Hitech Residency, Surat V. Income Tax Officer, Ward2(3)(1), Surat

ITA 324/SRT/2024

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6670 (ITAT-SURAT)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-05-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 25-03-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india; Competent authority
• Section: 250

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.324/SRT/2024 Assessment Year: (2018-19) (Physical Hearing) Hi Tech Residency, TPS No.7, FP No.20, B/h. Vesu Sub Station, Vesu, Surat - 395007 Vs. The ITO, Ward – 2(3)(1), Surat èथायीलेखासं./जीआइआरसं./PAN/GIR No: AAFFH5459R (Appellant) (Respondent) Appellant by Shri Kiran K. Shah, CA Respondent by Shri J. K. Chandnani, Sr. DR Date of Hearing 28/05/2024 Date of Pronouncement 04/06/2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the appellant emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 06.02.2024 by the Learned Commissioner of Income Tax (Appeals), [in short, ‘Ld. CIT(A)’] National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year (AY) 2018-19. 2. The grounds of appeal raised by the assessee are as under: “1. The learned CIT(A) grossly erred in confirming addition of Rs.43,97,526/- on account of annual letting value on closing stock of flats (unsold flats) invoking section 23(5) of the Act as discussed in para 6 of the appeal order. 2. The learned CIT(A) grossly erred in not considering the date of BUC being 15.12.2016 relevant for invoking section 23(5) of the Act. 3. The learned CIT(A) grossly erred in not appreciating the provisions of section 23(3) of the Act also. 2 324/SRT/2024/AY.2018-19 Hi Tech Residency 4. The appellant reserves right to add, alter and withdraw of any grounds of appeal.” 3. The facts of the case in brief are that the assessee-firm filed its return of income declaring total income of Rs.33,98,270/- on 20.10.2018. The assessee-firm is engaged in the business of construction and development of project. During the year under consideration, the Assessing Officer estimated rent by computing annual value for an aggregate amount of Rs.62,82,180/- and after standard deduction @ 30% of Rs.18,84,654/-, made addition for Rs.43,97,526/-. The Assessing Officer made addition of Rs.43,97,526/- on account of annual letting value on closing stock of flats (unsold flats) invoking section 23(5) of the Act. The Assessing Officer observed that since the assessee-firm had ready to move in inventory and the same was held by the assessee in the same status for last two years with no major construction activities, the notional/deemed income out of the same was required to be taxed for the year under consideration. The Assessing Officer relied upon the decision in the case of Ansal Housing & Contruction Ltd. vs ACIT, 89 taxmann.com 238 (Delhi HC) wherein it has held that ALV of the flats lying in the stock is required to be taxed and no benefit available in section 23(1)(c) of the Act will be available to the assessee. 4. Aggrieved by the order, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) observed that the assessee is in the same status for last two years with no major construction activities and hence, the notional or deemed income out of the same was required to be taxed for the year under 3 324/SRT/2024/AY.2018-19 Hi Tech Residency consideration. Before the Ld. CIT(A), the assessee submitted that building use certificate (BUC) from Surat Municipal Corporation (SMC) was issued on 15.12.2016 and as per the provisions, the deemed rent was chargeable after one year from the end of the financial year in which certificate of completion of construction of property was obtained from the competent authority. Further, it is stated that provisions of section 23(5) of the Act are applicable from AY.2018-19. Hence, no deemed rent would be chargeable in case of assessee for one year from the end of the financial year i.e. 31.03.2018. It could be taxed only in AY.2019-20. The Ld. CIT(A) stated that sub-section (5) of section 23 of the Act has been inserted w.e.f. 01.04.2018 and this is not applicable in the present case as the project had been completed in 2016. Thereafter, Ld. CIT(A) confirmed the addition of Rs.43,97,526/- made by the Assessing Officer and dismissed the ground of appeal. 5. The Learned Authorized Representative (Ld. AR) of the assessee submitted that Assessing Officer estimated deemed rent on unsold stock invoking section 23(5) of the Act. The Ld. AR of the assessee strongly urged that building use certificate (BUC) from SMC was issued on 15.12.2016. As per the provision, the deemed rent is chargeable from the end of the financial year in which certificate of completion of construction of property is obtained from the competent authority. It is also submitted that provisions of section 23(5) are applicable from financial year 2017-18 relevant to assessment year 2018-19. The Ld. AR strongly submitted that when there is specific provision in the Act, the same needs to be followed. By following 4 324/SRT/2024/AY.2018-19 Hi Tech Residency project completion method year after year income is worked out by setting off the project cost of land and construction for the area for which sale was effected by document or possession. The assessee has followed project completion method and in this method, the profit is to be arrived in the year of actual sale of the property and there is no dispute in the earlier years also. The Ld. AR of the assessee vehemently submitted that Assessing Officer has invoked provisions of section 23(5) of the Act merely because the completion certificate is received on 15.12.2016. The Assessing Officer did not work out the period of one year from end of the financial year (i.e. 2016-17) in which is certificate was received. It is submitted that one year is to be worked out not from the date of certificate but from the end of the year in which the BUC is received. Therefore, the provision of section 23(5) is applicable from the next year i.e. from AY.2019-20. The Ld. AR also submitted that the Assessing Officer has relied upon the decision of Ansal Housing & construction Ltd. vs ACIT (supra), which is not applicable as it pertains to AY.2005-06 whereas provisions of section 23(5) of the Act was brought in to the statute by the Finance Act, 2017 i.e. w.e.f. 01.04.2018 and is applicable from aY.2018-19. 6. The Learned Senior Departmental Representative (Ld. Sr. DR) for the Revenue supported the order of the Assessing Officer and the Ld. CIT(A). 7. We have heard both the parties and perused the material available on record. Ground Nos. 1 and 2 are interconnected. The assessee is in the business of real estate development. The Assessing Officer found that there was closing stock for the three years and there was no major construction in 5 324/SRT/2024/AY.2018-19 Hi Tech Residency the year under consideration. In response to the notice as to why notional deemed income on unsold ready to move property be not worked out for addition to the total income, the assessee stated that building use certificate (BUC) was received on 15.12.2016 from Surat Municipal Corporation and due to provisions of Section 23(5) of the Act, question of notional income would arise only from AY.2019-20. The Assessing Officer did not accept the reply of the assessee and held that sub-section (5) of section 23 is squarely applicable to the facts of the case. The other facts have been discussed at para 3 and 4 of this order and hence not repeated. 8. The basic issue which requires adjudication is whether notional annual letting value (ALV) can be worked out in case of the assessee for the AY.2018-19. Let us reproduce section 23(5) of the Act for ready reference and clarity, which reads as under: “Annual value how determined. 23. (1) ............ (2) ............. (3) ............ (4) ............ (5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to two years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.” By the above sub-section (5) in section 23, the Finance Act, 2017 provides, with effect from 01.04.2018 and applicable for AY.2018-19 and subsequent years, that where property consisting of any building and land appurtenant 6 324/SRT/2024/AY.2018-19 Hi Tech Residency thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority shall be taken to be “nil”. It is clear that the annual value of the property shall be taken as “nil” for one year from the end of the financial year in which the certificate of completion is obtained from the competent authority. In this case, the competent authority is Surat Municipal Corporation (SMC). The building use certificate (BUC) was issued by the ‘SMC’ for the project “Hi Tech Avenue” on 15.12.2016. End of the financial year of the receipt of the certificate is, therefore, 31.06.2017. One year from the end would accordingly be 31.03.2018. Therefore, up to the period 31.03.2018, the annual letting value shall be “nil”. It is, therefore, clear that the annual letting value (ALV) of the property can be worked out only for AY.2019-20 and subsequent years. However, the case before us pertains to AY.2018-19. Therefore, the mischief of sub-section (5) of section 23 cannot be applied to the case of the assessee. It is well settled that when the words used in the statute are clear and unambiguous, effect should be given to such expressions used in the statute irrespective of the consequence. Any benefit or hardship arising from such action is not material. The literal meaning of the words used in the statute should not be disturbed and no external aid should be taken to interpret the words in a different manner. In this case, there is no ambiguity regarding the 7 324/SRT/2024/AY.2018-19 Hi Tech Residency meaning of section 23(5) of the Act. When its provisions are applied to the facts of the case, it is clear that the assessee will not be liable to be taxed under the head “income from house property” in respect of stock-in-trade for AY.2018-19. It will be taxed in AY.2019-2020 and subsequent years. The Assessing Officer has relied on the decision in case of Ansal Housing & Construction Ltd. vs ACIT (supra). The ratio of the decision is not applicable to the facts of the assessee as it pertains to AY.2005-06 whereas provisions of section 23(5) were brought into the statute w.e.f. 01.04.2018, i.e. AY.2018-19 and subsequent years. Hence, the grounds nos. 1 and 2 raised by the assessee is allowed. 9. Since, we have allowed ground nos. 1 and 2, there is no need for adjudicating ground no. 3. Ground no.4 is also general in nature and does not require any adjudication. 10. In the result, the appeal of the assessee is allowed. Order is pronounced on 04/06/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat Ǒदनांक/ Date: 04/06/2024 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat