M/S GANGA DEVELOPERS, MUMBAI V. DCIT CEN CIR -4(3), MUMBAI

ITA 3436/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5613 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 22-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASHISKUMAR BAIRAGRA
• Keywords: Deemed to accrue or arise in india
• Section: 142(1); 143(2); 22

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC-II BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) I.T.A. NO. 3436/MUM/2019 (ASSESSMENT YEAR 2016-17 ) M/S. GANGA DEVELOPERS PLOT NO. 219, LAALASIS 11 TH ROAD, CHEMBUR MUMBAI-400 071. PAN : AAAFG8230C VS . DCIT CC-4(3) ROOM NO. 1921 19 TH FLOOR AIR INDIA BUILDING NARIMAN POINT MUMBAI-400 021. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI ASHISKUMAR BAIRAGRA DEPARTMENT BY SHRI PRAMOD NIKALJE DATE OF HEARING 22.09.2020 DATE OF PRONOUNCEMENT 24.09.2020 O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 26.4.2019 PERTAINING TO ASSESSMENT YEA R 2016-17. 2. THE ISSUE RAISED IS THAT THE LEARNED CIT(A) ERRE D IN SUSTAINING THE ADDITION OF RUPEES 3,40,459/- AS DEEMED NOTIONAL RE NT ON UNSOLD STOCK OF FLATS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPERS & CONSTRUCTION AND FIFED ITS ORIGINAL RETURN OF INCOME ON 17.10.2016 DECLARING TOTAL LOSS AT (-) RS. 11,14 ,930/-. CONSEQUENTLY, NOTICES U/S. 143(2) AND 142(1) WERE DULY ISSUED AND SERVED ON THE ASSESSEE. IN DUE CONSIDERATION TO THE FACTS OF THE CASE, THE AO ADDED A SUM OF RS. 3,40,459/- UNDER THE HEAD 'INCOME FROM HOUSE PROPER TY' AS PER PROVISION OF SECTION 22 OF THE ACT BY ESTIMATING DEEMED RENT ON UNSOLD UNITS, THE DEEMED RENTAL INCOME WAS COMPUTED AT RS4,86,370/- AND AFTE R ALLOWING STATUTORY DEDUCTION @ 30% WHICH COMES TO RS1,45,911/-, AN AMO UNT OF RS. 3,40,459/- WAS WORKED OUT AS INCOME FROM HOUSE PROPERTY'. M/S. GANGA DEVELOPERS 2 4. THE AO OBSERVED FROM THE BOOKS OF THE ASSESSEE, THAT THE ASSESSEE HAS A CLOSING STOCK OF FINISHED UNITS LYING UNSOLD AMOUNT ING TO RS. 60,79,630/-. IN VIEW OF THE PROVISIONS OF SEC. 22 AND 23 OF THE ACT , THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY ANNUAL LETTING VALUE OF THE UNSOLD UNITS SHOULD NOT BE ASSESSED IN ITS HANDS AS INCOME FROM HOUSE P ROPERTY. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT ACTIVITY AND HAS NEVER CONTEMPLATED INT O LEASING OR RENTING THE PROPERTIES. FURTHER ASSESSEE STATED THAT HE CONTINU ES TO HOLD THE SAID FLATS FOR THE PURPOSE OF BUSINESS AND THUS ARE OUTSIDE THE PR EVIEW OF SECTION 22 OF THE IT ACT 1961. THESE FLATS ARE PART OF ITS INVENTORY- OF STOCK-IN-TRADE AND INCOME DERIVED FROM SUCH STOCKS COULD NOT BE ASSESSED AS I NCOME FROM HOUSE PROPERTY. ON THE BASIS OF THE ABOVE SUBMISSIONS, TH E ASSESSEE ARGUED BEFORE THE AO THAT NO DEEMED INCOME ON THE BASIS OF ANNUAL LETTING VALUE IN RESPECT OF THE UNSOLD PROPERTIES SHOULD BE ASSESSED IN ITS HANDS. HOWEVER, THE AO OBSERVED THAT SEC.22 OF THE ACT LAYS DOWN THAT ANNU AL VALUE OF A PROPERTY HAS TO BE ASSESSED IN THE HANDS OF THE OWNER OF PROPERT Y AND IT DOES NOT MATTER AS TO HOW THE PROPERTY IS HELD BY THE OWNER IN HIS BOO KS OF ACCOUNTS; THE AO FARTHER OBSERVED THAT THE PROVISIONS OF SEC.22 DO N OT MAKE ANY DISTINCTION BETWEEN THE NATURE OF BUSINESS CARRIED ON BY THE AS SESSEE AND AS LONG AS A PERSON IS OWNER OF THE PROPERTY, THE PROVISIONS OF SEC.22 WILL APPLY. IN THIS REGARD, THE AO PLACED RELIANCE ON THE DECISION OF H ON'BLE DELHI HIGH COURT IN THE CASE OF ANSAL HOUSING FINANCE & LEASING CO. LTD ,(2013) 354 ITR 180(DEI), AND HELD THAT ANNUAL LETTING VALUE OF THE UNSOLD UN ITS IS ASSESSABLE IN THE HANDS OF THE ASSESSEE. SINCE, NO DETAILS REGARDING RENT PREVALENT IN THE AREA WERE AVAILABLE FOR WORKING OUT THE ANNUAL VALUE OF THE PROPERTY, THE AO ADOPTED THE ALV OF RS, 4,86,370/- IN RESPECT OF UNS OLD UNITS AND MADE APPROPRIATE ADDITION TO THE TOTAL INCOME OF THE ASS ESSEE. 5. UPON ASSESSEE APPEAL LEARNED CIT(APPEALS) CONFIR MED THE ADDITION 6. AGAINST THE ABOVE ORDER ASSESSEE IS IN APPEAL BE FORE THE ITAT. M/S. GANGA DEVELOPERS 3 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORD. LEARNED COUNSEL OF THE ASSESSEE SHRI ASHISHKUMAR BAIRAGRA SUBMITTED TH AT HONOURABLE GUJARAT HIGH COURT IN THE CASE OF NEHA BUILDERS PVT. LTD. ( 296 ITR 611) HAS HELD THAT NOTIONAL RENT CANNOT BE ADDED IN CASE OF UNSOLD STO CK IN CASE OF THE DEVELOPER. HE FURTHER SUBMITTED THAT THERE IS NO DECISION OF H ONOURABLE BOMBAY HIGH COURT ON THIS SUBJECT. HENCE HE PLEADED THAT IN THI S VIEW OF THE MATTER, IN VIEW OF HONOURABLE SUPREME COURT DECISION IN THE CASE OF VEGETABLES PRODUCT LTD. (88 ITR 192), WHEN TWO VIEWS ARE POSSIBLE THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. 8. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE R ELIED UPON THE ORDERS OF AUTHORITIES BELOW. 9. UPON CAREFUL CONSIDERATION I NOTE THAT THE ISSUE INVOLVED IS THE DEEMED NOTIONAL RENT UPON UNSOLD STOCK OF FLATS OF THE BUI LDER AND DEVELOPER. THERE IS A DECISION OF HONOURABLE DELHI HIGH COURT IN FAVOUR O F THE REVENUE AND THE DECISION OF HONOURABLE GUJARAT HIGH COURT IS IN FAV OUR OF THE ASSESSEE. THERE IS NO DIRECT DECISION OF HONOURABLE JURISDICTIONAL HIGH COURT ON THIS SUBJECT. IN THIS VIEW OF THE MATTER IN MY CONSIDERED OPINION TH E RATIO FROM HONOURABLE SUPREME COURT IN THE CASE OF VEGETABLES PRODUCT LTD . (SUPRA) IS APPLICABLE. HENCE RESPECTFULLY FOLLOWING THE DECISION OF HONOUR ABLE GUJARAT HIGH COURT IN THE CASE OF NEHA BUILDERS PVT. LTD. (SUPRA) I DIREC T THAT THE ADDITION ON ACCOUNT OF DEEMED NOTIONAL RENT IN THIS CASE IS LIABLE TO B E DELETED. I DIRECT ACCORDINGLY 10. IN THE RESULT THIS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED UNDER RULE 34(4) OF THE ITAT RULES ON 24.9.2020. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI; DATED : 24/09/2020 COPY OF THE ORDER FORWARDED TO : M/S. GANGA DEVELOPERS 4 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI