TMI Blog2023 (10) TMI 837X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly showed that their registered office was at Delhi and that they did not have any corporate/branch office in Bangalore. We thus find force in the Ld. AR s contention that the AO/DDIT had erred in sending notices / conducting field enquiry at their erstwhile site office at Bangalore, which had since been shut down after completion of the hotel project. On these given facts therefore, we find that the reasons for non-service of notice issued to the vendor s Bangalore site office stood explained. For the reasons as discussed in the foregoing, we accordingly hold that the lower authorities were unjustified in doubting the genuineness of the payments so made by the assessee. We hold that the payments made by the assessee to the six (6) vendors in question were genuine and the disallowances u/s 69C made by the AO in this regard is held to be unsustainable. Disallowance u/s 14A r/with Rule 8D both while computing income under normal provisions and book profit u/s 115JB - HELD THAT:- As relying own case [ 2021 (1) TMI 1134 - ITAT MUMBAI] since the assessee did not earn any exempt income during the relevant year, we do not see any infirmity in the action of the Ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the comparative details of a luxuriously furnished flat, fully furnished flat and bare-shell flat (unsold inventory), we find sufficient force in the Ld. AR s plea that the fair rental rate of the unsold inventories, which were bare-shell accommodation, would indeed be lower than the rental rate of a fully furnished flat i.e. Rs. 147 per sq ft. We find it fit to allow further discount of 40% to the comparative rental rate of a fully furnished flat. According to us, therefore, the fair annual lettable value of the unsold properties for FY 2017-18 would work out to Rs. 88.20 per sq ft [147 X 60%]. We agree with the Ld. AR that this rate has to be further adjusted for inflation/escalation. AO is thus directed to re-compute and assess the gross annual lettable value of the unsold inventory as laid down in the table above. Needless to say, the same shall be further subjected to standard deduction u/s 24(b) of the Act. With these directions, this ground of appeal stands disposed. Revised claim made by the assessee in the return filed u/s 153A - HELD THAT:- Fresh/modified claim in the returns filed u/s 153A of the Act in relation to the abated assessment years Allowed. See ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017-18 17.06.2021 2505/Mum/2021 [Dept] 2018-19 17.06.2021 1400/Mum/2021 [Assessee] Since the issues involved across these appeals are common, all of them were heard together. Both the parties also argued them together raising similar arguments on the common issues. Accordingly, for the sake of brevity, we dispose all these appeals together. 2. Before we advert to the grounds taken in the appeals, it would first be relevant to cull out the basic facts of the case. Search u/s 132 of the Income Tax Act [in short the Act ] was conducted against the K Raheja Group on 30.11.2017. Having regard to the date of search, the Assessing Officer [in short AO ] had reopened the six assessment years immediately preceding the searched assessment year, i.e. AY 2018-19 and those AYs were AYs 2012-13 to 2017-18. The summary of the additions/disallowances, in Rupees, made by the AO which are in dispute in the cross appeals enumerated above for AYs 2012-13 to 2018-19, are as follows: Issue 2012-13 2013-14 2014-15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that in the course of search, the statement of Mr. N Krishnamohan, Vice President, Engineering of M/s K Raheja group was recorded u/s 132(4) of the Act. In the course of recording of statement and at Question Nos. 19 20, Mr. N Krishnamohan was required to provide the details of purchases and contractual payments made towards various projects undertaken by the Group at Bangalore. In his reply, the AO noted that, Mr. N Krishnamohan had provided the details of both purchases and contractual payments along with sample bills, which were executed by the assessee i.e. M/s Chalet Hotels Ltd. and M/s Magna Warehousing and Distribution Pvt Ltd M/s Genext Hardware Parks Pvt. Ltd. (both of which have since merged with the assessee). The AO noted that the Investigating Officer had brought to the notice of Mr. N Krishnamohan that eight vendors were not found at their given Bangalore addresses. The Investigating Officer had therefore required him to give his comments regarding the same, provide the year-wise details of the payments made to these parties, and also explain as to why the transactions with these parties should not be treated as non-genuine. The relevant extracts of the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet filed on 31.03.2015 7 Sri Ranga Enterprises, No. 17, 15th Main Road, 6th Cross, J C Nagar, Mahalakshmipuram, Banglore-560086 8 Nina Concrete System Put Ltd No: 485, 1st Floor, 10th Main, 8th Cross, HAL 3rd Stage, Bangalore. 560075. Last balance sheet filed on 31.03.2015 On Inspection it was found that no company/concern with the above names were present at the above mentioned address. Please offer your comments regarding the same. Ans. Sir, When we did transaction with these companies these companies existed at the above location. Our payments to these companies are genuine and we have taken genuine services from these companies. I do not know why these companies are not available at the above addresses. I will provide detailed explanation in 7 days' time. Q.26 Please provide the year wise payment made to the above parties. Ans. Sir, I am providing year wise payment made to the above parties under various projects. (Details of year wise payment to the suspicious parties provided by deponent is annexed as Annexure A-6) Q.27 Please explain as to why your transaction with the parties mentioned in question no:25 