TMI Blog2023 (4) TMI 1286X X X X Extracts X X X X X X X X Extracts X X X X ..... SHRI KULDIP SINGH, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER For the Appellant : Ms. Neelam Jadhav Department Represented : Shri Ashish Kumar Deharia ORDER PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short Ld.CIT(A) ] dated 29.08.2022 for the A.Y.2014-15. 2. Brief facts of the case are, assessee filed its return of income on 30.09.2014 declaring total loss of ₹.12,65,200/-. The return was processed u/s. 143(1) of the Act. The case was selected for scrutiny under CASS and notices u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short Act ) were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for. 3. During the course of the assessment, Assessing Officer observed that assessee is involved in buying and selling of immovable property without actually undertaking any construction activity. During the current Assessment Year assessee has not generated any income eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seller was made later. In that process assessee has earned certain interest income. 8. After considering the submissions of the assessee, Assessing Officer rejected the same and observed that assessee has not carried out any business activity during the Financial Year or any earlier assessment year except acquisition of the property and maintains the property. The only income earned by the assessee during the year under consideration is the interest income from FDR which is to be taxed under the head income from other sources . Further, he observed that assessee has not produced any evidences to show that expenditure incurred during the year under consideration is for the purpose of business. Hence the same is not allowable u/s. 37(1) of the Act. 9. Further, Assessing Officer observed that assessee has earned income under the head income from house property and already assessee was granted deduction 24(1) of the Act at the rate of 30%, therefore assessee cannot claim other expenditure. Accordingly, he disallowed the business expenditure and proceeded to make the interest income earned from FDR as income chargeable to tax under the head income from other sources . 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition can be made at 8.5% of Annual Value of the Property No.3 under the head Income from House Property, as no occupancy certificate received by the appellant . 5. The Learned CIT (A) erred in directing to take Annual Value of the property No. 3 at 8.5% of the property value as Income from House property, without appreciating that, appellant has not received occupancy certificate hence property was not legally occupiable and not occupied during the year, hence direction to assessed deemed rental income at 8.5% of annual value i.e. 14,50,885/-is without any basis same may be directed to be deleted. 6. Without prejudice to the above, the annual value of the property has to be taken as per the Municipal Ratable Value of the property. Notional annual value cannot be exceed the Municipal Ratable Value. Hence, notional estimate at 8.5% of the property value at Rs.14,50,885/- may be directed to be deleted. 7. The appellant craves leave to add, amend, alter or delete the said ground of appeal. 12. At the time of hearing, Ld. AR brought to our notice relevant facts relating to the case, and filed its written submissions. For the sake of clarity, it is reproduced belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted. Property No. 1 at Wada. Palghar 6. There cannot be an estimate addition of Rs.60,000/- for Property No. 1 under the head Income from House Property, there has to be some basis to calculate deemed rental income from the property which shown under the head inventories. 7. Even in earlier year, without any basis calculated the deemed rental income against the said property and, department simply following the earlier year order, restricted the rental income at Rs.60,000/- for current year. Hence, it humble submission that estimated addition for deemed rental income may be directed to be deleted. 8. In the case of Sunil Kumar vs. ACIT (2022) 194 ITD 764 (Delhi)(Trib.) held that Estimation of annual letting value, not based estimate on any reasonable working in determining annual letting value. Addition made for Income from house property was deleted. 9. Without prejudice to the above, when the Assessee held unsold property as business, then income arises from the same cannot be assessable u/s 23(1) of the Act. 10. Therefore, direction given to estimate income at Rs.60,000/- may be directed to be deleted. Property No. 2 at Atlas Tower, Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances, the question of charging tax on notional rental income during such period does not arise. 18. In the case of Brigade Enterprises Ltd. vs. AddL CIT [2021] 279 Taxman 219 (Karnataka) (HC) held in para no. 7 held that since building would legally come into existence only on issuance of an occupancy certificate and, further, assessee had declared rental income from letting out of said building in subsequent assessment year, notional income by way of annual letting value could not be assessed on such building during year. Case laws: If property is used as stock-in-trade, then said property would become or partake character of stock and any income derived from stock would be income from businesses and not income from property . CIT vs. Neha Builders (2008) 296 ITR 661 (Guj)(HC)(Para 8) CIT vs. Ansal Housing Finance Leasing Co. Ltd. (2013)354 ITR 180 (Del.)(HC) C.R. Developers Pvt. Ltd. vs. JCIT, ITA No.4277/Mum/2012 dtd.13/05/2015 Runwal Constructions v. ACIT in ITA. No. 5408 5409/Mum/2016 dated 22.02.2018 (Para 10) Shree Balaji Ventures vs. ITO, ITA No.1914/PUN/2018, de 19/02/2019 (Pune)(Trib.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ihi)(Trib.) e. Sharan Hospitality (P.) Ltd. v. Dy. CIT [2020] 268 Taxman 443 (Bombay) (HC) f. Brigade Enterprises Ltd. vs. Addl. CIT [2021] 279 Taxman 219 (Karnataka)(HC) g. ITO vs. Chem Mech Pvt. Ltd. (2003) 83 ITD 273 (Mum)(Trib.) 14. On the other hand, Ld.DR relied on the orders of the lower authorities. 15. Considered the rival submissions and material placed on record, we observe that similar issue was considered by the Coordinate Bench in the case of Pegasus Properties (P.) Ltd., v. DCIT (supra) and held as under:- 5.11 It is not in dispute that the assessee is a builder or developer and had been showing the income derived from sale of flats as and when they are sold and the flats remaining unsold are shown as inventories in the balance sheet of the assessee as stock-in-trade . These unsold stocks when it is sold subsequently would again get taxed only under the head income from business . We find that the assessee being a builder or developer would be interested in selling those flats and earn profits out of the same. No business man wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18-19 after providing the moratorium period of two years. Hence, upto A.Y.2017-18, no addition could be made in respect of deemed rental income on unsold stock of flats lying as stock in trade as they are used for the purpose of business of the assessee. 5.13 We find that all the decisions relied upon by the Hon ble Bombay High Court in Mangla Homes Pvt. Ltd., were prior to the decision of the Hon ble High Court in the case of Chennai Properties referred to supra. This is the background in which all the Tribunal decisions had followed the decision of the Hon ble Gujarat High Court in the case of Neha Builders reported in 296 ITR 661. We find that the issue in dispute is also covered by the decision of Pune Tribunal in the case of Kumar Properties and Real Estates Pvt. Ltd., vs. DCIT in ITA No.2977/PUN/2017 for A.Y.2013-14 dated 28/04/2021. For the sake of convenience, 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax, shall be excluded. Thus, in order to fall in the exclusion clause, the following conditions must be satisfied: i. The property or its part should be occupied by the assessee as an owner. ii. Any business or profession should be carried on by the assessee-owner. I ii. Occupation of the property should be for the purpose of business or profession iv. Profits of such business or profession should be chargeable to income-tax. 5. Only when the above four conditions are cumulatively satisfied that the property or 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? T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the legislature has used a wider expression: `for the purpose of business' with occupation of the property rather than any narrower expression indicating that the business must be carried on from such property or something like that as a sine qua non for exception. If the intention of the legislature had been to provide exception in a limited manner, it would have used a suitable constrained expression. Coming back to the factual scenario prevailing in the instant case, we find that the purpose 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , from the end of the financial year in which the completion certificate is received, shall be taken as Nil. The amendment has been carried out w.e.f. 1.4.2018 and the Memorandum explaining the provisions of the Finance Bill also clearly provides that this amendment will take effect 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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