C.R. DEVELOPMENTS P.LTD, MUMBAI V. JT CIT 8(1) (OSD), MUMBAI

ITA 4277/MUM/2012

• Counselvise Citation: 427719914 RSA 2012
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 21-06-2012
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN V P
• Assessee Lawyers: S M BANDI
• Keywords: Business income; Notional interest

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ./ ITA N O. 4277 / MUM/20 1 2 ( / ASSESSMENT YEAR : 200 9 - 10 ) M/S C.R. DEVELOPMENTS PVT. LTD., SHYAMKAMAL TRADE CENTRE, 27, TEJPAL ROAD, B.N.AGARWAL MARKET, VILE PARLE (EAST), MUMBAI - 400057 VS. JCIT - 8(1)(OSD), MUMBAI ./ ./ PAN/GIR NO . : A A ACC 1658 D ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI S.M.BANDI /REVENUE BY : SHRI ASGHAR ZAIN VP / DATE OF HEARING : 05 /0 5 / 2015 / DATE O F PRONOUNCEMENT 13/05 /2015 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 16, MUMBAI , DATED 31 - 5 - 2012 FOR THE ASSESSMENT YEAR 200 9 - 10 IN THE MATTER OF ORDER PASSED U/S.14 3 OF THE I.T.A CT, ON THE FOLLOWING GROUNDS : - 1. THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE ACTION OF AO IN CHARGING NOTIONAL INCOME AS INCOME FROM HOUSE PROPERTY IN RESPECT OF THE 3(THREE) UNSOLD SHOPS SHOWN AS STOCK - IN - TRADE. 2. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE ACTION OF A.O. IN RESTRICTING THE CLAIM OF DEDUCTION U/S.54EC OF THE I.T.ACT TO RS.50,00,000/ - AS AGAINST RS. 1 CRORE CLAIMED BY THE APPELLANT. 2 . RIVAL CONTENTIONS HAVE BE EN HEARD AND RECORD PERUSED. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT. ITA NO. 4277/12 2 DURING THE COURSE OF SCRUTINY ASSESSMENT THE AO FOUND THAT ASSESSEE HAS THREE SHOPS AS STOCK - IN - TRADE AS AT THE END OF THE YEAR. THE AO COMPUTED THE INCOM E IN RESPECT OF ALL THE THREE SHOPS U/S.2 3 AS INCOME FROM HOUSE PROPERTY. THE CONTENTION OF THE ASSESSEE WAS THAT THREE SHOPS AT THE END OF THE YEAR WAS ITS TRADING ASSETS CANNOT BE CHARGED TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS PROFIT ON SALE THEREOF SHALL BE CHARGEABLE TO TAX UNDER THE HEAD OF INCOME FROM BUSINESS. THE AO DID NOT AGREE WITH THE ASSESSEES CONTENTION AND BROUGHT THE NOTIONAL RENTAL INCOME IN ASSESSEES HANDS U/S.2 3 . BY THE IMPUGNED ORDER THE CIT(A) RESTORED THE MATTER BACK TO THE FILE OF THE AO WITH THE FOLLOWING OBSERVATIONS : - 2.3.1. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE APPELLANT AND ALSO CAREFULLY GONE THROUGH THE DOCUMENTS AVAILABLE ON RECORD. SIMILAR ISSUE AROSE FOR MY CONSIDERATION IN THE PREVIOUS YEAR I.E. A.Y. 2007 - 08 WHEREIN I HAVE DIRECTED THE LD. AO TO DETERMINE THE ANNUAL RATEABLE VALUE AS PER THE DIRECTIONS GIVEN BY THE HON'BLE IT AT IN THE CASE OF PARKPAPER INDUSTRIES P. LTD. I ALSO FIND THAT THE DECISION AS REGARDS TO THE RATEABLE VALUE HAS ALSO BEEN RECENTLY DECIDED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF MONI KUMAR SUBBA REPORTED IN (2011) 333 ITR 38 HAS HELD THAT OPERATIVE WORDS IN S. 23(1)(A) ARE LITHE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. HAVING REGARD TO THE PROVISION, THE AO IS EXPECTED TO MAKE AN ENQUIRY AS TO WHAT WOULD BE THE POSSIBLE RENT THAT THE PROPERTY MIGHT FETCH. IF HE FINDS THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE FAIR RENT FOR THE REASON THAT THE ASSESSEE HAS RECEIVED ABNORMALL Y HIGH INTEREST - FREE SECURITY DEPOSIT, HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT BEHALF - HOWEVER, BY NO STRETCH OF IMAGINATION, THE NOTIONAL INTEREST ON INTEREST - FREE SECURITY DEPOSIT CAN BE TAKEN AS A DETERMINATIVE FACTOR TO ARRIVE AT THE FAIR RENT - PROV ISIONS OF S. 23(1)(A) DO NOT MANDATE THIS. SINCE THE PROVISIONS OF FIXATION OF ANNUAL RENT UNDER THE DELHI MUNICIPAL CORPORATION ACT ARE PARI MATERIA WITH S. 23 OF THE IT ACT, THE ANNUAL VALUE FIXED BY THE MUNICIPAL AUTHORITIES CAN BE A RATIONAL YARDSTICK SUBJECT TO THE CONDITION THAT THE YEAR IN WHICH THE ANNUAL VALUE WAS FIXED BEARS A CLOSE PROXIMITY WITH THE ASSESSMENT YEAR IN QUESTION. IF THERE IS A CHANGE IN CIRCUMSTANCES BECAUSE OF PASSAGE OF TIME, THE ANNUAL VALUE FIXED BY THE MUNICIPAL AUTHORITIES A T A MUCH EARLIER POINT OF TIME ON THE BASIS OF RENT THEN RECEIVED MAY NOT PROVIDE A SAFE YARDSTICK. THUS, IN A GIVEN CASE, AO CAN IGNORE ITA NO. 4277/12 3 THE MUNICIPAL VALUATION FOR DETERMINING THE ANNUAL LETTING VALUE IF HE FINDS THAT THE SAME IS NOT BASED ON RELEVANT MAT ERIAL AND THERE IS SUFFICIENT MATERIAL ON RECORD FOR TAKING A DIFFERENT VALUATION. THEREFORE, THE LD. AO IS DIRECTED TO ADOPT THE NET RATEABLE VALUE ACCORDINGLY. THIS GROUND OF APPEAL IS THUS ALLOWED FOR STATISTICAL PURPOSE. 3. THE LD. AR PLACED THE OR DER OF BOMBAY TRIBUNAL IN THE CASE OF M/S PERFECT SCALE COMPANY PVT. LTD., ITA NOS.3228 TO 3234/MUM/2013, ORDER DATED 6 - 9 - 2013, WHEREIN IT WAS HELD THAT IN RESPECT OF ASSETS HELD AS BUSINESS, INCOME FROM THE SAME IS NOT ASSESSABLE U/S.23(1) OF THE IT ACT. 4 . ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF HONBLE DELHI HIGH COURT IN THE CASE OF ANSAL HOUSING FINANCE & LEASING CO. LTD., 354 ITR 180 (DELHI) IN SUPPORT OF THE PROPOSITION THAT EVEN IN RESPECT OF UNSOLD FLATS BY THE DEVELOPER IS LIABLE TO BE TA XED AS INCOME FROM HOUSE PROPERTY. 5 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE UNDER CONSIDERATION HAS BEEN RESTORED BY THE CIT(A) TO THE FILE OF AO TO COMPUTE THE ANNUAL VALUE. RECENTLY THE HONBLE SUPREME COURT IN THE CASE OF M/S CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT, REPORTED IN (2015) 42 SCD 651, VIDE JUDGMENT DATED 9 - 4 - 2015 HAS HELD THAT WHERE ASSESSEE COMPANY ENGAGED IN THE ACTIVITY OF LETTING OUT PROPERTIES AND THE RENTAL INCOME RECEIVED WAS SHOWN AS BUSINESS IN COME, THE ACTION OF AO TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY IN PLACE OF INCOME FROM BUSINESS SHOWN BY THE ASSESSEE WAS HELD TO BE NOT JUSTIFIED . THE HONBLE SUPREME COURT HELD THAT SINCE THE ASSESSEE COMPANY S MAIN OBJECT, IS TO ACQUIRE AND HELD PROPERTIES AND TO LET OUT THESE PROPERTIES , T HE INCOME EARNED BY LETTING OUT THESE PROPERTIES IS MAIN OBJECTIVE OF THE COMPANY, THEREFORE, RENT RECEIVED FROM THE LETTING OUT OF ITA NO. 4277/12 4 THE PROPERTIES IS ASSESSABLE AS INCOME FROM BUSINESS. ON THE VERY SAM E ANALOGY IN THE INSTANT CASE, ASSESSEE IS ENGAGED IN BUSINESS OF CONSTRUCTION AND DEVELOPMENT, WHICH IS MAIN OBJECT OF THE ASSESSEE COMPANY. THE THREE FLATS WHICH COULD NOT BE SOLD AT THE END OF THE YEAR WAS SHOWN AS STOCK - IN - TRADE . E STIMATING RENTAL INCO ME BY THE AO FOR THESE THREE FLATS AS INCOME FROM HOUSE PROPERTY WAS NOT JUSTIFIED INSOFAR AS THESE FLATS WERE NEITHER GIVEN ON RENT NOR THE ASSESSEE HAS INTENTION TO EARN RENT BY LETTING OUT THE FLATS. THE FLATS NOT SOLD WAS ITS STOCK - IN - TRADE AND INCOME ARISING ON ITS SALE IS LIABLE TO BE TAXED AS BUSINESS INCOME. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION IN THE ORDER OF AO FOR ESTIMATING RENTAL INCOME FROM THESE VACANT FLATS U/S.23 WHICH IS ASSESSEES STOCK IN TRADE AS AT THE END OF THE YEAR. ACCORDI NGLY, THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY ESTIMATING LETTING VALUE OF T HE FLATS U/S.2 3 OF THE I.T.ACT. 6 . THE ASSESSEE IS ALSO AGGRIEVED FOR RESTRICTING THE CLAIM OF DEDUCTION U/S.54EC TO RS. 50 LAKHS AS AGAINST RS. 1 CRORE CLAIMED BY THE ASSES SEE. FROM THE RECORD WE FOUND THAT THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN OF RS .40,15,660 / - ON SALE OF EQUITY SHARES OF INDIA FINANCE &. CONSTRUCTION CO. PVT. L TD. AFTER AVAILING DEDUCTION U/ S.54EC AMOUNTING TO RS.1,00,00,000/ - . THE.AO NOTED THAT A SSESSEE COMPANY SOLD EQUITY SHARES OF INDIA FINANCE & CONSTRUCTION CO. PVT. LTD ON 31.03.2009 AND EARNED LONG TERM CAPITAL GAINS OF RS .1,40,15,680 / - ON WHICH ASSESSEE HAS CLAIMED DEDUCTION OF RS . 1,00,00,000/ - U/S. 54EC AND DECLARED LTCG AT RS .40,15,660/ - . THE AO ALSO NOTED THAT PROVISO TO SUB - SECTION ( 1 ) OF ITA NO. 4277/12 5 SECTION 54EC OF THE ACT WHEREIN THE LEGISLATURE HAS PRESCRIBED LIMIT OF RS .50 LAKHS FOR THE PURPOSE OF DEDUCTION UNDER THAT SECTION BY THE FINANCE ACT, 2007 WHICH IS EFFECTIVE FROM 01.04.200 7 . THE ASSESS EE HAD INVESTED RS.50 LACS ON 31.3.2009 AND RS.50 LACS ON 30.4.2009. HOWEVER, THE AO DID NOT ALLOW EXEMPTION IN RESPECT OF RS.50 LAKHS INVESTED ON 30 - 4 - 2009 ON THE PLEA THAT LIMITS PRESCRIBED U/S.54EC RELATES TO TRANSACTION AND NOT TO THE FINANCIAL YEAR. B Y THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO. 7 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. C.JAICHANDER & SRIRAM INDUBAL, T.C .(A).NOS.419 AND 533 OF 2014, VIDE ORDER DATED 15 - 9 - 2014, HELD AS UNDER : - 11. IN ANY EVENT, FROM A READING OF SECTION 54EC(1) AND THE FIRST PROVISO, IT IS CLEAR THAT THE TIME LIMIT FOR INVESTMENT IS SIX MONTHS FROM THE DATE OF TRANSFER AND EVEN IF SUCH INVESTMENT FALLS UNDER TWO FINANCIAL YEARS, THE BENEFIT CLAIMED BY THE ASSESSEE CANNOT BE DENIED. IT WOULD HAVE MADE A DIFFERENCE, IF THE RESTRICTION ON THE INVESTMENT IN BONDS TO RS.50,00,000/ - IS INCORPORATED IN SECTION 54EC(1) OF THE ACT ITSELF. HOWEVER , THE AMBIGUITY HAS BEEN REMOVED BY THE LEGISLATURE WITH EFFECT FROM 1.4.2015 IN RELATION TO THE ASSESSMENT YEAR 2015 - 16 AND THE SUBSEQUENT YEARS. THE HONBLE HIGH COURT ALSO CLARIFIED THAT THE LEGISLATURE HAS ALSO REMOVED THE AMBIGUITY BY INSERTING SECO ND PROVISO TO SECTION 54EC W.E.F.1 - 4 - 2015. THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE (NO.2) BILL, 2014 ALSO STATES THAT THE SAME WILL BE APPLICABLE FROM 1.4.2015 IN RELATION TO ASSESSMENT YEAR 2015 - 16 AND THE SUBSEQUENT YEARS. THE INTENTION O F THE LEGISLATURE IS TO CLARIFY THAT THIS AMENDMENT ITA NO. 4277/12 6 SHOULD BE FOR THE ASSESSMENT YEAR 2015 - 16 TO AVOID UNWANTED LITIGATIONS OF THE PREVIOUS YEARS. 8 . RESPECTFULLY FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. C.JAICHANDER & SRI RAM INDUBAL (SUPRA), WE DO NOT FIND ANY MERIT FOR DISALLOW ING CLAIM OF DEDUCTION U/S.54EC. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . O RDER PRONOUNCED IN THE OPEN COURT ON THIS 13/05 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 13/05 /201 5 . . /PKM , . / PS / COPY OF THE ORDER F ORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//