M/S RAJ LANDMARK PRIVATE LIMITED, JAIPUR V. INCOME TAX OFFICER, WARD-3-2, JAIPUR

ITA 242/JPR/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2896 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 19-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROSHANTA MEENA JCIT DHK
• Keywords: Business income; Competent authority; Non passing of speaking order

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA NO. 242/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2013-14 M/S RAJ LANDMARK PRIVATE LIMITED, D-38A, AHINSA CIRCLE, SUBHASH MARG, C- SCHEME, JAIPUR. CUKE VS. INCOME TAX OFFICER, WARD 3(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADCR 0840 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI VISHAL GUPTA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. ROSHANTA MEENA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 21/08/2018 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 24/08/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 13/12/2017 OF LD. CIT(A)-I, JAIPUR FOR THE A.Y. 201 3-14. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 1 HAS ERRED IN CONFIRMING ADDITION OF RS 223621.00 WITHOUT CONSIDERING THE SU BMISSIONS OF THE ASSESSEE AND BY PASSING A NON SPEAKING ORDER. THE S AME WAS MOST ARBITRARY, UNJUST, UNTENABLE AND BAD IN FACT AND IN LAW AND IN THE ALTERNATIVE EXCESSIVE DUE TO FOLLOWING FACTORS RELA TED TO THE ASSESSMENT MADE: A. THE FINDINGS OF A NON-COMPARABLE CASE WERE INV OKED ITA 242/JP/2018_ RAJ LANDMARK P LTD. VS ITO 2 B. THE ADDITIONS WAS MADE WITHOUT HAVE ANY SPECIFIC PROVISIONS IN THE INCOME TAX ACT, 1961 FOR TAXING UNSOLD STOCK OF COMMERCIAL SPACE LYING WITH THE BUILDER. C. ARBITRARY MODE OF CALCULATION HAS BEEN ADOPTED B Y TAKING A NON COMPARABLE LEASE AGREEMENT AS BASE. D. THE ADDITION WAS PURELY UNCONSTITUTIONAL SINCE T HE POWER TO LEVY INCOME TAX COMES FROM ENTRY NO. 82 OF THE UNION LIS T OR LIST 1 WHICH DOES NOT COVER THE RELEVANT PART OF CASE OF T HE ASSESSEE E. NO CONSIDERATION WAS GIVEN TO THE FACT THAT THE PREMISE WAS BEING USED BY THE ASSESSEE FOR THE PURPOSE OF ITS O WN BUSINESS AND PROFESSION TILL IT WAS FINALLY SOLD. 2. THE APPELLANT CRAVE LEAVE TO ADD, AMEND, ALTER, VARY AND / OR WITHDRAW ANY OR ALL THE ABOVE GROUNDS OF APPEAL. THE APPELLANT PRAYS THAT THE ADDITION OF RS 223621 .00 MADE TO THE TOTAL INCOME OF THE ASSESSEE ACT AND CONFIRMED BY T HE LD CIT (APPEALS) BE DELETED. 2. THE ASSESSEE IS A COMPANY AND ENGAGED IN THE BUSI NESS OF REAL ESTATE DEVELOPMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY I S HAVING 29,299 SQ.FT. OF FURNISHED COMMERCIAL SPACE. THE ASSESSING OFFICER ACCORDINGLY, PROPOSED TO ASSESSEE THE INCOME FROM HOUSE PROPERTY AS PER THE PROVISIONS OF SECTION 23(1)(A) OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT) KEEPING IN VIEW THE DECISION OF THE HONBLE DEL HI HIGH COURT IN