Aditya Shagun Developers, Pune V. Deputy Commissioner of Income-tax, Central Circle - 1(1), Pune

ITA 2651/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9385 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 16-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Fair market value; Set aside
• Section: 40A(3); 143(3)

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE ( THROUGH VIRTUAL COURT) BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.2651/PUN/2017 / ASSESSMENT YEAR : 2012-13 M/S. ADITYA SHAGUN DEVELOPERS APPELLANT 619, SADASHIV PETH, PUNE 411 030. PAN : AAGFA8119G. VS. THE DY.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -1(1), PUNE. ..RESPONDENT. ASSESSEE BY : SHRI SUHAS BORA. REVENUE BY : SHRI SUDHENDU DAS. / ORDER PER ANIL CHATURVEDI, AM: 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF T HE ORDER OF COMMISSIONER OF INCOME TAX (A) PUNE - 11, PUNE, DT.14.08.20 17 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 PARTNERSHIP FIRM STATED TO BE ENGAGED IN T HE BUSINESS OF BUILDERS AND DEVELOPERS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF / DATE OF HEARING : 13.08.2020 / DATE OF PRONOUNCEMENT: 17.08.2020 2 ITA NO.2651/PUN/2017 INCOME FOR A.Y. 2012-13 ON 29.09.2012 DECLARING TOTAL INCOME OF RS.1,26,98,284/- AFTER CLAIMING DEDUCTION U/S 80IB(10) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMEN T WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 11.03.2015 AND THE TO TAL INCOME WAS DETERMINED AT RS.1,28,90,290/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DATED 14.08.2017 (IN APPEAL NO.PN/CIT(A)-11/DCIT, CEN.CIR.1(1)/PN/11/ 2015-16) DIS MISSED THE APPEAL OF ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT (A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING TH E ADDITION MADE BY THE AO AT RS.1,68,000/- U/SEC 23(4) AS INCOME FROM HOUS E PROPERTY WITHOUT APPRECIATING THE SUBMISSIONS OF THE APPELLANT THAT THESE ARE STOCK IN TRADE OF THE APPELLANT FIRM. 2. THE LD CIT(A) WHILE CONFIRMING THE ADDITION FAIL ED TO APPRECIATE THE FACT THAT IN RESPECT OF THE ASSETS HELD AS BUSINESS, INC OME FROM SAME IS NOT ASSESSABLE U/SEC. 23(1) OR 23(4) OF THE ACT. 3. THE LD.CIT(A) WHILE CONFIRMING THE ADDITION HAS ERRED IN NOT CONSIDERING CONTENTION OF THE APPELLANT, WHICH WAS MADE WITHOUT PREJUDICE THAT EVEN IF DEEMED RENT IS TO ASSESSED U/SEC.23(4), IT IS TO BE ASSESSED ON THE BASIS OF FAIR VALUE ADOPTED BY THE MUNICIPAL CORPORATION AND NOT ON ESTIMATED BASIS. 4. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING AN AD DITION OF RS 24010.00 U/SEC 40A(3) ON THE GROUND THAT APPELLANT HAD EFFEC TED THE PAYMENT BY BEARER CHEQUE AND APPELLANT HAD FAILED TO MAKE OUT HIS CASE. 5. THE LEARNED CIT(A) HAS ERRED IN REJECTING THE CO NTENTION OF THE APPELLANT THAT EVEN IF DISALLOWANCE IS TO BE MADE U/S 40A(3), IT SHOULD BE RESTRICTED TO AN AMOUNT EXCEEDING RS.20000/-. 3. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS BUT GROUND NOS.1 T O 3 ARE INTER- CONNECTED AND ARE ON THE ISSUE OF ADDITION OF RS.1,68,000/- AND GROUND NOS.4 AND 5 ARE WITH RESPECT TO DISALLOWANCE U/S 40A(3) OF THE ACT. 3 ITA NO.2651/PUN/2017 4. WE FIRST TAKE UP GROUND NOS.1 TO 3 WHICH ARE WITH RES PECT TO ADDITION OF RS.1,68,000/-. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON PER USAL OF PROFIT AND LOSS ACCOUNT, AO NOTICED THAT ASSESSEE WAS HOLDING TWO FLATS AS CLOSING STOCK, THE FLATS WERE VACANT. AO WAS OF THE VIEW THAT THE ASSESSEE WAS THE OWNER OF TWO OR MORE PROPERTIES AND THEREFORE THE PROVISIONS OF SEC.23(4) OF THE ACT WERE ATTRACTED. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE DEEMED RENT IN RESPECT OF THE CLOSING STOCK SHOULD NOT BROUGHT TO BE TAX. ASSESSEE MADE THE SU BMISSIONS AND ALSO STATED THAT NO RENT HAS BEEN EARNED FROM THESE FLATS. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. AO WAS OF THE VIEW THAT AS PER PROVISIONS OF SEC.23(4) OF THE ACT, A SSESSEE SHOULD HAVE OFFERED DEEMED RENTAL INCOME FROM THE AFORESAID TWO FLA TS OWNED BY IT. AO THEREAFTER, MADE ENQUIRIES TO CALCULATE THE FAIR MARKET VALUE (F.M.V) OF THE FLATS AND ACCORDING TO HIM, THE FAIR MARKET V ALUE RENT WAS AROUND RS.10,000/- PER MONTH. CONSIDERING THESE RATES, HE WORKED OUT THE GROSS ANNUAL LETTING VALUE (A.L.V.) FOR THE TWO FLATS AT RS.2,40,000/- AND AFTER GRANTING STANDARD DEDUCTION OF 30%, DETERMINED THE A.L.V. AT RS.1,68,000/- AND TAXED IT AS INCOME FROM HOUSE PROPERT Y. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFOR E LD.CIT(A), WHO FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ANSAL HOUSING FINANCE REPORTED IN 39 TAXMANN.COM 303 UPHELD TH E ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW BEFORE US. 4 ITA NO.2651/PUN/2017 6. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT IDENTICAL ISSUE HAS BEE N DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GAJ ENDRA PAWAR IN ITA NO.1359/PUN/2018 DATED 14.02.2019. HE ALSO PLACED ON RECORD THE COPY OF THE ORDER OF AFORESAID DECISION. HE THEREFORE S UBMITTED THAT IN VIEW OF THE AFORESAID DECISION OF THE CO-ORDINATE BENCH O F THE TRIBUNAL, THE ORDER OF AO BE SET ASIDE. LD. D.R. ON THE OTHER H AND, SUPPORTED THE ORDER OF LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPEC T TO THE DEEMED RENTAL INCOME OF THE TWO UNSOLD FLATS. IT IS AN UNDISPUTED FACT THAT ASSESSEE FIRM IS IN CONSTRUCTION BUSINESS AND THE TWO FLATS WHICH ARE UNSOLD WERE LYING AS ITS STOCK AND WERE VACANT AND NO RENTAL INCOME HAS BEEN DERIVED BY THE ASSESSEE FIRM. WE FIND THAT IDENTICAL ISSUE AROSE IN THE CASE OF GAJENDRA PAWAR (SUPRA), WHEREIN THE CO-ORDINA TE BENCH OF THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE B Y OBSERVING AS UNDER : 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPE CT TO ADDITION UNDER THE HEAD INCOME FROM HOUSE PROPERTY ON THE FOUR UNSO LD FLATS/ GODOWNS BY THE ASSESSEE. IT IS AN UNDISPUTED FACT THAT ASSESS EE IS IN THE BUSINESS OF CIVIL ENGINEERS, BUILDERS AND DEVELOPERS AND HAD IN THE CLOSING STOCK THE FOUR UNSOLD FLATS. IT IS ALSO AN UNDISPUTED FAC T THAT THESE FOUR FLATS WERE VACANT THROUGHOUT THE YEAR UNDER CONSIDERATION AN D NO RENTAL INCOME WAS DERIVED BY THE ASSESSEE DURING THE YEAR. WE FI ND THAT ON IDENTICAL ISSUE, THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF RUNWAL CONSTRUCTIONS (SUPRA) AFTER CONSIDERING THE DECISI ON OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEHA BUILDERS (P) LTD., REPORTED IN [2007] 164 TAXMANN 342, THE DECISION OF MUMBAI TRIBUNAL I N THE CASE OF C.R. DEVELOPMENTS PVT. LTD., (ITA NO.4277 OF 2012 ORDER DT.13.05.2015) THE DECISION IN THE CASE OF CIT VS. ANSAL HOUSING AND C ONSTRUCTION REPORTED IN [2013] 29 TAXMANN.COM 303 AND OTHER DECISIONS CITED IN THE ORDER HAS HELD THAT WHEN THE UNSOLD FLATS WHICH ARE HELD AS S TOCK-IN-TRADE AND WHEN THE INCOME FROM SUCH UNSOLD FLATS ON ITS SALE IS TR EATED AS INCOME FROM BUSINESS, THEN NO NOTIONAL ANNUAL LETTING VALUE IN RESPECT OF UNSOLD FLATS 5 ITA NO.2651/PUN/2017 CAN BE TAXED UNDER THE HEAD OF INCOME FROM HOUSE P ROPERTY. THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IS AS UNDER : 10. IN THE CASE ON HAND BEFORE US IT IS AN UNDISPU TED FACT THAT BOTH ASSESSEES HAVE TREATED THE UNSOLD FLATS AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT AND THE FLATS SOLD BY THEM WERE AS SESSED UNDER THE HEAD INCOME FROM BUSINESS. THUS, RESPECTFULLY FOLLOWING THE ABOVE SAID DECISIONS WE HOLD THAT THE UNSOLD FLATS WHICH ARE STOCK IN TRADE WHEN THEY WERE SOLD THEY ARE ASSESSABLE UN DER THE HEAD INCOME FROM BUSINESS WHEN THEY ARE SOLD AND THERE FORE THE AO IS NOT CORRECT IN BRINGING TO TAX NOTIONAL ANNUAL LETT ING VALUE IN RESPECT OF THOSE UNSOLD FLATS UNDER THE HEAD INCOME FROM H OUSE PROPERTY. THUS, WE DIRECT THE AO TO DELETE THE ADDITION MADE UNDER SECTION 23 OF THE ACT AS INCOME FROM HOUSE PROPERTY. 7. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE AFORESAID DECISION OF MUMBAI TRIBUNAL IN THE CASE OF M/S. RUNWAL CONSTRUCTION (SUPRA) HAS BEEN SET ASIDE / STAYED BY HIGHER JUDICIAL FORUM. IN VIEW OF THE AFORESAID FACTS, W E FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF M/S. RUNWAL CONSTRUCTION (SUPRA) HOLD THAT IN THE PRESENT CASE AO WAS NOT CORRECT IN BRINGING TO TAX NOTIONAL ANNUAL LETTING VALUE OF FO UR UNSOLD FLATS UNDER THE HEAD INCOME FROM HOUSE PROPERTY. WE THEREFORE SET ASIDE THE ADDITION MADE BY AO. THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 8. BEFORE US, NO CONTRARY BINDING DECISION HAS BEEN POINTE D OUT BY THE REVENUE TO DEMONSTRATE THAT THE AFORESAID DECISION OF PUNE TRIBUNAL IN THE CASE OF GAJENDRA PAWAR (SUPRA) HAS BEEN SET ASID E / STAYED BY HIGHER JUDICIAL FORUM. IN VIEW OF THE AFORESAID FACTS, WE FOLLO WING THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F GAJENDRA PAWAR (SUPRA), HOLD THAT IN THE PRESENT CASE NO ADDITION ON ACCOUNT OF DEEMED RENT OF TWO UNSOLD FLATS CAN BE MADE IN THE HANDS OF ASSESSEE. WE THEREFORE SET ASIDE THE ADDITION MADE BY THE AO. THUS, THE GROUNDS 1 TO 3 OF THE ASSESSEE ARE ALLOWED. 9. NOW WE TAKE UP GROUND NOS. 4 AND 5 WHICH ARE WITH R ESPECT TO DISALLOWANCE U/S 40A(3) OF THE ACT. 6 ITA NO.2651/PUN/2017 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAD MADE PAYMENT OF RS.24,010/- TO NEW MAHAR ASHTRA AIR COMPRESSORS THROUGH BEARER CHEQUE. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAME NOT BE DISALLOWED AS THE PAYMENT WA S NOT THROUGH ACCOUNT PAYEE CHEQUE OR DEMAND DRAFT. THE SUBMISSION M ADE BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. AO NOTI CED THAT THE EXCEPTION FOR INCURRING CASH EXPENDITURE OF RS.20,000/- AS GIVEN IN RULE 6DD DID NOT INCLUDE THE PAYMENT AS REQUESTED BY THE C REDITOR. HE THEREFORE NOTED THAT THE EXPENDITURE OF RS.24,010/- ATTR ACTS PROVISIONS OF SEC.40A(3) OF THE ACT. HE ACCORDINGLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UP HELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW BEFORE US. 11. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFOR E AO AND LD.CIT(A) AND SUBMITTED THAT THE DISALLOWANCE BE RESTRICTED TO RS.4,010/- ONLY. LD. D.R. ON THE OTHER HAND, SUPPORTED TH E ORDER OF LOWER AUTHORITIES AND SUBMITTED THAT ONCE THE PROVISIONS OF SEC.40A(3) OF THE ACT ARE ATTRACTED, THE DISALLOWANCE CANNOT BE RESTR ICTED TO AN ARBITRARY FIGURE. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPEC T TO DISALLOWANCE U/S 40A(3) OF THE ACT. IT IS AN UNDISPUTED FACT THAT THE AMOUNT WHICH HAS BEEN DISALLOWED BY THE AO HAS BEEN MADE BY THE ASS ESSEE THROUGH BEARER CHEQUE. BEFORE US, ASSESSEE HAS NOT POINTED OUT THE PROVISIONS OF 7 ITA NO.2651/PUN/2017 RULE 6DD UNDER WHICH THE PAYMENT CAN BE ALLOWED. HE HAS ALSO NOT POINTED OUT ANY FALLACY IN THE FINDINGS OF LD.CIT(A). WE THEREFO RE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A). THUS, THE GROUND NOS.4 AND 5 ARE DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 17 TH DAY OF AUGUST, 2020. SD/- SD/- ( PARTHA SARATHI CHAUDHURY), ( ANIL CHATURVEDI) / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER PUNE; DATED : 17 TH AUGUST, 2020. YAMINI '#$%&'&$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A) - 6 , PUNE. PR. CIT-5, PUNE. !''#$ , % #$ , / DR, ITAT, B PUNE; !'()/ GUARD FILE. / BY ORDER // TRUE COPY // + ,-'.#/ / SR. PRIVATE SECRETARY % #$ , / ITAT, PUNE.