RAMESH R. PAREKH, MUMBAI V. DCIT 7(3)(1), MUMBAI

ITA 726/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3733 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 02-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: RAVINDRA SUVARNA
• Keywords: Business income; Competent authority

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 726 / MUM/20 17 ( ASSESSMENT YEAR : 2012 - 13 ) SHRI RAMESH R. PAREKH A - 502, SWAPNALOK, DIXIT ROAD, VILE PARLE (E) MUMBAI 400 057 VS. D CIT 7(3)(1) MUMBAI PAN/GIR NO. AGPPO473M APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI RAVINDRA SUVARNA REVENUE BY SHRI CHAITANYA ANJARIA DATE OF HEARING 06 / 08 /201 8 DATE OF PRONOUNCEMENT 13 / 08 /201 8 / 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) - 13, MUMBAI DATED 18/10/2016 FOR A.Y.2012 - 13 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. THE ONLY GRIEVANCE OF ASSESSEE RELATES TO MAKING ADDITION AFTER HAVING 8% OF THE UNSOLD FLAT AS INCOME FROM HOUSE PROPERTY. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT ASSESSEE IS A REAL ESTATE DEVELOPER. AT THE END OF THE YEAR, ASSESSEE HAD SOME UNSOLD FLA T S IN HIS PROJECT. WHILE MAKING ASSESSMENT, AO HAS TAKEN 8% OF THE COST OF UNSOLD FLAT S AS ITA NO. 726/MUM/2017 SHRI RAMESH R. PAREKH 2 INCOME FROM HOUSE PROPERTY. IT WAS CONTENTION OF LEARNED AR THAT ASSESSEE HAS NOT OBTAINED ACCOMMODATION CERTIFICATE FOR THE SAID FLATS AS THE PROJECT WAS NOT COMPLE TED AND WORK WAS IN PROGRESS, WHICH MEANS THE FLATS WERE NOT FIT FOR OCCUPATION AND EVEN THE ELECTRICITY POINTS WERE NOT AVAILABLE. HOWEVER, AO DID NOT AGREE WITH THE ASSESSEES CONTENTION AND MADE ADDITION MADE TAKING 8% OF THE COST OF UNSOLD FLAT AS INCO ME FROM HOUSE PROPERTY. 5. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF THE AO. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW A ND FOUND THAT ASSESSEE WAS HAVING FLATS AS STOCK IN TRADE, IN SO FAR AS ASSESSEE WAS ENGAGED IN BUSINESS OF BUILDER AND DEVELOPER. NO OCCUPANCY CERTIFICATE WAS OBTAINED DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THE SAME WAS OBTAINED BY LETTER DATED 04/09/2015. BOMBAY TRIBUNAL CASE OF C.R. DEVELOPMENTS PVT LTD VS JOINT COMMISSIONER OF INCOME TAX REF ITA NO 4277/MUM/2012 HELD THAT NO ADDITIONS U/S 23 AS RENTAL INCOME SHOULD BE MADE, BUT TO TREAT THE SAME AS BUSINESS INCOME ONLY AS SHOWN IN THE AUDITED ACCOUNTS AND BALANCE SHEET. THE LEARNED CIT (A) - 13 OUGHT NOT T O HAVE ADDED THE AMOUNT OF RS. 1, 37,787/ - I.E. (10, 53,981 - 30% OF 10, 53,981) AS INCOME FROM HOUSE PROPERTY. THE ACTION OF THE LEARNED ITO OF MAKING THE ADDITION UNDER INCOME FROM HOUSE PROPERTY AMOUNTS TO DOUBLE DISALLOWANCE AS THE SAME AMOUNT OF CLOSIN G STOCK OF RS. 1,31,74,687/ - IS ITA NO. 726/MUM/2017 SHRI RAMESH R. PAREKH 3 ALREADY SHOWN IN BUSINESS INCOME BY CREDIT TO THE PROFIT & LOSS ACCOUNT AND TAXES PAID ACCORDINGLY. 7. PRECISE OBSERVATION OF THE TRIBUNAL IN THE CASE OF RUNWAL CONSTRUCTIONS & RUNWAL BUILDERS DATED 22/02/2018 WAS AS UNDER: - 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 CONSTRU CTED 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 PROPER TY ASSESSABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AND COMPUTED NOTIONAL ANNUAL 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 T HE 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 PROPERT Y' EVEN THOUGH THE SAID PROPERTY WAS INCLUDED IN THE CLOSING STOCK. THE HON'BLE GUJARAT 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 STOCK 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: - '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 S TOCK, WOULD BE 'INCOME' 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 'I NCOME FROM PROPERTY' ON ONE SIDE, AND 'ANY ITA NO. 726/MUM/2017 SHRI RAMESH R. PAREKH 4 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 OTHERW ISE, 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, 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 - I N - TRADE'.' 9. SIMILARLY THE COORDINATE BENCH HAS CONSIDERED SIMILAR ISSUE AS TO WHETHER 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 LETTI NG 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 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 JUSTIFI CATION IN ESTIMATING RENTAL INCOME FROM THOSE FLATS AND NOTIONALLY COMPUTING ANNUAL LETTING VALUE UNDER SECTION 23 OF THE ACT. WHILE HOLDING SO THE COORDINATE BENCH OBSERVED AS UNDER: - '3. THE LD. AR P LACED 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 HON'BLE DELHI HIGH COURT IN THE CASE OF ANSAL HOUSING FINANCE & LEASING CO. LTD., 354 ITR 180 (DELHI) IN SUPPORT OF THE PROPOSITION THAT E VEN 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 & 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 P ROPERTIES 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 HON'BLE SUPREME COURT HELD THAT SINCE ITA NO. 726/MUM/2017 SHRI RAMESH R. PAREKH 5 THE ASSESSEE COMPANY'S 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 OUT OF THE PROPERTIES IS ASSESSABLE AS INCOME FROM BUSINESS. ON THE VERY 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 EN D 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 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 WHIC H IS ASSESSEE'S 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 THAT BOTH ASSE SSEES 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 WHICH ARE STOC K 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 'INCOME FROM H OUSE PROPERTY'. THUS, WE DIRECT THE AO TO DELETE THE ADDITION MADE UNDER SECTION 23 OF THE ACT AS INCOME FROM HOUSE PROPERTY. 8. AS THE FACTS AND CIRCUMSTANCES IN THE INSTANT CASE IS PERIMATERIA TO THAT OF THE DECISION OF RUNWAL CONSTRUCTIONS & RUNWAL BUILDERS AS WELL AS OTHER DECISIONS REFERRED IN THAT CASE, WE DO NOT FIND ANY MERIT FOR MAKING ADDITION IN RESPECT OF FLATS HELD BY THE ASSESSEE AS STOCK IN TRADE AND FOR WHICH NO OCCUPATION CERTIFICATE WAS GIVEN BY THE COMPETENT AUTHORITY DURING THE YEAR UNDER CONSIDERATION. ITA NO. 726/MUM/2017 SHRI RAMESH R. PAREKH 6 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 / 08 /201 8 SD/ - ( SANDEEP GOSAIN ) SD/ - (R.C.SH ARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 13 / 08 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED 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//