TMI Blog2024 (3) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... the correspondence of the assessee there is a general information with respect to unsold flats but not on determination of deemed rent on the flats as per the provisions of section 23(5) of the Act. Whereas in the A.Y 2017-18, the A.O has made addition of the notional rent on the projects of Chaturbhuj and Yashvawin and passed order u/sec. 143(3) r.w.s 263 r.w.s 144B of the Act and the appeal is pending before the CIT(A). Further the assessee has not challenged the revision order u/s 263 of the Act and the AO has passed the order u/sec. 143(3) r.w.s 263 of the Act. DR submissions are that the Pr.CIT has dealt on these facts which proves that the A.O. has not applied his mind and the A.O has not made enquiries on the specific issue. We find the A.O has called for the information, but there is no examination and verification of the facts or findings by the A.O on the determination of deemed rental income - matter needs to be verified and reasons for claim should be justified by the assessee as discussed above. No infirmity in the order of the Pr.CIT on the directions to A.O. on the determination of deemed rental value u/sec. 23(5) of the Act and we up hold the same and dismiss this g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction and bad- in-law. 2. The Ld. PCIT failed to appreciate that the Ld. A.O., during the course of assessment for the impugned assessment year, had called for several details and after looking into the same has passed the assessment order dated 04.02.2021 under section 143(3) of the Act. Thus, mere change of opinion of the Ld. PCIT on the same set of facts won't make the assessment order dated 04.02.2021 erroneous and prejudicial to the interest of revenue. Hence, the order passed under section 263 dated 29.03.2023 is without jurisdiction, bad-in-law and void- ab-initio. 3. The Ld. PCIT failed to appreciate during the course of assessment, the Appellant had furnished detailed explanation with respect to the revenue recognition of each project including the project in question. After considering the same, the Ld. A.O. passed the assessment order dated 04.02.2021. Thus, the assessment order dated 04.02.2021 is neither erroneous nor prejudicial to the interests of the revenue and therefore, the impugned order has been passed merely on the basis of change of opinion. Hence, the order dated 29.03.2023 passed under section 263 of the Act is bad-in-law and the same be quashed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g u/s. 143(3) was completed on 04.02.2021 on total income of Rs. 17,87,24,620/-. On the basis of details available on record:- 1 It is seen that the assessee is builder/developer and engaged in construction of housing projects. 2. On perusal of Profit Loss A/c, it is seen that during the year under consideration that assessee is engaged in four projects namely () Project Chaturbhuj, (ii) Project Yashwasin (801B), (iii) Project Yashaskaram and (iv) Project Sumukha. 3 The project-wise Profit Loss A/c. has been submitted by the assessee, the gist of which are as under: Project Op. Stock WIP GP Sales Closing stock Chaturbhuj 1,06,86,980 40,19,038 51,55,000 95,51,018 Yashwasin 11,55,964 0 0 11,55,964 Yashaskaram 49,28,46,835 15,97,07,081 - - Sumukh 5,62,41,514 1,15,78,728 4,26,18,510 2,52,01,731 ISSUE NO.1 1. On carefully considering the above facts, it is seen that assessee is builder/developer and engaged in construction of housing projects. 2. During the course of assessment proceedings, vide letter dated 27.01.2021, assessee has submitted with regard to Yashaskaram Project that since many expenses were yet to be incurred by the assessee, it did not book any sales in the projectbut o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and directing a fresh assessment within the meaning of section 263 of the Income Tax Act, may not be passed in your case. 8. In this connection, you are required to furnish your explanation on or before 06.03.2023 at 12.30 PM through e-proceeding in e-filing portal/e-mail along with complete details and documentary evidences. In case of non-compliance to this notice, it will be presumed that you have no objection to the proposed revision of the assessment order passed by the Assessing Officer as discussed above 4. In compliance to the notice, the Ld. AR of the assessee has appeared and has filed the submissions referred at Para 3 of the order as under: 3. In response to show cause notice, assessee filed letter dated 06.03.2023 asking for adjournment of hearing on 09.03.2023. Shri Satish Shanbag, C.A. appeared and made the submission requesting for a further adjournment to argue the case. Shri Satish Shanbag appeared on 23.03.203 and case was discussed. Submission of the assessee is reproduced as under, At the very outset, it may be stated that assessee is engaged in the business of builder and developer of real estate. During the year under consideration, the firm had four ongoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect Complete in the F.Y.2016-17 in the light of Occupancy Certificate issued by CIDCO on 20.05.2016 as Certificate of completion of construction of property. May I very humbly point out that in the light of the fact described in the above para, it is apparent that water connection and electricity connection, which were provided by CIDCO and MSEB respectively, were provided after the date of issue of Occupancy Certificate. Therefore, it is crystal clear that Occupancy Certificate cannot be equated with the Certificate of completion of construction of property, as mentioned in section 23(5) of Income Tax Act. In support of our this contention, apart from documents relating to water and electricity connection, we are also enclosing herewith the profit and loss account for A.Y. 2019-20 i.e. next assessment year, in which the assessee has incurred construction expenses of Rs. 4,44,52,157/- and paid commission and brokerage of Rs. 41,56,616/- (please ref Annexure-3). The mere fact that even in the next financial year assessee firm has incurred construction expenses of Rs. 4,44,52,157/- clearly show that construction of property was completed only in A.Y. 2019-20. Even in A.Y. 2018-19, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Completion method . It is very important to note that in none of the year, revenue objected to this method of accounting followed by assessee consistently since A.Y. 2014-15 onwards for so many years. Besides, it is also pertinent to mention that when project was actually complete in A.Y. 2019-20, the assessee firm did offer income on Project Completion method to the tune of Rs. 38,68,58,309/- in A.Y. 2019-20. Now, let us see the legal position of this case in law vis-a-vis the facts mentioned in the above para's, regarding issue of rule of consistency. In this regard, assessee reply on the Supreme Court judgment in the case of Commissioner of Income Tax Vs. Realest Builders Services Ltd. 307 IT 202 (SC) Copy enclosed (Annexure-4). In this case, Hon'ble Supreme Court observed as under. Before concluding, we may state that the High Court has proceeded on the basis of 'rule of consistency. We do not agree with the view taken by the High Court on that count. In cases where the Department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the years i.e. in A.Y. 2018-19 and A.Y. 2019-20, rendering entire exercise academic, as is termed by Apex Court's judgment (Supra). It is, therefore, prayed that your honour may kindly consider our above submisations and drop the proceedings initiated under sec. 263 of Income Tax Act. 5. Whereas the Pr.CIT was not satisfied with the explanations and submissions and is of the opinion that the order passed by the AO is erroneous and prejudicial to the interest of the revenue, and accordingly issued directions to the AO observing at Page 7 Para 4 to 8 of the order as under: During the proceeding u/s263, vide letter dated 23.03.2023, assessee stated that the firm had four ongoing projects. Out of these four projects, the revisionary proceedings relate to project named Yashaskarm'. As the assessee is following Project Completion Method therefore, the income in respect of this project has been offered for tax in the A.Y. 2019-20 whereas, during the course of assessment proceedings, vide letter dated 27.01.2021, assessee submitted with regard to Yashaskaram Project that since many expenses were yet to be incurred by the assessee it did not book any sales in the project but offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny buildings or lands appurtenant thereto of which the assessee is the owner is chargeable to income tax under the head Income from House Property . Only exception to this is the property which is occupied by the assesse for the purpose of any business or profession carried on by the assessee, the profit of which is chargeable to Income Tax. The building or land appurtenant thereto forming part of closing stock has not been excluded from the taxability of annual value under the head Income from House Property . a. Annual value for the purpose of section 22as per the section 23(1)(a) shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. b. Since there is no dispute about the fact that the assessee was owner of the flats which constitute property within the meaning of section 22 of the Act, therefore, I am of the considered view that the annual value of the flats owned by the assessee, forming part of the closing stock is taxable under the Head Income from House Property . While making the assessment of the AY 2017-18, the AO has not taxed the annual value of the flats forming part of the closing stock under the head Income from H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself is occupier. because it holds the property till it is sold, is concerned, the Court does not find any merit in this submission. While there can be no quarrel with the proposition that occupation can be synonymous with physical possession, in law, when Parliament intended a property occupied by one who is carrying on business, to be exempted from the levy of income tax was that such property should be used for the purpose of business. The intention of the lawmakers, in other words, was that occupation of one's own property, in the course of business, and for the purpose of business i.e. an active use of the property. (instead of mere passive possession) qualifies as own occupation for business purpose. This contention is, therefore ITA 18/99, 56,57,105, 107,109,114,177/01, 88/02 111, 321, 498/03,227,336,529,690/04,212/05 Page 12 rejected. Thus, this question is answered in favour of the revenue, and against the assessee. The assesse has relied upon section 23(5) which is quoted as under: Deemed rent even in such a case, would definitely be applicable for the period beyond that specified in the section . Since the above mentioned issues have not been fully considered durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. Per Contra, the Ld.DR submitted that the AO has not verified nor conducted inquiry on the facts of applicability of methodology of revenue recognition for the projects and also no rental income from house property was determined on the closing stock of unsold flats in the completed projects and the Ld. DR relied on the order of the Pr.CIT. 8. We heard the rival submissions and perused the material available on record. The Ld.AR envisaged that the order passed by the Pr.CIT is bad in law as the order revised under revision proceedings passed by the Pr. CIT is not erroneous and prejudicial to the interest of the revenue. Prima-facie the Pr.CIT has passed the revision order with a directions to assessing officer to examine and verify on two aspects (i) annual rental value of unsold flats in respect of completed projects determined under the provisions of section 23(5) of the Act and (ii) method of accounting adopted for revenue recognition of the project. On the first disputed issue, it was submitted that the Pr.CIT has erred in directing the assessing officer in computing the deemed rental value of the flats disclosed under the stock in trade, though finishing expenses are being i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he correspondence of the assessee there is a general information with respect to unsold flats but not on determination of deemed rent on the flats as per the provisions of section 23(5) of the Act. Whereas in the A.Y 2017-18, the A.O has made addition of the notional rent on the projects of Chaturbhuj and Yashvawin aggregating to Rs. 6,63,204/- and passed order u/sec. 143(3) r.w.s 263 r.w.s 144B of the Act and the appeal is pending before the CIT(A). Further the assessee has not challenged the revision order u/s 263 of the Act and the AO has passed the order u/sec. 143(3) r.w.s 263 of the Act. The Ld.DR submissions are that the Pr.CIT has dealt on these facts which proves that the A.O. has not applied his mind and the A.O has not made enquiries on the specific issue. We find the A.O has called for the information, but there is no examination and verification of the facts or findings by the A.O on the determination of deemed rental income. We considering the facts, circumstances and are of the opinion that the matter needs to be verified and reasons for claim should be justified by the assessee as discussed above . Accordingly, we do not find infirmity in the order of the Pr.CIT on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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