AI Insights
The case involves Atharwa Builders and Developers, who appealed against the order of the Pr.CIT-2, Aurangabad, which invoked revisionary powers under section 263 of the Income-tax Act, 1961. The Pr.CIT had found the original assessment order to be erroneous and prejudicial to the interest of the Revenue on several grounds, including the non-inclusion of notional rent from unsold properties and incorrect application of deductions under section 80IB(10). The Tribunal examined each point raised by the Pr.CIT and found that the original assessment was correct, leading to the setting aside of the Pr.CIT's order.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 137707 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 9 month(s) 20 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-02-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
13-02-2023
Assessment Year
2014-2015
Appeal Filed On
24-04-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, ‘A’ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER आयकर अपीऱ सं. / ITA. No.636/PUN/2019 निर्धारण वषा / Assessment Year : 2014-15 Atharwa Builders and Developers Shop No.108, Radhika Arcade, Nupur Cinema Complex, Seven Hills, Town Centre, CIDCO, Aurangabad. PAN: AALFA8629G Vs. ACIT, Circle 3, Aurangabad Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee is directed against the order dated 15.03.2019 passed by the Pr.CIT-2, Aurangabad under section 263 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) in relation to assessment year 2014-15. 2. Briefly stated, the facts of the case are that the assessee is a builder and developer, who filed his return declaring total income of Rs.73,94,651 after claiming deduction u/s 80IB(10) to the tune of Rs.2.20 crore. The assessment was completed u/s 143(3) at the Assessee by Smt. Deepa Khare Revenue by Shri Mirtyunjoy Barnwal Date of hearing 14-02-2023 Date of pronouncement 14-02-2023 ITA No.636/PUN/2019 Atharwa Builders and Developers 2 returned income. Thereafter, the ld. CIT invoked his revisionary power u/s 263 by holding that the assessment order was erroneous and also prejudicial to the interest of Revenue on the following points: (i) Notional rent not charged on property lying in stock- in-trade; (ii) Sale of two flats to one person - Deduction u/s 80IB(10) of the Act to be disallowed in entirety; (iii) Rental income in respect of stock-in-trade ought to have been offered to tax as ‘Income from other sources’ instead of ‘Business income’; and (iv) Interest wrongly claimed as deduction in respect of non-80IB(10) unit. 3. We have heard the rival submissions and perused the relevant material on record. We will espouse the above points raised by the ld. CIT, one by one for consideration and decision. 4. The first point taken note of by the ld. CIT is not offering income in respect of unsold units under the head `Income from house property’. He noted that the value of unsold flats and bungalows in the assessee’s Profit & loss account stood as stock- in-trade at Rs.7.96 crore. No income was offered from such property. He treated such properties lying in stock as deemed to be let out. Rate of 8% was applied to the value of stock-in-trade ITA No.636/PUN/2019 Atharwa Builders and Developers 3 for determining gross rent. After allowing standard deduction at 30%, income from house property was computed at Rs.44,57,996. It was opined that such house property income ought to have been included in the total income. 5. We have heard the rival submissions and gone through the relevant material on record. Indisputably, the assessee has been engaged in the business of development of properties. Certain flats/bungalows were unsold as at the year end. The ld. CIT has canvassed a view that annual letting value of such unsold flats/bungalows lying as stock-in-trade at the end of the year is income chargeable to tax under the head `Income from house property’. Section 22 is the charging section of Chapter IV-C, `Income from house property’, which reads as under:- `The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property".’ (emphasis supplied by us) 6. This section states that the annual value of property (buildings or land appurtenant thereto) held by the assessee as an owner shall be chargeable as `Income from house property’. ITA No.636/PUN/2019 Atharwa Builders and Developers 4 However, an exception has been carved out, which provides that any such property or its part, which is occupied by the assessee for the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax, shall be excluded. Thus, in order to fall in the exclusion clause, the following conditions must be satisfied: i. The property or its part should be occupied by the assessee as an owner. ii. Any business or profession should be carried on by the assessee-owner. iii. Occupation of the property should be for the purpose of business or profession iv. Profits of such business or profession should be chargeable to income-tax. 7. Only when the above four conditions are cumulatively satisfied that the property or its part goes outside the ken of section 22, not requiring computation of the annual letting value therefrom. Let us see if the above conditions are satisfied in the instant case ad seriatim. 8. The first condition is that the property or its part should be occupied by the assessee as an owner. The assessee is engaged in the business of developing buildings. Admittedly, the assessee is owner of the flats/bungalows lying unsold at the year end. Now the question is whether these flats etc. can be said to be ITA No.636/PUN/2019 Atharwa Builders and Developers 5 `occupied’ by the assessee? The term `occupy’ has neither been defined in section 2 (general definitions under the Act) nor section 27 (definitions relating to income from house property). Rather it is defined nowhere in the Act. In such a scenario, we will have to understand its connotation in common parlance. The term `occupation’ (in land law) has been defined in the Oxford Dictionary of Law to mean `the physical possession and control of land’. Thus, occupation of a property means having its physical possession coupled with dominion rather than the physical possession coupled with actual use. Once a property is in physical possession and control of a person, it is said to be in his occupation, even if it is not actually used by him. Adverting to the facts of the extant case, we find that the unsold flats etc. were in the physical possession and control of the assessee. In fact, there is no one other than the assessee having physical possession and control over such flats, thereby making the assessee solely in `occupation’. Thus the first condition is fulfilled as the flats etc. were occupied by the assessee-owner. 9. The second condition is that any business or profession should be carried on by the assessee-owner. Obviously, the ITA No.636/PUN/2019 Atharwa Builders and Developers 6 assessee is engaged in the business of property development and has returned income from such business. 10. The third condition is that the occupation of the property should be for the purpose of business or profession. Crucial words used in the provision linking occupation of property with are `for the purpose of business’. If the property is occupied for the purpose of business, the condition gets satisfied. The expression `for the purpose of business’ is of wide amplitude. To fall within its purport, what is essential is that there should be some nexus of the property with the business. Even remote connection with the business satisfies the test of `for the purpose of business’. Section 37(1) of the Act, granting other deductions, also uses similar expression - `for the purposes of the business or profession’. This has been interpreted to be wider in its scope vis-à-vis the expression `for the purpose of making or earning such income’ as used in section 57(iii), providing deduction under the head `Income from other sources’. Reverting to section 22, we find that the legislature has used a wider expression: `for the purpose of business’ with occupation of the property rather than any narrower expression indicating that the business must be carried on from such property or something like that as a sine qua non ITA No.636/PUN/2019 Atharwa Builders and Developers 7 for exception. If the intention of the legislature had been to provide exception in a limited manner, it would have used a suitable constrained expression. Coming back to the factual scenario prevailing in the instant case, we find that the purpose of occupation of the flats is to hold them from the ready stage to sale stage, which satisfies the test of `for the purpose of business’. 11. The last condition is that profits of such business or profession should be chargeable to income-tax. It is indisputable that the profits of the business of property development by the assessee are chargeable to income-tax. 12. On a bird’s-eye view, we find that that flats/bungalows are occupied by the assessee owner; business of property development is carried on by the assessee; the occupation of the flats etc. is for the purpose of business; and profits of such business are chargeable to income-tax. Ergo, all the four conditions for exclusion from section 22 of the Act are cumulatively satisfied in the present case. 13. The ld. CIT has canvassed a view that the annual letting value of flats/bungalows is income chargeable to tax as `Income from house property’ by relying on CIT VS. Ansal Housing ITA No.636/PUN/2019 Atharwa Builders and Developers 8 Finance and Leasing Company Ltd. (213 Taxman 143). There is no doubt that the Hon’ble Delhi High Court in the above case has held that Annual letting value of unsold flats at the year end is chargeable to tax under the head ‘Income from house property’. At the same time, we find that the Hon’ble Gujarat High Court in CIT Vs. Neha Builders (Pvt.) Ltd. (2008) 296 ITR 661(Guj) has held that income from the properties held as stock in trade can be treated as Income from business and not as `Income from house property. Our attention has been drawn towards certain Tribunal decisions including Cosmopolis Construction, Pune vs. ITO dated 18.06.2018 (ITA NO. 230 & 231/PUN/2018), wherein, after taking note of both the above judgments and finding no judgment available from the Hon’ble jurisdictional High Court, a view has been canvassed in favour of the assessee by holding that no income from house property can result in respect of unsold flats held by a builder at the year-end. Similar view has been reiterated by the Pune Bench of the Tribunal in Mahanagar Constructions VS. ITO (ITA NO.632/PUN/2018) vide its order dated 5.9.2019. 14. At this juncture, it is relevant to mention that the Finance Act, 2017 has inserted sub-section (5) of section 23 w.e.f. 01.04.2018 reading as under:- ITA No.636/PUN/2019 Atharwa Builders and Developers 9 `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 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.’ 15. A close scrutiny of the provision inducted by the Finance Act, 2017, transpires that where a property is held as stock-in- trade which is not let out during the year, its annual value for a period of one year, which was later enhanced by the Finance Act, 2019 to two years, from the end of the financial year in which the completion certificate is received, shall be taken as Nil. The amendment has been carried out w.e.f. 1.4.2018 and the Memorandum explaining the provisions of the Finance Bill also clearly provides that this amendment will take effect from 01.04.2018 and will, accordingly apply in relation to the assessment year 2018-19 and subsequent years. Obviously, it is a prospective amendment. The effect of this amendment is that stock-in-trade of buildings etc. shall be considered for computation of annual value under the head 'Income from house property' after one/two years from the end of the financial year in which the certificate of completion of construction of the property ITA No.636/PUN/2019 Atharwa Builders and Developers 10 is obtained on and from the A.Y. 2018-19. Instantly, we are concerned with the assessment year 2014-15. As such, the amendment cannot apply to the year under consideration. In the absence of the applicability of such an amendment, no income can be said to have accrued to the assessee from unsold flats available as stock-in-trade as per the discussion made hereinabove. We, therefore, vacate the impugned order on this score having the effect that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue requiring any revision u/s 263 of the Act on this count. 16. The second point taken note of by the ld. CIT is that the assessee sold two flats to one person and hence was not entitled to claim deduction u/s 80IB(10). In this regard, the assessee submitted before the ld. CIT that undoubtedly, two flats were sold to Shri Abhijeet Kale on 03.01.2012 in violation of section 80IB(10) (f) of the Act. The assessee agreed for proportionate disallowance pro tanto during the course of proceedings for the assessment year 2012-13. Since such disallowance was made in assessment year 2012-13, it was contended that there was no room for making disallowance in assessment year 2014-15 again. ITA No.636/PUN/2019 Atharwa Builders and Developers 11 17. We have gone through the assessment order dated 22.03.2015 for the assessment year 2012-13, whose copy has been placed at page 35 onwards of the paper book. It can be seen from the order that there is reference to such two flats sold to Shri Abhijeet Kale on 03.01.2012 and also that the assessee agreed for proportionate disallowance u/s 80IB(10)(f) of the Act for sum of Rs.51.28 lacs. The Assessing Officer (AO) made such disallowance while completing the assessment. This deciphers that the disallowance in respect of the above issue, taken note of by the ld. CIT, was duly offered by the assessee during the course of assessment proceedings for the assessment year 2012-13 and the assessment also came to be made accordingly. Once the assessment order for an earlier year has been passed making the addition on this count, there can be no question of making same disallowance during the course of proceedings for the instant assessment year 2014-15 as well. In so far as the view point of the ld. CIT for making disallowance u/s 80IB(10) of the Act in entirety is concerned, we find that the same is not in accordance with law. The Hon’ble Bombay High Court in M/s. Kamat Constructions Pvt. Ltd. vs. ACIT (2020) 429 ITR 609 (Bom) has approved the granting of deduction u/s 80IB(10) on proportionate ITA No.636/PUN/2019 Atharwa Builders and Developers 12 basis. In that view of the matter, the question of denial of deduction u/s 80IB(10) in full on account of violation of certain conditions qua a part of deduction remains no more res integra. We, therefore, hold that the ld. CIT was not justified in revising the order directing the withdrawal of full amount of deduction u/s 80IB(10) instead of proportionate disallowance, more so, when the proportionate disallowance pertained to an earlier year and the same was also made. 18. The third issue taken up by the ld. CIT is that the rental income earned by the assessee amounting to Rs.1,52,000 was shown as income chargeable under the head ‘Profits and gains of business or profession’, which should have been ‘Income from house property’. 19. While discussing the first issue about the notional rent on unsold units lying with the assessee as stock-in-trade, we have abundantly seen that any income anent to stock in trade can be considered only under the head ‘Profits and gains of business or profession’ unless expressly provided otherwise. As such, the view point of the ld. CIT in opining that such income should be considered as house property cannot be sustained. ITA No.636/PUN/2019 Atharwa Builders and Developers 13 20. The last issue for revising the order is that the assessee claimed deduction of interest amounting to Rs.13,99,944 qua Atharwa Vatika project, which was not eligible for deduction u/s 80IB(10), thereby reducing the income of the eligible project. In this respect, the assessee submitted before the ld. CIT that the Atharwa Project was started in the year 2010 after taking loan of Rs.2.50 crore from Deogiri Nagari Sahakari Bank Ltd on 13.08.2010. The money borrowed was utilized in Atharwa project only, hence interest pertaining to such project was also debited to the Profit & loss account of this project only. The ld. CIT still opined that the assessment order, granting deduction of Rs.13.99 lacs against non eligible units, was erroneous and prejudicial to the interest of Revenue. 21. Having heard the rival contentions and perused the material on record, it is seen that the assessee made a consolidated Profit & loss account and also separate Profit & loss account of 80IB(10) unit. No deduction of interest amounting to Rs.13.99 lac was claimed in the eligible unit, though such deduction was there in consolidated Profit & Loss account. This shows that such deduction was claimed only against the income of non-eligible units. The assessee furnished copious details before the ld. CIT to ITA No.636/PUN/2019 Atharwa Builders and Developers 14 demonstrate that the loan of Rs.2.50 crore was taken only against Atharwa Vatika project on which the interest of Rs.13.99 lacs was paid and debited to the Profit & loss account of this project only. The ld. CIT did not find anything amiss in such averments and details, but, still went ahead with his own view. As the interest of Rs.13,99,944 pertained to Atharwa Vatika project [non 80IB(10) unit], there was no rationale in putting such interest – fully or partly- in Profit & loss account of the eligible unit. We, therefore, hold that the ld. CIT was not justified on this count also. 22. It is evident from the above discussion that all the four points on which the ld. CIT held the assessment order to be erroneous and prejudicial to the interest of Revenue, do not call for any interference in the revisionary proceedings u/s 263 of the Act. We, therefore, set aside the impugned order. 23. In the result, the appeal is allowed. Order pronounced in the Open Court on 14 th February, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 14 th February, 2023 GCVSR ITA No.636/PUN/2019 Atharwa Builders and Developers 15 आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. DR, ITAT, ‘A’ Bench, Pune ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 14-02-2023 Sr.PS 2. Draft placed before author 14-02-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *
Other Referred Cases
CIT VS. Ansal Housing Finance and Leasing Company Ltd. (213 Taxman 143), CIT Vs. Neha Builders (Pvt.) Ltd. (2008) 296 ITR 661(Guj), Cosmopolis Construction, Pune vs. ITO dated 18.06.2018 (ITA NO. 230 & 231/PUN/2018), Mahanagar Constructions VS. ITO (ITA NO.632/PUN/2018) dated 5.9.2019, M/s. Kamat Constructions Pvt. Ltd. vs. ACIT (2020) 429 ITR 609 (Bom)
Laws Referred To
Income-tax Act, 1961
1:1 Consultation on Salary Structuring
₹1
1:1 Consultation on Tax Litigation
₹0
1:1 Consultation on Business Valuations
₹1
Form AOC-2 - Disclosure of Related Party Transaction
Mehul₹50
Assignment of Registered Trademark
Mehul₹500
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