DCIT, CEN. CIRCLE-4(1), MUMBAI, MUMBAI V. M/s. RUNWAL DEVELOPERS PVT. LTD., MUMBAI

ITA 6102/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6278 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Appeal Filed On: 27-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RISHABH S HAH
• Keywords: Business income; Business expenditure; Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 263; 144; 142(1); 14A; 115JB; 201; 143(2); 13; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR , VP AND SHRI AMARJIT SINGH, JM / I.T.A. NO . 6102 / MUM/201 9 ( / ASSESSMENT YEAR :201 6 - 1 7 ) DCIT, CEN, CIRCLE - 4(10) ROOM NO.1918, 19 TH FLOOR, AIR IND IA BUILDING, NARIMAN POINT, MUMBAI - 400021 . / VS. M/S. RUNWAL DEVELOPERS PVT. LTD. 1 ST FLOOR, RUNWAL CHAMBERS, FIRST ROAD, CHEMBUR, MUMBAI - 400022. / I.T.A. NO. 5294 /MUM/201 9 ( / ASSESSMENT YEAR: 201 6 - 1 7 ) M/S. RUNWAL DEVELOPERS PVT. LTD. 1 ST FLOOR, RUNWAL CHAMBERS, FIRST ROAD, CHEMBUR, MUMBAI - 400022 . / VS. DCIT, CEN, CIRCLE - 4(10) ROOM NO.1918, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021 . ./ ./ PAN/GIR NO. : AAACR0395J ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 22 / 06 / 202 1 /DATE OF PRONOUNCEMENT: 06 / 09 / 20 21 / O R D E R PER AMARJIT SINGH (JM) : THE ASSESSEE AS WELL AS REVENUE HA VE FILED THE ABOVE MENTIONED APPEAL S AGAINST THE ORDER DATED 20 . 06 .201 9 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 52 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2016 - 1 7 . ITA. NO.6102 /MUM/201 9 2 . THE REVENUE HA S FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 20 . 06 .201 9 PASSED BY THE COMMISSIONER OF INCOME TAX (APPE ALS) - 52 , ASSESSEE BY : SHRI RISHABH SHAH REVENUE BY: SHRI BHARAT ANDHLE (D R) ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 2 MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2016 - 1 7 . 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN RESTRICTING THE DISALLOWANCE U/S 14A UPTO THE AMOUNT OF EXEMPT INCOME EARNED WITHOUT CONSIDERING THE CIRCULAR NO.5 OF 2014 DATED 11.02.2014 AND DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (328 ITR 81).? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE U/S 14A OF THE IT ACT WHILE COMPUTING THE BOOK PROFITS U/S 115JB WITHOUT APPRECIATING THE PROVISION OF CLAUSE (F) OF THE EXPLANATION 1 TO SECTION 115JB O F THE IT ACT ?. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 17.10.2016 DECLARING TOTAL INCOME TO THE TUNE OF RS.3,36,02,130/ - . THEREAFTER, THE ASSESSEE RECEIVED THE DEFECTIVE NOTICE U/S 139(9) OF THE I. T. ACT, 1961. IN RESPONSE TO THE NOTICE, THE ASSESSEE FILED RETURN OF INCOME ON 01.05.2017 DECLARING TOTAL INCOME TO THE TUNE OF RS.3,71,72,858/ - . THE CASE WAS SELECTED FOR SCRUTINY. NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE A O ASSESSED THE INCOME FROM ANNUAL LETTING VALUE OF FUR NISHED PROPERTY AS STOCK - IN - TRADE AS INCOME FROM HOUSE PROPERTY AND RAISED THE ADDITION TO THE TUNE OF RS. 2,15,31,160/ - . THE AO ALSO DISALLOWED THE EXPENSES TO EARN THE EXEMPT INCOME IN VIEW OF THE PROV ISIONS U/S 14A R.W. RULE 8D TO THE TUNE OF RS.1,70,01,211/ - . THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS. 7,57,05,230/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 3 BEFORE THE CIT(A) WHO TREATED THE INCOME FROM THE ANNUAL LETTING VAL UE OF FINISHED PROPERTY AS STOCK - IN - TRADE AS INCOME FROM BUSINESS AND ALSO RESTRICTED THE ADDITION U/S 14A R.W. RULE 8D TO THE EXTENT OF EXEMPT INCOME . FEELING AGGRIEVED, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US . ISSUE NO. 1 5. UNDER THIS ISSUE T HE REVENUE HAS CHALLENGED ALLOWANCE OF THE DISALLOWANCE OF U/S 14A R.W. RULE 8D TO THE EXTENT OF EXEMPT INCOME. BEFORE GOING FURTHER, WE DEEM IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: 6.2 IT IS OBSERVED THAT THE ASSESSEE CLAIMS THAT DUR ING THE RELEVANT YEAR IT HAS NOT INCURRED ANY EXPENDITURE AND HAS EARNED DIVIDEND INCOME OF ONLY PS. 2,8551 - , THEREFORE, THE ACTION OF THE AO OF MAKING THE SAID DISALLOWANCE U/S. 14A OF PS. 1,7001,211/ - IS NOT CORRECT. IT IS OBSERVED THAT ON THIS ISSUE AS TO WHETHER THE DISALLOWANCE U/S. 14A HAS TO BE RESTRICTED TO THE AMOUNT OF EXEMPT/DIVIDEND INCOME, THERE WAS SOME DEBATE. HOWEVER, THE POSITION HAS BEEN SETTLED BY THE RECENT DECISION OF THE HON'BLE SUPREME COURT DATED 08.11.2018 REPORTED IN 99 TAXMANN.COM 286 WHEREIN THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (99 TAXMANN.COM 285) FOR AY 2010 - 11 HOLDING THAT THE DISALLOWANCE U/S 144 HAS TO BE RESTRICTED TO THE AMOUNT OF EXEMPT I DIVIDEND INCOME, HAS BEEN UPH ELD. IN THE SAID CASE OF STATE BANK OF PATIALA FOR AY 2010 - 11. THE AO HAD RESTRICTED THE DISALLOWANCE U/S 14A TO PS 7,03,46,029/ - TO THE AMOUNT OF DIVIDEND INCOME EARNED. HOWEVER, THE FAA ENHANCED THE SAID DISALLOWANCE U/S 14A TO PS 12,67,00,000/ - AS PER R ULE 8D ON THE GROUND THAT THE SAID DISALLOWANCE IS NOT REQUIRED TO BE RESTRICTED TO THE AMOUNT OF DIVIDEND INCOME EARNED. ON THE FACTS OF THE CASE OF THE SAID ASSESSEE FOR AY 2010 - 11. THE HON'BLE P & H HIGH COURT FOLLOWED ITS OWN DECISION ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 4 IN THE CASE OF TH E SAID ASSESSEE FOR AY 2009 - 10 REPORTED IN 88 TAXMANN.COM 667 TO HOLD THAT THE DISALLOWANCE U/S 14A CANNOT EXCEED THE AMOUNT OF EXEMPT/DIVIDEND INCOME. THE RELEVANT PORTION OF THE SAID DECISION OF THE HON'BLE P & H HIGH COURT IN THE CASE OF STATE BANK OF P ATIALA FOR AY 2010 - 11 IS REPRODUCED AS UNDER: - '4. IT IS NOT DISPUTED BY THE ID. COUNSEL FOR THE APPELLANT - REVENUE THAT THE ISSUE INVOLVED IN THE PRESENT CASE STANDS CONCLUDED AGAINST THE REVENUE IN ITA NO. 270 OF 2016. PR CIT VS. STATE BANK OF PATIO/A (2 017) 393 ITR 476/88 TAXMANN.COM 667 (PUNJ &HAR.) DECIDED ON 27.02.2017 WHEREIN AFTER CONSIDERING THE RELEVANT PROVISION AND THE CASE LAW ON THE POINT, IT WAS RECORDED AS UNDER - 'AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE NOTICE THAT THE ISSUE ON ME RITS HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN STATE BANK OF PATIALA'S CASE (SUPRA) (2017) 78 TAXMAN. CORN 3. THE AMOUNT OF DISALLOWANCE TINDER SECTION 14A WAS RESTRICTED TO THE AMOUNT OF EXEMPT INCOME ONLY AND NOT AT A HIGHER FIGURE. ONCE THAT WAS SO, WE DO NOT CONSIDER IT APPROPRIATE TO DISCUSS THE SCOPE OF SEC. 263 OF THE ACT AS THE SAME HAS BEEN RENDERED ACADEMIC IN VIEW OF THE ISSUE BEING ANSWERED IN FAVOUR OF THE ASSESSEE ON MERITS. THUS, NO SUBSTANTIAL QUESTION OF LAW ARISES. CONSEQUENTLY, THE AP PEAL STANDS DISMISSED'. SIMILAR DECISION WAS TAKEN BY THIS COURT IN ITA NO. 193 OF 2017, PR. CIT VS. STATE BANK OF PATIALA DECIDED ON 22.05 2017. 5. IN VIEW OF THE ABOVE, NO SUBSTANTIAL QUESTION OF LAW ARISES IN THE PRESENT APPEAL AND CONSEQUENTLY, THE A PPEAL STANDS DISMISSED'. 6.3 IT CAN BE OBSERVED THAT THE HON'BLE P & H HIGH COURT IN THE AFORESAID CASE OF STATE BANK OF PATIALA FOR AY 2010 - 11 HAD FOLLOWED ITS OWN DECISION IN THE CASE OF SAID ASSESSEE ITSELF FOR AY 2009 - 10 AND WHILE GIVING ITS DECISION F OR AY 2009 - 10, THE HON'BLE P & H HIGH COURT HAD RELIED UPON ITS OWN DECISION IN THE CASE OF THE SAID ASSESSEE ITSELF FOR AY ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 5 2008 - 09. THEREFORE, THE RATIO LAID OUT BY THE HON'BLE P&H HIGH COURT IN THE CASE OF STATE BANK OF PATIALA AND ITS ULTIMATE FATE, BEC OMES CRUCIAL. IT IS NOTED THAT THE HON'BLE SUPREME COURT VIDE ORDER DATED 12.02.2018 HAD SOME TIME BACK DECIDED THE CASE OF THE SAID ASSESSEE I.E. STATE BANK OF PATIALA FOR AY 2008 - 09 ALONG WITH THE CASE OF MAXOPP INVESTMENTS (91 TAXMANN.COM 154). 6.4 THE FACTS OF THE CASE OF THE SAID ASSESSEE I.E STATE BANK OF PATIALA FOR AY 2008 - 09 WERE THAT THE AO HAD RESTRICTED THE DISALLOWANCE U/S 14A TO THE EXTENT OF EXEMPT / DIVIDEND INCOME. HOWEVER, THE FAA ENHANCED THE ADDITION WHICH WAS SUBSEQUENTLY SET ASIDE BY THE HON'BLE TRIBUNAL. SUBSEQUENTLY, THE APPEAL OF THE DEPARTMENT WAS ALSO DISMISSED BY THE HONBLE PUNJAB & HARYANA HIGH COURT ON THE BASIS OF 'DOMINANT INTENTION TEST' BY HOLDING THAT 'STOCK - IN - TRADE' IS NOT TO BE CONSIDERED WHILE COMPUTING THE DISALLOWAN CE U/S 14A. THE HON'BLE SUPREME COURT WHILE DECIDING THE APPEAL OF THE DEPARTMENT IN THE SAID CASE OF STATE BANK OF PATIALA FOR AY 2008 - 09 HELD THAT THE VIEW OF THE HONBLE P & H HIGH COURT THAT 'STOCK - IN - TRADE' IS NOT TO BE CONSIDERED WHILE COMPUTING THE DISALLOWANCE U/S 14A IS NOT CORRECT. THE HON'BLE SUPREME COURT HELD THAT REGARDLESS OF WHETHER THE SHARES ARE HELD AS INVESTMENTS OR 'STOCK - IN - TRADE' THE SAME HAVE TO BE CONSIDERED WHILE COMPUTING THE DISALLOWANCE U/C 14A. HOWEVER, THE HON'BLE SUPREME COUR T WENT ON TO HOLD THAT THE ACTION OF THE AO OF RESTRICTING THE DISALLOWANCE TO THE EXTENT OF EXEMPT / DIVIDEND INCOME WAS THE CORRECT AND THE FAA'S ACTION OF ENHANCING THE DISALLOWANCE U/S 14A AS PER RULE 8D WAS UNTENABLE. THE RELEVANT EXTRACT OF THE DECI SION OF THE HON'BLE SUPREME COURT IN THE SAID CASE OF STATE BANK OF PATIALA FOR AY 2003 - 09 IS REPRODUCED AS UNDER: 'WE NOTE FROM THE FACTS IN THE STATE BANK OF PATIALA CASES THAT THE AO, WHILE PASSING THE ASSESSMENT ORDER, HAD ALREADY RESTRICTED THE SECTIO N 14A OF THE ACT WOULD BE APPLICABLE. IN SPITE OF THIS EXERCISE OF APPORTIONMENT OF EXPENDITURE CARRIED OUT BY THE AO CIT(A) DISALLOWED ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 6 UNTENABLE AND RIGHTLY SET ASIDE BY THE ITAT. THEREFORE, ON FACTS, THE PUNJAB AND HARYANA HIGH COURT HAS ARRI,9D AT A COR RECT CONCLUSION BY AFFIRMING THE VIEW OF THE ITAT, THOUGH WE ARE NOT SUBSCRIBING TO THE THEORY OF DOMINANT INTENTION APPLIED BY THE HIGH COURT. IT IS TO BE KEPT IN MIND THAT IN THOSE CASES WHERE SHARES ARE HELD AS 'STOCK - IN - TRADE', IT BECOMES A BUSINESS AC TIVITY OF THE ASSESSEE TO DEAF IN THOSE SHARES AS A BUSINESS PROPOSITION. WHETHER DIVIDEND IS EARNED OR NOT BECOMES IMMATERIAL. IN FACT, IT WOULD BE A QUIRK OF FATE THAT WHEN THE INVESTEE COMPANY DECLARED DIVIDEND, THOSE SHARES ARE HELD BY THE ASSESSEE, TH OUGH THE ASSESSEE HAS TO ULTIMATELY TRADE THOSE SHARES BY SELLING THEM TO EARN PROFITS. THE SITUATION HERE IS, THEREFORE, DIFFERENT FROM THE CASE LIKE MAXOPP INVESTMENT LTD. WHERE THE ASSESSEE WOULD CONTINUE TO HOLD THOSE SHARES AS IT WANTS TO RETAIN CONTR OL OVER THE INVESTEE COMPANY. IN THAT CASE, WHENEVER DIVIDEND IS DECLARED BY THE INVESTEE COMPANY THAT WOULD NECESSARILY BE EARNED BY THE ASSESSEE AND THE ASSESSEE ALONE. THEREFORE, EVEN AT THE TIME OF INVESTING INTO THOSE SHARES, THE ASSESSEE KNOWS THAT I T MAY GENERATE DIVIDEND INCOME AS WELL AND AS AND WHEN SUCH DIVIDEND INCOME IS GENERATED THAT WOULD BE EARNED BY THE ASSESSEE. IN CONTRAST, WHERE THE SHARES ARE HELD AS STOCK - IN - TRADE, THIS MAY NOT BE NECESSARILY A SITUATION. THE MAIN PURPOSE IS TO LIQUIDA TE THOSE SHARES WHENEVER THE SHARE PRICE GOES UP IN ORDER TO EARN PROFITS. IN THE RESULT, THE APPEALS FILED BY THE REVENUE CHALLENGING THE JUDGMENT OF THE PUNJAB AND HARYANA HIGH COURT IN SLATE BANK OF PATIALA ALSO FAIL, THOUGH LAW IN THIS RESPECT HAS BEEN CLARIFIED HEREINABOVE. 6.5 FROM THE AFORESAID DISCUSSION, IT CAN BE OBSERVED THAT IN THE CASE OF STATE BANK OF PATIALA FOR AYS 2008 - 09 AS WELL AS 2010 - 11, THE HONBLE SUPREME COURT HAS APPROVED THE VIEW THAT THE AMOUNT OF DISALLOWANCE U/S 14A HAS TO BE RE STRICTED TO THE AMOUNT OF EXEMPT / DIVIDEND INCOME EARNED. THUS, IT CAN BE OBSERVED THAT THE HON'BLE SUPREME COURT HAS APPROVED THE RATIO OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS (P) LTD (59 TAXMANN.COM 295) THAT THE ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 7 DISALLOWANCE U/S 14A CANNOT EXCEED THE AMOUNT OF DIVIDEND INCOME EARNED DURING THE RELEVANT YEAR. 6.6 FURTHER, THE ISSUE AS TO WHETHER NO DISALLOWANCE U/S. 14A CAN BE MADE IF DURING THE RELEVANT YEAR, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME HAS SUBS EQUENT TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD (402 ITR 640) ALSO BEEN ADJUDICATED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF MCDONALD'S INDIA P. LTD. (101 TAXMANN.COM 86). IN THIS DECISION, THE HON'BLE HIGH C OURT HELD THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) CANNOT BE SAID TO HAVE OVER - RULED THEIR DECISIONS IN THE CASES OF CHEMINVEST LTD. (SUPRA) AND HOLCIM INDIA P. LTD. (SUPRA) HOLDING THAT DISALLOWANCE U/S. 14A CAN ONLY BE MADE IF SOME EXEMPT INCOME HAS BEEN EARNED. THE HON'BLE DELHI HIGH COURT THAT IN THE CASE OF STATE BANK OF PATIALA 391 ITR 218 WHICH WAS ALSO DECIDED ALONG WITH THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA), IT HAS BEEN HELD BY THE HONBLE SU PREME COURT THAT THE ACTION OF THE CIT A OF ENHANCING THE DISALLOWANCE AS PER RULE 80 IS NOT CORRECT AND THE ACTION OF THE AO OF RESTRICTING THE SAID DISALLOWANCE TO THE AMOUNT OF EXEMPT INCOME IS THE RIGHT COURSE OF ACTION. THE RELEVANT THE DECISION OF TH E HON'BLE DELHI HIGH COURT IS REPRODUCED AS UNDER: - '8. THE DECISION IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA) IS SIGNIFICANT AND DOES ANSWER THE QUESTION IN ISSUE. THIS DECISION DOES NOT SUPPORT THE REVENUE AS THE ASSESSING OFFICER IN THE CASE OF MAXOP P INVESTMENT LTD. (SUPRA) HAD HIMSELF RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME. AFTER REFERRING TO WALFORT SHARE & STOCK BROKERS (P.) LTD. (SUPRA) IT WAS HELD AXIOMATICALLY, IT IS THAT EXPENDITURE ALONE WHICH HAS BEEN INCURRED IN RELATION TO THE INCOME WHICH IS INCLUDABLE IN TOTAL INCOME THAT HAS TO BE DISALLOWED. IF AN EXPENDITURE INCURRED HAS NO CAUSAL CONNECTION WITH THE EXEMPTED INCOME, THEN SUCH AN EXPENDITURE WOULD OBVIOUSLY BE TREATED AS NOT RELATED TO THE INCOME THAT IS EXEMPTED FR OM TAX, AND SUCH EXPENDITURE ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 8 WOULD BE ALLOWED AS BUSINESS EXPENDITURE. TO PUT IT DIFFERENTLY, SUCH EXPENDITURE WOULD THEN BE CONSIDERED AS INCURRED IN RESPECT OF OTHER INCOME WHICH IS TO BE TREATED AS PAIL OF THE TOTAL INCOME.' 9. THE POSITION BECOMES CLEA R AND BEYOND DOUBT WHEN WE REFER TO THE FACTUAL POSITION IN THE APPEAL PREFERRED BY THE REVENUE AGAINST THE DECISION OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PR CIT V. STATE BANK OF PATIALA (2017] 391 1TR 2187245 TAXMAN 273/78 TAXMAN.COM WHICH W AS ALSO DECIDED WITH THE DECISION IN MAXOPP INVESTMENT LTD (SUPRA). IN STATE BANK OF PATIALA (SUPRA) THE ASSESSING OFFICER HAD APPLIED RULE 80 OF THE INCOME TAX RULES 1962, BUT HAD RESTRICTED THE DISALLOWANCE TO THE AMOUNT CLAIMED AS EXEMPT INCOME. THE COM MISSIONER OF INCOME - TAX (APPEALS) HAD ENHANCED AND INCREASED THIS DISALLOWANCE AS PER RULE 80 OF THE INCOME TAX RULES, 1962. THE SAID DISALLOWANCE WAS MORE THAN EXEMPT INCOME. THE TRIBUNAL HAD REVERSED THE FINDING OF THE COMMISSIONER OF INCOME - TAX (APPEALS ) AND RESTORED THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER I.E. RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME. DECISION IN THE CASE OF STATE BANK OF PATIALA (SUPRA) OF THE PUNJAB AND HARYANA HIGH COURT WAS AFFIRMED BY THE SUPREME COURT A S THE CORRECT CONCLUSION, THOUGH THE SUPREME COURT DID NOT AGREE WITH THE REASONING OF THE PUNJAB & HIGH COURT ON THE THEORY DOMINANT INTENTION. IT WAS HELD THAT THE VIEW OF THE COMMISSIONER OF INCOME TAX (APPEALS) DISALLOWING EXPENDITURE BEYOND AND ABOVE THE EXEMPT INCOME EARNED BY APPLYING RULE 80 WAS CLEARLY UNTENABLE AND RIGHTLY REJECTED BY THE TRIBUNAL. 13. WE HAVE BEEN INFORMED THAT SLP PREFERRED BY THE DEPARTMENT AGAINST THE DECISION IN CHETTINAD LOGISTICS (P.) LTD. (SUPRA) HAS BEEN DISMISSED. COUNSE L APPEARING FOR THE RESPONDENT - ASSESSEE HAS SUBMITTED THAT THE SUPREME COWL WHILE DECIDING THE BATCH OF APPEALS IN MAXOPP INVESTMENT LTD. (SUPRA) HAD ALSO HEARD ARGUMENTS AND DECIDED SLP (CIVIL) NO. 2705412016 ARISING FROM THE JUDGMENT OF THE GUJARAT HIGH COWL DATED 16TH FEBRUARY, 2016 IN TAX APPEAL NO. 20612016, PR. CIT V. ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 9 D.B. CORP LTD IN THIS CASE THE GUJARAT HIGH COURT HAD REFUSED TO ADMIT THE APPEAL ON PROPOSED QUESTION NO.2 - WHETHER DISALLOWANCE UNDER SECTION 14A COULD BE MADE WHEN ASSESSEE DURING T HE PARTICULAR ASSESSMENT YEAR HAD NOT EARNED ANY EXEMPT INCOME, OBSERVING THAT THERE WAS NO INFIRMITY IN THE APPROACH ADOPTED BY THE TRIBUNAL WARRANTING INTERFERENCE. THE TRIBUNAL HAD RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE C LAIM OF THE ASSESSEE THAT IT DID NOT CLAIM ANY INCOME TO BE EXEMPT FROM PAYMENT OF INCOME TAX. 6.7 SIMILARLY, THE HON'BLE ITAT, MUMBAI IN THE CASE OF KOTAK SECURITIES LTD (ITA NO. 6666LMUML2015 DATED 19.09.2018) HAS ALSO RELIED UPON THE SAID DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS (SUPRA) WHEREIN THE CASE OF THE SAID ASSESSEE FOR AY 2008 - 09 WAS ALSO ADJUDICATED, TO HOLD THAT THE DISALLOWANCE U/S 14A CANNOT EXCEED THE QUANTUM OF EXEMPT / DIVIDEND INCOME. THE RELEVANT PORTION O F THE DECISION IN THE CASE OF KOTAK SECURITIES LTD IS AS UNDER: '4.6 HOWEVER, IN TERMS OF THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN ACIT VS VIREET INVESTMENT P LTD (82 TAXMANN.COM 415) WE FIND STRENGTH IN THE PLEA OF LD COUNSEL THAT ONLY EX EMPT INCOME YIELDING INVESTMENTS WERE TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S 14A. DRAWING ANALOGY FROM THE DECISION OF HON'BLE SUPREME COURT RENDERED IN MAXOPP INVESTMENT LTD. VS CIT(SUPRA), WE ALSO FIND STRENGTH IN THE PLEA TH AT THE QUANTUM OF DISALLOWANCE COULD NOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE IMPUGNED AY FURTHER, THOSE INVESTMENTS WHICH WERE NOT CAPABLE OF YIELDING ANY EXEMPT INCOME WERE ALSO TO BE EXCLUDED WHILE ARRIVING AT THE DISALLOWANCE. 4.7 KEEPING THE ABOVE PRINCIPLES IN MIND, WE HAVE PERUSED THE NATURE OF INVESTMENTS HELD BY THE ASSESSEE WHICH ARE EXTRACTED AT PAGE 14 OF THE IMPUGNED ORDER. WE FIND THAT THE INVESTMENTS HAVE BEEN CLASSIFIED BY THE ASSESSEE AS STRATEGIC INVESTMENTS, STOCK - IN - TRADE & INVESTMENTS IN OTHER ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 10 SHARES / VENTURE CAPITAL FUND. THE ASSESSEE HAS ALREADY OFFERED SUO - MOTO DISALLOWANCE @ 0.5% AGAINST INVESTMENT IN OTHER SHARES VENTURE CAPITAL FUND AND THEREFORE, THERE IS NO DISPUTE AGAINST HIS CATEGORY OF INVESTMENT. THEREF ORE, THE DISALLOWANCE TINDER DISPUTE IS AGAINST STRATEGIC INVESTMENTS & STOCKS - IN - TRADE, IN THE ABSENCE OF ADEQUATE DATA BEFORE US, WE DIRECT THE LD AO TO COMPUTE DISALLOWANCE @ 0.5% AGAINST STRATEGIC INVESTMENTS & STOCKS - IN - TRADE AFTER EXCLUDING THEREFROM THOSE INVESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING IMPUGNED AY OR WHICH WERE NOT, AT ALL, CAPABLE OF YIELDING ANY EXEMPT INCOME SUBJECT TO A FURTHER CONDITION THAT OVERALL DISALLOWANCE, IN NO CASE, SHALL EXCEED EXEMPT INCOME OF PS 131.46 LA CS EARNED BY THE ASSESSEE DURING THE IMPUGNED A Y THIS GROUND STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER' 6.8 IN VIEW OF THE AFORESAID DISCUSSION THE CONTENTION OF THE ASSESSEE THAT THE DISALLOWANCE U/S 14A SHOULD BE RESTRICTED TO THE QUANTUM OF EXE MPT / DIVIDEND INCOME EARNED DURING THE YEAR, IS ACCEPTED TO BE THE CORRECT POSITION OF LAW. THE AO IS THEREFORE DIRECTED TO RESTRICT THE DISALLOWANCE U/S. 14A TO AN AMOUNT OF RS. 2.855/ - BEING THE EXEMPT/DIVIDEND INCOME EARNED BY THE ASSESSEE DURING THE R ELEVANT YEAR ACCORDINGLY, GROUND NO. 2 OF THE APPEAL IS PARTLY ALLOWED. 6. IT IS APPARENT ON RECORD THAT THE ASSESSEE EARNED THE DIVIDEND INCOME TO THE TUNE OF RS.2,855/ - IN THE RELEVANT ASSESSMENT YEAR. THE CIT(A) HAS RELIED UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF STATE BANK OF PATIALA 99 TAXMANN.COM 285 IN WHICH THE HONBLE SUPREME COURT UPHOLD THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN WHICH THE DISALLOWANCE WAS RESTRICTED TO THE EXEMPT INCOME . THE CIT(A) HAS ALSO C ONSIDERED THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS (P.) LTD. 59 TAXMANN.COM 295 , CHEMINVEST LTD. VS. ITO (2009) 378 ITR 33 (DEL), MAXOPP INVESTEMNT LTD. CIT ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 11 2018 (91 TAXMANN.COM 154) & KOTAK SECURITIES LTD. (ITA. NO.666 6/MUM/2015 DATED 19.09.2018. IN THE SAID CASES, THE EXPENSES TO EARN THE EXEMPT INCOME WAS RESTRICTED TO THE EXTENT OF EXEMPT INCOME. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE. NO LAW CONTRARY TO THE LAW RELIED BY THE LD. REPRESENTATIVE OF THE CIT(A) HAS BEEN PRODUCED BEFORE US. THE FINDING OF THE CIT(A) IS QUITE REASONABLE AND JUSTIFIABLE WHIC H IS NOT LIABLE TO BE INTERFERED WITH AT THIS APPELLATE STAGE. ACCORDINGLY, WE AFFIRM THE FINDING OF THE CIT(A) ON THIS ISSUE AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.2 7 . THE REVENUE HAS CHALLENGED THE ALLOWANCE OF DISALLOWANCE OF RS.1,70,01,211/ - U/S 14A WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. BEFORE GOING FURTHER, WE DEEM IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 7.1 I HAVE CAREFULLY CONSIDERED THE STAND OF THE AO AS PER THE ASSESSMENT ORDER AS WELL AS THE SUBMISSIONS FURNISHED BY THE AR OF THE APPELLANT. THE AO AFTER DETERMINING THE DISALLOWANCE U/S 14A AT RS.1,70,01.211/ - AS PER THE REGUL AR PROVISIONS OF THE I.T. ACT, HAS ALSO PROCEEDED TO ADD THE SAID DISALLOWANCE WHILE COMPUTING THE BOOK PROFIT AS PER 115JB. THE ASSESSEE CONTENDS THAT THIS ACTION OF THE AO IS INCORRECT SINCE IT HAS NOT DEBITED ANY EXPENDITURE IN ITS ACCOUNTS AS RELATED T O EARNING OF EXEMPT INCOME. MOREOVER, THE ASSESSEE HAS PLACED RELIANCE ON A NUMBER OF JUDICIAL DECISIONS. 7.2 WHILE ADJUDICATING THE ISSUE AS TO WHETHER THE DISALLOWANCE COMPUTED U/S 14A AS PER THE REGULAR PROVISIONS OF THE I T ACT CAN BE ADDED WHILE COMPU TING THE BOOK PROFITS AS PER 115JB, THE HON'BLE 'TAT, MUMBAI IN THE CASE OF JSW ENERGY LTD (60 TAXMANN.COM 303), OBSERVED ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 12 THAT IT IS A WELL - SETTLED PROPOSITION OF LAW THAT THE AO DOES NOT HAVE MUCH SCOPE TO TINKER WITH THE ACCOUNTS OF THE ASSESSEE WHICH HA VE BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956 AND WHICH HAVE BEEN APPROVED BY THE REGISTRAR OF COMPANIES. THE HON'BLE ITAT THEREAFTER WENT ON TO HOLD THAT IF THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE RELATING TO THE EARNI NG OT EXEMPT INCOME, THE PROVISIONS OF SECTION 14A CANNOT BE IMPORTED INTO COMPUTATION OF HOOK PROFITS U/S 115JB SINCE CLAUSE (F) OF EXPLANATION TO SECTION 115JB ONLY REFERS TO THOSE AMOUNTS WHICH HAVE BEEN DEBITED BY THE ASSESSEE TO ITS P L ACCOUNT. ACCOR DINGLY, THE HON'BLE ITAT HELD THAT IF NO EXPENDITURE RELATED TO EARNING OF EXEMPT INCOME HAS BEEN DEBITED / CLAIMED BY THE ASSESSEE IN ITS ACCOUNTS, THE DISALLOWANCE COMPUTED U/S 14A CANNOT BE ADDED WHILE COMPUTING THE BOOK PROFITS U/S 11 5J8. THE APPEAL F ILED BY THE DEPARTMENT AGAINST THE DECISION OF THE HON'BLE ITAT IN THE CASE OF JSW ENERGY LTD HAS BEEN DISMISSED BY TANGIBLE JURISDICTIONAL HIGH COURT. 7.3 ON THIS ISSUE, THE SPL BENCH OF ITAT, DELHI VIDE ITS ORDER DATED 16.06.2017 IN THE CASE OF VIREET IN VESTMENTS P LTD (82 TAXMANN.COM 415) AFTER CONSIDERING THE VARIOUS DECISIONS ON THIS ISSUE HAS ALSO TAKEN A SIMILAR VIEW THAT DISALLOWANCE U/S 14 - A CANNOT BE ADDED WHILE COMPUTING THE BOOK PROFITS U/S 115,15. THIS VIEW HAS ALSO BEEN TAKEN BY THE HONBLE DE LHI HIGH COURT 'IN THE CASE OF BHUSHAN STEEL LTD IN ITA. NO.593/2014. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HONBLE DELHI HIGH SPL BENCH ITAT DELHI AND THE DECISION OF (TAT. MUMBAI WHEREIN THE APPEAL OF THE DEPARTMENT HAS BEEN DISMISSED, THE CONT ENTION OF THE ASSESSEE THAT THE DISALLOWANCE MADE U/S 14A CANNOT BE CONSIDERED WHILE COMPUTING THE BOOK PROFITS U/S 115JB IS ACCEPTED ACCORDINGLY, THE ADDITION MADE BY THE AO OF THE DISALLOWANCE U/S 14A WHILE COMPUTING THE BOOK PROFITS U/S 115JB, IS DELETE D. ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 13 8 . ON APPRAISAL OF THE ABOVE MENTIONED FINDING, WE FIND THAT THE ISSUE HAS BEEN DECIDED BY THE CIT(A) ON THE BASIS OF THE DECISION IN THE CASE OF VIREET INVESTMENTS PVT. LTD. 82 TAXMANN.COM 415 AND BHUSHAN STEEL LTD. IN ITA. NO.593/2015. NO LAW CONTRA RY TO THE LAW RELIED BY THE LD. REPRESENTATIVE OF THE CIT(A) HAS BEEN PRODUCED BEFORE US. NO DISALLOWANCE U/S 14A R.W. RULE 8D IS REQUIRED WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. THE FACTS A R E NOT DISTINGUISHABLE AT THIS STAGE. THE ISSUE HAS SQUARELY COVERED BY THE DECISION IN CASE OF VIREET INVESTMENTS PVT. LTD. (SUPRA), BHUSHAN STEEL LTD. (SUPRA) , THEREFORE, WE ARE OF THE VIEW THAT THE FINDING OF THE CIT(A) IS QUITE JUSTIFIABLE WHICH IS NOT LIABLE TO BE INTERFERED WITH AT THIS APPELLATE STAG E. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ITA. NO. 5294 /M UM /201 9 9. THE ASSESSEE HA S FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 20 . 06 .201 9 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 5 2 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2016 - 1 7 . 10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN MAKING AN ADDITION OF RS.2,15,31,160/ - ON ACCOUNT OF ALLEGED NOTIONAL ANNUAL LETTING VALUE OF UNSOLD FLAT HELD AS STOCK IN TRADE, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTA NCES OF THE CASE. ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 14 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN BRINGING TO TAX NOTIONAL ANNUAL LETTING VALUE OF UNSOLD FLATS HELD AS STOCK IN TRADE, U NDER THE HEAD 'INCOME FROM HOUSE PROPERTY', IN TERMS OF SECTION 22 R.W.S. 23 OF INCOME TAX ACT, 1961, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE THE SAID GROUND OF APPEAL. 11 . THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE FACTS OF THE CASE MENTIONED ABOVE BEARING ITA. NO.6102/MUM/2019, THEREFORE, THERE IS NO NEED TO REPEAT THE SAME. ISSUE NOS. 1 & 2 12. ISSUE NOS. 1 & 2 ARE INTER - CONNECTED, THEREFORE, ARE BEING TAKEN UP T OGETHER FOR ADJUDICATION. IN BRIEF, THE ASSESSEE RAISED THE ISSUE ON ACCOUNT OF CONFIRMATION OF TREATING THE INCOME IN SUM OF RS. 2,15,31,160/ - ON ACCOUNT OF ALLEGED NOTIONAL ANNUAL LETTING VALUE OF UNSOLD FLAT HELD AS STOCK - IN - TRADE UNDER THE HEAD OF INCOM E OF HOUSE PROPERTY . THE AO ASSESSED THE ANN UAL LETTING VALUE AS PER SECTION 22 & 23 OF THE ACT BY TREATING THE SAME AS INCOME FROM HOUSE PROPERTY. THE CIT(A) HAS CONFIRMED THE SAME. IT IS ON RECORD THAT THE FINISHED UNSOLD PROPERTY WORTH TO THE TUNE OF RS . 13,94,11,423/ - HAS BEEN SHOWN AS STOCK - IN - TRADE IN BOOKS OF ACCOUNTS. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ISSUE HAS SQUARELY BEEN COVERED BY THE SISTER CONCERN CASE TITLED AS RUNWAL BUILDERS PVT. LTD. VS. ACIT - CC - 4(1), MUMBAI ITA. N O.5409/MUM/2016 ON 22.02.2018. THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE DECISION OF CIT VS. NEHA BUILDERS PVT. LTD. 296 ITR 661 ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 15 GUJARAT HIGH COURT. THE ASSESSEE WAS CARRYING OUT THE BUSINESS OF CONSTRUCTION AND WAS A BUILDER AND DEVELOPER OF PROJECT IN THE CASE OF SISTER CONCERN TITLED AS RUNWAL BUILDERS PVT. LTD. VS. ACIT - CC - 4(1), MUMBAI ITA. NO.5409/MUM/2016 ON 22.02.2018. THE RELEVANT FINDING IS HEREBY AS UNDER.: - 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BEL OW 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 VARIOUS 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 INCOME FROM HOUSE PROPERTY AND COMPUTED NOTIONAL ANNUA L LETTING VALUE ON SUCH UNSOLD FLATS PLACING RELIANCE ON THE DECISION IN THE CASE OF ANSAL 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 RENTAL INCOME RECEIVED FROM ANY PROPERTY IN THE CONSTRUCTION BUSINESS CAN BE CLAIMED UNDER THE HEAD INCOME FROM PROPERTY EVEN THOUGH THE SAID PROPERTY WAS INCLUDED IN THE CLOSING STOCK. THE HON'BLE GUJAR AT HIGH COURT HELD THAT IF THE BUSINESS OF THE ASSESSEE IS TO CONSTRUCT THE PROPERTY 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 ST OCK IN TRADE AND ANY INCOME DERIVED FROM SUCH STOCKS CANNOT BE TERMED AS INCOME FROM HOUSE PROPERTY. WHILE HOLDING SO THE HON'BLE HIGH COURT OBSERVED AS UNDER: - ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 16 8. TRUE IT IS, THAT INCOME DERIVED FROM THE PROPERTY WOULD ALWAYS BE TERMED AS 'INCOME' FROM THE PROPERTY, BUT IF THE PROPERTY IS USED AS 'STOCK - IN - TRADE', THEN THE SAID PROPERTY WOULD BECOME 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 B USINESS OF THE ASSESSEE IS TO CONSTRUCT THE PROPERTY 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 INCOME DERIVED FROM SUCH STOCKS CANNOT BE TERMED AS 'INCOME FROM PROPERTY'. EVEN OTHERWISE, IT IS TO BE SEEN THAT THERE WAS DISTINCTION BETWEEN THE 'INCOME FROM BUSINESS' AND 'INCOME FROM PROPERTY' ON ONE SIDE, AND 'ANY INCOME FROM OTHER SOURCES'. THE TRIBUNAL, IN OUR CONSIDERED OPINION, WAS ABSOLUTELY UNJUSTIFIED IN COMPARING THE RENTAL INCOME WITH THE DIVIDEND INCOME ON THE SHARES OR INTEREST INCOME ON THE DEPOSITS. EVEN OTHERWISE, THIS QUESTION WAS NOT RAISED BEFORE THE SUBORDINATE TRIBUNALS AND, ALL OF SUDDEN , THE TRIBUNAL STARTED APPLYING THE ANALOGY. 9. FROM THE STATEMENT OF THE ASSESSEE, IT WOULD CLEARLY 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 GROUND FLOOR, WHIC H 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 SIMILAR ISSUE AS TO WHET HER THE UNSOLD PROPERTY WHICH IS HELD AS STOCK IN TRADE BY THE ASSESSEE CAN BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY BY NOTIONALLY COMPUTING THE ANNUAL LETTING VALUE FROM SUCH PROPERTY AND THE COORDINATE BENCH CONSIDERING THE DECISION OF THE HON'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 SUPREME COURT ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 17 IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT REPORTED 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 JUSTIFICATION IN ESTIMATING RENTAL INCOME FROM THOSE FLATS AND NOTIONALLY COMPUTING ANNUAL LETTING VALUE UNDER SECTION 23 OF THE ACT. WHILE HOLDIN G 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 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 PROPOSITI ON 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 T O 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 LET TING OUT PROPERTIES AND THE RENTAL INCOME RECEIVED WAS SHOWN AS BUSINESS INCOME, 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 SUPR EME COURT HELD THAT SINCE THE ASSESSEE COMPANYS MAIN OBJECT, IS TO ACQUIRE AND HELD PROPERTIES AND TO LET OUT THESE PROPERTIES, THE INCOME EARNED BY LETTING OUT THESE PROPERTIES IS MAIN OBJECTIVE OF THE COMPANY, THEREFORE, RENT RECEIVED FROM THE LETTING O UT OF THE PROPERTIES IS ASSESSABLE AS INCOME FROM BUSINESS. ON THE VERY ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 18 SAME 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. ESTIMATING RENTAL INCOME 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 L ETTING 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. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY ESTIMATING 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 FACT TH AT BOTH ASSESSEES HAVE TREATED THE UNSOLD FLATS AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT AND THE FLATS SOLD BY THEM WERE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. THUS, RESPECTFULLY FOLLOWING THE ABOVE SAID DECISIONS WE HOLD THAT THE UNSOLD FLATS WH ICH ARE STOCK IN TRADE WHEN THEY WERE SOLD THEY ARE ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS WHEN THEY ARE SOLD AND THEREFORE THE AO IS NOT CORRECT IN BRINGING TO TAX NOTIONAL ANNUAL LETTING VALUE IN RESPECT OF THOSE UNSOLD FLATS UNDER THE HEAD IN COME FROM HOUSE PROPERTY. THUS, WE DIRECT THE AO TO DELETE THE ADDITION MADE UNDER SECTION 23 OF THE ACT AS INCOME FROM HOUSE PROPERTY. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEHA BUILDERS PVT. LTD. 296 ITR 661. THE RELEVANT FINDING IS HER EBY AS UNDER.: - 6. WE HAVE HEARD MR. NAIK AT LENGTH. NONE APPEARS FOR THE RESPONDENT DESPITE SERVICE OF NOTICE. ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 19 7. FROM THE ORDER PASSED BY THE LEARNED CIT(A), IT WOULD CLEARLY APPEAR THAT THE CASE OF THE ASSESSEE WAS THAT THE COMPANY WAS INCORPORATED WIT H THE MAIN OBJECT OF PURCHASE, TAKE ON LEASE, OR ACQUIRE BY SALE, OR LET OUT THE BUILDINGS CONSTRUCTED BY THE ASSESSEE. DEVELOPMENT OF LAND OR PROPERTY WOULD ALSO BE ONE OF THE BUSINESSES FOR WHICH THE COMPANY WAS INCORPORATED. 8. TRUE IT IS, THAT INCOME D ERIVED FROM THE PROPERTY WOULD ALWAYS BE TERMED AS INCOME FROM THE PROPERTY, BUT IF THE PROPERTY IS USED AS STOCK - IN - TRADE, THEN THE SAID PROPERTY WOULD BECOME OR PARTAKE THE CHARACTER OF THE STOCK, AND ANY INCOME DERIVED FROM THE STOCK, WOULD BE INCO ME FROM THE BUSINESS, AND NOT INCOME FROM THE PROPERTY. IF THE BUSINESS OF THE ASSESSEE IS TO CONSTRUCT THE PROPERTY 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 INCOME DERIVED FROM SUCH STOCKS CANNOT BE TERMED AS INCOME FROM PROPERTY. EVEN OTHERWISE, IT IS TO BE SEEN THAT THERE WAS DISTINCTION BETWEEN THE INCOME FROM BUSINESS AND INCOME FROM PROPERTY ON ONE SIDE, AND ANY INCOME FROM OTHER SOURCES. THE TRIBUNAL, IN OUR CONSIDERED OPINION, WAS ABSOLUTELY UNJUSTIFIED IN COMPARING THE RENTAL INCOME WITH THE DIVIDEND INCOME ON THE SHARES OR INTEREST INCOME ON THE DEPOSITS. EVEN OTHERWISE, THIS QUESTION W AS NOT RAISED BEFORE THE SUBORDINATE TRIBUNALS AND, ALL OF SUDDEN, THE TRIBUNAL STARTED APPLYING THE ANALOGY. 9. FROM THE STATEMENT OF THE ASSESSEE, IT WOULD CLEARLY 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 GROUND 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. ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 20 10. AGREEI NG WITH THE SUBMISSIONS MADE BY MR. NAIK, LEARNED COUNSEL FOR THE REVENUE, WE HOLD THAT THE TRIBUNAL WAS NOT CORRECT IN GRANTING THE APPEAL OF THE ASSESSEE. 13. THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SISTER CONCERN CASE TITLED AS RUNWAL BUIL DERS PVT. LTD (SUPRA) IN WHICH THE INCOME HAS BEEN ASSESSED AS INCOME FROM BUSINESS IN SIMILAR CIRCUMSTANCES. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEHA BUILDERS PVT. LTD ALSO SPEAKS THE SAME THING IN THE SAME SENSE. IF, THE PROPERTY IS USE D STOCK - IN - TRADE THEN THE SAID PROPERTY WOULD BE BECOME OR PART TAKE THE STOCK. ANY INCOME DERIVED IN STOCK WOULD BE THE INCOME FROM BUSINESS AND NOT THE INCOME FROM THE HOUSE PROPERTY. THE ASSESSEE BUSINESS IS TO CONSTRUCT THE PROPERTY AND TO SELL AND TO CONSTRUCT AND LET OUT THE SAME THEN IT WOULD BE THE INCOME FROM BUSINESS AND ACCORDINGLY LIABLE TO BE TREATED . IN VIEW OF THE SAID DISCUSSION, WE ARE OF THE VIEW THAT THE FINDING OF THE CIT(A) IS NOT CORRECT, HENCE, WE SET ASIDE THE FINDING OF THE CIT(A) A ND DIRECT THE AO TO TREAT THE SAID INCOME AS INCOME FROM THE BUSINESS. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.3 14. ISSUE NO.3 IS FORMAL IN NATURE WHICH IS NOT REQUIRED TO BE ADJUDICATION. ITA NO .6102 /MUM/201 9 5294 /M/20 1 9 A.Y . 201 6 - 1 7 21 1 5 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 06 /0 9 /20 2 1 SD/ - SD/ - ( PRAMOD KUMAR ) (AMARJIT SINGH) / VICE PRESIDENT /JUDICIAL MEMBER MUMBAI; DATED : 06 /0 9 /20 21 V IJAY PAL SINGH / SR. P.S. / COPY OF THE ORDER FORWARDED TO : 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 ) , / ITAT, MUMBAI