VALUE OF THE VARIOUS UNITS. 3. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT GROUND NOS.1 TO 7 ARE INTER-CONNECTED AND ARE WITH RESPECT TO DISALLOWAN CE U/S 14A OF THE ACT AND GROUND NOS.8 TO 12 ARE INTER-CONNECTED AN D ARE WITH RESPECT TO ADDITION MADE ON ACCOUNT OF DEEMED RENT IN R ESPECT OF UNSOLD UNITS. GROUND NO.13 IS GENERAL IN NATURE AND REQUIR ES NO ADJUDICATION. IN VIEW OF THE AFORESAID SUBMISSION OF LD.A.R. WE FIRST PROCEED TO DECIDE THE ISSUE WITH RESPECT TO DISALLOWANCE U/S 14A OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUS ING THE COMPUTATION OF INCOME, AO NOTICED THAT ASSESSEE HAD EARN ED EXEMPT INCOME IN THE FORM OF DIVIDEND AND SHARE OF PROFITS TO THE EXTENT OF 13.20 CRORES (ROUNDED OFF). IT WAS THE CLAIM OF THE ASSESS EE THAT NO 4 ITA NO.2206/PUN/2016 EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME BUT H OWEVER RS.5 LAKHS WAS SUO MOTO DISALLOWED U/S 14A OF THE ACT BY THE ASSESSEE ON ADHOC BASIS. ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCE U/S 14A OF THE ACT NOT BE MADE U/S 14A R.W.R. 8D OF INCOME TAX RULES, TO WHICH ASSESSEE INTER-ALIA STATED THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME, THE INVESTMENTS ARE OUT OF OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN USED FOR MAK ING THE INVESTMENTS. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FO UND ACCEPTABLE TO THE AO. AO THEREAFTER CONCLUDED THAT TH E PROVISIONS OF SEC.14A OF THE ACT ARE APPLICABLE TO ASSESSEE. HE THER EAFTER, ON THE BASIS OF METHOD PRESCRIBED UNDER RULE 8D OF I.T. RULES, WO RKED OUT THE DISALLOWANCE AT RS.4,82,14,704/- AND AFTER GIVING CREDIT OF RS.5,00,000/- BEING THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE, DISALLOWED THE BALANCE AMOUNT OF RS.4,77,14,704/-. AGGRIEVE D BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO AFTER RELYING ON THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN A.YS. 2008-09 & 2009-10 HELD THAT IN VIEW OF THE ASSESSEES O WN FUNDS BEING MORE THAN THE TAX FREE INVESTMENTS, NO DISALLOWANCE OF INTE REST UNDER RULE 8D(2)(II) OF I.T. RULES IS CALLED FOR. HOWEVER, WITH RESPECT TO THE DISALLOWANCE OF INDIRECT EXPENSES UNDER RULE 8D(2)(III), HE GRA NTED PARTIAL RELIEF TO THE ASSESSEE : 4.15 COMING TO THE DISALLOWANCE OF THE INDIRECT EXP ENDITURE UNDER RULE 8D, THE HONORABLE TRIBUNAL IN THE ABOVE MENTIONED D ECISION HELD AS UNDER: SO FAR AS THE DISALLOWANCE OF INDIRECT EXPENDITURE FOR EARNING TAX FREE DIVIDEND INCOME IS CONCERNED WE FIND THERE IS NO OBJECTIVE SATISFACTION RECORDED BY THE AO WHICH IS ONE OF THE MANDATES OF SECTION 14A(2) OF THE I.T. ACT. NEITHER THERE IS A NY DISCUSSION BY THE AO NOR ANY SPECIFIC QUERY RAISED BY THE AO TO T HE ASSESSEE ON THIS ISSUE. AT THE SAME TIME, THERE IS NO SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE ON ACCOUNT OF THE EXPENDITURE ATTRIBUTABLE 5 ITA NO.2206/PUN/2016 TO EARNING OF THE EXEMPT INCOME OTHER THAN THE EXPE NDITURE ON ACCOUNT OF IPO. ALTHOUGH THE ASSESSEE HAS NEITHER DISALLOWED ANY EXPENDITURE ON THIS ACCOUNT IN THE COMPUTATION STAT EMENT PRESUMABLY ON THE GROUND THAT NO EXPENDITURE HAS BE EN INCURRED AND ALTHOUGH THE AO HAS ALSO NOT SPECIFICALLY DISCU SSED THIS ISSUE IN THE BODY OF THE ASSESSMENT ORDER, HOWEVER, IT CA NNOT BE SAID THAT NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESS EE FOR EARNING THE TAX FREE INCOME. CONSIDERING THE TOTALITY OF T HE FACTS OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT DISALLO WANCE OF RS.10 LAKHS ON ADHOC BASIS ON ACCOUNT OF EXPENDITURE ATTR IBUTES FOR EARNING TAX FREE INCOME WILL MEET THE ENDS OF JUSTI CE. WE HOLD AND DIRECT ACCORDINGLY. 4.16 THUS THE HONOURABLE TRIBUNAL IN PRINCIPLE UPH ELD THE DISALLOWANCE OF THE INDIRECT EXPENDITURE THOUGHT ON AN AD HOC BA SIS, NOTWITHSTANDING THE FACT THAT THE AO HAD NOT RECORDED HIS SATISFACT ION IN THIS REGARD. 4.17. IN THE PRESENT CASE, THE AO HAS RECORDED HIS SATISFACTION AT PARA 3.3 OF THE ASST ORDER, FURTHER I FIND THAT AS PER T HE APPELLANT TOTAL INVESTMENT IN TAX FREE EQUITIES WERE RS.281.07 CR. EXCLUDING THE INVESTMENT IN DEBENTURES OF THE GROUP COMPANIES, WH ICH THE AO APPEAR TO HAVE INCLUDED, THE APPELLANT CLAIMS THAT AS PER THE ITAT DECISION ONLY THOSE INVESTMENTS SHOULD BE CONSIDERED FROM WHICH T HE APPELLANT HAD ACTUALLY RECEIVED INCOME/DIVIDEND. HOWEVER I FIND T HAT THE HONOURABLE ITAT HAD CONFIRMED THE DISALLOWANCE OF RS.10 LAKH ON AN AD HOC BASIC. FURTHER, THE CBDT CIRCULAR NO 5/2014 WAS NOT BROUGH T TO THE NOTICE OF THE HONOURABLE ITAT. THE CIRCULAR MAKES IT VERY CLE AR THAT EVEN IF NO INCOME IS ACTUALLY EARNED DURING THE YEAR, DISALLOW ANCE U/S 14A SHOULD BE CONSIDERED. 4.18 I CANNOT INDULGE IN DISALLOWANCE ON AN AD-HOC BASIS. THEREFORE I HOLD THAT IT WILL BE PROPER TO APPLY RULE 8D (2)(II I) TO WORK OUT THE DISALLOWANCE OUT OF THE INDIRECT EXPENDITURE, THE W ORKING IS AS UNDER: 281.17 CR X .5% = 1.40 CR. ACCORDINGLY DISALLOWANCE OF RS.1.40 CR. IS CONFIRME D AS AGAINST THE DISALLOWANCE OF RS.4.82 CR MADE BY THE AO U/S 14A. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APP EAL BEFORE US. 5. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT IN THE PRESENT CASE, ASSESSEE HAD SUO MOTO DISALLOWED THE EXPENSES UNDER SEC.14A OF THE ACT AT RS.5 LAKHS. HE SUBMITTED THAT AO HAS NOT RECORDED NECE SSARY SATISFACTION AS TO HOW THE WORKING OF THE DISALLOWANCE MADE BY THE 6 ITA NO.2206/PUN/2016 ASSESSEE IS INCORRECT. HE SUBMITTED THAT ONCE THE ASSE SSEE MADE SUO MOTO DISALLOWANCE OF THE EXPENSES INCURRED TO EARN EXEM PT INCOME THEN IT WAS INCUMBENT UPON THE AO TO EXAMINE SUCH CLAIM AND TO RECORD HIS DIS-SATISFACTION WITH THE CLAIM MADE BEFORE PROC EEDING TO DISALLOW THE EXPENSES UNDER RULE 8D OF I.T. RULES AND IN S UPPORT OF HIS CONTENTION HE RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD., VS. DCIT REPORTE D IN (2017) 394 ITR 449 (SC). IN THE PRESENT CASE, HE SUBMITTED T HAT SATISFACTION WITH RESPECT TO SUO MOTO DISALLOWANCE OF EXPENDITURE WAS NOT RECORDED BY THE AO AND THEREFORE THE APPLICATION OF RULE 8D OF I.T. RULES WAS NOT APPROPRIATE. HE THEREFORE SUBMITTED THAT THE DISALLOW ANCE MADE BY AO BE DELETED. LD.D.R. ON THE OTHER HAND SUBMITTED THA T AO HAS CLEARLY RECORDED HIS NON-SATISFACTION AND THEREFORE AO WA S FULLY JUSTIFIED IN INVOKING THE PROVISIONS OF SEC.14A R.W.R 8D. H E THUS SUPPORTED THE ORDER OF AO AND LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO THE DISALLOWANCE OF EXPENSES MADE U/S 14A R.W.R 8D OF THE IN COME TAX RULES. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS EARNE D EXEMPT INCOME DURING THE YEAR AND HAD SUO MOTO DISALLOWED RS.5,00,000/- U/ S 14A OF THE ACT. IT IS ALSO AN UNDISPUTED FACT THAT AO RE JECTED THE SUO MOTO DISALLOWANCE MADE BY ASSESSEE ON THE GROUND THAT THE DISALLOWANCE WAS NOT WORKED OUT AS PER MANDATE OF RULE 8 D OF IT RULES. HE THEREAFTER COMPUTED THE DISALLOWANCE UNDER SE C.14A R.W.R 8D. ON THE ISSUE OF NECESSITY OF RECORDING THE SATISFACT ION BEFORE PROCEEDING TO WORK OUT DISALLOWANCE UNDER RULE 8D OF IT R ULES, WE FIND 7 ITA NO.2206/PUN/2016 THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. AS IAN PAINTS LIMITED (ITA NO.1564 OF 2016 ORDER DATED 06.02.2019) AND A FTER CONSIDERING THE DECISION OF HONBLE APEX COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO., LTD., VS. DCIT REPORTED IN 394 ITR 449 (SC) HAS HELD THAT RULE 8D OF THE RULES CANNOT BE INVOKED WHERE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE IS NOT FOUND TO B E SATISFACTORY BY THE AO HAVING REGARD TO THE ACCOUNT OF THE ASSESSE E. IT HAS FURTHER HELD THAT IN THE ABSENCE OF RECORDING OF NON-SATISFACTION I N TERMS OF SEC.14A(2) OF THE ACT, INVOCATION OF RULE 8D IS NOT PERMISSIBLE. THE RELEVANT QUESTION BEFORE THE HONBLE HIGH COURT AND ITS O BSERVATION ARE AS UNDER : 2. THE REVENUE URGES THE FOLLOWING QUESTIONS OF LA W FOR OUR CONSIDERATION :- (A).. (B).. (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE TRIBUNAL WAS RIGHT IN DELETING ADDITION OF RS.1 ,10,72,191/- BEING DISALLOWANCE MADE U/S 14A R/W RULE 8D, WITHOUT GIVI NG THE AO OPPORTUNITY TO REMOVE ANY DEFECT, IF AT ALL CAUSED BY NON-MENTION OF THE SATISFACTION. ANY SUCH REQUIREMENT WAS WRONGLY READ BY THE TRIBUNAL ? 3. 4. REGARDING QUESTION NO.(C):- (A) IN ITS RETURN OF INCOME, THE RESPONDENT MADE A SUO-MOTO DISALLOWANCE OF RS.15.21 LAKHS BEING THE EXPENDITURE INCURRED TO EARN EXEMPT INCOME UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER DISREGARDED THE SAME AND PROCEEDED TO DISALLOW AN AMOUNT OF RS.1.10 CRORES UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES AS EXPENDITURE INCURRED TO EARN EXEMPT INCOME. THUS, A DDING RS.1.10 CRORES TO THE INCOME OF THE RESPONDENT. (B) BEING AGGRIEVED, THE RESPONDENT FILED AN APPEAL TO THE CIT(A) BUT WITHOUT SUCCESS. (C) ON FURTHER APPEAL, THE IMPUGNED ORDER OF THE TR IBUNAL WHILE ALLOWING THE APPEAL HELD THAT BEFORE INVOKING THE PROVISIONS OF RULE 8D OF THE 8 ITA NO.2206/PUN/2016 INCOME TAX RULES, THE ASSESSING OFFICER HAS TO RECO RD HIS NON- SATISFACTION WITH THE SUO MOTO DISALLOWANCE OF EXPE NDITURE MADE TOWARDS EARNING EXEMPT INCOME BY THE RESPONDENT. TH IS EXERCISE NOT HAVING BEEN CARRIED OUT BY THE ASSESSING OFFICER BE FORE APPLYING RULE 8D OF THE INCOME TAX RULES, THE DISALLOWANCE OF EXPEND ITURE TO EARN EXEMPT INCOME CANNOT BE SUSTAINED. (D) THIS ISSUE IS NO LONGER RES INTEGRA AS THE APEX COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DY. CIT, 394 ITR 449 DECIDE D THE ISSUE IN FAVOUR OF THE RESPONDENT. IN THE ABOVE CASE, THE SUPREME C OURT HAS WHILE CONSIDERING THE ISSUE OF DISALLOWING OF EXPENDITURE INCURRED TO EARN EXEMPT INCOME OBSERVED AS UNDER :- 'WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLIC ATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUD GMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE R EQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING R EGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A (2) AND (3) READ WITH RUL E 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAI LING, WOULD BECOME APPLICABLE.' THUS, RULE 8D OF THE RULES CANNOT BE INVOKED WHERE THE SUO MOTO DISALLOWANCE MADE BY THE RESPONDENT ASSESSEE IS NOT FOUND TO BE SATISFACTORY BY THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. IN THE ABSENCE OF RECORDING THE AFORESAID FACT OF NON- SATISFACTION IN TERMS OF SECTION 14A(2) OF THE ACT, INVOCATION OF RULE 8D IS NOT PERMISSIBLE. (E) THEREFORE, IN VIEW OF THE ABOVE DECISION OF THE APEX COURT, THIS QUESTION ALSO DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. 7. IN VIEW OF THE AFORESAID FACTS AND RELYING ON THE DECIS ION OF HONBLE BOMBAY HIGH COURT CITED SUPRA AND IN VIEW OF THE ABSENCE OF RECORDING OF NECESSARY SATISFACTION IN TERMS OF SEC.14A(2) OF THE ACT, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, NO DISALLOWANCE OF EXPENSES UNDER SEC.14A R.W.R 8D IS CALLED FOR. WE THEREFORE DIRECT THE DELETION OF ADDITION MADE BY AO AND UPHELD BY LD.CIT(A). THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 8. NOW, WE TAKE OTHER ISSUE OF DEEMED RENT IN RESPECT OF UNSOLD UNITS. 9 ITA NO.2206/PUN/2016 8.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE WAS HOLDING CLOSING STOCK OF 32 UNSOLD FLATS/SHOPS . AO WAS OF THE VIEW THAT SINCE ASSESSEE WAS OWNER OF TWO OR MORE HOUSE PROPERTIES, PROVISION OF SEC.23(4) OF THE ACT WOULD BE ATTRA CTED AND AS PER WHICH ASSESSEE SHOULD HAVE OFFERED DEEMED RENTAL INC OME FROM THE AFORESAID PROPERTIES. THE ASSESSEE WAS THEREFORE ASKED AS TO WHY THE DEEMED RENT IN RESPECT OF CLOSING STOCK NOT BE BROUGHT TO TAX. THE SUBMISSION OF THE ASSESSEE MADE BEFORE AO WAS NOT FOUND ACCEPTABLE TO AO. AO THEREAFTER RELYING ON THE DECISION OF HON'BLE H IGH COURT IN THE CASE OF CIT VS. ANSAL HOUSING AND CONSTRUCTION REPOR TED IN [2013] 29 TAXMANN.COM 303 WAS OF THE VIEW THAT DEEMED RENT AS PER THE PROVISIONS OF SEC.23(4) OF THE ACT IS CHARGEABLE. AO THEREAFT ER ON THE BASIS OF ANNUAL LETTING VALUE (ALV) AS PER PMC WORKED OUT THE AGGREGATE VALUE FOR 32 UNSOLD FLATS/SHOPS AT RS.14,10,590/- AND MADE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARR IED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 9. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFOR E AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT THE ISSUE OF DEEM ED RENT IS COVERED IN ASSESSEES FAVOUR BY VARIOUS DECISIONS OF PUNE TRIBUNAL AND MORE SPECIFICALLY, THE DECISION IN THE CASE OF M/S. COSMOPOLIS CONSTRUCTION (IN ITA NOS.230 AND 231/PUN/2018 DT.12.09.201 8). HE ALSO PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. HE THEREFORE SUBMITTED THAT THE ADDITION MADE BY AO AND CONFIRMED BY LD.CIT(A) BE 10 ITA NO.2206/PUN/2016 DELETED. LD.D.R. ON THE OTHER HAND, SUPPORTED THE ORDER OF LOWER AUTHORITIES. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO ADDITION UNDER THE HEAD INCOME FROM HOUSE PROPERTY ON THE 32 UNSOLD FLATS/SHOPS BY THE ASSESSEE. IT IS AN UNDISPUTED FACT THAT ASSESSEE IS IN THE BUSINESS OF CIVIL ENGINEERS, BUILDERS AND DEVELOPERS AND HAD IN THE CLOSING STOCK OF 32 UNSOLD FLATS. IT IS ALSO AN UNDISPUTED FACT THAT TH ESE 32 FLATS WERE VACANT AND NO RENTAL INCOME WAS DERIVED BY THE AS SESSEE DURING THE YEAR UNDER CONSIDERATION. WE FIND THAT HONBLE GUJARA T HIGH COURT IN THE CASE OF CIT VS. NEHA BUILDERS PVT. LTD., REPORTED IN [2007] 164 TAXMANN 342 HAS HELD THAT WHEN THE BUSINESS OF THE ASS ESSEE IS TO CONSTRUCT THE PROPERTY AND SELL IT OR TO CONSTRUCT OR LET OUT THEN THAT WOULD BE THE BUSINESS AND THE BUSINESS STOCKS WHICH M AY INCLUDE MOVABLE AND IMMOVABLE PROPERTIES WOULD BE TAKEN TO BE S TOCK-IN- TRADE AND ANY INCOME DERIVED FROM SUCH STOCKS CANNOT BE TERMED AS INCOME FROM HOUSE PROPERTY. WE FURTHER FIND THAT THE C O-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF C.R. DEVELOPMEN TS PVT. LTD., VS. CIT IN ITA NO.4277/2012 ORDER DT.13.05.2015, AFTER CONSIDERING THE DECISION OF HONBLE APEX COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENT VS. CIT (2015) 373 ITR 673 (SC ) HAS HELD THAT ON THE FLATS WHICH WERE UNSOLD, WHICH WERE NEITHER GIV EN ON RENT NOR THE ASSESSEE HAD INTENTION TO LET OUT THE FLATS, NO D EEMED RENTAL INCOME COULD BE CONSIDERED IN ASSESSEES HANDS. WE FURTH ER FIND THAT THE CO-ORDINATE BENCH OF PUNE TRIBUNAL IN THE CASE OF M/S . COSMOPOLIS CONSTRUCTION (IN ITA NOS.230 AND 231/PUN/2018 DT.12.09.201 8) AFTER 11 ITA NO.2206/PUN/2016 CONSIDERING THE DECISION OF HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS. NEHA