TMI Blog2022 (6) TMI 1271X X X X Extracts X X X X X X X X Extracts X X X X ..... . We find that the issue in dispute is no longer res-integra in view of the decision of this Tribunal in the case of Pegasus Properties (P) Ltd [ 2021 (12) TMI 1210 - ITAT MUMBAI ] to hold that no addition on account of deemed rental income could be made in respect of unsold stock of flats held as stock in trade upto A.Y.2017-18. However, the amendment has been brought in the statute in Section 23(5) from A.Y.2018-19 providing a moratorium period of two years. Hence, no addition could be made even for A.Y.2018-19 also. Accordingly, the addition made towards notional rent is hereby directed to be deleted both under normal provisions of the Act as well as in the computation of book profits u/s.115JB. Addition u/s.43CA - Addition deleted as difference in value between the stamp duty authority and the consideration reported by the assessee is less than 10% - whether this proviso could be given retrospective effect so as to confer benefit to the assessee in the instant case? - HELD THAT:- We find that this issue is no longer res integra in view of the decision of this Tribunal in the case of Maria Fernandes Cheryl vs. Income Tax Officer [ 2021 (1) TMI 620 - ITAT MUMBAI] whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Jurisdictional High Court in the case of Pruthvi Share Brokers referred to supra, the loss even though not claimed by the assessee in the return of income would be eligible for carry forward to subsequent years. In any case, the law is very settled that there is no estoppel against this statute and Revenue cannot take undue advantage of the ignorance of the assessee and that Article 265 of the Constitution clearly mandates that no tax shall be collected except by an authority of law. Hence, it is obligatory on the part of the ld. AO to educate the assessee of its legitimate rights and duties. Accordingly, we do not find any infirmity in the action of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the ground No.2 raised by the Revenue is dismissed. MAT computation - whether the assessee is entitled for reduction towards an item which is mentioned as an audit qualification in the statutory audit report, while computing book profits u/s.115JB? - HELD THAT:- As the financial statements prepared in accordance with part II part III of the Schedule-VI of the Companies Act, 1956, should be read together with notes on accounts and the audit qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in these appeals and hence, they are taken up together and disposed of by this common order for the sake of convenience. 2. The ld. DR before us requested that appeal for the A.Y.2017-18 may be taken up first. Accordingly, we are taking up the assessee s appeal for A.Y.2017-18 in ITA No.1954/Mum/2020. 2.1. Though the assessee has raised several grounds, the only issue involved in this appeal is whether the ld. CIT(A) was justified in confirming the addition made on account of notional rent from house property in respect of flats held as stock in trade by the assessee in the facts and circumstances of the instant case. 3. We have heard rival submissions and perused the materials available on record. We find that assessee is in the business of real estate construction and development in India. The ld. AO noted that assessee had certain flats as unsold finished stock in its balance sheet and these represented the house properties owned by the assessee. The details of such unsold finished stock of flats which were shown as stock in trade were furnished by the assessee before the ld. AO together with their cost of construction. The assessee was asked to provide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, the entire order is reproduced hereunder:- This appeal by the assessee is directed against the order passed by the CIT(A)-7, Pune on 01.09.2017 in relation to the assessment year 2013-14. 2. The assessee has assailed confirmation of addition of Rs.1,47,65,688/- towards deemed rental income on stock-in-trade of unsold flats/bungalows held by the assessee, as a first major issue. Succinctly, the factual panorama of the case is that the assessee has been engaged in the business of development of properties with the projects `Kumar Infinia' and `Kumar Picasso' ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited having certain unsold flats/bungalows for ready possession at the year end. The AO opined that the assessee ought to have offered deemed notional rental income on such vacant flats/bungalows. The assessee submitted that the flats/bungalows were its stock-in-trade, from which no income could be taxed under the head 'Income from house property'. Relying on judgment of the Hon'ble Delhi High Court in CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del), the AO computed the annual letting value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its part goes outside the ken of section 22, not requiring computation of the annual letting value therefrom. Let us see if the above conditions are satisfied in the instant case ad seriatim. 6. The first condition is that the property or its part should be occupied by the assessee as an owner. The assessee is engaged in the business of developing buildings. Admittedly, the assessee is owner of the flats/bungalows lying unsold at the year end. Now the question is whether these flats etc. can be said to be `occupied' by the assessee? The term `occupy' has neither been defined in section 2 (general definitions under the Act) nor section 27 (definitions relating to income from house property). Rather it is defined nowhere in the Act. In such a scenario, we will have to understand its connotation in common parlance. The term `occupation' (in land law) has been defined in the Oxford Dictionary of Law to mean `the physical possession and control of land'. Thus, occupation of a property means having its physical possession coupled with dominion rather than the physical possession coupled with actual use. Once a property is in physical possession and control of a ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of occupation of the flats is to hold them either for readying them for final sale or during the interregnum from the ready stage to sale stage, which satisfies the test of `for the purpose of business'. 9. The last condition is that profits of such business or profession should be chargeable to income-tax. It is indisputable that the ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited profits of the business of property development by the assessee are chargeable to income-tax. 10. On a bird's-eye view, we find that that flats/bungalows are occupied by the assessee owner; business of property development is carried on by the assessee; the occupation of the flats etc. is for the purpose of business; and profits of such business are chargeable to income-tax. Ergo, all the four conditions for exclusion from section 22 of the Act are cumulatively satisfied in the present case. 11. The authorities below have canvassed a view that the annual letting value of flats/bungalows is income chargeable to tax as `Income from house property' by relying on Ansal Housing Finance and Leasing Company Ltd. (supra). There is no doubt that the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 01.04.2018 and will, accordingly apply in relation to the assessment year 2018-19 and subsequent years. Obviously, it is a prospective amendment. The effect of this amendment is that stock-in-trade of buildings etc. shall be considered for computation of annual value under the head 'Income from house property' after one/two years from the end of the financial year in which the certificate of completion of construction of the property is obtained on and from the A.Y. 2018-19. Instantly, we are concerned with the assessment year 2013-14. As such, the amendment cannot apply to the year under consideration. In the absence of the applicability of such an amendment, no income can be said to have accrued to the assessee from unsold flats available as stock-in-trade. We, therefore, overturn the impugned order on this score and delete the addition of Rs.1.47 crore sustained in the first appeal. 5.14. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that no addition on account of deemed rental income could be made in respect of unsold stock of flats held as stock in trade upto A.Y.2017-18. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration is whether this proviso could be given retrospective effect so as to confer benefit to the assessee in the instant case. We find that this issue is no longer res integra in view of the decision of this Tribunal in the case of Maria Fernandes Cheryl vs. Income Tax Officer reported in 187 ITD 738 wherein the third proviso inserted in Section 50C of the Act has been held to be retrospective in operation from 01/04/2003 onwards. Though this decision has been rendered in the context of Section 50C of the Act for a capital asset, the same analogy could be drawn for Section 43CA also for asset held as stock in trade . For the sake of convenience, the relevant operative portion of the said judgement is reproduced hereunder:- 4. To adjudicate on this issue, only a few material facts need to be taken note of. The assessee before us is non-resident assessee. During the relevant financial period, she sold her flat, being flat no. 101 in Casablanca Building at Chembur, for a consideration of Rs. 75,00,000, even though the valuation of this property, for the purpose of charging stamp duty, was Rs. 79,91,500. The capital gains were thus computed by treating the sale considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted by Stamp valuation authorities. In this regard, it is humbly submitted that the Finance Act 2018 specifically mentions that the third proviso will come into force prospectively from 1-4-2019 and likewise the Act No 12 of 2020 enhancing the variation from 5% to 10% also specifically states that the enhanced variation will be effective from 1-4-2021. The relevant amendments and explanatory notes are reproduced below for ready reference: The Finance Act 2018 inserted Second proviso to section 50C as under: Amendment of section 50C. 20. In section 50C of the Income-tax Act, in sub-section (1), after the second proviso, the following proviso shall be inserted with effect from the 1st day of April, 2019, namely:- Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration. . The amendment to Section 50C is explained in Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and gains from transfer of such asset, be deemed to be the full value of the consideration. Section 50C of the Act provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by stamp valuation authority for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration and capital gains shall be computed on the basis of such consideration under section 48 of the Act. The said section also provides that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration. Clause (x) of sub-section (2) of section 56 of the Act, inter alia, provides that where any person receives, in any previous year, from any person or persons on or after 1st April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions, however, do not impress us. As noted by the Central Board of Direct Taxes circular # 8 of 2018, explaining the reason for the insertion of the third proviso to Section 50C(1), has observed that It has been pointed out that the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location . Once the CBDT itself accepts that these variations could be on account of a variety of factors, essentially bonafide factors, and, for this reason, Section 50C(1) should not come into play, it was an unintended consequence of Section 50(1) that even in such bonafide situations, this provision, which is inherently in the nature of an anti-avoidance provision, is invoked. Once this situation is sought to be addressed, as is the settled legal position- as we will see a little later in our analysis, this situation needs to be addressed in entirety for the entire period in which such legal provisions had effect, and not for a specific time period only. There is no good reason for holding the curative amendment to be only as prospective in effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to effect. Let us understand what the nature of the provisions of section 50C is. In terms of this provision, if the property is sold below the stamp duty valuation rate, which is often called circle rate, this stamp duty valuation report is assumed as sale consideration for the property in question, and, accordingly, capital gains tax is levied. This deeming fiction to substitute apparent sale considerations by notional consideration computed on the basis of a stamp duty valuation rate, was thus to address the issue with respect to potential evasion of taxes by understating the sale consideration amount in a sale deed. As noted by the CBDT, while explaining the justification for insertion of section 50C, (t)he Finance Act, 2002, has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property . Section 50C, thus, on a conceptual note, is a provision to address capital gains tax evasion on account of understatement of the consideration. Of course, the law provides, under section 50C(2), that wherever an assessee claims that the actual market rate is less than the stamp duty v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstanding, it is a case of a curative amendment to take care of unintended consequences of the scheme of Section 50C. It makes perfect sense, and truly reflects a very pragmatic approach full of compassion and fairness, that just because there is a small variation between the stated sale consideration of a property and stamp duty valuation of the same property, one cannot proceed to draw an inference against the assessee, and subject the assessee to practically prove his being truthful in stating the sale consideration. Clearly, therefore, this insertion of the third proviso to Section 50C(1) is in the nature of a remedial measure to address a bonafide situation where there is little justification for invoking an anti-avoidance provision. Similarly, so far as enhancement of tolerance band to 10% by the Finance Act 2020, is concerned, as noted in the CBDT circular itself, it was done in response to the representations of the stakeholders for enhancement in the tolerance band. Once the Government acknowledged this genuine hardship to the taxpayer and addressed the issue by a suitable amendment in law, the next question was what should be a fair tolerance band for variations in these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendments are thus held to be retrospective in effect. In our considered view, therefore, the provisions of the third proviso to Section 50C (1), as they stand now, must be held to be effective with effect from 1st April 2003. We order accordingly. Learned Departmental Representative, however, does not give up. Learned Departmental Representative has suggested that we may mention in our order that relief is being provided as a special case and this decision may not be considered as a precedent . Nothing can be farther from a judicious approach to the process of dispensation of justice, and such an approach, as is prayed for, is an antithesis of the principle of equality before the law, which is one of our most cherished constitutional values. Our judicial functioning has to be even-handed, transparent, and predictable, and what we decide for one litigant must hold good for all other similarly placed litigants as well. We, therefore, decline to entertain this plea of the assessee. 9. We have noted that as against the stated consideration of Rs. 75,00,000, the stamp duty valuation of the property is Rs. 79,91,500. The difference is just Rs. 4,91,500, which is about 6.55% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, the ld. CIT(A) had rightly deleted the same. Accordingly, the ground No.3 raised by the Revenue is dismissed. 6. The ground No.2 raised by the Revenue is challenging the action of the ld. CIT(A) in allowing the claim of the assessee to carry forward losses on sale of redeemable non-convertible zero coupon bonds, which was neither claimed by the assessee in the original return of income u/s.139(1) of the Act nor in the revised return filed u/s.139(5) of the Act but claimed during the course of assessment proceedings. 6.1. We have heard rival submissions and perused the materials available on record. We find that assessee had subscribed to 276 redeemable non-convertible zero coupon bonds of Rs.1 Crore each aggregating to Rs.276 Crores on 24/08/2010 issued by M/s. Neepa Real Estate Pvt. Ltd. These bonds are redeemable on or before the expiry period of 10 years. The assessee, however, based on the business performance of M/s. Neepa Real Estate Pvt. Ltd and on the basis of market valuation report of Arihant Capital Market Ltd, a registered merchant banker, during the relevant assessment year, proceeded to sell the bonds for a consideration of Rs.88 Crores thereby incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zero coupon bonds. In view of the decision of Hon ble Jurisdictional High Court in the case of Pruthvi Share Brokers referred to supra, the loss even though not claimed by the assessee in the return of income would be eligible for carry forward to subsequent years. In any case, the law is very settled that there is no estoppel against this statute and Revenue cannot take undue advantage of the ignorance of the assessee and that Article 265 of the Constitution clearly mandates that no tax shall be collected except by an authority of law. Hence, it is obligatory on the part of the ld. AO to educate the assessee of its legitimate rights and duties. Accordingly, we do not find any infirmity in the action of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the ground No.2 raised by the Revenue is dismissed. 6.3. In the result, appeal of the Revenue for A.Y.2017-18 is dismissed. ITA No.1953/Mum/2020 (A.Y.2015-16) Assessee Appeal 7. The only effective issue raised in assessee s appeal is as to whether the assessee is entitled for reduction of Rs.5,51,89,912/- towards an item which is mentioned as an audit qualification in the statutory audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts revised return of income categorically claimed that the waiver of principal and interest amount under OTS with the lenders amounting to Rs. 162,30,33,516/- was not liable to be included in the total income for the purpose of computing the book profit' as per Sec. 115JB of the Act. It is thus a matter of record that the auditors of the assessee company had at the very initial stage disclosed all the particulars, and by way of qualification notes' to the auditors report had mentioned that the benefit of the OTS made with the lenders resulting in waiver of principal and interest had been credited by the assessee company to the profit loss account prior to the accrual of the same to the assessee company. In our considered view by virtue of sub-section (6) of Sec. 211 of the Companies Act, 1956 the reference to the balance sheet or the profit loss account of a company shall include the notes' to the accounts giving information required under the said Act. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Delhi in the case of CIT v. Sain Processing and Wvg. Mills (P.) Ltd. [2009] 176 Taxman 448/[2010] 325 ITR 565 (Delhi). The Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our view, the aforesaid parity of reasoning is squarely applicable in the present situation also, inasmuch as the provisions of section 115J of the Act and 115JB of the Act which are before us, are pari materia in so far as it relates to the obligation on a corporate assessee to prepare its Profit Loss account for the relevant previous year in accordance with the provisions of Part II III of Schedule VI to Companies Act, 1956. Therefore, having regard to the aforesaid parity of reasoning, once it is clear that the information towards incremental liability of leave encashment, which has not been provided in the Profit Loss account, is otherwise disclosed in the Notes to the accounts, it would clearly fall within the ambit of Explanation 1 to the second Proviso to section 115JB of the Act which defines book profits to mean net profit as shown in the Profit Loss account for the relevant previous year prepared under sub-section (2) of section 115JB of the Act. Notably, sub-section (2) of section 115JB of the Act imposes an obligation on every assessee to prepare a Profit Loss account in the relevant previous year in accordance with the provisions of Part II III to Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the particulars and had qualified the crediting of the amount of Rs. 162,30,33,516/- in the profit loss account by way of notes' to the accounts, therefore, it was obligatory on the part of the A.O to have considered the same while determining the book profit' under Sec. 115JB of the IT Act. We are unable to persuade ourselves to subscribe to the reading of the profit loss account in isolation by the A.O, de hors qualification of the same by way of notes' of the auditors to the financial statements. We thus in all fairness are of the considered view that as the A.O had failed to consider the crediting of the waiver of the loan of Rs. 162,30,33,516/- in the profit loss account in the backdrop of the qualification of the auditors by way of notes' to the accounts in context of the same, therefore, the matter requires to be restored to his file for fresh adjudication. The A.O shall in the course of the set aside' proceedings readjudicate the claim of the assessee that the waiver of loan of Rs. 162,30,33,516/- was not liable to be included while determining the book profit' under Sec. 115JB of the IT Act after taking cognizance of the aforesaid qualificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed notional rent in the sum of Rs 34,47,883/- was deleted by the ld. CIT(A) under normal provisions of the Act, against which order, the revenue is not in appeal before this tribunal. Hence automatically the said addition would be liable to be deleted in the computation of book profits u/s 115JB of the Act also. To this extent, the Revenue s appeal in ground No.2 is dismissed. 9.1. Similarly, we have already deleted the addition made u/s.50C of the Act in the sum of Rs.313,68,213/- supra in the normal provisions of the Act. Hence, the said sum should have been deleted while computing book profits u/s.115JB of the Act. In any case, this item would not fall within the ambit of Explanation-1 to Section 115JB (2) of the Act as the item eligible for addition to book profit u/s.115JB of the Act. Hence, the ld. CIT(A) had rightly deleted the same. Accordingly, this part of ground No.2 raised by the Revenue is dismissed. 10. In the result, appeal of the Revenue in ITA No.11/Mum/2021 for A.Y.2015-16 is dismissed. 11. In the result, appeals filed by the Assessee for A.Y.2015-16 2017-18 are allowed and appeals filed by the Revenue for A.Y.2015-16 2017-18 are dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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