THE CASE OF CIT VS. M/S ANSAL HOUSING FINANCE & LEASING COMPANY JUDGMENT DATED 31/10/2012. THE ASSESSING OFFICER APPLIED NOTI ONAL INCOME FOR UNSOLVED STOCK @ RS. 93 PER SQ.FT FOR GROUND FLOOR, FOR FIRST FLOOR RS. 46.50 ITA 242/JP/2018_ RAJ LANDMARK P LTD. VS ITO 3 PER SQ.FT AND RS. 31 PER SQ.FT FOR 2 ND AND UPWARDS FLOORS. HENCE THE ASSESSING OFFICER HAS COMPUTED THE NOTIONAL RENTAL INCOME OF RS. 9,68,859/- FOR THE MONTH OF MARCH, 2013. THE ASSESSI NG OFFICER HAS DETERMINED THE RENTAL INCOME ONLY FOR ONE MONTH DUE TO THE REASON THAT THE PROJECT IN QUESTION WAS COMPLETED ONLY IN THE MO NTH OF FEBRUARY, 2013. 3. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSI NG OFFICER BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 4. BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITT ED THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF BUILDERS AND DE VELOPERS WHICH IS THE MAIN OBJECT OF THE COMPANY PURCHASED AND CONSTRUCTE D THE PROPERTY AS STOCK IN TRADE AND INCOME FROM SUCH DEVELOPED PROPE RTY IS ASSESSABLE AS BUSINESS INCOME. THEREFORE THEY CANNOT BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY SIMPLY BECAUSE THE STO CK / OFFICES REMAIN UNSOLD AT THE END OF THE YEAR. THE UNSOLD OFFICES HA VE BEEN TREATED AS STOCK IN TRADE IN BOOKS OF ACCOUNTS WHICH IS WELL AC CEPTED DURING THE ASSESSMENT PROCEEDINGS AND THUS AN UNDISPUTED FACT. 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 A NY INCOME DERIVED ITA 242/JP/2018_ RAJ LANDMARK P LTD. VS ITO 4 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, T HEN 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 P ROPERTY. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED ON THE FOLLOWING DE CISIONS: (I) CHENNAI PROPERTIES & INVESTMENTS LTD. VS CIT 37 3 ITR 673. (II) RAYALA CORPORATION PRIVATE LTD. (2016) 386 ITR 500 (SC). (III) M/S CHENNAI PROPERTIES & INVESTMENTS LTD. VS . CIT (2015) 42 SCD 651, WHEREIN IT WAS HELD THAT WHERE THE ASSESSEE C OMPANY ENGAGED IN THE ACTIVITY OF LETTING OUT PROPERTIES AND THE R ENTAL INCOME RECEIVED WAS SHOWN AS BUSINESS INCOME, THE ACTION OF TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY IN PLACE OF INCOME FROM BUSINESS AS SHOWN BY THE ASSESSEE WAS HELD NOT TO BE JUSTIFIED. THE APEX C OURT HELD THAT SINCE THE ASSESSEE COMPANYS MAIN OBJECT IS TO ACQUIRE AN D HELD PROPERTIES AND TO LET OUT THESE PROPERTIES, THE INCOME EARNED BY L ETTING OUT THESE PROPERTIES IS MAIN OBJECTIVE OF THE COMPANY, THEREF ORE, RENT RECEIVED FROM LETTING OUT THE PROPERTIES IS ASSESSABLE AS INCOME FROM BUSINESS. (IV) CIT VS. NEHA BUILDERS PVT. LTD. 296 ITR 661 (GU J). 