TMI Blog2021 (9) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... Investments Pvt. Ltd.[ 2017 (6) TMI 1124 - ITAT DELHI] , Bhushan Steel Ltd. [ 2015 (9) TMI 1424 - DELHI HIGH COURT] therefore, we are of the view that the finding of the CIT(A) is quite justifiable which is not liable to be interfered with at this appellate stage. Income from house property - addition on account of alleged Notional Annual Letting value of unsold flat held as stock in trade - HELD THAT:- The issue is squarely covered by the decision of the sister concern case titled as Runwal Builders Pvt. Ltd [ 2018 (2) TMI 1707 - ITAT MUMBAI] in which the income has been assessed as income from business in similar circumstances. The Hon ble Gujarat High Court in the case of CIT Vs. Neha Builders Pvt. Ltd [ 2006 (8) TMI 105 - GUJARAT HIGH COURT] also speaks the same thing in the same sense. If, the property is used stock-in-trade then the said property would be become or part take the stock. Any income derived in stock would be the income from business and not the income from the house property. The assessee business is to construct the property and to sell and to construct and let out the same then it would be the income from business and accordingly liable to be treated. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 2,15,31,160/-. The AO also disallowed the expenses to earn the exempt income in view of the provisions u/s 14A r.w. Rule 8D to the tune of ₹ 1,70,01,211/-. The total income of the assessee was assessed to the tune of ₹ 7,57,05,230/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who treated the income from the Annual Letting Value of finished property as stock-in-trade as income from business and also restricted the addition u/s 14A r.w. Rule 8D to the extent of exempt income. Feeling aggrieved, the revenue has filed the present appeal before us. ISSUE NO. 1 5. Under this issue the revenue has challenged allowance of the disallowance of u/s 14A r.w. Rule 8D to the extent of exempt income. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: 6.2 It is observed that the assessee claims that during the relevant year it has not incurred any expenditure and has earned dividend income of only Ps. 2,8551-, therefore, the action of the AO of making the said disallowance u/s. 14A of Ps. 1,7001,211/- is not correct. It is observed that on this issue as to whether the disallowance u/s. 14A ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. State Bank of Patiala decided on 22.05 2017. 5. In view of the above, no substantial question of law arises in the present appeal and consequently, the appeal stands dismissed . 6.3 It can be observed that the Hon'ble P H High Court in the aforesaid case of State Bank of Patiala for AY 2010-11 had followed its own decision in the case of said assessee itself for AY 2009-10 and while giving its decision for AY 2009-10, the Hon'ble P H High Court had relied upon its own decision in the case of the said assessee itself for AY 2008-09. Therefore, the ratio laid out by the Hon'ble P H High Court in the case of State Bank of Patiala and its ultimate fate, becomes crucial. It is noted that the Hon'ble Supreme Court vide order dated 12.02.2018 had some time back decided the case of the said assessee i.e. State Bank of Patiala for AY 2008-09 along with the case of Maxopp Investments (91 taxmann.com 154). 6.4 The facts of the case of the said assessee i.e State Bank of Patiala for AY 2008-09 were that the AO had restricted the disallowance u/s 14A to the extent of exempt / dividend income. However, the FAA enhanced the addition which was subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in Slate Bank of Patiala also fail, though law in this respect has been clarified hereinabove. 6.5 From the aforesaid discussion, it can be observed that in the case of State Bank of Patiala for AYs 2008-09 as well as 2010-11, the Hon ble Supreme Court has approved the view that the amount of disallowance u/s 14A has to be restricted to the amount of exempt / dividend income earned. Thus, it can be observed that the Hon'ble Supreme Court has approved the ratio of the decision of the Hon'ble Delhi High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... becomes clear and beyond doubt when we refer to the factual position in the appeal preferred by the Revenue against the decision of the Punjab and Haryana High Court in the case of Pr CIT v. State Bank of Patiala (2017] 391 1TR 2187245 Taxman 273/78 taxman.com which was also decided with the decision in Maxopp Investment Ltd (Supra). In State Bank of Patiala (Supra) the Assessing Officer had applied Rule 80 of the Income Tax Rules 1962, but had restricted the disallowance to the amount claimed as exempt income. The Commissioner of Income-tax (Appeals) had enhanced and increased this disallowance as per Rule 80 of the Income Tax Rules, 1962. The said disallowance was more than exempt income. The Tribunal had reversed the finding of the Commissioner of Income-tax (Appeals) and restored the disallowance as made by the Assessing Officer i.e. restricted the disallowance to the extent of exempt income. Decision in the case of State Bank of Patiala (supra) of the Punjab and Haryana High Court was affirmed by the Supreme Court as the correct conclusion, though the Supreme Court did not agree with the reasoning of the Punjab High Court on the theory dominant intention. It was held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving at the disallowance. 4.7 Keeping the above principles in mind, we have perused the nature of investments held by the assessee which are extracted at Page 14 of the impugned order. We find that the investments have been classified by the assessee as Strategic investments, stock-in-trade investments in other shares / Venture Capital Fund. The assessee has already offered suo-moto disallowance @ 0.5% against investment in other shares Venture Capital Fund and therefore, there is no dispute against his category of investment. Therefore, the disallowance tinder dispute is against strategic investments stocks-in-trade, In the absence of adequate data before us, we direct the Ld AO to compute disallowance @ 0.5% against strategic investments stocks-in-trade after excluding therefrom those investments which have not yielded any exempt income during impugned AY or which were not, at all, capable of yielding any exempt income subject to a further condition that overall disallowance, in no case, shall exceed exempt income of Ps 131.46 lacs earned by the assessee during the impugned A Y This ground stands partly allowed in terms of our above order 6.8 In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct since it has not debited any expenditure in its accounts as related to earning of exempt income. Moreover, the assessee has placed reliance on a number of judicial decisions. 7.2 While adjudicating the issue as to whether the disallowance computed u/s 14A as per the regular provisions of the I T Act can be added while computing the book profits as per 115JB, the Hon'ble 'TAT, Mumbai in the case of JSW Energy Ltd (60 Taxmann.com 303), observed that it is a well-settled proposition of law that the AO does not have much scope to tinker with the accounts of the assessee which have been prepared in accordance with the provisions of the Companies Act, 1956 and which have been approved by the Registrar of Companies. The Hon'ble ITAT thereafter went on to hold that if the assessee has not debited any expenditure relating to the earning ot exempt income, the provisions of section 14A cannot be imported into computation of hook profits u/s 115JB since clause (f) of explanation to section 115JB only refers to those amounts which have been debited by the assessee to its P L account. Accordingly, the Hon'ble ITAT held that if no expenditure related to earning of exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has raised the following grounds: - 1. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of ₹ 2,15,31,160/- on account of alleged Notional Annual Letting value of unsold flat held as stock in trade, without considering the facts and circumstances of the case. 2. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in bringing to tax Notional Annual Letting value of unsold flats held as stock in trade, under the head 'Income from House Property', in terms of section 22 r.w.s. 23 of Income Tax Act, 1961, without considering the facts and circumstances of the case. The appellant craves leave to add, amend, alter or delete the said ground of appeal. 11. The facts of the present case are quite similar to the facts of the case mentioned above bearing ITA. No.6102/Mum/2019, therefore, there is no need to repeat the same. ISSUE Nos. 1 2 12. Issue nos. 1 2 are inter-connected, therefore, are being taken up together ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty and sell it or 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 to be stock in trade and any income derived from such stocks cannot be termed as income from house property. While holding so the Hon'ble High Court observed as under: - 8. True it is, 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 the stock, and any income derived from the stock, would 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 or 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 to be 'stock-in-trade', and any income derived from such stocks cannot 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) to the file of AO to compute the annual value. Recently the Hon ble Supreme Court in the case of M/s Chennai Properties Investments Ltd. Vs. 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 property 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 assessee company s main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business. On the very same analogy in the instant case, assessee is engaged in business of construction and development, which is main object of the assessee company. The three flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business stocks, which may include movable and immovable, would be taken to be stock-in-trade , and any income derived from such stocks cannot 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 . The Tribunal, in our considered opinion, was absolutely unjustified in comparing the rental income with the dividend income on the shares or interest income on the deposits. Even otherwise, this question was not raised before the subordinate Tribunals and, all of sudden, the Tribunal started applying the analogy. 9. From the statement of the assessee, it would clearly 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 the beginning was a stock-in-trade . 10. Agreeing with the submissions made by Mr. Naik, learned counsel for the Revenue, we hold that the Tribunal was not correct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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