9911796707
TMI Blog2022 (3) TMI 1345X X X X Extracts X X X X X X X X Extracts X X X X ..... t, which says no action can be taken for reopening of an assessment after four years unless the AO has reason to believe that income had escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment; thus all the proceedings deserve to be declared void ab-initio. 2. On the facts, in totality of the circumstances and in law the lower authorities failed to appreciate while making/sustaining the addition that the provisions of section 23(5) of Income Tax Act, 1961 were inserted by Finance Act, 2017 and made applicable w.e.f. 01.04.2018 hence these provisions cannot be applied retrospectively i.e. in AY 2010-11 on stock in trade. It is contended that the amendment clearly applies prospectively and since a separate sub section (5) was inserted in section 23, it is clear that the legislative intent is that the peculiar situation in sub section (5) was not already covered by sub section (1) of section 23 and ld. CIT (A) decided this issue on wrong facts. 3. On the facts and in the circumstances and in law the ld. CIT (A) erred in sustaining the action of ld. AO of estimating the ALV of unsold stock of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee filed its original returns of income under section 139(1) of the IT Act for these two assessment years and scrutiny assessments for AY 2010-11 under section 143(3) of the IT Act was passed by the AO on 28.03.2013. Subsequently the AO has reopened the assessments by recording the reasons which are common for both these years except the relevant date of filing of the returns and completion of the assessments under section 143(3) to assess the income from house property in respect of the closing stock in the said commercial complex in view of the finding that the assessee has failed to declare rental income of Rs. 30,35,256/- for the assessment year 2010-11 and Rs. 48,14,460/- for the assessment year 2011-12. The AO completed the reassessments under section 147 read with section 143(3) for both the years and made the additions on account of income from house property by determining the annual letting value of the closing stock being 25,810 sq. ft. of constructed area @ Rs. 24/- per sq. ft. for the A.Y. 2010-11 and 19,105 sq. ft. of constructed area @ Rs. 30/- per sq. ft. for the A.Y. 2011-12 of the said commercial complex. The assessee challenged the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was any subsequent factual information on the basis of which it was found that the assessee had not fully disclosed the primary facts or had falsified or disclosed incorrect primary facts. The facts on the basis of which the assessment of the assessee is reopened was already available with ld. AO at the time of assessment proceedings and the same was duly examined in the assessment of the assessee completed u/s 143(3) of Income Tax Act, 1961. It is further relevant to mention here that during the course of assessment proceedings completed u/s 143(3) of Income Tax Act, 1961 the ld. AO herself treated the rental income shown by the assessee as income from business & profession which shows that this issue has already examine during the assessment proceedings and during the course of assessment proceedings the ld. AO was in conscious view that no deemed rental should be taxed on stock in trade. In view of above submission this is to submit that reassessment proceedings initiated u/s 148 of Income Tax Act, 1961 is bad in law, void-ab initio and deserve to be annulled." The ld. A/R has submitted that this objection of the assessee was not disposed off by the ld. AO while passing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial facts necessary for his assessment for that assessment year. The ld AO has not pointed out any default of assessee as contemplated in proviso to section 147 of the Income Tax Act in the reasons recorded for reopening of the assessment as well as in the order passed for disposing off the objection raised by the assessee for reopening the assessment proceedings. The proceeding u/s 147 of the I.T. Act initiated in violation of proviso to section 147 of I.T Act inspite of the fact that no income chargeable to tax has escaped assessment for the assessment year 2010-11 by the reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the said assessment year. 5.1 The ld. A/R further submitted that the obligation of the assessee is only to disclose facts and no obligation to indicate legal inference and no allegation of ld AO that the assessee had not fully disclosed the primary facts or had falsified or disclosed incorrect primary facts. It is further relevant to mention here that the obligation of the assessee is to disclose fully and truly the primary or material facts during the course of assessment proceedings w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had no income in British India chargeable to tax-He could not now seek to reassess the assessee on the ground of failure to disclose fully and truly the facts necessary for assessment (ii) Hon'ble Rajasthan High Court in the case of Commissioner of Income Tax, Udaipur v/s M/s Hindustan Zinc Ltd 393 ITR 264. (PB page 179-186) Hon'ble Rajasthan High Court discussed the various issues and case laws in para 4 to 11 and concluding findings were made in para 12 and 13 as under:- 12. In the backdrop of the settled position of law noticed hereinabove adverting to the facts of the present case, it is to be noticed that the assessee had made true and full disclosure of all relevant facts relating to the claim of additional depreciation and also in respect of claim for grant of deduction under Section 80 IA. A separate audit report in the prescribed form 10CCB in support of the claim for deduction under Section 80IA/80IB was also duly submitted. The assessee had also submitted reply pursuant to all queries made by AO during the assessment proceedings under Section 143(3) of the Act. In this view of the matter, the contention sought to be raised by the Revenue about non-disclosure on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the proviso to section 147 is not applicable in the case cited by ld CIT(A). 5.3. In view of above submissions, the ld. A/R prayed that the order passed u/s 143(3) read with section 147 of Income Tax Act, 1961 is bad in law, void-ab initio and deserve to be annulled. 6. In respect of Ground No. 2 & 3 regarding estimating the ALV of immovable property held as stock-in-trade, the ld. A/R of the assessee submitted detailed submissions as under :- a) The assessee is a builder and constructed a building naming Krishna Square and the saleable area in this building was offices situated at first floor, second floor and third floor and unsold offices were held by it as stock in trade. The assessee has also obtained booking advance from the customers against the sale of office. The assessee's business was not to let out the properties and it has constructed the offices with intention not to let out the same but the same were constructed with intention to sell the same. However, out of the units/space remained unsold (in stock), a few areas was let out in order to motivate the customers for buying the units and occupying the units. The whole intention was to show the prospective buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same is business assets of the assessee, therefore the provisions of "Income from House Property" cannot be applied thereon. Whenever the unsold stock of this year was sold, the income therefrom was shown as income from business or profession not under Income from Capital Gain which is clear from the following chart:- Financial Year Assessment Year Area in sq ft sold Sale Consideration (Rs) Income offered as business income (Rs) 2010-11 2011-12 6705.75 2,04,27,000 17,60,590.70 2011-12 2012-13 5535.25 1,81,36,000 19,33,726.88 2012-13 2013-14 1934.75 69,13,000 -3,17,251.40 2013-14 2014-15 341.00 15,00,000 46,694.64 2014-15 2015-16 990.00 48,62,000 16,89,933.37 2015-16 2016-17 1501.50 93,00,000 4,97,844.41 2016-17 2017-18 6146.25 3,86,94,000 94,38,914.00 2017-18 2018-19 1470.00 85,00,000 32,01,507.00 2020-21 2021-22 300.00 24,25,000 7,48,836.00 Total 24,924.50 11,07,57,000 1,90,00,795.60 Since the provisions "Income from House Property" are not applicable on the properties lying as stock in trade the provisions of taxing the deeming rent (ALV) will also be not applicable on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be let out because the same were constructed with intention to sales, therefore the same has to be keep vacant to handing over the possession to the buyer as and when the some buyer ready to buy such units. d) In this regard we would like to draw your kind attention towards the provisions of section 23(5) of Income Tax Act, 1961 which were inserted by Finance Act, 2017 and made applicable w.e.f. 01.04.2018: - (Copy at PB Page No. 168) "Following sub-section (5) shall be inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 1-4-2018 : (5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-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 the period up to *[two years] 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." * substituted by two years from one year w.e.f. 01/04/2020 The ld AO has given finding that the assessee has declared its rental incomeas incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market. The issue involved was - since assessee was not owner of property in question and taking of property on lease and sub-letting portions thereof was part of business and trading activity of assessee, income from said property was assessable under section 10 of 1922 Act as business income - or income from other source u/s 12 of 1922 Act. h) We place the reliance on following decisions: - i) In the case of CIT vs. Neha Builders Pvt. Ltd. (296 ITR 661) (Gujarat) (Copy at PB Page No. 140-141) held that if the business of the assessee is to construct the property and sell it 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". ii) 2021 (9) TMI 1069 - ITAT Mumbai in the case of Dy. Commissioner of Income Tax, Central Circle - 4 (1) , Mumbai Versus M/S Kanakia Spaces Pvt. Ltd In ITA No. 323/Mum/2020 Dated 24/08/2021. Held as under:- (Copy At PB Page No 142-151) iii) 2018 (6) TMI 1781 - ITAT Mumbai M/S Sarang Property Developers Pvt. Ltd. Versus ACIT, Central Circle 4 (1) , Mumbai Held as under:- (Copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's business was not to let out the properties and it has not constructed the offices with intention to let out the same but the same were constructed with intention to sell the same and on sale the profit from the office was taxable under business income. However, out of the units/space remained unsold (in stock), a few areas was let out in order to motivate the customers for buying the units and occupying the units. The whole intention was to show the prospective buyers that people are occupied the units and very soon the market rate of the units will jump. This motivates the marketing of the units as well as stops the cancellation of booking. However, the area was let out on temporarily basis. It is further relevant to mention here that the assessee is a builder and has taken the booking advance from several parties against units and the assessee is under obligation to deliver possession of unsold stock to the concerning parties and such units cannot be let out by the assessee. In case the stock is let out and possession from the tenant is not taken back the buyers of the units may create a legal problem. After executing the agreement of booking or taking the advance agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only casual letting only for 51 days. Therefore, the rent given by M/s Mobitel Telelink Pvt. Ltd. for two offices at second floor that too only for one month cannot be adopted as basis to estimate ALV for the other offices at first floor, second and third floor. The rate of rent of particular property let out to particular partycannot be applied on the whole units because of factor of location of property its floor, area of property and period for which the property is to be let out. etc..Therefore the ALV of entire building cannot be estimated on the basis of rent received against single property that too for few periods. (iv) The ld AO has not carried out any independent inquiry to ascertain the lettable value of the property in nearby other properties located in the area. He has also not made any inquiry from local authorities to know municipal value or rental value estimated by them for house tax purposes. Therefore the rate of Rs. 24/- per sq. feet cannot be charged on the all units as the letting rate of each units depends on its size, location and floor on which situated. m) The ld AO assessed the ALV for 25810 sq ft area @ Rs. 24/- per sq ft per month for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o) The ld CIT(A) has relied upon the following decisions and the ratio laid down in these decisions are not applicable to the case of assessee:- i) CIT v/s Ansal Housing Finance & Leasing Co Ltd (Delhi High Court) In this case charging section 22 has not been discussed in the case. Further the SLP filed by the assessee has been admitted in Hon'ble Supreme Court which is pending as on today. Further so many benches of Hon'ble ITAT has followed the ratio laid down by Hon'ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Neha Builders (P.) Ltd. (supra) for deciding this issue. Further the ratio laid down by Hon'ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Neha Builders (P.) Ltd. (supra)should be followed in view of decision of Hon'ble Supreme Court of India in the case of CIT Vs. Vegetable Products Ltd. reported as 88 ITR 192. It is a well settled law that when two divergent views of non-jurisdictional High Courts are available and there is no decision on the issue from the Jurisdictional High Court, the view in favour of the assessee has to be adopted. ii) Susham Singla Vs CIT 247 Taxman 312 (SC) The facts of this case are dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed u/s 143(3) on 29.03.2013 on total income of Rs. 1,60,17,160/-. The assessee company has derived income from construction/development and sale of building. During the year under consideration, the assessee has completed construction of commercial complex namely Krishna Square. It has been found that the construction of building was completed on 31.08.2009. The assessee has rented 1246 sq. ft. area for Rs. 30,000/- per month which gives Rs. 24/- per sq. ft. per month but no income was declared for remaining construction area of 25,810 sq. ft. adopting the fair market value of Rs. 24/- per sq. ft. per month, the ALV of unsold stock work out at Rs. 43,36,080/-. After deduction u/s 24(a), the rental income which needs to be brought to tax worked out to Rs. 30,35,256/-as construction of property was completed on 31.08.2009. Thus, I have reason to believe that the assessee has failed to declare rental income of Rs. 30,35,256/- and it has failed to disclose fully and truly all material facts necessary for assessment. Looking to the facts discussed above, I have reasons to believe that income to the extent of Rs. 30,35,256/- has escaped assessment within the meaning of section 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngible material for forming the belief, the same shall be subject to the fulfillment of the conditions as prescribed in the first proviso to section 147 of the IT Act. There is no allegation by the Assessing Officer in the reasons recorded that the income proposed to be assessed in the reassessment proceedings has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Even otherwise, we find that all the relevant material in respect of the issue of assessment of rental income of the unsold stock was already available with the Assessing Officer at the time of scrutiny assessment. Hence, when the original assessment was framed under section 143(3) and the reopening is after the expiry of four years from the end of the relevant assessment year then the Assessing Officer is not permitted to reopen the assessment until and unless the conditions prescribed in the proviso to section 147 are satisfied. The Assessing Officer himself has not alleged that the income proposed to assess has escaped assessment for want of disclosure of all material facts necessary for assessment. The ld. Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A/R of the assessee has controverted the finding of the ld. CIT (A) on merit by stating that in the case of CIT vs. Ansal Housing Finance & Leasing Co. Ltd. (supra) the charging section 22 has not been discussed. Further the SLP filed by the assessee has been admitted in Hon'ble Supreme Court which is pending decision. The ld. A/R submitted that the benches of the ITAT has followed the ratio laid down by Hon'ble Gujarat High Court in the case of CIT vs. Neha Builders (P) Ltd. 296 ITR 661 (Guj.) for deciding this issue. Further the ratio laid down by Hon'ble Gujarat High Court in the case of CIT vs. Neha Builders (Pvt.) Ltd (supra) should be followed in view of the decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., 88 ITR 192 (SC). The ld. A/R further submitted that it is a well settled law that when two divergent views of nonjurisdictional High Courts are available and there is no decision on the issue from the Jurisdictional High Court, the view in favour of the assessee has to be adopted. 11. As regards the decision in case of Susham Singla vs. CIT (supra), the ld. A/R submitted that the facts of this case are distinguishable. In this case also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the 4th floor of the property is unauthorized construction as beyond the sanctioned plan and, therefore, the Municipal Authorities have already proposed action for demolition of the said property against which the assessee has approached the Hon'ble High Court for protection of the property in question. Further, it is also not disputed that the solitary tenant at the 4th floor had already vacated the premises after the local authorities have proposed to demolish the said construction. Thus in view of the fact that the 4th floor of the property is facing the demolition action by the local authorities for being unauthorized, the ALV of such property cannot be determined by considering the rent for which the ground floor of the property or the other portion of the said complex was let out. The income from house property is measured as annual value of the property and section 23(1) contemplates the manner in which annual value of the property has to be determined. Since the property in question is newly constructed property and has never been let out, therefore, the provisions of section 23(1)(a) envisages the method for determining the ALV of such property. The AO has to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property in question is newly constructed and held as stock-in-trade, therefore the vacancy of the property being not let out is not intentional or deliberate act on the part of the assessee but it is beyond the control of the assessee to find a tenant for such unauthorized construction. Once the non-letting of the property is not due to the reason of intentionally keeping vacant by the assessee but it is because of the fact and circumstances that the said space could not be let out despite the best efforts of the assessee, the benefit of vacancy under section 23(1)(c) would be available to the assessee. For ready reference, we quote the provisions of section 23(1) as under :- " 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the 57sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let57 and the actual rent57 received or receivable57 by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le as income in the case of builder since the property is not constructed for letting out but the same is held for sale and actually was sold out on subsequent dates. Further, the builders take booking advance from several parties against the units and is under obligation to deliver possession of unsold stock to the concerned parties and such units cannot be let out by the builder. Therefore in absence of any specific provision in law ALV of stock in trade cannot be taxed. The sub-section (5) of section 23 was inserted by Finance Act 2017 with effect from 01.04.2018. The amended provision of sub section (5) of section 23 allows relaxation from taxability of ALV on unsold stock for the period upto 2 (two) years from the end of the financial year in which the certificate of completion of construction of the property is obtained. In the case of the assessee, construction of the property was completed on 31.08.2009. Therefore, even if we consider the relaxation period upto two years as envisaged in section 23(5), the ALV on unsold stock cannot be taxed for assessment year 2010-11 and 2011-12. Accordingly, following the earlier order of this Tribunal and considering the decisions of oth ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
