KANAKIA SPACES PRIVATE LIMITED, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX-CENTRAL CIRCLE 4(1), MUMBAI

ITA 7288/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3362 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 22-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Additional evidence; Wholly owned subsidiary; Competent authority; Set aside
• Section: 143(3)

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL H BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 7288/MUM/2017 (ASSESSMENT YEAR 2013-14 ) ITA NO. 7289/MUM/2017 (ASSESSMENT YEAR 2014-15 ) M/S KANAKIA SPACES PVT. LTD., 215 ATRIUM, 10 TH FLOOR, NEAR MARRIOT COURTYARD HOTEL, ANDHERI-KURLA ROAD, ANDHERI (E), MUMBAI-400093 . PAN: AAACK2629J VS. DCIT CENTRAL CIRCLE- 4(1) AIR INDIA BUILDING, 19 TH FLOOR, NARIMAN POINT, MUMBAI-21. APPELLANT RESPONDE NT ITA NO. 209/MUM/2018 (ASSESSMENT YEAR 2013-14 ) ITA NO. 210/MUM/2018 (ASSESSMENT YEAR 2014-15 ) DCIT CENTRAL CIRCLE- 4(1) AIR INDIA BUILDING, 19 TH FLOOR, NARIMAN POINT, MUMBAI-21. VS. M/S KANAKIA SPACES PVT. LTD., 215 ATRIUM, 10 TH FLOOR, NEAR MARRIOT COURTYARD HOTEL, ANDHERI-KURLA ROAD, ANDHERI (E), MUMBAI-400059 . PAN: AAACK2629J APPELLANT RESPONDE NT APPELLANT BY : SHRI VIJAY MEHTA WITH SHRI GOVIND JAVERI (AR) RESPONDENT BY : SHRI SAURABH KUMAR RAI ( SR. DR) DATE OF HEARING : 16.04.2019 DATE OF PRONOUNCEMEN T : 23.04.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 2 1. THIS GROUP OF FOUR APPEALS OUT OF WHICH TWO CROSS A PPEAL FOR ASSESSMENT YEAR 2013-14 AND SIMILARLY TWO CROSS APPEAL FOR ASS ESSMENT YEAR 2014- 15 ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 0 4.10.2017 PASSED BY LD. COMMISSIONER OF INCOME-TAX (APPEALS)-52, HEREIN AFTER REFERRED AS LD CIT (A), MUMBAI. THE ASSESSEE IN APPEAL FOR BOTH TH E YEARS HAS RAISED THE IDENTICAL GROUNDS OF APPEAL FOR ADDING THE ANNU AL LETTING VALUE (ALV) OF UNSOLD UNIT UNDER THE HEAD INCOME FROM HOU SE PROPERTY. SIMILARLY, THE REVENUE HAS RAISED IDENTICAL GROUND OF APPEAL FOR BOTH THE YEARS IN DELETING THE INTEREST EXPENDITURE UNDER SE CTION 36(I)(III). AS ASSESSEE AS WELL AS REVENUE HAS RAISED IDENTICAL GR OUNDS OF APPEAL IN THEIR RESPECTIVE APPEALS, THEREFORE, ALL THE APPEALS WERE CLUBBED HEARD AND ARE DECIDED BY COMMON ORDER FOR THE SAKE OF CONVENIENCE . FOR APPRECIATION OF FACTS, THE APPEALS FOR ASSESSMENT YEAR 2013-14 A RE TREATED AS LEAD CASE. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. THE LEARNED COMMISSIONER OF INCOME TAX APPEAL-52, E RRED IN LAW & ON FACTS IN CONFIRMING ORDER OF THE ASSESSING OFFICER IN ADDING THE ALV OF THE UNSOLD UNITS WHICH CONSTITUTES STOCK IN TRADE OF TH E APPELLANT AS INCOME FROM HOUSE PROPERTY U/S 22 OF THE INCOME TAX ACT, 1961. 2. THE APPELLANT PRAYS THAT THE ORDER PASSED U/S. 143( 3) ADDING SUM OF RS. 1,10,11,692/- AS ALV OF THE UNSOLD UNITS UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS BAD IN LAW & SHOULD BE QUASHED. 2. THE REVENUE IN ITS CROSS APPEAL HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTERE ST EXPENDITURE OF RS. ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 3 2,23,67,733/- U/S 36(1)(III) OF THE ACT, WHEN THE A SSESSEE FAILED TO PROVE THAT THE INTEREST PAID HAS BEEN UTILIZED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION, BUILDER AND DEVELOPER OF PROJECTS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2013 -14 ON 28.09.2013 DECLARING INCOME OF RS. 15 CRORE (APPROX). THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED UNDER SECTION 143(3) ON 31.03.2016. THE ASSESSEE IN THE RETURN OF INCOME HAS OFFERED INCOME EARNED ON SALE OF FLATS/ UNITS IN DIFFERENT PROJECTS. THE UNSOLD FLATS/UNITS IN VARIOUS PROJECTS WERE SHOWN AS STOCK -IN-TRADE. THE ASSESSING OFFICER PREPAID THE SUMMARY OF UNSOLD UNI T IN DIFFERENT PROJECT IN THE FOLLOWING MANNER: S.NO. NAME OF THE PROJECTS LOCALITY NO OF UNITS AREA IN SQ FEET 1 WESTERN EDGE I BORIVALI EAST 1 8227 2 WESTERN EDGE II BORIVALI EAST 16 22800 3 351 ICON ANDHERI EAST 8 10449 4 CHALLENGER THAKUR VILLAGE, ANDHERI- DAHISAR 4 3950 5 EDEN ROSE MIRA ROAD 8 3600 6 PERIWINKLE MIRA ROAD 3 800 7 MARY GOLD MIRA ROAD 7 5600 8 PORWAL TOWER MIRA ROAD 6 3450 9 SANSKRUTI SHOP MIRA ROAD 2 530 10 ANANTA MIRA ROAD 2 986 11 COUNTRY PARK III BORIVALI 1 1152 12 CINE WONDER THANE 1 190 13 NIHARIKA THANE 3 3090 4. THE ASSESSING OFFICER ISSUED SHOW-CAUSE NOTICE TO T HE ASSESSEE AS TO WHY THE ALV OF SUCH UNITS/FLATS BE NOT TREATED AS INCO ME FROM HOUSE ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 4 PROPERTY. THE ASSESSEE FILED ITS REPLY DATED 19.01 .2015. IN THE REPLY, THE ASSESSEE STATED THAT THEY ARE IN THE BUSINESS OF R EAL ESTATE DEVELOPMENT, DURING THE COURSE OF BUSINESS THEY CONSTRUCTED / DE VELOPED A NUMBER PROJECTS. THE DIFFERENT UNITS ARE SOLD DURING THE C ONSTRUCTION OR AFTER COMPLETION OF PROJECT AND THE INCOME FROM THOSE UNI TS ARE OFFERED FOR TAX. THE UNIT LYING UNSOLD AND VACANT IS TREATED AS CLOS ING STOCK AS SHOWN IN THE TRADE OF ASSESSEE. THE INCOME OF SALE OF UNSOLD UNIT IS ALSO SHOWN UNDER THE HEAD BUSINESS INCOME. THE STOCK-IN-TRAD E CONSTITUTES THE BUSINESS ASSET OF THE ASSESSEE AND NO NOTIONAL ALV CAN BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN RESPECT OF SUCH UNSOLD UNIT. THE ASSESSEE AGAIN FILED ITS REPLY DATED 19.01.2016 AND STATED THAT INCOME IN RESPECT OF SALE OF UNIT IS OFFERED UNDER THE HEA D INCOME FROM BUSINESS AND PROFESSION. THEY NEVER HAVE INTENTION TO HOLD THE PREMISES AS INVESTMENT AND TO EARN RENTAL INCOME. WHEN THERE WA S INTENTION TO EARN RENTAL INCOME FROM THE PREMISES CONSTRUCTED, THE AS SESSEE-COMPANY HAS ALREADY TRANSFERRED THE PREMISES ON LEASE TO INVEST MENT ACCOUNT AT COST. THE INCOME TAX IS LEVIABLE ON THE INCOME EARNED OR RECEIVED AND NOT ON ANY NOTIONAL CALCULATIONS. THE ASSESSEE-COMPANY HOL DING THE UNITS/PREMISES AS STOCK-IN-TRADE TO EARN BUSINESS I NCOME. THERE IS NO INTENTION ON THE PART OF ASSESSEE-COMPANY TO EARN R ENTAL INCOME OF THOSE UNSOLD UNITS. THUS, THE SAME CANNOT BE TAXED ON THE BASIS OF NOTIONAL ALV BECAUSE THE ASSESSEE-COMPANY IS IN OCCUPATION IN TH E COURSE OF THEIR ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 5 BUSINESS. THE CONTENTION OF ASSESSEE WAS NOT ACCEPT ED BY ASSESSING OFFICER. THE ASSESSING OFFICER BY RELYING ON THE DE CISION OF HONBLE DELHI HIGH COURT IN ANSAL HOUSING FINANCE AND LEASI NG COMPANY LTD. (344 ITR 180 (DEL) CONCLUDED THAT ALV OF FINISHED G OODS/UNITS HELD BY ASSESSEE AT CLOSING STOCK HAS TO BE TREATED AS INC OME FROM HOUSE PROPERTY. THE ASSESSING OFFICER WORKED OUT THE ALV OF UNSOLD UNITS AT RS. 1,57,30,988/- AND AFTER GRANTING 30% DEDUCTION OF RS. 47,19,296/- TREATED THE REMAINING OF RS. 1,10,11,692/- AS INCO ME FROM HOUSE PROPERTY. 5. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAS TAKEN HUGE UNSECURED LOAN AND ALSO GIVEN LOAN AND ADVANCES. TH E ASSESSEE ALSO CLAIMED INTEREST EXPENDITURE OF RS. 85.69 CRORE ON UNSECURED LOAN AGAINST THE INTEREST INCOME OF RS. 68.58 CRORE ON LOAN AND ADVANCES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE BUSINESS PURPOSE OF VARIOUS LOANS AND ADVANCES AND ISSUED SHOW-CAUSE NO TICE AS TO WHY THE INTEREST EXPENDITURE PROPORTIONATE TO THE INTEREST FREE LOAN BE DISALLOWED. THE ASSESSEE FILED ITS REPLY DATED 19.01.2016. IN T HE REPLY, THE ASSESSEE ENCLOSED CHART SHOWING DETAILED OF NON-INTEREST BEA RING LOAN AND OWN FUNDS AVAILABLE AND NON-INTEREST BEARING LOAN GIVEN TO VA RIOUS PARTIES. ON THE BASIS OF THE DETAILS IT WAS FURTHER STATED THAT THA T ASSESSEES OWN FUNDS AND NON-INTEREST BEARING LOANS ARE RS. 245.42 CRORE AGA INST WHICH NON-INTEREST BEARING LOAN/ADVANCES OF RS. 151.6 CRORE. THE ASSES SEE FURTHER CONTENDED ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 6 THAT OUT OF RS. 151.6 CRORE, THE ASSESSEE HAS MADE ADVANCES OF RS. 50.74 CRORE IS TOWARDS THE LOAN/ADVANCES TO CREDITORS. TH E ASSESSEE IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT, LOAN BEING STO CK-IN-TRADE FOR THE ASSESSEE; THE SAID ADVANCES ARE IN THE NATURE OF TR ADE ADVANCES AND FOR THE PURPOSE OF BUSINESS. THUS, THE INTEREST ON SUCH ADV ANCES BEING IN THE NATURE OF BUSINESS, ADVANCES CANNOT BE DISALLOWED ON NOTIO NAL BASIS. FOR FURTHER INTEREST FREE LOAN OF RS. 100.32 CRORE, THE ASSESSE E FURNISHED DETAILED OF NON-INTEREST BEARING LOANS. THE ASSESSEE HAS GIVEN INTEREST FREE LOAN OF RS. 80.78 CRORE TO WHOLLY OWNED SUBSIDIARY AND RS. 6.37 CRORE TO ITS ASSOCIATE CONCERN AND BALANCE OF RS. 13.17 CRORE IS GIVEN AS INTEREST FREE FRIENDLY LOAN. THE MAIN OBJECT OF SUBSIDIARY COMPANIES AND A SSOCIATE CONCERN IS ALSO OF REAL ESTATE DEVELOPMENT. THUS, ON ACCOUNT O F BUSINESS EXPEDIENCY, INTEREST CANNOT BE DISALLOWED ON NOTIONAL BASIS ON WHICH INTEREST FREE LOAN GIVEN. THE SUBMISSION OF ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER BY TAKING VIEW THAT ASSESSEE HAS GIVEN SEVERAL INTE REST FREE LOANS AND ADVANCES, ALL LOANS AND ADVANCES ARE FORWARDED FROM EARLIER YEARS AND THEY HAVE BEEN NO TRANSFER OF PAYMENTS DURING THE YEAR A ND HAVE BEEN CARRIED FORWARD FOR NEXT YEARS. THE ASSESSING OFFICER RECOR DED SUCH FRIENDLY LOANS IN PARA-4.5 OF HIS ORDER. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS GIVEN INTEREST FREE LOANS AND ADVANCES , THE OUTSTANDING OF WHICH AT THE END OF YEAR WAS RS. 13.77 CRORE. THE A SSESSEE HAVE BORROWED THE FUND FROM VARIOUS SOURCES AND CLAIMED EXPENDITU RE OF RS. 86.69 CRORE ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 7 AFTER CONSIDERING THE INTEREST RECEIVED DURING THE YEAR, THE NET OUTGO ON INTEREST IS RS. 17.11 CRORE. THE ASSESSING OFFICER FURTHER TOOK HIS VIEW THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY COMMERCI AL EXPEDIENCY FOR ADVANCING INTEREST FREE FRIENDLY LOAN. THE ASSESSEE HAS PAID INTEREST RANGING FROM 9% TO 21%. THE ASSESSING OFFICER WORKED OUT 17 % INTEREST ON FRIENDLY LOAN AND THEREBY DISALLOWED RS. 2.35 CRORE UNDER SECTION 326(1)(III). 6. ON APPEAL BEFORE THE LD. CIT(A), THE ADDITION ON AC COUNT OF ALV OF UNSOLD UNIT WAS UPHELD. HOWEVER, THE ADDITION ON ACCOUNT O F DISALLOWANCE UNDER SECTION 36(1)(III) WAS DELETED. THUS, AGGRIEVED BY THE ORDER OF LD. CIT(A), BOTH THE PARTIES HAVE FILED THEIR RESPECTIVE CROSS APPEALS BY RAISING THE GROUNDS OF APPEAL WHICH WE HAVE REFERRED ABOVE. 7. WE HAVE HEARD THE SUBMISSIONS OF THE LD. AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BEL OW. IN SUPPORT OF GROUND OF APPEAL, THE LD. AR OF THE ASSESSEE SUBMIT S THAT THE ASSESSEE IS A BUILDER AND DEVELOPER, THE ASSESSEE HAS SHOWN THE U NSOLD UNIT AS STOCK-IN- TRADE AND THE INCOME DERIVED FROM SUCH STOCK-IN-TRA DE CANNOT BE TERMED AS INCOME FROM HOUSE PROPERTY. THE LD. AR OF THE AS SESSEE FURTHER SUBMITS THAT THE ASSESSING OFFICER RELIED ON THE DE CISION OF DELHI HIGH COURT IN ANSAL HOUSING FINANCE AND LEASING LTD (SUP RA) AND THERE IS CONTRARY DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF NEHA BUILDERS ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 8 PVT. LTD. (296 ITR 661) WHEREIN IT WAS HELD THAT TH E UNSOLD UNIT CANNOT BE TAXED ON THE BASIS OF NOTIONAL ALV. IT WAS ARGUED B Y LD LD AR FOR THE ASSESSEE THAT THERE IS NO DECISION OF JURISDICTIONA L HIGH COURT, THEREFORE, THE ASSESSEE IS ENTITLED FOR THE BENEFIT OF THE DEC ISION FAVORABLE TO THE ASSESSEE. THE LD. AR OF THE ASSESSEE FURTHER SUBMIT S THAT IN ASSESSEES GROUP CASE IN SARANG PROPERTY DEVELOPERS PVT. LTD. IN ITA NO. 5620/MUM/2016) AND IN ASSESSEES OWN CASE FOR ASSES SMENT YEAR 2012- 13 IN ITA NO. 6686/MUM/2016 DATED 31.10.2018 SIMILA R ADDITION/DISALLOWANCE WAS DELETED. THE LD. AR OF TH E ASSESSEE FURTHER RELIED UPON THE OTHER DECISION OF TRIBUNAL IN ACIT VS. HAWARE CONSTRUCTION (P.) LTD. [2019] 101 TAXMANN.COM 168, COSMOSPOLIS CONSTRUCTION VS. ITO IN ITA NOS. 230 & 231/PUN/2018 DATED 12.09.2018, C.R.DEVELOPMENTS P. LTD. VS. JCIT IN ITA NO. 4277/M UM/2012 DATED 13.05.2015, RUNWAL CONSTRUCTIONS VS. ACIT AND VICE VERSA IN ITA NOS. 5408/MUM/2016 AND 5409/MUM/2016 DATED 22.02.2018, I TO VS. ARIHANT ESTATES PVT. LTD. IN ITA NO. 6037/MUM/2016 DATED 27 .06.2018. 8. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPOR TED THE ORDER OF THE LOWER AUTHORITIES. THE LD. DR FOR THE REVENUE ALSO RELIED ON THE DECISION OF DELHI HIGH COURT IN ANSAL HOUSING FINANCE AND LEASI NG LTD (SUPRA). 9. WE HAVE CONSIDERED THE SUBMISSION OF PARTIES AND GO NE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE ASSESSMENT THE ASS ESSING OFFICER ADDED RS. 1.57 CRORE UNDER THE HEAD INCOME FROM HOUSE P ROPERTY BY ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 9 ESTIMATING THE DEEMED RENTAL INCOME OF THE ASSESSEE IN RESPECT OF UNSOLD UNITS AND AFTER GRATING STATUTORY DEDUCTION OF 30% TREATED THE REMAINING AS INCOME OF HOUSE PROPERTY. THE LD CIT(A) CONFIRME D THE ACTION OF ASSESSING OFFICER BY RELYING ON THE DECISION OF DEL HI HIGH COURT IN ANSAL HOSING FINANCE AND LEASING LTD (SUPRA). WE ARE CONS CIOUS OF THE FACTS THAT THAT THE LEGISLATURE HAS INSERTED SUB-SECTION (5) IN SECTION 23 OF THE ACT BY FINANCE ACT, 2017, WITH EFFECT FROM 01.04.2018, WHICH IS NOT APPLICABLE FOR THE YEARS UNDER CONSIDERATION. 10. WE HAVE NOTED THAT IN ASSESSEES OWN CASE FOR AY 20 12-13, SIMILAR ADDITION WAS MADE BY ASSESSING OFFICER WAS UPHELD B Y LD CIT(A), HOWEVER ON APPEAL BEFORE TRIBUNAL THE SAME WAS DELETED IN I TA NO. 6686/MUM/2016 VIDE ORDER DATED 31.10.2018. THE REL EVANT PART OF THE DECISION IS EXTRACTED BELOW: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION A RE GIVEN BELOW. ON THE ABOVE ISSUE, WE COME ACROSS ONE DEC ISION FOR THE ASSESSEE AND ANOTHER DECISION FOR THE REVENUE. THE DECISION IN NEHA BUILDERS PVT.LTD.(SUPRA) IS FOR THE ASSESSEE, WHEREAS THE DE CISION IN ANSAL HSG. FINANCE & LEASING CO. LTD.,(SUPRA) IS FOR THE REVEN UE. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. VEGETABLE PRODU CTS 88 ITR 192 (SC) HAS HELD THAT IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE TAX P AYER MUST BE ADOPTED. THEREBY, WE WILL FOLLOW THE DECISION IN NEHA BUILDE RS PVT.LTD. (SUPRA). 7.1 THE FOLLOWING SUB-SECTION (5) HAS BEEN INSERTED AFTER SUB-SECTION (4) OF SECTION 23 BY THE FINANCE ACT, 2017, W.E.F. 01.0 4.2018: ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 10 (5) WHERE THE PROPERTY CONSISTING ANY BUILDING OR LAND APPURTENANT THERETO IS HELD AS STOCK-IN-TRADE AND T HE 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 EN D OF THE FINANCIAL YEAR IN WHICH THE CERTIFICATE OF COMPLETION OF CONS TRUCTION OF THE PROPERTY IS OBTAINED FROM THE COMPETENT AUTHORITY, SHALL BE TAKEN TO NIL. THUS, IN ORDER TO GIVE RELIEF TO REAL ESTATE DE VELOPERS, SECTION 23 HAS BEEN AMENDED W.E.F. AY 2018-19 (FY 2017-18). BY THIS AME NDMENT, IT IS PROVIDED THAT IF THE ASSESSEE IS HOLDING ANY HOUSE PROPERTY AS HIS STOCK-IN- TRADE WHICH IS NOT LET OUT FOR THE WHOLE OR PART OF THE YEAR, THE ANNUAL VALUE OF SUCH PROPERTY WILL BE CONSIDERED AS NIL FO R A PERIOD UP TO ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH A COMPLETION CERTIFICATE IS OBTAINED FROM THE COMPETENT AUTHORITY. IN VIEW OF THE ABOVE AMENDMENT TO SECTION 2 3, WE ARE NOT ADVERTING TO THE CASE LAWS RELIED ON BY THE LD. COUNSEL AND L D. DR. IN THE INSTANT CASE, THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. THE ISSUE OF TAXABILITY IS WITH REGARD TO UNSOLD FLATS/UNITS OF RS.1,85,95,17,274/- HELD BY THE APPELLANT UNDER THE HEAD CLOSING INVENTORIES. THE AY IS 2012-13. IN VIEW OF THE INS ERTION OF SUB-SECTION (5) IN SECTION 23 BY THE FINANCE ACT, 2017, W.E.F. 01.04.2018 NARRATED HEREINBEFORE, WE SET ASIDE THE ORDER OF THE LD. CIT (A) AND ALLOW THE 1ST & 2ND GROUNDS OF APPEAL. 11. FURTHER, IN ASSESSEES GROUP CASE THE COORDINATE B ENCH OF MUMBAI TRIBUNAL IN SARANG PROPERTY DEVELOPERS PVT LTD IN I TA NO. 5620/MUM/2016 PASSED THE FOLLOWING ORDER; 4. WE HAVE CONSIDERED THE SUBMISSION OF PARTIES AND GO NE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NOTED THAT ASS ESSING OFFICER AS WELL AS LD. CIT(A) WHILE RELYING UPON THE DECISION OF DELHI HIGH COURT ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 11 I.E. IN ANSAL HOUSING FINANCING & LEASING CO. LTD. (SUPRA) WHEREIN IT WAS HELD THAT ASSESSEE IS LIABLE TO BE TAXED ON NOT IONAL ALV OF UNSOLD UNITS UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE LD. AR OF THE ASSESSEE IS RELYING UPON THE DECISION OF HONBLE GU JARAT HIGH COURT IN CIT VS. NEHA BUILDERS P. LTD. (SUPRA) WHEREIN IT WA S HELD THAT WHEN THE ASSESSEE-COMPANY ENGAGED IN THE BUSINESS OF CONSTRU CTION OF PROPERTY AND ONE OF THE BUILDING/PROPERTY WAS INCLUDED IN TH E CLOSING STOCK IN THE BALANCE-SHEET DRAWN BY ASSESSEE, THE PROPERTY W OULD PARTAKE THE CHARACTER OF STOCK AND ANY INCOME DERIVED FROM ST OCK WOULD NOT BE TAKEN TO BE INCOME FROM HOUSE PROPERTY. THE HONBLE HIGH COURT FURTHER HELD THAT BUSINESS OF THE ASSESSEE IS TO CO NSTRUCT THE PROPERTY AND SALE IT, THEN THAT WOULD BE THE BUSINESS AND BU SINESS STOCK, WOULD BE TAKEN AS STOCK-IN-TRADE AND ANY INCOME DERIVED FROM SUCH STOCK CANNOT BE TERMED AS INCOME FROM HOUSE PROPERTY. 5. IN THE CASE IN HAND, THERE IS NO DISPUTE THAT ASSES SEE TREATED THE UNSOLD UNIT IS TREATED AS STOCK-IN-TRADE IN ITS BOOKS OF ACCOUNT. FURTHER, THE UNIT SOLD BY THE ASSESSEE HAS BEEN OFFERED UNDER TH E HEAD INCOME FROM BUSINESS. THUS, THE UNSOLD FLAT WHICH ARE STOCK-IN -TRADE, WHEN ARE SOLD, THEY ARE ASSESSABLE UNDER THE HEAD INCOME FR OM BUSINESS AND THEREFORE, THE ASSESSING OFFICER IS NOT CORRECT IN BRINGING THOSE UNITS TO TAX ON THE BASIS OF NOTIONAL ALV UNDER THE HEAD IN COME FROM HOUSE PROPERTY. 6. WE ARE CONSCIOUS OF THE FACT THAT THE DECISION OF H ONBLE DELHI HIGH COURT IN ANSAL HOUSING FINANCING & LEASING CO. LTD. (SUPRA) IS AGAINST THE ASSESSEE. THE HONBLE SUPREME COURT IN CASE OF CIT VS. VEGETABLE PRODUCTS LTD. (88 ITR 92) HELD THAT WHEREIN TWO REA SONABLE CONSTRUCTION TO TAX PROVISION ARE POSSIBLE THAT CON STRUCTION WHICH FAVOURS ASSESSEE MUST BE ADOPTED. THEREFORE, WITH U TMOST REGARD TO THE DECISION OF DELHI HIGH COURT IN CASE IN ANSAL HOUSI NG FINANCING & LEASING CO. LTD. (SUPRA), WE ARE ACCEPTING THE VIEW TAKEN BY GUJARAT HIGH COURT IN CIT VS. NEHA BUILDERS (SUPRA). 7. THE HONBLE SUPREME COURT IN CASE OF CHENNAI PROPER TY (373 ITR 673) HELD THAT WHEN THE COMPANY IS PRIMARILY ENGAGED IN BUSINESS OF CONSTRUCTION AND DEVELOPMENT, WHICH IS THE MAIN OBJ ECT OF THE ASSESSEE, ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 12 THE INCOME DERIVED BY ASSESSEE WOULD BE INCOME FRO M BUSINESS. ON THE SAME ANALOGY IN THE CASE IN HAND, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT, WHICH IS THE MAIN BUSINESS OF THE ASSESSEE, THE UNITS WHICH COULD NOT BE SOLD AT THE END OF THE YEAR AND WERE SHOWN AS STOCK-IN-TRADE, ESTIMATING RENT AL INCOME ON NOTIONAL ALV WAS NOT JUSTIFIED. PARTICULARLY WHEN, THERE IS NO EVIDENCE ON RECORD THAT THESE UNITS WERE EITHER GIVEN ON REN T OR THAT THE ASSESSEE HAS INTENTION TO LET OUT THOSE UNITS. THE UNITS WHI CH ARE NOT SOLD ARE STOCK-IN-TRADE AND THE INCOME ARISING OF ITS SALE I S LIABLE TO BE TAXED AS BUSINESS INCOME, THEREFORE, WE DO NOT FIND ANY JUST IFICATION IN CALCULATING NOTIONAL ALV OF THE VACANT UNITS. THERE FORE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ES TIMATE BASIS. IN THE RESULT, GROUND OF APPEAL RAISED BY ASSESSEE IS ALLO WED 8. IN RUNAWAL CONSTRUCTIONS & RUNAWAL BUILDERS PVT LT D (SUPRA), THE FOLLOWING ORDER WAS PASSED; 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 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 '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 ANSAL HOUSING FINANCE & LEASING CO. LTD. (SUPRA). THE ACTION OF T HE AO WAS UPHELD BY THE LEARNED CIT(A). 8. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF NE HA BUILDERS PVT. LTD. (SUPRA) CONSIDERED THE QUESTION WHETHER THE RENTAL INCOME RECEIVED FROM ANY PROPERTY IN THE CONSTRUCTION BUSINESS CAN BE CL AIMED UNDER THE HEAD 'INCOME FROM PROPERTY' EVEN THOUGH THE SAID PROPERT Y 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 PROPER TY AND SELL IT OR TO ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 13 CONSTRUCT AND LET OUT THE SAME, THEN THAT WOULD BE THE BUSINESS AND THE BUSINESS STOCKS, WHICH MAY INCLUDE MOVABLE AND IMMO VABLE, WOULD BE TAKEN TO BE STOCK IN TRADE AND ANY INCOME DERIVED F ROM SUCH STOCKS CANNOT BE TERMED AS INCOME FROM HOUSE PROPERTY. WHI LE HOLDING SO THE HON'BLE HIGH COURT OBSERVED AS UNDER: - '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 BECOME OR P ARTAKE THE CHARACTER OF THE STOCK, AND ANY INCOME DERIVED FROM THE STOCK, W OULD 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 O R 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 T O BE 'STOCK-IN- TRADE', AND ANY INCOME DERIVED FROM SUCH STOCKS CAN NOT 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'. T HE TRIBUNAL, IN OUR CONSIDERED OPINION, WAS ABSOLUTELY UNJUSTIFIED IN C OMPARING THE RENTAL INCOME WITH THE DIVIDEND INCOME ON THE SHARES OR IN TEREST 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 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 T HE BEGINNING WAS A 'STOCK- IN-TRADE' .' 9. SIMILARLY THE COORDINATE BENCH HAS CONSIDERED SI MILAR 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 & LEASIN G CO. LTD. (SUPRA) WHICH THE AO RELIED UPON AND THE DECISION OF THE HO N'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 ST OCK IN TRADE SHOULD BE ASSESSED UNDER THE HEAD 'BUSINESS INCOME' AND THERE IS NO JUSTIFICATION IN ESTIMATING RENTAL INCOME FROM THOSE FLATS AND NOTIO NALLY COMPUTING ANNUAL LETTING VALUE UNDER SECTION 23 OF THE ACT. WHILE HOLDING 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 RUNWAL CONSTRUCTIONS & RUNWAL BUILDERS HELD AS BUSINESS, I NCOME FROM THE SAME IS NOT ASSESSABLE U/S.23(1) OF THE IT ACT . ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 14 4. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF HON'BLE 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 INC OME 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 SUPR EME COURT IN THE CASE OF M/S CHENNAI PROPERTIES & INVESTMENTS LTD. V S. 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 INCOME , THE ACTION OF AO TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PRO PERTY IN PLACE OF INCOME FROM BUSINESS SHOWN BY THE ASSESSEE WAS HELD TO BE NOT JUSTIFIED. THE HON'BLE SUPREME COURT HELD THAT SINCE THE ASSES SEE COMPANY'S MAIN OBJECT, IS TO ACQUIRE AND HELD PROPERTIES AND TO LE T OUT THESE PROPERTIES, THE INCOME EARNED BY LETTING OUT THESE PROPERTIES IS MA IN OBJECTIVE OF THE COMPANY, THEREFORE, RENT RECEIVED FROM THE LETTING OUT OF THE PROPERTIES IS ASSESSABLE AS INCOME FROM BUSINESS. ON THE VERY SAM E ANALOGY IN THE INSTANT CASE, ASSESSEE IS ENGAGED IN BUSINESS OF CO NSTRUCTION AND DEVELOPMENT, WHICH IS MAIN OBJECT OF THE ASSESSEE C OMPANY. THE THREE FLATS WHICH COULD NOT BE SOLD AT THE END OF THE YEA R 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 TH ESE FLATS WERE NEITHER GIVEN ON RENT NOR THE ASSESSEE HAS INTENTION TO EAR N RENT BY LETTING OUT THE FLATS. THE FLATS NOT SOLD WAS ITS STOCK-IN-TRADE AN D INCOME ARISING ON ITS SALE IS LIABLE TO BE TAXED AS BUSINESS INCOME. ACCO RDINGLY, WE DO NOT FIND ANY JUSTIFICATION IN THE ORDER OF AO FOR ESTIMATING RENTAL INCOME FROM THESE VACANT FLATS U/S.23 WHICH 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 UNDISPUT ED FACT THAT BOTH ASSESSEES HAVE TREATED THE UNSOLD FLATS AS STOCK I N 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 ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 15 LETTING VALUE IN RESPECT OF THOSE UNSOLD FLATS UNDE R THE HEAD 'INCOME FROM RUNWAL CONSTRUCTIONS & RUNWAL BUILDERS HOUSE P ROPERTY'. THUS, WE DIRECT THE AO TO DELETE THE ADDITION MADE UNDER SECTION 23 OF THE ACT AS INCOME FROM HOUSE PROPERTY. 9. FURTHER, BY FOLLOWING THE DECISION OF RUNAWAL CONST RUCTIONS & RUNAWAL BUILDERS (SUPRA), IDENTICAL RELIEF WAS GRANTED IN A RIHANT ESTATE PVT LTD (SUPRA). IN ACIT VS HAWARE CONSTRUCTIONS (P) LTD (S UPRA) THE COORDINATE BENCH OF MUMBAI TRIBUNAL ALSO TOOK THE V IEW THAT IF A REAL ESTATE DEVELOPER HOLDS ANY HOUSE PROPERTY AS HIS ST OCK-IN-TRADE WHICH IS NOT LET OUT FOR WHOLE OR PART OF YEAR, ANNUAL VALUE OF SUCH PROPERTY WILL BE CONSIDERED AS NIL FOR A PERIOD UP TO ONE YEAR FR OM END OF FINANCIAL YEAR IN WHICH A COMPLETION CERTIFICATE IS OBTAINED. 10. THE HONBLE DELHI HIGH COURT IN CIT VS ANSAL HOUSI NG FINANCE LTD (SUPRA) HAS TAKEN A VIEW THAT ALV OF UNSOLD FLAT BU ILT BY THE BUILDER IS ASSESSABLE AS INCOME FROM THE HOUSE PROPERTY. HOWEV ER, THERE IS CONTRARY VIEW OF HONBLE GUJARAT HIGH COURT IN NEHA BUILDERS (SUPRA) 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 T HE STOCK, AND INCOME DERIVED FROM THE STOCK, WOULD BE INCOME FROM THE BUSINESS, AND NOT FROM THE PROPERTY. IF THE BUSINESS OF THE ASSESSEE IS TO CONSTRUCT THE PROPERTY AND TO SELL IT OR TO CONSTRUCT AND LET OUT THE SAME, TH EN WOULD BE THE BUSINESS AND THE BUSINESS STOCKS, MAY INCLUDED MOVEABLE OR I MMOVEABLE, WOULD BE ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 16 TAKEN TO BE STOCK IN TRADE AND ANY INCOME FROM SU CH STOCK CANNOT BE TERMED AS INCOME FROM PROPERTY. THERE IS NO DIRE CT DECISION ON THIS ISSUE BY JURISDICTIONAL HIGH COURT; THEREFORE, THE VIEW I N FAVOUR OF THE ASSESSEE HAS TO BE ADOPTED IN VIEW OF DECISION OF HONBLE AP EX COURT IN CIT VS VEGETABLE PRODUCT LTD. (88 ITR 192 SC). AS WE HAV E ALREADY REFERRED THAT SUB-SECTION (5) IN SECTION 23 WAS INSERTED BY FINAN CE ACT 2017 W.E.F. 01.04.2018; THEREFORE, THE SAME IS NOT APPLICABLE F OR THE ASSESSMENT YEAR UNDER CONSIDERATION. 11. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2011-3, IN ASSESSEES GR OUP CASE IN SARANG PROPERTY DEVELOPERS PVT LTD (SUPRA) AND OTHER VARIO US DECISIONS OF COORDINATE BENCH AND THE DECISIONS OF GUJARAT HIGH COURT IN NEHA BUILDERS (SUPRA) WE ARE OF THE VIEW THAT THE ASSESSING OFFIC ER WAS NOT JUSTIFIED IN BRINGING THE UNSOLD FLAT / UNITS UNDER INCOME FROM HOUSE PROPERTY. IN THE RESULT THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D. ITA NO. 209/MUM/2018 BY REVENUE FOR AY 2013-14 13. THE REVENUE HAS RAISED GROUNDS OF APPEAL AGAINST T HE DELETING THE INTEREST DISALLOWANCES. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER. THE LD. DR FURTHER SUBMITS THAT ON SIMILAR ISSUES THE APPEAL FOR AY 2012-13 WAS RESTORED BY THE TRIBUNAL TO THE FILE OF ASSESSING OFFICER. ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 17 THEREFORE, THE ISSUE RAISED BY THE REVENUE BE ALSO RESTORED TO THE FILE OF ASSESSING OFFICER. 14. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUPPOR TED THE ORDER OF THE LD CIT(A). THE LD. AR FOR THE ASSESSEE SUBMITS THAT TH E ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THEM, THEREFORE, THE PRESUMPTION WOULD ARISE THAT THE INVESTMENTS WERE MADE BY THE ASSESSE E FROM INTEREST FREE FUNDS. THE LD. AR SUBMITS THAT THE ASSESSEE HAS INT EREST FREE FUNDS OF RS.245.42 CRORE. THE ASSESSEE HAS SHARE CAPITALS OF RS.12.59 CRORE, RESERVE & SURPLUS OF RS. 145.88 CRORE AND INTEREST FREE LOANS OF RS. 86.95 CRORE, THUS THE ASSESSEE OWNED TOTAL INTEREST FREE FUNDS OF RS. 245.95 CRORE. THE ASSESSEE ADVANCED INTEREST FREE ADVANCE AND LOA N RS.151.06 CRORE ONLY. OUT OF RS.151.06 CRORE A SUM OF RS. 50.74 CRO RE WAS BUSINESS ADVANCES, RS 80.78 CRORE WAS ADVANCED TO SUBSIDIARY AND RS. 6.37 TO ASSOCIATE CONCERNS. THUS, THE ADVANCES GIVEN TO SUB SIDIARY AND ASSOCIATE CONCERNS CANNOT BE CONSIDERED FOR DISALLOWANCES IN VIEW OF THE DECISION OF SUPREME COURT IN S.A BUILDER (158 TAXMAN 74 SC). IN ALTERNATIVE SUBMISSIONS THAT THE ASSESSEE HAS SUFFICIENT INTERE ST FREE FUNDS THE LD AR FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS RELIANCE UTILITIES & POWER LTD (313 ITR 340 BOM). 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND HAVE GONE THROUGH THE ORDER OF THE LOWER AUTHORITIES BELOW. W E HAVE ALSO DELIBERATED ON VARIOUS CASE LAW RELIED BY THE LOWER AUTHORITIES AND THE LD ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 18 REPRESENTATIVES. WE HAVE NOTED THAT THE LD CIT(A) W HILE GRANTING RELIEF TO THE ASSESSEE HAS NOT GIVEN ANY FINDING THAT HE HAS EXAMINED THE FACTS AND THE BOOKS OF ACCOUNTS OF THE ASSESSEE IF THE ASSER TION OF THE ASSESSEE THAT OUT OF RS.151.06 CRORE A SUM OF RS. 50.74 CRORE WAS BUSINESS ADVANCES, RS 80.78 CRORE WAS ADVANCED TO SUBSIDIARY AND RS. 6 .37 TO ASSOCIATE CONCERNS OR WHEN THE INTEREST FREE LOANS OF RS. 86. 95 CRORE WAS RECEIVED BY THE ASSESSEE. WE HAVE FURTHER NOTED THAT SIMILAR DI SALLOWANCES WAS MADE AGAINST THE ASSESSEE FOR AY 2012-13 AND ON APPEAL BEFORE THE TRIBUNAL THE ISSUE WAS RESTORED TO THE FILE OF ASSESSING OFFICER VIDE ORDER DATED 31.10.2018 IN ITA NO. 6686/MUM/2016 WITH THE FOLLOW ING DIRECTIONS: 12.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION A RE GIVEN BELOW. IN THE CASE OF RELIANCE UTILITIES & POWER L TD. (SUPRA), THE ASSESSEE CLAIMED DEDUCTION OF INTEREST ON BORROWED CAPITAL. THE AO RECORDED A FINDING THAT THE SUM OF RS.213 CRORES WAS INVESTED OUT OF ITS OWN FUNDS AND RS.147 CRORES WAS INVESTED OUT OF BORROWED FUND S. ACCORDINGLY, HE DISALLOWED INTEREST AMOUNTING TO RS.4.40 CRORES CAL CULATED AT 12% PER ANNUM FOR THREE MONTHS FROM JANUARY 2000 TO MARCH 2 000. THE COMMISSIONER (APPEALS) FOUND THAT THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR INVESTMENT AND ACCORDINGL Y DELETED THE ADDITION OF RS.4.40 CRORES MADE BY THE AO AND DIRECTED HIM TO A LLOW THE DEDUCTION U/S 36(1)(III). THE ORDER OF THE COMMISSIONER (APPE ALS) WAS UPHELD BY THE TRIBUNAL. ON FURTHER APPEAL, THE HONBLE BOMBAY HIG H COURT HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AND O VERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTME NTS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS. IN THIS CASE, ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 19 THIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FI NDING OF FACT BOTH BY THE CIT(A) AND THE TRIBUNAL. THEREFORE, INTEREST WA S DEDUCTIBLE. IN THE CASE OF MADHAV PRASAD JATIA V. CIT (1979) 118 ITR 200 (SC), IT HAS BEEN HELD BY THE HONBLE SUPREME COURT THAT FOR CLAIMING DEDUCTIONS U/S 36(1)(III), THE BASIC REQUIREMENTS A RE: (A) THE MONEY I.E. (CAPITAL) MUST HAVE BEEN BORROWE D BY THE ASSESSEE; (B) IT MUST HAVE BEEN BORROWED BY THE ASSESSEE FOR HIS BUSINESS, PROFESSION OR VOCATION; AND (C) THE ASSESSEE MUST HAVE PAID INTEREST ON THE AMO UNT AND CLAIMED IT AS AN ALLOWANCE. WE HAVE ADMITTED THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. BUT WE KEEP IN MIND THAT WHERE AN ADDITIONAL EVIDENCE H AS BEEN ALLOWED TO BE ADDUCED, THE INTERESTS OF JUSTICE DEMAND THAT THE O THER SIDE MUST BE GIVEN AN OPPORTUNITY TO EXPLAIN OR REBUT SUCH ADDITIONAL EVIDENCE AS CLARIFIED IN THE DECISION IN SMT. URMILA RATILAL V. CIT (1982) 1 36 ITR 797, 799 (GUJ); HIRALAL DEVDUTT JAGADHRI V. ADDL. CIT (1980) 18 CTR (PUNJ) 96, 98. IN VIEW OF THE ABOVE FACTS AND POSITION O F LAW, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER RELATING TO THE 3RD AND 4TH GROUND OF APPEAL TO THE FILE OF THE AO TO MAKE A DE NOVO O RDER AS PER THE RATIO LAID DOWN IN MADHAV PRASAD JATIA (SUPRA) AND RELIANCE UT ILITIES & POWER LTD. (SUPRA), AFTER GIVING REASONABLE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMEN TS/EVIDENCE BEFORE THE AO. THUS THE 3RD AND 4TH GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 16. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEAR AND THE FACTS THAT THE LD CIT(A) HAS NOR RECOR DED ITS SATISFACTION THAT THAT HE HAS EXAMINED THE FACTS AND THE BOOKS OF ACC OUNTS OF THE ASSESSEE IF THE ASSERTION OF THE ASSESSEE THAT OUT OF RS.151.0 6 CRORE A SUM OF RS. 50.74 ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 20 CRORE WAS BUSINESS ADVANCES, RS 80.78 CRORE WAS ADV ANCED TO SUBSIDIARY AND RS. 6.37 TO ASSOCIATE CONCERNS OR WHEN THE INTE REST FREE LOANS OF RS. 86.95 CRORE WAS RECEIVED BY THE ASSESSEE. THEREFOR E, THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE ALSO RESTORED BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY THE FACTS AND PASS THE ORDER IN ACCORDANC E WITH LAW AND AS PER THE DIRECTIONS OF THE ORDER DATED 31.10.2018 IN ITA NO. 6686/MUM/2016. IN THE RESULT THE GROUNDS OF APPEAL RAISED BY THE REVE NUE ARE ALLOWED FOR STATISTICAL PURPOSE. 17. IN THE RESULT, APPEAL OF REVENUE IS ALLOWED FOR STA TISTICAL PURPOSE. ITA 7289/MUM/2018 FOR AY 2014-15 BY ASSESSEE . 18. THE ASSESSEE HAS RAISED IDENTICAL GROUNDS OF APPEAL S AS RAISED IN APPEAL FOR AY 2013-14, WHICH WE HAVE ALREADY NOTED THAT THE FA CTS FOR THE YEAR UNDER CONSIDERATION IS ALSO IDENTICAL EXCEPT VARIATION OF FIGURE OF ADDITIONS, WHICH WE HAVE ALLOWED, THEREFORE, FOLLOWING THE PRINCIPAL OF CONSISTENCY THE APPEAL FOR THE YEAR UNDER CONSIDERATION IS ALSO AL LOWED WITH SIMILAR DIRECTIONS. 19. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED . ITA NO.210/MUM/2018 FOR AY 2014-15 BY REVENUE . 20. THE REVENUE HAS RAISED IDENTICAL GROUNDS OF APPEAL S AS RAISED IN APPEAL FOR AY 2013-14, EXCEPT VARIATION OF DISALLOWANCE UNDER SECTION 36(1)(III), WHICH WE HAVE ALREADY RESTORED TO THE FILE OF ASSES SING OFFICER, THEREFORE, ITA NO. 7288, 7289 MUM 17 & 209 AND 210 MUM 18-M/S KANAKIA SPACE S PVT. LTD. 21 FOLLOWING THE PRINCIPAL OF CONSISTENCY THE APPEAL F OR THE YEAR UNDER CONSIDERATION IS ALSO ALLOWED WITH SIMILAR DIRECTI ONS. 21. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 23/04/2019. SD/- SD/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 23.04.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR H BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI