RAJENDRA GODSHALWAR, MUMBAI V. INCOME TAX OFFICER - 21(3)(1), MUMBAI

ITA 7470/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5825 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 29-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Deemed owner of house property; Business income; Competent authority
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO. 7470/MUM/2017 : A.Y : 2012 - 13 SHRI RAJENDRA GODSHALWAR SHREE APARTMENTS, DR. M.B. RAUT MARG, DADAR (W), MUMBAI 400 028. PAN : AAKPG1504F (APPELLANT) VS. ITO 21(3)(1), MUMBAI (RESPONDENT) APPELLANT BY : SHRI ANIL SATHE RESPONDENT BY : SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 30 /01/2019 DATE OF PRONOUNCEMENT : 31 /01/2019 O R D E R PER G.S. PANNU , VICE PRESIDENT : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 33 , MUMBAI DATED 16.10.2017 , PERTAINING TO THE ASSESSMENT YEAR 2012 - 13 , WHICH IN TURN HAS ARISEN FROM THE ORDER DATED 30.03.2015 PASSED BY THE ASSESSING OFFICER, MUMBAI UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. ALTHOUGH ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT IN SUM AND SUBSTANCE THE SOLITARY GRIEVANCE IS AGAINST AN ADDITION OF ` 18,50,176/ - 2 ITA NO. 7470/MUM/2017 SHRI RAJENDRA GODSHALWAR SUSTAINED BY THE CIT(A) UNDER THE HEAD INCOME FROM HOUSE PROPERTY REPRESENTING ANNUAL LET T ING VALUE OF UNSOLD FLAT. 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE APPELLANT IS AN INDIVIDUAL WHO IS, INTER - ALIA , ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPERS AND BUILDERS UNDER THE NAME AND STYLE OF GODSHALWAR PROJECT CONSULTANTS & DEVELOPERS. DURING THE YEAR UNDER CONSIDERATION, THE PROJECT UNDERTAKEN BY THE ASSESSEE, NAMELY, BHOLA BHAGWA N PROJECT WAS COMPLETED. IT WAS NOTED BY THE ASSESSING OFFICER THAT FLATS CONSTRUCTED BY THE ASSESSEE IN THE SAID PROJECT WERE SOLD EXCEPT TWO FLATS. ONE OF THE FLATS WAS RETAINED BY THE ASSESSEE FOR HIMSELF AND THE OTHER FLAT REMAINED UNSOLD. SUCH UNSO LD FLAT S REPRESENTED STOCK - IN - TRADE OF THE ASSESSEE. THE ASSESSING OFFICER PROCEEDED TO TAX THE NOTIONAL ANNUAL LETTING VALUE (ALV) OF BOTH THE FLATS IN TERMS OF SEC. 22 OF THE ACT AS DEEMED LET OUT PROPERTIES. AN ADDITION OF ` 34,16,679/ - WAS THUS MADE, WHICH HAS SINCE BEEN REDUCED TO ` 18,50,176/ - BY THE CIT(A). THE CIT(A) ALLOWED RELIEF WITH REGARD TO THE VALUE OF THE FLAT RETAINED BY THE ASSESSEE FOR HIS SELF - OCCUPATION. THE REMAINING FLAT HAVING AN AREA OF 2022 SQ. FT. HAS BEEN TREATED AS DEEMED LET - OUT AND ITS ALV HAS BEEN CALCULATED AT ` 34,16,679/ - , WHICH IS THE SUBJECT MATTER OF DISPUTE BEFORE US. 4. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY POINTED OUT THAT THE FLAT IN QUESTION REPRESENTS STOCK - IN - TRADE OF THE ASSESSEE, WH ICH HAS BEEN CONSTRUCTED DURING THE COURSE OF BUSINESS. IT HAS REMAINED UNSOLD AT THE END OF THE YEAR , AND BEING A STOCK - IN - TRADE, IT CANNOT BE SUBJECT TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN THIS CONTEXT, HE HAS PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF C.R. DEVELOPMENTS PVT. LTD. VS JCIT, 44 CCH 835 (MUM. 3 ITA NO. 7470/MUM/2017 SHRI RAJENDRA GODSHALWAR TRIB.) AND M/S. RUNWAL CONST RUCTIONS & ANR. VS ACIT, ITA NO S . 5408 & 5409 /MUM/2016 DATED 22.02.2018 . THE LEARNED REPRESENTATIVE POINTED OUT THAT THE CIT(A) ERRONEOUSLY REJECTED THE PLEA OF THE ASSESSEE BY RELYING ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SANE & DOSHI ENTERPRISES, 377 ITR 0165 (BOM.) WHEREIN THE ISSUES WERE ALTOGETHER DIFFERENT. 5. ON THE OTHER HAND, THE LD. DR HAS DEFENDED THE DECISION OF THE LOWER AUTHORITIES BY PLACING RELIANCE ON THE SAME. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE SHORT POINT INVOLVED IN THIS APPEAL IS THE VALIDITY OF ADDITION SUSTAINED BY THE CIT(A) ON ACCOUNT OF NOTIONAL ALV OF THE UNSOLD FLAT, WHICH IS HELD BY THE ASSESSEE AS STOCK - IN - TRADE. FACTUALLY SPEAKING, IT IS NOT IN DISPUTE THAT THE FLA T IN QUESTION IS NOT YIELDING ANY RENTAL INCOME TO THE ASSESSEE , AS IT HAS NOT BEEN LET - OUT . IT IS ALSO NOT IN DISPUTE THAT THE PROJECT IN QUESTION HAS BEEN COMPLETED DURING THE YEAR UNDER CONSIDERATION , AND THE SAID FLAT IS SHOWN AS STOCK - IN - TRADE AT THE END OF THE YEAR . AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE ALSO POINTED OUT THAT THE FLAT HAS BEEN ULTIMATELY SOLD ON 06.11.2012. WE FIND THAT OUR COORDINATE BENCH IN THE CASE OF C.R. DEVELOPMENTS PVT. LTD. (SUPRA) DEALT WITH CHARGING OF NOTION AL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN RESPECT OF UNSOLD SHOPS WHICH WERE SHOWN BY ASSESSEE THEREIN AS PART OF STOCK - IN - TRADE . AS PER THE TRIBUNAL THE THREE FLATS WHICH COULD NOT BE SOLD AT THE END OF THE YEAR WAS SHOWN AS STOCK - IN - TR ADE. 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 4 ITA NO. 7470/MUM/2017 SHRI RAJENDRA GODSHALWAR LETTING OUT THE FLATS. THE FLATS NOT SOLD WAS I TS 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 A T 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 . 7. IN OUR VIEW, THE AFORESAID OBSERVATION OF OUR COORDINATE BENCH SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. IN THE CASE OF M/S. RUNWAL CONSTRUCTIONS (SUPRA) ALSO, SIMILAR ISSUE HAS BEEN DEALT WITH BY OUR COORDINATE BENCH. IN THE CASE OF M/S. RUNWAL CONSTRUCTIONS (SUPRA) , THE BENCH NOTED THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS NEHA BUILDERS PVT. LTD., 296 ITR 661 (GUJ.) AS ALSO THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ANSAL HOUSING FINANCE & LEASING CO. LTD., 354 ITR 180 (DELHI) AND FINALLY OBSERVED AS UNDER : - 10. IN THE CASE ON HAND BEFORE US IT IS AN UNDISPUTED FACT THAT BOTH ASSESSEES HAVE TREATED THE UNSOLD FLATS AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT AND THE FLATS SOLD BY THEM WERE ASSESSED UN DER THE HEAD INCOME FROM BUSINESS. THUS, RESPECTFULLY FOLLOWING THE ABOVE 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 BUSINESS WHEN THEY ARE SOLD AND THEREFOR E THE AO IS NOT CORRECT IN BRINGING TO TAX NOTIONAL ANNUAL LETTING VALUE IN RESPECT OF THOSE UNSOLD FLATS UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THUS, WE DIRECT THE AO TO DELETE THE ADDITION MADE UNDER SECTION 23 OF THE ACT AS INCOME FROM HOUSE PROP ERTY. FOLLOWING THE AFORESAID PRECEDENT S , WE FIND MERIT IN THE PLEA OF THE ASSESSEE, WHICH DESERVES TO BE UPHELD. 5 ITA NO. 7470/MUM/2017 SHRI RAJENDRA GODSHALWAR 8. INSOFAR AS THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SANE & DOSHI ENTERPRISES (SUPRA) RELIED BY THE CIT(A) IS CONCERN ED, THE SAME, IN OUR VIEW, DOES NOT HELP THE CASE OF THE REVENUE. QUITE CLEARLY, THE CASE BEFORE THE HON'BLE HIGH COURT WAS RELATING TO ACTUAL RENTAL INCOME RECEIVED ON LETTING OUT OF UNSOLD FLATS. THE DISPUTE PERTAINED TO THE HEAD OF INCOME UNDER WHICH SUCH INCOME WAS TO BE TAXED WHETHER AS BUSINESS INCOME OR AS INCOME FROM HOUSE PROPERTY . IN THE PRESENT CASE, THE FACTS ARE QUITE DIFFERENT INASMUCH AS THE UNSOLD FLAT IN QUESTION HAS NOT YIELDED ANY RENTAL INCOME AS THE FLAT HAS NOT BEEN LET - OUT , A ND IS BEING HELD BY THE ASSESSEE PURELY AS STOCK - IN - TRADE ; AND , WHAT THE ASSESSING OFFICER HAS TRIED TO DO IS TO ASSESS ONLY A NOTIONAL INCOME THEREOF. TH US , THE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SANE & DOSHI ENTERPRISE S (SUPRA) HAS BEEN RENDERED IN THE CONTEXT OF QUALITATIVELY DIFFERENT FACTS , AND IS NOT APPLICABLE IN THE PRESENT CASE. 9. APART THEREFROM, WE FIND THAT SEC. 23(5) OF THE ACT HAS BEEN INSERTED BY THE FINANCE ACT, 2017 W.E.F. 01.04.2018. IN TERMS OF THE S AID SECTION, IT IS PRESCRIBED THAT 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 VA LUE 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 . THOUGH THE SAID PROVISION IS EFFECTIVE FROM 01.04.2018, YET EVEN IF ONE IS TO SEE THE PRESENT CASE FROM THE STANDPOINT OF SEC. 23(5) OF THE ACT, NO ADDITION IS PERMISSIBLE IN THE INSTANT YEAR. IT MAY BE RELEVANT TO NOTE THAT THE COMPLETION CERTIFICATE IS STATED TO 6 ITA NO. 7470/MUM/2017 SHRI RAJENDRA GODSHALWAR HAVE BEEN OBTAINED ON 28.11.2011 AND GOING BY THE PROVISIONS OF SEC. 23(5) OF THE ACT, NO ADDITION IS PERMISSIBLE IN THE INSTANT ASSESSMENT YEAR. BE THAT AS IT MAY, WE ARE ONLY TRYING POINT OUT THAT THE ASSESSABILITY OF NOTIONAL INCOME IN RESPEC T OF UNSOLD FLAT, WHICH IS TAKEN AS STOCK - IN - TRADE, IS NOT MERITED IN THE INSTANT CASE. THUS, WE SET - ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 3 1 S T JANUARY, 2019. SD/ - SD/ - ( RAM LAL NEGI ) JUDICIAL MEMBER ( G.S. PANNU ) VICE PRESIDENT MUMBAI, DATE : 3 1 S T JANUARY , 201 9 *SSL* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, SMC BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI