TMI Blog2020 (11) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee - ITA Nos.2372 & 1860/Mum/2019 - - - Dated:- 3-11-2020 - Shri Shamim Yahya, Accountant Member And Shri Ravish Sood, Judicial Member For the Appellant : Dr. K. Shivram, Senior Advocate And Ms.Ne elam J adhav, A.R For the Respondent : Shri Uodal Raj Singh, D.R ORDER PER RAVISH SOOD, JM The captioned appeals filed by the assessee are directed against the respective orders passed by the CIT(A)-44, Mumbai, dated 08.02.2019, which in turn arises from the assessment orders passed under Sec.143(3) of the Income Tax Act, 1961 (for short Act ), dated 02.12.2016 and 30.11.2017 for A.Y. 2014-15 and A.Y. 2015-16, respectively. As the issues involved in the captioned appeals are inextricably interlinked or in fact interwoven, the same are therefore being taken up and disposed off by way of a consolidated order. We shall first take up the appeal of the assessee for A.Y. 2014-15 wherein the impugned order has been assailed before us on the following effective grounds of appeal: 1. The learned CIT(A) erred in confirming the addition of ₹ 43,15,097/- made by the AO in respect of unsold f lats which were held as stock in trade as income from house prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was submitted by the assessee that as the income on the sale of the unsold flats forming part of its closing stock was liable to be assessed as its business income and not as income from house property, therefore, the ALV of the said flats was not exigible to tax under the head income from house property. It was further submitted by the assessee that as the aforesaid property was acquired in the course of its business as that of a builder and developer and not for the purpose of letting out, therefore, it could not be subjected to tax under the head house property. The assessee tried to distinguish the facts involved in its case as against those which were there before the Hon ble High Court of Delhi in the case of Ansal Housing Finance and Leasing Company Ltd.(supra). However, the A.O was not persuaded to subscribe to the aforesaid claim of the assessee. Observing, that the Hon ble High Court of Delhi in the case of Ansal Housing Finance and Leasing Company Ltd. (supra), had held, that the tax incidence did not depend upon whether the assessee had actually rented out the property with an intention of carrying on business but on the factum of ownership, the A.O held a convic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 200 3763560 Occupation Certificate received on 31.01.2013 2. 300 3826760 Occupation Certificate received on 31.01.2013 3. 1300 3826760 Occupation Certificate received on 31.01.2013 4. 1400 3763560 Occupation Certificate received on 31.01.2013 5. 1500 3826760 Occupation Certificate received on 31.01.2013 6. 1600 3763560 Occupation Certificate received on 31.01.2013 7. 1700 3826760 Occupation Certificate received on 31.01.2013 8. 1800 3763560 Occupation Certificate received on 31.01.2013 9. 1900 3826760 Occupation Certificate received on 31.01.2013 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that were held by the assessee firm, a real estate developer, as its stock-intrade for the year under consideration. It was the claim of the ld. A.R that as the flats in question were held by the assessee firm as stock-in-trade and not as an investment, therefore, the ALV of the same could not have been determined and brought to tax in its hands. It was submitted by the ld. A.R that now when the aforesaid unsold flats were held by the assessee firm as stockin- trade of its business as that of civil construction and development of properties and the income on sale was assessable as its business income, the ALV of the said flats, thus, could not have been brought to tax in the hands of the assessee firm under Sec. 23(1) of the Act. In support of his aforesaid contention the ld. A.R relied on the judgment of the Hon ble High Court of Gujarat in the case of CIT vs. Neha Builders (2008) 296 ITR 661 (Guj). It was submitted by the ld. A.R that the Hon ble High Court in its said judgment, had observed, that if a property is used as stock-in-trade, then the same would become or partake character of stock and any income derived from the stock would be Income from business and not Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property. The ld. A.R in his attempt to distinguish the facts involved in the present case submitted, that unlike the facts involved in the case before the Hon ble High Court, the issue involved in the present case was as to whether or not the ALV of the property held by the assessee, a real estate developer, as stock-in-trade, was to be determined and therein brought to tax in its hands under the head income from house property. As such, it was the claim of the ld. A.R that as the present assessee was not in receipt of any rental income, therefore, the facts involved in its case were clearly distinguishable as against those involved in the case before the Hon ble High Court. Alternatively, it was submitted by the ld. A.R. that the lower authorities had erred in determining the gross ALV of the properties in question on an ad hoc basis @ 8% of their value. 6. Per contra, the ld. Departmental Representative (for short D.R ) relied on the orders of the lower authorities. It was submitted by the ld. D.R that the issue was squarely covered against the assessee by the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Gundecha Builders (2019) 102 taxmann.com 27 (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -trade of its business as that of a real estate developer, the said rental receipts was to be assessed under the head house property. Accordingly, the issue before the High Court in the aforesaid case was as to under which head of income the rental receipts were liable to be assessed. Finding favour with the claim of the assessee, it was observed by the High Court that the rental income received from letting out of the unsold portion of the property constructed by the real estate developer was assessable to tax as its income from house property. Beyond any scope of doubt, the issue before the Hon ble High Court was as to under which head of income the rental receipts were to be taxed i.e as business income or income from house property . Unlike the facts involved in the case before the High Court, in the case before us, the flats held by the assessee as stock-in-trade of its business of a builder and developer, having not been let out, had thus not yielded any rental income. As the Hon ble High Court of Bombay in the case of Gundecha Builders (supra) was seized of the issue as to under which head of income the rental income received from the unsold portion of the property constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stock would be 'income from the business and not income from the property. In the backdrop of the conflict between the decisions of the aforesaid non-jurisdictional High Courts, as observed by the Hon ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom) , the view which is in favour of the assessee has to be preferred as against that taken against him. Accordingly, following the judgment of the Hon ble Jurisdictional High Court in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), we respectfully follow the view taken by the Hon ble High Court of Gujarat in the case of CIT vs. Neha Builders (2008) 296 ITR 661 (Guj). In fact, we find that the issue as to whether the ALV of a property held by an assessee as stock-in-trade of its business as that of a real estate developer had earlier came up before a SMC bench of the ITAT, Mumbai in the case of Shri. Rajendra Godshalwar Vs. ITO-21(3)(1), Mumbai [ITA No. 7470/Mum/2017, dated 31.01.2019] . The Tribunal after considering the judgment of the Hon ble High Court of Delhi in Ansal Housing Finance Leasing Co. Ltd. (2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 under 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 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 house property'. Thus, we direct the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 value of such property or part of the property, for a period up to one year [ two years vide the Finance Act, 2019 i.e w.e.f 01.04.2020] 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. As the said statutory provision i.e Sec. 23(5) is applicable prospectively i.e w.e.f A.Y 2018-19, the same, thus, would have no bearing on the year under consideration in the case of the present assessee before us. Our aforesaid view is fortified by the aforesaid order of the ITAT, Mumbai in the case of Shri. Rajendra Godshalwar Vs. ITO-21(3)(1), Mumbai [ITA No. 7470/Mum/2017, dated 31.01.2019], wherein in context of the said aspect it was observed as under: 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 said 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lats which were held as stock in trade as income from house property on notional basis as deemed rental income by applying 8% of value of the unsold flats as income from house property. 2. The learned CIT(A) failed to appreciate that the flats are held as stock in trade and not as investment , hence addition made by the AO on notional basis as deemed rental income and the same is confirmed by the CIT(A) may be directed to be deleted. 3. The learned CIT(A) failed to appreciate the appellant could not have let out the properties as the f lats were meant for sale as soon as the prospective buyers approach and inspect the f lats, hence it was not possible to let out. Therefore, addition only on notional basis may be directed to be deleted. 4. Without prejudice to above, amendment to S.23(5) is inserted w.e.f . 01/04/2018, hence there cannot be any addition on notional basis in respect of flats held as stock in trade for the year under consideration. 5. Without prejudice to above, the even on rental basis the assessee cannot get more than 2% return on investment, hence the estimate of notional rent @ 8% of investment being illogical, may be directed to be deleted. 6. Wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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