2018 (12) TMI 1763 - AT - Income Tax

Revision u/s 263 - AO has not examined the taxability of unsold flat under the head Income from House Property and disallowance as per the provisions of section 36(1)(iii) - HELD THAT - Keeping in view the contrary decision of non-jurisdictional High Court we are of the view that issue is debatable and two views are possible. The Hon ble Supreme Court in Max India Ltd. s case 2007 (11) TMI 12 - SUPREME COURT held that when two views are inherently possible the provision of section 263 would not attract. We may refer here that the unsold flat was treated by assessee as stock-in-trade in its books of account. The flats sold by the assessee were assessed under the head Income from Business . Therefore in our considered view that the order for not bringing the unsold flats to tax at notional letting value under the head Income from Other Sources is not erroneous. The assessing officer has taken one of the possible views. Even otherwise sub-section (5) in section 23 was inserted by Finance Act 2017 and is applicable only from 01.04.2018 and not for the Assessment Year under consideration. Therefore the twin condition as prescribed under section 263 are not fulfilled in respect of first issue i.e. taxability of unsold flats under the head Income from House Property . Disallowance of interest u/s 36(1)(iii) in respect of payment made to PRS Developers - AO has taken starting figure of Rs. 739.66 Crore and reduced interest disallowance of Rs. 27.66 Crore however in the notice; the opening figure is taken as per assessment order. As per the working of notice the opening CWIP on 01.04.2012 should be Rs. 720.24 Crore whereas the opening CWIP determined by Assessing Officer is Rs. 711.90 Crore. The Assessing Officer has correctly worked out opening CWIP at Rs. 711.9 Crore and has reduced Rs. 14.27 Crore interest attributable for Assessment Year 2013-14. In our view The Assessing Officer has correctly worked out the CWIP as on 01.04.2012 at Rs. 711.90 Crore (Rs. 739.56 Crore - Rs. 27.66 Crore) and has reduced Rs. 14.27 Crore interest attributable for A.Y. 2013-14. Therefore the order is not erroneous and passed after due verification of fact. Hence the revision order is passed by ld. PCIT on second issue is also failed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Invocation of Section 263 of the Income-tax Act by the Principal Commissioner of Income-tax (PCIT).
2. Taxability of unsold flats under the head "Income from House Property."
3. Disallowance of interest under Section 36(1)(iii) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income-tax Act by the Principal Commissioner of Income-tax (PCIT):
The appellant contested the invocation of Section 263 by the PCIT, arguing that the order passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the revenue. The appellant maintained that the AO had considered all relevant details and taken one of the possible views, which should not be subject to revision. The appellant cited the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which established that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the revenue. The Tribunal agreed with the appellant, noting that the AO had indeed examined the issues and adopted a possible view, thereby making the invocation of Section 263 unwarranted.

2. Taxability of Unsold Flats under the Head "Income from House Property":
The PCIT argued that the AO should have taxed the unsold flats under "Income from House Property," referencing the Delhi High Court's decision in CIT v. Ansal Housing Finance & Leasing Co. Ltd. The appellant countered that the unsold flats were treated as stock-in-trade, and income from such stock should be considered "Income from Business," supported by the Gujarat High Court's decision in CIT v. Neha Builders (P.) Ltd. The Tribunal noted that the issue was debatable, with two possible views. Given that the AO had taken one of these possible views, the order could not be considered erroneous or prejudicial to the revenue. Additionally, the Tribunal highlighted that Section 23(5) of the Income-tax Act, which addresses the taxability of unsold flats, was applicable only from Assessment Year 2018-19 and not retrospectively.

3. Disallowance of Interest under Section 36(1)(iii) of the Income-tax Act:
The PCIT contended that the AO had incorrectly calculated the Capital Work-in-Progress (CWIP) and consequently the disallowance of interest. The appellant provided detailed explanations and calculations to demonstrate that the AO had correctly determined the CWIP and the interest disallowance. The Tribunal reviewed the AO's calculations and found them to be accurate, noting that the AO had reduced the interest disallowance correctly. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the revenue on this issue as well.

Conclusion:
The Tribunal held that the conditions for invoking Section 263 were not met in this case. The AO had taken a possible view on the taxability of unsold flats and correctly calculated the CWIP and interest disallowance. Therefore, the Tribunal allowed the appeal and set aside the PCIT's order.