5. ON THE OTHER HAND, THE LD DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSING OFFICER HAS FOLLOWED THE DECISION OF THE HONBLE DELHI HIGH COURT AND TH EREFORE, WHEN ITA 242/JP/2018_ RAJ LANDMARK P LTD. VS ITO 5 COMMERCIAL SPACE WAS LYING VACANT, THE PROVISIONS O F SECTION 22 AND 23 OF THE ACT ARE APPLICABLE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE COM MERCIAL SPACE IN THE PROJECT IN QUESTION WAS HELD BY THE ASSESSEE AS STO CK IN TRADE. FURTHER THE PROJECT WAS COMPLETED IN THE MONTH OF FEBRUARY ITSEL F, WHICH IS NOT IN DISPUTE AS THE ASSESSING OFFICER HAS ALSO ACCEPTED THIS FACT AND ASSESSED THE INCOME FROM HOUSE PROPERTY ONLY FOR THE MONTH O F MARCH, 2013. AS FAR AS THE ISSUE OF ASSESSING THE PROPERTY HELD AS STOC K IN TRADE BY APPLYING NOTIONAL ANNUAL VALUE AS PER THE PROVISIONS OF SECT ION 23(1)(A) OF THE ACT IS CONCERNED, THERE ARE DIVERGENT VIEWS OF DIFFERENT HO N'BLE HIGH COURTS. THE HONBLE DELHI HIGH COURT HAS TAKEN A VIEW THAT EVEN IF THE PROPERTY HELD AS STOCK IN TRADE AND THE SAME IS LYING VACANT FROM YE AR AFTER YEAR, THE INCOME FROM HOUSE PROPERTY IS ASSESSABLE AS PER THE PROVISION OF SECTIONS 22 AND 23 OF THE ACT AND THEREFORE, THE VACANCY ALL OWANCE AS PER PROVISIONS OF SECTION 23(1)(C) OF THE ACT IS NOT AV AILABLE TO THE ASSESSEE AS THE PROPERTY WAS NEVER LET OUT. WHEREAS THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEHA BUILDERS PVT. LTD. (SUPRA) HAS TAKEN A VIEW THAT THE PROPERTY HELD AS STOCK IN TRADE CANNOT BE ASSES SED TO TAX FOR NOTIONAL ANNUAL VALUE COMPUTED U/S 23(1)(A) OF THE ACT. FURT HER IN THE CASE IN ITA 242/JP/2018_ RAJ LANDMARK P LTD. VS ITO 6 HAND, IT IS NOT THE ALLEGATION THAT THE ASSESSEE HA S DELIBERATELY NOT LET OUT THE PROPERTY IN QUESTION DURING THE YEAR UNDER CONS IDERATION. WITHOUT GOING INTO THE CONTROVERSY OF APPLICABILITY OF THE PROVISIONS OF SECTION 23 IN RESPECT OF THE PROPERTY HELD AS STOCK IN TRADE, WE F IND THAT THIS IS NOT A CASE OF KEEPING THE PROPERTY VACANT FROM YEAR AFTER YEAR BUT THE PROJECT ITSELF WAS COMPLETED IN THE MONTH OF FEBRUARY, 2013 AND THEREFORE, AS PER PROVISIONS OF SECTION 23(1)(A) OF THE ACT, THE ANNU AL LETTING VALUE (ALV) OF ANY PROPERTY SHALL BE DEEMED TO BE A SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THU S, THE ANNUAL LETTING VALUE OF THE PROPERTY IS A SUM FOR WHICH THE PROPERT Y MIGHT REASONABLY BE EXPECTED TO LET OUT FROM YEAR TO YEAR. IN OTHER WORD S, THE FAIR MARKET RENT OF THE PROPERTY EXPECTED TO BE FETCHED IF LET OUT F ROM YEAR TO YEAR SHALL BE DEEMED TO BE AN ANNUAL LETTING VALUE FOR THE PURPOS E OF DETERMINING INCOME FROM HOUSE PROPERTY. THIS REASONABLY EXPECTED RENT ITSELF SIGNIFIES THE POSSIBILITY OF LETTING OUT OF THE PROPERTY. HOWE VER, THERE IS A TIME LAG BETWEEN THE ACQUISITION OF PROPERTY OR COMPLETION OF CONSTRUCTION OF PROPERTY AND LETTING OUT THE PROPERTY THEREAFTER. I T IS NOT PRACTICALLY NOT POSSIBLE TO LET OUT THE PROPERTY ON THE NEXT DAY OF COMPLETION OF CONSTRUCTION OR ACQUISITION OF THE PROPERTY. THEREF ORE, WHEN THERE IS NO POSSIBILITY OF ANY DELIBERATE OR UNREASONABLE DELAY IN LETTING OUT THE PROPERTY THEN IT IS NOT EXPECTED TO FETCH A REASONA BLE RENT JUST AFTER ITA 242/JP/2018_ RAJ LANDMARK P LTD. VS ITO 7 COMPLETION OF THE PROJECT IN QUESTION. FURTHER IT I S NOT A CASE OF LETTING OUT A SMALL SPACE OF HOUSE PROPERTY BUT IT IS THE ENTIR E PROJECT WHICH WAS COMPLETED BY THE ASSESSEE IN THE MONTH OF FEBRUARY ITSELF, THEREFORE, PROVISIONS OF SECTION 23(1)(A) OF THE ACT ITSELF WOU LD NOT BE WORKABLE IN SUCH A CASE FOR WANT OF IMMEDIATE LETTING OUT THE PR OPERTY JUST AFTER ITS COMPLETION. THE LEGISLATURE HAS ALSO RECOGNIZED THIS ASPECT WHILE INSERTING SUB-SECTION (5) TO SECTION 23 BY THE FINANCE ACT, 2 017 W.E.F. 01/4/2018 ALLOWING THE VACANCY ALLOWANCE OF ONE YEAR FROM THE E ND OF THE FINANCIAL YEAR IN WHICH CERTIFICATE OF COMPLETION OF CONSTRUCT ION OF THE PROPERTY IS OBTAINED FROM THE COMPETENT AUTHORITY. THEREFORE, EV EN OTHERWISE THE NOTIONAL ANNUAL LETTING VALUE CAN BE DETERMINED ONL Y FROM THE END OF THE FINANCIAL YEAR IN WHICH THE COMPLETION CERTIFICATE O F CONSTRUCTION OF THE PROPERTY IS OBTAINED FROM THE COMPETENT AUTHORITY. THOUGH, SUB-SECTION (5) IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, HOWEVER, IT IS NOT A CASE OF ALLOWING THE VACANCY ALL OWANCE IN RESPECT OF THE PROPERTY HELD AS STOCK IN TRADE BUT IT IS THE F UNDAMENTAL ISSUE OF DETERMINATION OF NOTIONAL ANNUAL LETTING VALUE JUST AFTER COMPLETION OF THE CONSTRUCTION OF THE PROPERTY HELD AS STOCK IN TRADE . THEREFORE, WE FIND THAT WITHOUT ALLOWING A REASONABLE PERIOD OR TIME GAP FROM THE COMPLETION OF CONSTRUCTION OF THE PROPERTY HELD AS STOCK IN TRADE TO LET OUT THE SAME, THE PROPERTY CANNOT REASONABLY EXPECT TO LET FROM YEAR TO YEAR AND FETCH FAIR ITA 242/JP/2018_ RAJ LANDMARK P LTD. VS ITO 8 MARKET RENT JUST AFTER COMPLETION OF CONSTRUCTION. HENCE, IN THE FACTS AND CIRCUMSTANCES, WE FIND THAT FOR THE YEAR UNDER CONSI DERATION, THE PROVISIONS OF SECTION 23(1)(A) OF THE ACT CANNOT BE APPLIED IN THE PROPERTY IN QUESTION DUE TO THE PECULIAR REASON THAT THE COM PLETION CERTIFICATE WAS OBTAINED ONLY IN THE MONTH OF FEBRUARY, 2013 AND IT IS NOT EXPECTED TO LET OUT THE PROPERTY JUST AFTER THE COMPLETION OF THE P ROJECT AND THEREFORE, THE REASONABLE EXPECTED RENT TO BE FETCHED BY THE PROPE RTY IN QUESTION IS NOT POSSIBLE IMMEDIATELY AFTER THE COMPLETION WITHOUT AL LOWING A REASONABLE PERIOD, WHICH IS ALSO RECOGNIZED BY THE LEGISLATURE. ACCORDINGLY, WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/08/2018. SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24 TH AUGUST, 2018 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S RAJ LANDMARK PRIVATE LIMITED, JAI PUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 3(2), JAIPUR. 3. VK;DJ VK;QDR @ CIT ITA 242/JP/2018_ RAJ LANDMARK P LTD. VS ITO 9 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 242/JP/2018) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR