RUNWAL CONSTRUCTIONS, MUMBAI V. ASST CIT CEN CIR 4(1), MUMBAI

ITA 5408/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0307 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 01-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Assessee Lawyers: RISHABH S HAH
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 5408/MUM/2016 (ASSESSMENT YEAR: 2012-13) M/S. RUNWAL CONSTRUCTIONS RUNWAL & OMKAR ESQUARE 5TH FLOOR, OPP. SION- CHUNABHATTI SIGNAL SION (E), MUMBAI 400022 VS. ACIT CENTRAL CIRCLE - 4(1) MUMBAI PAN AAAFR1211Q APPELLANT RESPONDENT ITA NO. 5409/MUM/2016 (ASSESSMENT YEAR: 2012-13) M/S. RUNWAL BUILDERS P. LTD. RUNWAL & OMKAR ESQUARE 5TH FLOOR, OPP. SION- CHUNABHATTI SIGNAL SION (E), MUMBAI 400022 VS. ACIT CENTRAL CIRCLE - 4(1) MUMBAI PAN AAAFR1211Q APPELLANT RESPONDENT APPELLANT BY: SHRI RISHABH SHAH RESPONDENT BY: SHRI V. VIDHYADHAR DATE OF HEARING: 20.02.2018 DATE OF PRONOUNCEMENT: 22.02.2018 O R D E R PER C.N. PRASAD, JM BOTH THESE APPEALS ARE FILED BY ASSESSEES OF THE SA ME GROUP AGAINST SEPARATE ORDERS OF CIT(A)-52, MUMBAI FOR A.Y. 2012- 13. 2. THE COMMON ISSUE IN THESE APPEALS IS THAT THE LEARN ED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITI ON ON ACCOUNT OF ALLEGED NOTIONAL ANNUAL LETTING VALUE OF UNSOLD FLATS HELD AS STOCK IN TRADE. ITA NOS. 5408 & 5409/MUM/2016 RUNWAL CONSTRUCTIONS & RUNWAL BUILDERS 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEES, ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS, FILED RETURN O F INCOME FOR A.Y. 2012- 13. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143( 3) OF INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) AND WHILE COMPLET ING THE ASSESSMENT THE AO COMPUTED THE ANNUAL LETTING VALUE IN RESPECT OF UNSOLD FLATS HELD AS STOCK IN TRADE BY THE ASSESSEES. THE ASSESSEES CONT ENDED BEFORE THE AO THAT THEY ARE ENGAGED IN THE BUSINESS OF BUILDER, D EVELOPERS AND CONSTRUCTION AND THE PROPERTY THEY PURCHASED IS STO CK IN TRADE AND THE INCOME FROM SALE OF SUCH DEVELOPED PROPERTY INTO FL ATS IS ASSESSABLE AS BUSINESS INCOME. THEREFORE THE UNSOLD FLATS WHICH A RE IN THE STOCK IN TRADE CANNOT BE BROUGHT TO TAX UNDER THE HEAD INCOME FRO M HOUSE PROPERTY SIMPLY BECAUSE THE FLATS REMAIN UNSOLD AT THE END O F THE YEAR. THE ASSESSEES ALSO PLACED RELIANCE ON THE DECISION OF T HE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEHA BUILDERS PVT. LTD . (296 ITR 661) IN SUPPORT OF THEIR CONTENTIONS. HOWEVER, THE AO REFER RING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ANSAL H OUSING FINANCE & LEASING CO. LTD. (354 ITR 180) COMPUTED THE NOTIONA L ANNUAL LETTING VALUE ON THE UNSOLD FLATS AND BROUGHT TO TAX UNDER SECTIO N 23 OF THE ACT AS INCOME FROM HOUSE PROPERTY. 4. ON APPEAL THE LEARNED CIT(A) SUSTAINED THE ACTION OF THE AO IN BRINGING TO TAX THE NOTIONAL ANNUAL LETTING VALUE U NDER THE HEAD INCOME FROM HOUSE PROPERTY IN RESPECT OF THE UNSOLD FLATS . AGGRIEVED, ASSESSEES ARE IN APPEAL BEFORE US. 5. THE LEARNED A.R. BEFORE US STRONGLY PLACING RELIAN CE ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF NE HA BUILDERS PVT. LTD. (SUPRA) SUBMITTED THAT IF THE PROPERTY IS USED AS S TOCK IN TRADE THEN SUCH PROPERTY WOULD BECOME OR PARTAKE THE CHARACTER OF S TOCK AND ANY INCOME DERIVED FROM SUCH STOCK IN TRADE WOULD BE INCOME FR OM BUSINESS AND NOT INCOME FROM HOUSE PROPERTY. THE LEARNED COUNSEL ALS O PLACED RELIANCE ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF C.R. DEVELOPERS PVT. LTD. VS. JCIT IN ITA NO. 4277/MUM/2013 DATED 13.05. 2015 AND SUBMITTED THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE COORDI NATE BENCH HOLDING THAT ITA NOS. 5408 & 5409/MUM/2016 RUNWAL CONSTRUCTIONS & RUNWAL BUILDERS 3 IN THE CASE OF PROPERTY HELD AS STOCK IN TRADE THE INCOME SHOULD BE ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS AN D NO INCOME SHALL BE BROUGHT TO TAX AS NOTIONAL ANNUAL LETTING VALUE UND ER THE HEAD INCOME FROM HOUSE PROPERTY. 6. THE LEARNED D.R., ON THE OTHER HAND, VEHEMENTLY SUP PORTED THE ORDERS OF AUTHORITIES BELOW. HE ALSO PLACED RELIANC E DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ANSAL HOUSING FINA NCE & LEASING CO. LTD. (SUPRA) 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS RELIED UPON. IT IS AN UNDISPUTED FACT THAT THE ASSESSEES ARE IN THE BUSINESS OF BUILDERS, DEVELOPERS AND CONSTRUCTION. BOTH THE ASSESSEES HAVE CONSTRUCTED V ARIOUS PROJECTS AND THE PROJECTS WERE TREATED AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT. FLATS SOLD BY THE ASSESSEES WERE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. THERE WERE CERTAIN UNSOLD FLATS IN STOCK IN TRADE WHICH THE AO TREATED AS PROPERTY ASSESSABLE UNDER THE HEAD INCO ME FROM HOUSE PROPERTY AND COMPUTED NOTIONAL ANNUAL LETTING VALU E ON SUCH UNSOLD FLATS PLACING RELIANCE ON THE DECISION IN THE CASE OF ANS AL HOUSING FINANCE & LEASING CO. LTD. (SUPRA). THE ACTION OF THE AO WAS UPHELD BY THE LEARNED CIT(A). 8. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF NEHA BUILDERS PVT. LTD. (SUPRA) CONSIDERED THE QUESTION WHETHER THE RE NTAL INCOME RECEIVED FROM ANY PROPERTY IN THE CONSTRUCTION BUSINESS CAN BE CLAIMED UNDER THE HEAD INCOME FROM PROPERTY EVEN THOUGH THE SAID PR OPERTY WAS INCLUDED IN THE CLOSING STOCK. THE HON'BLE GUJARAT HIGH COURT H ELD THAT IF THE BUSINESS OF THE ASSESSEE IS TO CONSTRUCT THE PROPERTY AND SE LL IT OR TO CONSTRUCT AND LET OUT THE SAME, THEN THAT WOULD BE THE BUSINESS A ND THE BUSINESS STOCKS, WHICH MAY INCLUDE MOVABLE AND IMMOVABLE, WOULD BE T AKEN TO BE STOCK IN TRADE AND ANY INCOME DERIVED FROM SUCH STOCKS CANNO T BE TERMED AS INCOME FROM HOUSE PROPERTY. WHILE HOLDING SO THE HO N'BLE HIGH COURT OBSERVED AS UNDER: - ITA NOS. 5408 & 5409/MUM/2016 RUNWAL CONSTRUCTIONS & RUNWAL BUILDERS 4 8. TRUE IT IS, THAT INCOME DERIVED FROM THE PROPER TY WOULD ALWAYS BE TERMED AS 'INCOME' FROM THE PROPERTY, BUT IF THE PR OPERTY IS USED AS 'STOCK-IN-TRADE', THEN THE SAID PROPERTY WOULD BECO ME OR PARTAKE THE CHARACTER OF THE STOCK, AND ANY INCOME DERIVED 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 PROPER TY AND SELL IT OR TO CONSTRUCT AND LET OUT THE SAME, THEN 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 INCO ME DERIVED FROM SUCH STOCKS CANNOT BE TERMED AS 'INCOME FROM PROPER TY'. EVEN OTHERWISE, IT IS TO BE SEEN THAT THERE WAS DISTINCT ION BETWEEN THE 'INCOME FROM BUSINESS' AND 'INCOME FROM PROPERTY' O N ONE SIDE, AND 'ANY INCOME FROM OTHER SOURCES'. THE TRIBUNAL, IN O UR CONSIDERED OPINION, WAS ABSOLUTELY UNJUSTIFIED IN COMPARING TH E RENTAL INCOME WITH THE DIVIDEND INCOME ON THE SHARES OR INTEREST INCOME ON THE DEPOSITS. EVEN OTHERWISE, THIS QUESTION WAS NOT RAI SED BEFORE THE SUBORDINATE TRIBUNALS AND, ALL OF SUDDEN, THE TRIBU NAL STARTED APPLYING THE ANALOGY. 9. FROM THE STATEMENT OF THE ASSESSEE, IT WOULD CLE ARLY APPEAR THAT IT WAS TREATING THE PROPERTY AS 'STOCK-IN-TRADE'. NOT ONLY THIS, IT WILL ALSO BE CLEAR FROM THE RECORDS THAT, EXCEPT FOR THE GROU ND FLOOR, WHICH HAS BEEN LET OUT BY THE ASSESSEE, ALL OTHER PORTIONS OF THE PROPERTY CONSTRUCTED HAVE BEEN SOLD OUT. IF THAT BE SO, THE PROPERTY, RIGHT FROM THE BEGINNING WAS A 'STOCK-IN-TRADE'. 9. SIMILARLY THE COORDINATE BENCH HAS CONSIDERED SIMI LAR ISSUE AS TO WHETHER THE UNSOLD PROPERTY WHICH IS HELD AS STOCK IN TRADE BY THE ASSESSEE CAN BE ASSESSED UNDER THE HEAD INCOME FRO M HOUSE PROPERTY BY NOTIONALLY COMPUTING THE ANNUAL LETTING VALUE FROM SUCH PROPERTY AND THE COORDINATE BENCH CONSIDERING THE DECISION OF THE HO N'BLE DELHI HIGH COURT IN THE CASE OF ANSAL HOUSING FINANCE & LEASING CO. LTD. (SUPRA) WHICH THE AO RELIED UPON AND THE DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT RE PORTED IN 373 ITR 673, HELD THAT UNSOLD FLATS WHICH ARE IN STOCK IN TRADE SHOULD BE ASSESSED UNDER THE HEAD BUSINESS INCOME AND THERE IS NO JU STIFICATION IN ESTIMATING RENTAL INCOME FROM THOSE FLATS AND NOTIO NALLY COMPUTING ANNUAL LETTING VALUE UNDER SECTION 23 OF THE ACT. WHILE HO LDING SO THE COORDINATE BENCH OBSERVED AS UNDER: - 3. THE LD. AR PLACED THE ORDER OF BOMBAY TRIBUNAL IN THE CASE OF M/S PERFECT SCALE COMPANY PVT. LTD., ITA NOS.3228 TO 32 34/MUM/2013, ORDER DATED 6-9-2013, WHEREIN IT WAS HELD THAT IN R ESPECT OF ASSETS ITA NOS. 5408 & 5409/MUM/2016 RUNWAL CONSTRUCTIONS & RUNWAL BUILDERS 5 HELD AS BUSINESS, INCOME FROM THE SAME IS NOT ASSES SABLE 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 & LEASIN G 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 TAXED 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 HON BLE SUPREME COURT IN THE CASE OF M/S CHENNAI PROPERTIES & INVES TMENTS LTD. VS. CIT, REPORTED IN (2015) 42 SCD 651, VIDE JUDGMENT D ATED 9-4-2015 HAS HELD THAT WHERE ASSESSEE COMPANY ENGAGED IN THE ACTIVITY OF LETTING OUT PROPERTIES AND THE RENTAL INCOME RECEIV ED WAS SHOWN AS BUSINESS INCOME, THE ACTION OF AO TREATING THE RENT AL INCOME AS INCOME FROM HOUSE PROPERTY IN PLACE OF INCOME FROM BUSINESS SHOWN BY THE ASSESSEE WAS HELD TO BE NOT JUSTIFIED. THE H ONBLE SUPREME COURT HELD THAT SINCE THE ASSESSEE COMPANYS MAIN O BJECT, IS TO ACQUIRE AND HELD PROPERTIES AND TO LET OUT THESE PR OPERTIES, THE INCOME EARNED BY LETTING OUT THESE PROPERTIES IS MAIN OBJE CTIVE OF THE COMPANY, THEREFORE, RENT RECEIVED FROM THE LETTING OUT OF THE PROPERTIES IS ASSESSABLE AS INCOME FROM BUSINESS. ON THE VERY SAME ANALOGY IN THE INSTANT CASE, ASSESSEE IS ENGAGED IN BUSINESS O F CONSTRUCTION AND DEVELOPMENT, WHICH IS MAIN OBJECT OF THE ASSESSEE C OMPANY. THE THREE FLATS WHICH COULD NOT BE SOLD AT THE END OF T HE YEAR WAS SHOWN AS STOCK-IN-TRADE. ESTIMATING RENTAL INCOME BY THE AO FOR THESE THREE FLATS AS INCOME FROM HOUSE PROPERTY WAS NOT JUSTIFI ED INSOFAR AS THESE FLATS WERE NEITHER GIVEN ON RENT NOR THE ASSESSEE H AS INTENTION TO EARN RENT BY LETTING OUT THE FLATS. THE FLATS NOT SOLD W AS ITS STOCK-IN-TRADE AND INCOME ARISING ON ITS SALE IS LIABLE TO BE TAXE D AS BUSINESS INCOME. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATI ON IN THE ORDER OF AO FOR ESTIMATING RENTAL INCOME FROM THESE VACANT F LATS U/S.23 WHICH IS ASSESSEES STOCK IN TRADE AS AT THE END OF THE Y EAR. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY ESTIM ATING LETTING VALUE OF THE FLATS U/S.23 OF THE I.T.ACT. 10. IN THE CASE ON HAND BEFORE US IT IS AN UNDISPUTED F ACT THAT BOTH ASSESSEES HAVE TREATED THE UNSOLD FLATS AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT AND THE FLATS SOLD BY THEM WERE ASSESSED UN DER THE HEAD INCOME FROM BUSINESS. THUS, RESPECTFULLY FOLLOWING THE AB OVE SAID DECISIONS WE HOLD THAT THE UNSOLD FLATS WHICH ARE STOCK IN TRADE WHEN THEY WERE SOLD THEY ARE ASSESSABLE UNDER THE HEAD INCOME FROM BUS INESS WHEN THEY ARE SOLD AND THEREFORE THE AO IS NOT CORRECT IN BRINGIN G TO TAX NOTIONAL ANNUAL LETTING VALUE IN RESPECT OF THOSE UNSOLD FLATS UNDE R THE HEAD INCOME FROM ITA NOS. 5408 & 5409/MUM/2016 RUNWAL CONSTRUCTIONS & RUNWAL BUILDERS 6 HOUSE PROPERTY. THUS, WE DIRECT THE AO TO DELETE T HE ADDITION MADE UNDER SECTION 23 OF THE ACT AS INCOME FROM HOUSE PROPERTY . 11. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEES A RE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2018. SD/ - SD/ - (A.L. SAINI) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22 ND FEBRUARY, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -52, MUMBAI 4. THE PR. CIT (C)- 2, MUMBAI 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.