Income-tax Officer, Ward - 7(2), Pune V. Mahanagar Constructions, Pune

MA 159/PUN/2022

AI Insights

The case involves the Income Tax Officer, Ward-7(2), Pune as the appellant and M/s. Mahanagar Constructions as the respondent. The dispute arose from the assessment year 2014-15, where the ITAT initially upheld the CIT(A)'s decision on taxing notional rental income from unsold flats. However, upon the Revenue's application for rectification, the ITAT acknowledged a mistake in their earlier judgment and corrected it to align with the precedent that such notional rental income should not be taxed under the head 'income from house property' but rather under 'business income'. This correction was based on the consistent view taken in similar cases and the specific amendments in the Income Tax Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134136 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 29 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 16-04-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-01-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 18-03-2020
• Other Referred Cases: Kumar Becharay Rathi, M/s. C. R. Developments Pvt. Ltd. vs. JCTT, M/s. Runwal Constructions vs. ACIT, Shri Girdharilal K. Lulla vs. DCIT, M/s. Cosmopolis Construction
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Rule of consistency; Deemed to accrue or arise in india
• Section: 22

Judgement Text

आयकर अपीलीय अिधकरण “ए” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “A” :: PUNE BEFORE SHRI PARTHA SARATHI CHAUDHURI, JUDICIAL MEMBERAND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER Miscellaneous Application No.159/PUN/2022 (arising out of ITA No.623/PUN/2018) Assessment Year : 2014-15 The Income Tax Officer, Ward-7(2), Pune. Vs M/s.Mahanagar Conbstructions, S.No.129, H.No.1/2, Hari Ganga, Near RTO Office, Yerwada, Pune – 411006. PAN : AAJFM 8909 K Appellant/ Revenue Respondent /Assessee Assessee by None. Revenue by Shri M.G.Jasnani – DR Date of hearing 20/01/2023 Date of pronouncement 17/04/2023 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This Miscellaneous Application filed by the ITO, Ward-7(2), Pune for A.Y. 2014-15 against the ITAT’s order dated 05/09/2019, in ITA No.623/PUN/2018. The appeal in ITA No.623/PUN/2018 was filed by the assessee against the order of ld.CIT(A), Pune. The ITAT in para 8 held as under: “8. Considering the above the above settled proposition on this issue and following the rule of consistency, we find the order of the CIT(A) is fair and reasonable and it does not call for any interference. Therefore, the relevant grounds raised by the assessee are allowed.” 1.1 Based on para 8, Revenue has filed MA pleadings that the last sentence should have been “grounds raised the assessee are dismissed.” M.A,.No.159/PUN/2022 Mahanagar Construction [R] 2 2. However, to understand the decision of the ITAT, we need to read the entire order of the ITAT. Some of the important paragraphs are reproduced here as under : Quote, ““3. Briefly stated the relevant facts include that the assessee is a partnership firm and is engaged in the business of Builders, Promoters and Developers. The assessee filed the return of income declaring Nil income. During the year under consideration, the assessee reported 6unsold/ flats, which were never let out and the assessee never earned rental income for the same. Relying on a rental agreement relating to the flats actual let out the Annual Letting Value (ALV) of these unsold flats are calculated by the Assessing Officer and added Rs. 11,59,200/- as per the discussion given in para 8 of the assessment order of the Assessing Officer. The CIT(A) confirmed the same. 7. Further, we perused the decision of the Tribunal in the case of Kumar Becharay Rathi (Supra), where the undersigned is authored of the said order, and find para 9 to 12 of the said order of the Tribunal are relevant and the same are extracted hereunder :- 11. Flat not actually rented out: In case of notional/deemed rental income calculated by the Assessing Officers in various cases, the Tribunal took a consistent view that such notional/ deemed rental income is taxable under the head ‘business income’ and not under the head ‘income from house property’. The decision of the Tribunal in the cases of (i) M/s. C. R. Developments Pvt. Ltd. vs. JCTT in TTA No. 4277/Mum/2012 for the assessment year 2009-10, order dated 13.05.2015 (Mum.-Trib.); (ii) M/s. Runwal Constructions vs. ACIT in ITA No.5408/Mum/2016 for the assessment year 2012-13, order dated 22.02.2018 (Mum.-Trib.); and, (Hi) Shri Girdharilal K. Lulla vs. DCIT in ITA No. 1604/Mum/2016 for the assessment year 2011-12, order dated: 17.11.2017 (Mum.-Trib.) support the taxation of such notional rental income under the head’ business income’. The undersigned are M.A,.No.159/PUN/2022 Mahanagar Construction [R] 3 party to the decision of the Tribunal in the case of M/s. Cosmopolis Construction (supra). 12. In the present case, it is an undisputed fact that the assessee never let out the unsold flats held as stock-in-trade. Further, it is the case of the Assessing Officer that the provisions of sections 22 to 23 of the Act should be invoked for taxing the notional income on such fiats. I also perused all the four grounds revolved around the provisions of sections 22 to 23 of the Act relating to the head of income i.e. income from house property. Further, it is an undisputed fact the provisions of section 23(5) of the Act was amended by the Finance Act, 2017 w.e.f. 01.04.2018 and, therefore, these provisions will not come to the rescue of the Assessing Officer for bringing the deemed income on such unsold fiats to taxation under the head ‘income from house property’. In absence of enabling the provisions of the Income Tax Act, I am of the opinion that calculating the notional income in respect of the properties which were not rented out and rental income was never earned actually, the Assessing Officer’s policy to tax. such income is unsustainable in law in view of the various decisions cited in the preceding paragraphs of this order. Accordingly, the grounds raised by the assessee are allowed.”” 8. Considering the above the above settled proposition on this issue and following the rule of consistency, we find the order of the CIT(A) is fair and reasonable and it does not call for any interference. Therefore, the relevant grounds raised by the assessee are allowed.” 3. Thus, when we read the entire order of the ITAT in totality, we are of the opinion that ITAT has decided to follow the decision of ITAT in ITA 327/Pun/2018 in the case of Kumar Becharay Rathi (supra). In the case of Kumar Becharay Rathi (supra), the ITAT has held that in absence of enabling provisions calculating notional rental income from unsold flats is unsustainable. Therefore, the ITAT has M.A,.No.159/PUN/2022 Mahanagar Construction [R] 4 actually held that calculating notional rental income from Unsold flats which was stock in trade in A.Y.2014-15 is unsustainable. However, mistakenly, the ITAT in para 8 has mentioned that ld.CIT(A)’s order does not call for any interference. We are of the opinion that this sentence “CIT(A)’s order does not call for any interference. ” is a mistake apparent from record. Therefore, to that extent the ITAT order Para 8 shall be read as under : “we find the order of the Ld.CIT(A) is unsustainable qua notional rental income calculated for unsold flat and it does call for interference. ” in place of the sentence “ we find the order of the CIT(A) is fair and reasonable and it does not call for any interference” 3.1. To that extent, the Revenue’s Miscellaneous Application is dismissed and the ITAT’s order in ITA No.623/PUN/2018 is rectified. 4. In the result, Miscellaneous Application filed by the Revenue is Dismissed. Order pronounced in the open Court on 17 th April, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURI) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 17 th April, 2023/ SGR* M.A,.No.159/PUN/2022 Mahanagar Construction [R] 5 आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “ए” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.