should not be treated as non-genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd 6. Therefore, to ascertain the genuineness of the payments to the above-mentioned six parties, the AO made enquiries u/s 133(6) of the Act. According to the AO, however, either these notices remained un- served or the replies received from them were not satisfactory. The AO further noted that these parties had cancelled their TINs after few years. The AO thus held that the payments made to these six parties by the assessee in various years remained unverifiable. The AO observed that, mere filing of supporting bills/invoices and payment details, was not sufficient to justify the genuineness of the transactions and that the assessee failed to discharge its onus to establish such claim by producing relevant evidence/material in support thereof. The AO accordingly disallowed the payments made to these parties by way of unexplained expenditure u/s 69C of the Act across various years. While disallowing this amount, the AO noted that these expenses had been capitalised under the head Work in Progress [in short WIP ] and therefore reduced the same from the closing balances of the WIP in the respective years. Aggrieved by this action of the AO, the assessee preferred appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had he averred that these expenses were not genuine. In fact, the AO noted that, in the post search enquiries, the assessee had furnished the relevant contemporaneous evidences in support of the transactions with these eight (8) vendors. In this background, the AO again made enquiries u/s 131 of the Act from the eight (8) vendors, to which two (2) vendors responded. The AO accordingly accepted the genuineness of the transactions conducted with the two (2) vendors. The AO thereafter made enquiries u/s 133(6) of the Act from the remaining six (6) parties, which according to him, either went unserved or had not been properly complied with. The AO therefore held that the genuineness of the payments made to these vendors remained un-discharged, and hence disallowed the same u/s 69C of the Act, which is now impugned before us. 9. The Ld. CIT(A), on the other hand, is noted to have observed that, the AO s findings regarding non-compliance of notices issued u/s 131/133(6) by the six (6) vendors was factually incorrect. After verifying the case records, the Ld. CIT(A) is noted to have tabulated the details of responses furnished by these six (6) vendors before the AO, which is as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tech Workshop Interiors (I) Pvt Ltd i. Information filed before the AO on 13.12.2019 in compliance to notice u/s 133(6) dated 30.9.2019 received in the office of the DCIT on 26.12.2019. ii. Ledger account of assessee with the vendor filed. iii. Copy of Bank account statements filed 6 Nina Concrete Systems Pvt Ltd i. Information filed before the AO on 12.12.2019 in compliance to notice u/s 133(6) dated 30.9.2019 received in the office of the DCIT on 12.12.2019. ii. Following documents filed before AO: 1. Ledger account of assessee with the vendor filed for FY 2013-14 and 2014-15. 2. Income tax audit report. 3. Income tax computation 4. IT Return acknowledgement. 5. Audited annual report and financial statements. 6. List of vendor's business connection with company. 7. List of client s business connection. 8. Copy of bank statements. 9. Details of main business - being water proofing services, repair and maintenance, trading of waterproofing material, labour work and supply. 10. The Ld. DR appearing on behalf of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they had also cancelled their TINs. He pointed out that, when the AO confronted the assessee with the results of these field enquiries, the addresses of their corporate/ registered offices were provided. The Ld. AR showed us that, most of these vendors were based outside the city of Bangalore, i.e., in cities such as Mumbai, Delhi, etc. He therefore submitted that, the non-availability of these vendors at their erstwhile addresses or the non-service of summons at their local/site addresses of Bangalore, ought not to be viewed adversely. He illustrated the same by showing us that, the registered office of M/s Vistar Constructions Pvt Ltd. had always been C-23, Greater Kailash Enclave, Part-I, New Delhi 110048 and therefore this vendor was not based out of Bangalore. The Ld. AR explained that they had only set-up a temporary shop/site at Bangalore for carrying out the project / contract obtained from the assessee and after completion of the hotel, they had shut down the same. Similarly, from the documents available on record, the Ld. AR showed us that, one of the vendors, M/s Total Environment Woodworks Pvt Ltd. was undergoing Corporate Insolvency Resolution Proceedings and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Court, while upholding the decision of this Tribunal, had held that, merely because the suppliers had not appeared before the Assessing Officer or the CIT(A), one could not conclude that the purchases were not genuine. The Hon ble High Court, in that case, noted that the assessee has brought on record sufficient evidences to substantiate the genuineness of the purchases and therefore non-attendance of summons cannot be the sole reason to disallow the purchases. 14. In light of the ratio decidendi laid down by the jurisdictional High Court (supra), it is necessary for us to examine as to whether the documents/evidences furnished by the assessee/vendor were sufficient to substantiate the genuineness of the payments. We first take up the payments made to those five (5) parties, which were deleted by the Ld. CIT(A). Having perused the documents placed before us and the order of the ld. CIT(A), it is noted that both the assessee as well as the vendors had furnished relevant evidences in support of the payments / transactions. We find that the AO vide notice u/s 142(1) dated 23.01.2019 [Page 48 to 51 of Paper Book] had required the appellant to furnish details / documents in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted to have filed copy of the work order dated 03.02.2011 before the AO, perusal of which shows that they were required to supply loose furniture as specified in the Bills of Quantities ( BOQ ) accompanying the work order. The vendor was first required to make mock-up furniture and upon obtaining approval from the assessee that the finished goods were required to be completed and supplied to the assessee. It is noted that the BOQ inter alia included supply of bed side tables, coffee tables, lounge chairs etc. The work order also laid down the payment terms to the vendor. The supporting tax invoices were also submitted by the assessee which also included the details of transportation, vehicle details etc. The bank statement evidencing payment of the tax invoices along with certificate of payments are also found to have been submitted by the assessee. All these documents are found placed at Pages 171 to 369 of paper book. The Ld. AR rightly explained that these loose furniture did not constitute any stock-in-trade or stores and therefore there was no requirement of maintenance of any stock register or obtaining any certificate from store keeper. The assessee is also noted to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e formed part of the said work order. The tax invoice was also placed on record which shows that both VAT and service tax was levied by the vendor and paid by the assessee. The assessee had also provided the summary statement of each of the work order, corresponding invoices, details of payments etc. along with copy of bank statement to the AO. 15. Having taken note of the above, we find that the AO has not pointed out any specific infirmity or defect in these details furnished by the assessee. It is not the Revenue s case that the above tasks/orders were not performed by them or that the search team did not find these items, furniture, tasks etc. installed or placed at the hotel premises. The AO has also noted disputed the central levies viz., excise duty / service tax by each of these vendors. It is not the case that these indirect central levies collected by them were found to be unpaid to the Central Government. Instead, the AO is noted to have simply emphasised on (a) the field enquiries conducted by search team which stated that there were not found at their given addresses and (b) that their local TINs were found to be subsequently cancelled, to justify the impugned addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him. He also observed that TIN of the parties had been cancelled. He has inferred that since the parties are not in existence, the payments made to these parties are presumed not to be genuine. The assessee has produced the office copy of the reply filed by Saket Interiors before the AO in response to the notice u/s 133(6) of the Act. It is noted that the reply confirms the transactions with Magna / Chalet and the ledger account of the assessee and necessary bank details have been provided. The Letter of the vendor is dated 13th December, 2019 but has been filed in the office of the AO on 26th December, 2019 (being the date mentioned on the receipt stamp). Perusal of the bank account as well as the ledger account clearly reveals that the transactions noted in these accounts are not accommodation entries. There are no Cheque deposits and immediate withdrawals or vice versa. Further, the AO has not commented on the reply filed. The vendor has rendered a service which includes supply of materials and necessary work orders have been provided. There is no evidence of Saket Interiors being a bogus entity and its office address is in Mumbai while the site address was in Bangalore which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the genuineness of the company as well as the factum of work carried out by them has been amply demonstrated. The assessee has provided other requisite details. As such, the AO is incorrect in inferring that the expenditure made by the assessee was unexplained. The amount paid to this party for work done by the party is found to be genuine and explained and the addition of the amount under section 69C is not found correct. The addition made is directed to be deleted. (iii) Ceetech Systems -The AO has noted that the assessee made a partial reply to the notice u/s 133(6) of the Act issued by him. He has also observed that TIN of the parties had been cancelled. He has refused to consider the reply as the vendor has failed to provide all the details sought in the notice u/s 133(6) of the Act. He has inferred that since the parties are not in existence, the payment made to these parties are presumed not to be genuine. The documents filed by the assessee reveal that the reply to notice u/s 133(6) of the Act has been filed by the vendor on 14th October, 2019. In the reply, the proprietor of the firm Mr Shinath has offered to appear personally if so desired by the AO. The vendor wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deleted. (vi) Nina Concrete Systems Pvt Ltd. -The AO has held that only partial reply has been received from the Vendor in response to notice /s 133(6) issued by him. He has also observed that TIN of the parties had been cancelled. He has inferred that since the parties are not in existence, the payment made to these parties are presumed not to be genuine The details filed by the assessee reveal that the vendor has filed a detailed reply on 12 12 2019 (filed with the AO on the same day) which is enumerated above and which includes the annual financial statements, details of work done for the assessee, other customers with the company is working etc. The company is a genuine company having a turnover of Rs 136.45 crore and employee expenses of Rs 18 crore in FY 2014-15. The company has responded with various details as already listed above. The vendor is a works contractor which includes supply of material too. The vendor has filed its reply well in advance and the receipt stamp of the AO is clear on the office copy but the reason for not discussing this reply in the assessment order is not understood. Necessary documents have been filed by the vendor in addition to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the AO by the assessee along with the details of the company at MCA site which also has the same address. These documents have been provided to the AO by the assessee vide submission dated 14.10.2019 making him aware of change in address. Before me, the assessee has filed copy of a letter filed by the assessee before AO on 16th October, 2019. The letter does not carry any receipt stamp of the DCIT as visible in other documents filed before me and hence, it cannot be accepted as an evidence. It is also seen that the assessee has enclosed a letter from Vistar Constructions Private Limited dated 9th March 2018 addressed to DDIT (Investigation) Unit 5(3), Mumbai. Again, this letter does not have any receipt stamp of the receiving authority and the signature on this letter does not match the signature in the documents enclosed. As such, this letter cannot be accepted as valid evidence. Without prejudice to this fact, even the contents of this letter are found to be irrelevant to the matter. The three running invoices contained with this letter do not provide any evidence with respect to the actual work done. The part period bank account (only for one months ie, from 27.9.2013 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled before both the lower authorities and that this certification has not been uncontroverted by the Revenue. Hence, this particular reasoning given by the Ld. CIT(A) to doubt the correctness of the expenses is held to be untenable. 21. The next observation of the Ld. CIT(A) was that, the signature on the letter submitted by the vendor was different that the signature found in the documents annexed to the letter. In this regard, the Ld. AR showed us that, this vendor had executed the works contract nearly five years ago from the date of search and therefore there was every possibility that the authorised signatory/accountant etc. of the vendor who had signed the documents back then, could have changed in the interim. The Ld. AR also rightly pointed out that, every entity has different persons in charge of different departments viz., purchases, sales, finance, marketing, taxation, etc. and therefore the persons who signed the works contract/invoices could be different from the person who was in charge of the taxation affairs of the company who has drafted and submitted the letter addressed to the AO. We thus do not find any merit in this particular finding of the Ld. CIT(A) as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n were genuine and the disallowances u/s 69C made by the AO in this regard is held to be unsustainable. Accordingly Ground No. 2 of the assessee raised in AY 2012-13 is allowed and Ground No. 1 of the Revenue for AY 2012-13 is dismissed. 24. Overall therefore, the appeal of the assessee in IT(SS) No. 928/Mum/2021 for AY 2012-13 stands partly allowed and the appeal of the Revenue in IT(SS) No. 2511/Mum/2021 stands dismissed. 25. We now take up IT(SS) Nos. 930/Mum/2021 (Assessee s Appeal) and 2510/Mum/2021 (Department s Appeal) for AY 2013-14. Ground No. 1 taken by the assessee in their appeal was not pressed and is therefore dismissed. 26. Ground No. 2 of the appeal of the assessee and Ground No. 1of the appeal of the Revenue relates to disallowance of Rs. 8,71,87,346/- under the head CWIP by way of unexplained expenditure u/s 69C of the Act in relation to payments made to M/s Saket Interiors, M/s Total Environment Woodworks Pvt Ltd, Vistar Constructions Pvt Ltd Tech Workshop Interiors Pvt Ltd. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO to justify this addition and the Ld. CIT(A) to allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue for AY 2014-15. 32. Ground No. 1 of this appeal relates to disallowance of Rs. 1,52,49,750/- made u/s 69C of the Act by the AO in respect of payments made to M/s Nina Concrete Systems Pvt Ltd and M/s Ceetech Systems. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO to justify this addition and the Ld. CIT(A) to allow relief is verbatim same as in AY 2012-13. 33. Following our reasons and conclusions recorded in Paras 13 to 23 above, we hold that the Ld. CIT(A) had rightly deleted the disallowance of Rs. 1,52,49,750/- made by the AO u/s 69C of the Act. Accordingly Ground No. 1 raised by the Revenue in their appeal is dismissed. 34. Ground Nos. 2 to 4 raised by the Revenue is against the action of the Ld. CIT(A) deleting the disallowance made by the AO under Section 14A of the Act in accordance with Rule 8D both while computing income under normal provisions and book profit u/s 115JB of the Act. Facts in brief are that the assessee held investments in shares of various associate companies, none of which yielded any exempt income during the year. The AO however had applied the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs K Raheja Corporate Services Pvt. Ltd. (ITA No. 2521/Mum/2021). Rejecting the same, this Tribunal had held that the Explanation introduced in Section 14A of the Act by the Finance Act 2022 had prospective application. Accordingly, it was held that, if during the relevant year, the assessee has not earned any tax-free income, disallowance of expenditure u/s 14A of the Act was not permissible. The relevant findings in this regard are noted to be as follows: 45. Having held so, the next question for our consideration is whether the following Explanation inserted by the Finance Act, 2022 in Section 14A of the Act is required to be retrospectively applied and fastened on the assessee or not. Explanation.--For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, income payable for service rendered in India . 19. When the Explanation seeks to give an artificial meaning to earned in India and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively. 23. This being the case, Explanation 3C is clarificatory - it explains Section 43B(d) as it originally stood and does not purport to add a new condition retrospectively, as has wrongly been held by the High Court. 24. Third, any ambiguity in the language of Explanation 3C shall be resolved in favour of the assessee as per Cape Brandy Syndicate v. Inland Revenue Commissioner (supra) as followed by judgments of this Court - See Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 at paras 60 to 70 per Kapadia, C.J. and para 333, 334 per Radhakrishnan, J . 47. According to Ld. AR, therefore the amendment brought in by Finance Act, 2022 cannot be said to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision was made with prospective effect and the amendment would not apply to assessment year 1979-1980 and 1980-1981 because the amended provision was brought on the statute book after the assessment years in question. 30. In conclusion, we therefore, hold that the amendment which was brought by Parliament to the Explanation to Section 73 by the Finance (No 2) Act 2014 was with effect from 1 April 2015 . In its legislative wisdom, the Parliament amended Section 43 (5) with effect from 1 April 2006 in relation to the business of trading in derivatives, Parliament brought about a specific amendment in the Explanation to Section 73, insofar as trading in shares is concerned, with effect from 1 April 2015 . The latter amendment was intended to take effect from the date stipulated by Parliament and we see no reason to hold either that it was clarificatory or that the intent of Parliament was to give it retrospective effect. 31. The consequence is that in A.Y. 2008-2009, the loss which occurred to the assessee as a result of its activity of trading in shares (a loss arising from the business of speculation) was not capable of being set off against the profits which it had earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurs an expense of Rs .1 lakh to earn non-exempt income of Rs. 1.5 lakh and also incurs an expense of 20,000 /-to earn exempt income which may or may not have accrued/received during the year. By holding that provisions of section 14A of the Act does not apply in this year as the exempt income was not accrued /received during the year, it amounts to holding that Rs. 20,000/-would be allowed as deduction against non-exempt income of Rs. 1.5 Lakh even though this expense was not incurred wholly and exclusively for the purpose of earning non-exempt income. Such an interpretation defeats the legislative intent of both section 14A as well as section 37 of the Act. 4. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert an Explanation to section 14A of the Act to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed, will take effect from First April 2022 and not before as contended by the Ld DR. In our considered view, therefore, the new Explanation inserted in Section 14A of the Act with effect from 01-04- 2022 cannot be applied in the assessment years under consideration for the present case as it is for AYs 2016-17 to 2018-19, and therefore according to us, the decisions cited in Paras 33 to 37 above continue to hold good and are binding upon us. 38. We note that, following the above and the later judgment of the Hon ble Delhi High Court in the case of PCIT Vs M/s Era Infrastructure India Ltd (ITA No. 204 of 2022), similar view has been expressed by the coordinate Bench of this Tribunal in the case of DCIT Vs Welspun Steel Ltd (ITA No. 2137/Mum/2021). The relevant findings are noted to be as under :- 6. We have considered the rival submissions and perused the material on record. It is admitted position that the Hon ble Bombay High Court and the Hon ble Supreme Court have clearly held that disallowance under Section 14A of the Act cannot exceed the amount of exempt income earned by the Assessee during the relevant previous year. The stand of the Revenue is that amendments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Ansal Housing Finance and Leasing Company (354 ITR 180), the AO held that the vacant units in the possession of the assessee are liable to be assessed at their notional rental income under the head Income from house property . Since the assessee failed to provide the Annual Lettable Value (ALV) of these vacant units, the AO estimated 8.5% of the value of inventory by way of notional rent income on these properties. The AO, accordingly, computed income of Rs. 2,64,03,585/- under the head income from house property after allowing standard deduction for 30% u/s 24(b) of the Act. Being aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) relying on the decisions of this Tribunal in the cases of M/s Harware Construction Pvt Ltd (101 taxmann.com 168) M/s Runwal Constructions (ITA No. 5408/Mum/2016) deleted the aforesaid addition made by the AO. Hence, the Revenue is now in appeal before us. 41. We have heard the rival submissions and perused the material placed before us. It is a fact on record that the assessee had unsold closing stock, which was lying vacant during the relevant AY 2014-15. The AO is noted to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in the business of construction of property, one of the building properties was included in the closing stock in the balance-sheet drawn for the business. The assessee filed a revised return submitting that a part of its property was given on rent and the income derived on that basis should be computed under the head Income from house property and not as business income. The Assessing Officer, during the course of the assessment proceedings, observed that the expenses on maintenance of the property were debited to the profit and loss account and so also the building was shown as stock-in- trade, therefore, the prop would partake the character of the stock and any income derived from the stock cannot be taken to be income from the property. The Tribunal allowed the appeal observing inter alia, that any dividend received on the shares or any interest received from the bank would be taken to be income from other sources, therefore, any income derived under the head of rent would also become income from the property, it accordingly allowed the appeal and directed reconsideration of the matter. 8.1. The Hon'ble High Court, then observed and held as under; 9. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closing stock was not rented and income was to be computed on the basis of some notional rent. Albeit there was actual rent received from the property which was included in the closing stock and the controversy was, whether the rental income derived from letting out the flat is assessable under the head income from house property or business income, which Hon'ble High Court held that it should be assessed as business income. 10 On the contrary, on this point, Hon'ble Jurisdictional High Court in the case of Mangla Homes Pvt. Ltd. Vs. ITO, reported in (2010) 325 ITR 281(Bombay) wherein, the Hon'ble Bombay High Court on the facts where the Assessee Company was incorporated with the object of dealing in properties and the main object of the company as contained in the memorandum of association was to carry on business of dealing and investment in properties, flats, warehouses, shops, commercial and residential houses. The ancillary object was to carry on business of leasing, hire purchase, renting, selling, re-selling or otherwise dispose of all forms of movable or immovable properties and assets including buildings, godowns, warehouses and real estate of any kind. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any rent received on such unsold closing stock, then income is assessable as income from house property‟ and not as a business income . 14. The aforesaid ratio and principle, either of the Hon'ble Gujarat High Court or the Hon'ble Bombay High Court is not applicable on the facts of the present case, because, here in this case the Assessee had unsold units which were lying vacant and were in the possession of the Assessee Company. Assessing Officer held that these properties are liable to be taxed on notional rental income under the head income from house property‟ on the basis of ALV. It is not a case that there is any actual receiving of rent as was the case before the Hon'ble Gujarat High Court and Hon'ble Bombay High Court. Had it been a case were Assessee have fetched rental income from the unsold stock, then following the principle laid down by the Hon'ble Bombay High Court same would have been assessed under the head income from house property. 15. Now, coming to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance Leasing Company Ltd (Supra), one of the question of law referred before the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properties till they were sold. The capacity of being an owner was not diminished one whit, because the assessee carried on business of developing, building and selling flats in housing estates. The argument that income tax is levied not on the actual receipt (which never arose in this case) but on a notional basis, i.e. ALV and that it is therefore not sanctioned by law, in the opinion of the Court is meritless. ALV is a method to arrive at a figure on the basis of which the impost is to be effectuated. The existence of an artificial method itself would not mean that levy is impermissible. Parliament has resorted to several other presumptive methods, for the purpose of calculation of income and collection of tax. Furthermore, application of ALV to determine the tax is regardless of whether actual income is received; it is premised on what constitutes a reasonable letting value, if the property were to be leased out in the marketplace. If the Assessee's contention were to be accepted, the levy of income tax on unoccupied houses and flats would be impermissible which clearly not the case is . 17. Though, the judgment which has been referred by the Hon'ble Delhi High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which respect to an amendment is that is applicable prospectively unless and until specifically stated otherwise. The logic behind such as interpretation is that the law should govern current ITA NO. 420, 263 to 266/MUM/2022 (A.Y: 2012-13) Moraj Building Concepts Pvt Ltd activities; i.e. to say lex prospicit non respicit , which means that The Law looks forward and not backward. 19. Now, that specific provision has been brought in the statute which provides that, if building or land held as stock in trade and the property has not been let out during the whole or any part of the previous year, then annual value of such property after the period of one year (which was increased 2 years), shall be computed as income from house property and up to period of one year/two years income shall be taken to be nil . Thus, when specific provision has been brought with the effect from 01.04.2018 which cannot be applied retrospectively, then in our humble opinion it cannot be imputed that ALV of the flats held as stock in trade should be taxed on notional basis prior to AY 2018-19. Without any legislative intent or specific provision under the Act, such notional or deeming income should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained that in the decisions in the cases of ITO Vs Chem Mech (P) Ltd (supra) and ACIT Vs Om Prakash Co. (supra) relied upon by the AO, the years in question were the 1990s which was prior to liberalization of the economy and that the demography, economic scenario, real estate prices, rental yields etc. were completely different and distinguishable. He pointed out that it was in the 2000s that the real estate sector in India saw a dramatic upswing and that the property prices were at an all-time high post 2000. Even the demography, lifestyle needs in metro cities underwent a complete change and that the property prices vis- -vis the rental yields had changed drastically. The Ld. AR invited our attention to the rental yield analysis research report published by Knight Frank in the year 2018, a globally recognized real estate consultant, which is available in public domain. The Ld. AR showed us that the rental yields of properties in Indian metro-cities are generally 2%-3% p.a. He also referred to the recent report published by research website, www.moneycontrol.com in which, a survey conducted across India revealed that the rental yields in real-estate projects in metro cities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant had similarly let out a fully-furnished flat admeasuring 4375 sq ft with luxurious amenities and modern furniture, fittings etc. for annual rent of Rs. 9,00,000/- which worked out to Rs. 205.71 per square feet. Referring to these two sample rent agreements, the Ld. AR argued that the rental value of the property nowadays was highly influenced by the quality of the amenities, fixtures, fittings, furniture etc. vis- -vis a bare shell flat. The Ld. AR placed before us a comparative description of the furniture fixtures made available in a luxuriously furnished flat (which was let out by them for Rs. 205.71 / sq ft), fully furnished flat (which was let out by investor for Rs. 142.74 / sq ft) and a bare-shell flat (which represented the stock of unsold flats lying with the assessee) to demonstrate the difference in amenities and consequently the variation in the rental rates. 46. The Ld. AR pointed out that, the rental agreements showed that the difference in rental yield between luxuriously furnished flat and fully furnished flat was almost 40%. Referring to comparative statement placed before us, he thus urged that, the rental rate of the fully furnished flat ought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day s scenario. As noted from these market research reports, the rental yield of immovable properties in metro cities are generally in the range of 2-3% of the value of investment. We note that, this Tribunal in the case of DCIT Vs Rustomjee Evershine Joint Venture in ITA No. 1349/Mum/2022 dated 31.07.2023 has also countenanced the Revenue s action of estimating rental yield at 2% of the value of unsold inventory. 49. It is also noted that the assessee and another unrelated party had let out premises in the same building at varied rates of Rs. 205 per sq ft and Rs. 147 per sq ft respectively. The variation in the rental rates in the same premises is noted to be attributable to the quality and extent of amenities, fixtures, fittings, furniture etc. provided by the respective lessors. Having regard to the comparative details of a luxuriously furnished flat, fully furnished flat and bare-shell flat (unsold inventory), we find sufficient force in the Ld. AR s plea that the fair rental rate of the unsold inventories, which were bare-shell accommodation, would indeed be lower than the rental rate of a fully furnished flat i.e. Rs. 147 per sq ft. We find it fit to allow further discoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dismissed. 56. Ground Nos. 2 to 4 taken by the Revenue is against the Ld. CIT(A) s action of deleting the further disallowance made by the AO u/s 14A of the Act in terms of Rule 8D. It is noted that the issue facts relating to this ground is akin to Ground Nos. 2 to 4 taken by the Revenue in the appeal for AY 2014-15. Following our reasonings given while deciding the appeal for AY 2014-15, we uphold the Ld. CIT(A) s action of deleting the disallowance u/s 14A of the Act both while computing income under normal provisions as well as book profit u/s 115JB of the Act. This ground therefore stands dismissed. 57. Ground No. 5 taken by the Revenue relates to the addition of Rs. 2,11,75,927/- made by the AO by way of notional rental income under the head House Property with reference to the vacant unsold units held by the assessee at the year-end in its stock-in-trade. After considering the rival submissions, it is observed that, except variation in the number of units lying unsold and the relevant figures, the reasoning adopted both by the AO to justify this addition and the Ld. CIT(A) to allow relief is verbatim same as involved in the appeal in ITA No. 2513/Mum/2021 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om AY 2014-15 and onwards. 63. Ground No. 1 of the appeal relates to disallowance of Rs. 31,622/- made u/s 69C of the Act in respect of payments made to M/s Vistar Constructions Pvt Ltd. during the year. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO Ld. CIT(A) to justify this addition is verbatim same as in the matters of M/s Magma Warehousing and Distribution Pvt Ltd (since merged with M/s Chalet Hotels Ltd) in AY 2012-13. 64. Following our reasons and conclusions recorded while deciding the appeals of M/s Chalet Hotels Ltd (successor to M/s Magma Warehousing Distribution Pvt Ltd) for AY 2012-13 [Paras 13 to 23 above], we hold that the disallowance of Rs. 31,622/- made by the AO u/s 69C of the Act was unsustainable both on facts and in law. We therefore direct the AO to delete the impugned addition made u/s 69C of the Act for AY 2014-15. Accordingly Ground No. 1 of the assessee s appeal is allowed. 65. Ground No. 2 taken by the assessee is against the action of lower authorities denying the consequential depreciation claimed on the Capital Work-in-Progress ( CWIP ). The issue and facts i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chalet Hotels Ltd with effect from AY 2017-18 and onwards. The AO is therefore noted to have considered the reduced cost / WDV of CWIP, after adjusting for the disallowances made u/s 69C of the Act, in the earlier assessments of M/s Magma Warehousing Distribution Pvt Ltd M/s Gentex Hardware Parks Pvt Ltd across AYs 2012-13 to 2016-17 and has accordingly re-computed and allowed reduced depreciation u/s 32 of the Act with reference to the aforesaid revised CWIP in the hands of the transferee company, M/s Chalet Hotels Ltd from AY 2017-18 and onwards. 71. Ground No. 2 of the assessee s appeal for AY 2017-18 sole Ground No. 1 of the assessee s appeal for AY 2018-19 relates to denial of consequential depreciation claimed on CWIP. It is noted that this ground is akin to Ground No. 2 taken by the demerged company, M/s Genext Hardware Parks Pvt Ltd in AY 2014-15. Following our reasonings given while deciding that appeal for AY 2014-15, the AO is directed to delete the disallowance made in relation to depreciation claimed by the assessee u/s 32 of the Act in the respective assessment orders for AYs 2017-18 2018-19. Hence, these grounds stands allowed. 72. Ground No. 1 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken up for discussion later. However, section 153A does not prohibit application of various provisions of the Act related to computation of taxable income of an assessee. This also includes set off of validly brought forward losses from income of the assessee. There is no provision in section 153A of the Act prohibiting such set offs or carry forwards. As such, the AO was not right in computing the income of the assessee ignoring the correctly brought forward losses, if any. As such, the AO was not correct in holding that such set off could not be allowed while computing income us 153A of the Act in case of an abated assessment. The AO is directed to allow set off of correctly brought forward losses. Ground no.1 is decided accordingly and is treated as allowed. 73. Being aggrieved by the above order of the Ld. CIT(A), both the parties are now before us. It is not in dispute that AY 2017-18 is an abated assessment. According to Ld. AR once the year under consideration is held as abated year , it becomes open for an assessee to make a fresh claim which needs to be considered on merits and therefore he contended that the Ld. CIT(A) was well within his jurisdiction directing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed u/s 139 of the Act, for the sake of clarity, it is reproduced below: 10. The reliance on the decision of the Apex Court in SunEngineering Works (P.) Ltd. (supra) by the Revenue is misplaced. The above case dealt with re-opening of an assessment under Section 147 of the Act. It was in that context that the Apex Court observed that the Order passed under Section 147/148 and the Assessing Officer is primarily restricted to such income which has escaped assessment and does not permit reconsideration of issue which are concluded in the earlier assessment years in favour of the Revenue. 11. In the present facts for the subject assessment years it is an undisputed position that the pending assessment before the Assessing Officer consequent to return filed under Section 139(1) of the Act for the subject Assessment years had abated. This was on account of the search and as provided in second proviso to Section 153A(1) of the Act. The consequence of notice under Section 153A(1) of the Act is that assessee is required to furnish fresh return of income for each of the six assessment years in regard to which a notice has beenissued. It is this return which is filed consequent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said Act shall apply to the same accordingly. If that be the position, all legitimate claims would be open to the assessee to raise in the return of income filed under section 153A(1). . 16. From the above we conclude that in view of the second proviso to section 153A(1) of the said Act, once assessment gets abated, it is open for the assessee to lodge a new claim in a proceeding under section 153A(1) which was not claimed in his regular return of income, because assessment was never made/finalised in the case of the assessee in such a situation. 23. With regard to submissions made by the Ld DR that the Ld CIT(A) has ignored the decision of Sun Engineering Works (P) Ltd decision, we observe that the Hon'ble Bombay High Court already considered the above decision in the case of B.G Shirke Construction (supra) in the Para No.10 of the decision (refer para no 22 above). It held that the stand of the revenue is misplaced as the issue is relating to the assessment u/s.147/148 of the Act, the same cannot be applied for the issue under consideration. Therefore, the submissions made by the Ld.DR are substantially answered. 24. Considering the above discussion, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantification of the brought forward short term capital loss of AY 2016-17 eligible for set-off in AY 2017-18, the AO is directed to re-compute and allow the loss, as finally quantified and allowed to be carried forward in AY 2016-17 upon giving effect to the appellate order/s, in accordance with law. Accordingly, Ground Nos. 1 2 of the Revenue s appeal stands dismissed and Ground No. 1 of the assessee stands allowed for statistical purposes. 76. Ground Nos. 3 to 5 taken by the Revenue in AY 2017-18 is against the Ld. CIT(A) s action of deleting the further disallowance made by the AO u/s 14A of the Act in terms of Rule 8D. It is noted that the issue facts relating to this ground is akin to Ground Nos. 2 to 4 taken by the Revenue in the appeal in ITA No. 2513/Mum/2021 for AY 2014-15. Following our reasonings given while deciding the appeal for AY 2014-15, we uphold the Ld. CIT(A) s action of deleting the disallowance u/s 14A of the Act both while computing income under normal provisions as well as book profit u/s 115JB of the Act. This ground therefore stands dismissed. 77. Ground No. 6 taken by the Revenue relates to the addition of Rs. 1,81,09,740/- made by the AO by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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