TMI Blog2019 (4) TMI 2016X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the insertion of sub-section (5) in section 23 by the Finance Act, 2017, w.e.f. 01.04.2018 narrated hereinbefore, we set aside the order of the Ld. CIT(A). AO was not justified in bringing the unsold flat / units under income from house property. In the result the grounds of appeal raised by the assessee are allowed. Addition of interest expenditure under section 36(i)(iii) - assessee failed to prove that the interest paid has been utilized wholly and exclusively for the business purpose - HELD THAT:- Considering the decision of Tribunal in assessee s own case for earlier year [ 2018 (10) TMI 1910 - ITAT MUMBAI] and the facts that the ld CIT(A) has nor recorded its satisfaction that that he has examined the facts and the books of accounts of the assessee if the assertion of the assessee that out of ₹ 151.06 Crore a sum of ₹ 50.74 Crore was business advances, ₹ 80.78 Crore was advanced to subsidiary and ₹ 6.37 to associate concerns or when the interest free loans of ₹ 86.95 Crore was received by the assessee. Therefore, the grounds of appeal raised by the revenue are also restored back to the file of assessing officer to verify the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... builder and developer of projects. The assessee filed its return of income for Assessment Year 2013-14 on 28.09.2013 declaring income of ₹ 15 Crore (approx). The return of income was selected for scrutiny and the assessment was completed under section 143(3) on 31.03.2016. The assessee in the return of income has offered income earned on sale of flats/ units in different projects. The unsold flats/units in various projects were shown as stock-in-trade. The Assessing Officer prepaid the summary of unsold unit in different project in the following manner: S.No. NAME OF THE PROJECTS LOCALITY NO UNITS OF AREA IN SQ FEET 1 WESTERN EDGE I BORIVALI EAST 1 8227 2 WESTERN EDGE II BORIVALI EAST 16 22800 3 351 ICON ANDHERI EAST 8 10449 4 CHALLENGER THAKUR VILLAGE, ANDHERIDAHISAR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not on any notional calculations. The assessee-company holding the units/premises as stock-in-trade to earn business income. There is no intention on the part of assessee-company to earn rental income of those unsold units. Thus, the same cannot be taxed on the basis of notional ALV because the assessee-company is in occupation in the course of their business. The contention of assessee was not accepted by Assessing Officer. The Assessing Officer by relying on the decision of Hon ble Delhi High Court in Ansal Housing Finance and Leasing Company Ltd. (344 ITR 180 (Del) concluded that ALV of finished goods/units held by assessee at closing stock has to be treated as Income from House Property . The Assessing Officer worked out the ALV of unsold units at ₹ 1,57,30,988/- and after granting 30% deduction of ₹ 47,19,296/- treated the remaining of ₹ 1,10,11,692/- as Income from House Property . 5. The Assessing Officer also noted that the assessee has taken huge unsecured loan and also given loan and advances. The assessee also claimed interest expenditure of ₹ 85.69 Crore on unsecured loan against the interest income of ₹ 68.58 Crore on loan and advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o on interest is ₹ 17.11 Crore. The assessing officer further took his view that the assessee has not brought on record any commercial expediency for advancing interest free friendly loan. The assessee has paid interest ranging from 9% to 21%. The Assessing Officer worked out 17% interest on friendly loan and thereby disallowed ₹ 2.35 Crore under section 326(1)(iii). 6. On appeal before the ld. CIT(A), the addition on account of ALV of unsold unit was upheld. However, the addition on account of disallowance under section 36(1)(iii) was deleted. Thus, aggrieved by the order of ld. CIT(A), both the parties have filed their respective cross appeals by raising the grounds of appeal which we have referred above. 7. We have heard the submissions of the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and have gone through the orders of authorities below. In support of ground of appeal, the ld. AR of the assessee submits that the assessee is a builder and developer, the assessee has shown the unsold unit as stock-intrade and the income derived from such stock-in-trade cannot be termed as Income from House Prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was made by assessing officer was upheld by ld CIT(A), however on appeal before Tribunal the same was deleted in ITA No. 6686/Mum/2016 vide order dated 31.10.2018. The relevant part of the decision is extracted below: 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. On the above issue, we come across one decision for the assessee and another decision for the revenue. The decision in Neha Builders Pvt.Ltd.(supra) is for the assessee, whereas the decision in Ansal Hsg. Finance Leasing Co. Ltd.,(supra) is for the Revenue. The Hon ble Supreme Court in the case of CIT v. Vegetable Products 88 ITR 192 (SC) has held that if two reasonable constructions of a taxing provisions are possible, that construction which favours the tax payer must be adopted. Thereby, we will follow the decision in Neha Builders Pvt.Ltd. (supra). 7.1 The following sub-section (5) has been inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 01.04.2018: (5) Where the property consisting any building or land appurtenant thereto is held as stock-in-trade and the property or any part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from stock would not be taken to be Income from House Property. The Hon ble High Court further held that business of the assessee is to construct the property and sale it, then that would be the business and business stock, would be taken as stock-in-trade and any income derived from such stock cannot be termed as Income from House Property . 5. In the case in hand, there is no dispute that assessee treated the unsold unit is treated as stock-in-trade in its books of account. Further, the unit sold by the assessee has been offered under the head Income from Business . Thus, the unsold flat which are stock-in-trade, when are sold, they are assessable under the head Income from Business and therefore, the Assessing Officer is not correct in bringing those units to tax on the basis of notional ALV under the head Income from House Property . 6. We are conscious of the fact that the decision of Hon ble Delhi High Court in Ansal Housing Financing Leasing Co. Ltd. (supra) is against the assessee. The Hon ble Supreme Court in case of CIT vs. Vegetable Products Ltd. (88 ITR 92) held that wherein two reasonable construction to tax provision are possible that constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the rental income received from any property in the construction business can be claimed under the head 'income from property' even though the said property was included in the closing stock. The Hon'ble Gujarat High Court held that 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 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 'stockin-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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in the case of Ansal Housing Finance Leasing Co. Ltd., 354 ITR 180 (Delhi) in support of the proposition that even in respect of unsold flats by the developer is liable to be taxed as income from house property. 5. We have considered rival contentions and perused the record. The issue under consideration has been restored by 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le as income from the house property. However, there is contrary view of Hon ble Gujarat High Court in Neha Builders (supra) 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 income derived from the stock, would be income from the business, and not from the property. If the business of the assessee is to construct the property and to sell it or to construct and let out the same, then would be the business and the business stocks, may included moveable or immoveable, would be taken to be stock in trade and any income from such stock cannot be termed as income from property . There is no direct decision on this issue by Jurisdictional High Court; therefore, the view in favour of the assessee has to be adopted in view of decision of Hon ble Apex Court in CIT Vs Vegetable product Ltd. (88 ITR 192 SC). As we have already referred that sub-section (5) in section 23 was inserted by finance Act 2017 w.e.f. 01.04.2018; therefore, the same is not applicable for the assessment year under consideration. 11. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deliberated on various case law relied by the lower authorities and the ld Representatives. We have noted that the ld CIT(A) while granting relief to the assessee has not given any finding that he has examined the facts and the books of accounts of the assessee if the assertion of the assessee that out of ₹ 151.06 Crore a sum of ₹ 50.74 Crore was business advances, ₹ 80.78 Crore was advanced to subsidiary and ₹ 6.37 to associate concerns or when the interest free loans of ₹ 86.95 Crore was received by the assessee. We have further noted that similar disallowances was made against the assessee for AY 2012-13 and on appeal before the Tribunal the issue was restored to the file of assessing officer vide order dated 31.10.2018 in ITA No. 6686/Mum/2016 with the following directions: 12.We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. In the case of Reliance Utilities Power Ltd. (supra), the assessee claimed deduction of interest on borrowed capital. The AO recorded a finding that the sum of ₹ 213 crores was invested out of its own funds and ₹ 147 crores w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istical purposes. 16. Considering the decision of Tribunal in assessee s own case for earlier year and the facts that the ld CIT(A) has nor recorded its satisfaction that that he has examined the facts and the books of accounts of the assessee if the assertion of the assessee that out of ₹ 151.06 Crore a sum of ₹ 50.74 Crore was business advances, ₹ 80.78 Crore was advanced to subsidiary and ₹ 6.37 to associate concerns or when the interest free loans of ₹ 86.95 Crore was received by the assessee. Therefore, the grounds of appeal raised by the revenue are also restored back to the file of assessing officer to verify the facts and pass the order in accordance with law and as per the directions of the order dated 31.10.2018 in ITA No. 6686/Mum/2016. In the result the grounds of appeal raised by the revenue are allowed for statistical purpose. 17. In the result, appeal of revenue is allowed for statistical purpose. ITA 7289/Mum/2018 for AY 2014-15 by assessee. 18. The assessee has raised identical grounds of appeals as raised in appeal for AY 2013-14, which we have already noted that the facts for the year under consideration is also ident ..... X X X X Extracts X X X X X X X X Extracts X X X X
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