BUILDERS (P) LTD., (SUPRA), THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF C.R. DEVELOPMENTS PVT. LTD., (SUPRA) AFTER ALSO CONSIDERING THE DECISION IN THE CASE OF CIT VS. ANSAL HOUSIN G AND CONSTRUCTION REPORTED IN [2013] 29 TAXMANN.COM 303 HAS H ELD THAT NO NOTIONAL ANNUAL RENTAL VALUE ON UNSOLD FLATS HELD IN STOCK-IN- TRADE CAN BE MADE IN ASSESSEES HANDS. THE RELEVANT FINDINGS OF THE CO-ORDINATE 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 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, IT IS TO BE SEEN THAT THERE WAS DISTINCTION BETWEEN THE 'INCOME FROM BUSI NESS 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 12 ITA NO.2206/PUN/2016 WILL ALSO BE CLEAR FROM THE RECORDS THAT, EXCEPT FO R THE GROUND FLOOR, WHICH HAS BEEN LET OUT BY THE ASSESSEE, ALL OTHER P ORTIONS OF THE PROPERTY CONSTRUCTED HAVE BEEN SOLD OUT. IF THAT BE SO, THE PROPERTY, RIGHT FROM THE BEGINNING WAS A 'STOCK-INT RADE. 8. IN THE CASE OF COMMISSIONER OF INCOME TAX VS. AN SAL 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 PROPERT Y . ON THE CONTRARY THE REVENUE WANTED TO TAX RENTAL INCOME UNDER THE H EAD BUSINESS INCOME . THE MATTER TRAVELLED TO THE TRIBUNAL. THE TRIBUNA L 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 T HAT RENTAL INCOME RECEIVED FROM UNSOLD PORTION OF PROPERTY CONSTRUCTE D BY THE ASSESSEE, IS ASSESSABLE AS INCOME FROM HOUSE PROPERTY. THE CORE DIFFERENCE BETWEEN THE CASE OF THE ASSESSEE AND IN THE CASE OF COMMISSI ONER 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 STOC K WHICH IS SOUGHT TO BE TAXED, WHEREAS IN THE CASE OF COMMISSIONER OF INCOM E TAX VS. SANE & DOSHI ENTERPRISES (SUPRA) IT WAS THE CASE OF ACTUAL RENTAL INCOME EARNED BY THE ASSESSEE FROM RENTING OF FLATS CONSTRUCTED B Y IT. HENCE, THE DECISION RENDERED IN THE CASE OF COMMISSIONER OF IN COME TAX VS. SANE & DOSHI ENTERPRISES (SUPRA) WOULD NOT APPLY IN THE FA CTS 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 . 11. BEFORE US, NO DISTINGUISHING FEATURE IN THE FACTS OF THE P RESENT CASE AND THE CASE DECIDED BY PUNE ITAT NOTED HEREIN A BOVE HAS BEEN POINTED OUT BY REVENUE. IN VIEW OF THE AFORESAID FACTS, WE FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THE PUNE TRIBUNAL IN THE CASE OF M/S. COSMOPOLIS CONSTRUCTION VS. ITO (SUPRA) HOLD THAT IN THE PR ESENT CASE, 13 ITA NO.2206/PUN/2016 NO ADDITION ON ACCOUNT OF DEEMED RENT OF 32 UNSOLD FLATS C AN BE MADE IN HANDS OF THE ASSESSEE. WE THEREFORE SET ASIDE THE AD DITION MADE BY AO. THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON THE 3 RD DAY OF MAY, 2019. SD/- SD/ - ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 3 RD MAY, 2019. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-11, PUNE. PR. CIT(CENTRAL), PUNE. '#$ %%&',) &', / DR, ITAT, PUNE; $*+,/ GUARD FILE. / BY ORDER // TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &' , / ITAT, PUNE.