2018 (5) TMI 1771 - AT - Income Tax

Addition on account of notional income under the head Income from House Property made in respect of unsold flats shown as stock-in-trade - Held that - In order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his stock-in-trade which is not let out for the whole or part of the year, the annual value of such property will be considered as Nil for a period up to one year from the end of the financial year in which a completion certificate is obtained from the competent authority. In the instant case, the assessee is a builder and developer. The issue of taxability is with regard to 51 unsold flats. The AY is 2012-13. In view of the insertion of sub-section (5) in section 23 by the Finance Act, 2017, w.e.f. 01.04.2018 narrated here-in-before, we set aside the order of the Ld. CIT(A) and allow the 1st ground of appeal. Addition u/s 14A - Held that - As per the balance sheet as at 31.03.2012, the partner s capital account having a credit balance of ₹ 19,28,71,467/- is more than the investment in mutual funds to the tune of ₹ 51,45,000/-. Thus we delete the disallowance of ₹ 1,38,951/- made by the AO under Rule 8D(2)(ii). As regard Rule 8D(2)(iii) While the fixed administrative expenses were excluded on the ground that in the case of a large corporate taxpayer they would be spread over a large number of voluminous activities, the variable expenses were computed at one-half per cent of the value of the investment - the disallowance of ₹ 25,725/- made by the AO under Rule 8D(2)(iii) is confirmed. Also the expenditure of ₹ 12,000/- directly related to income which does not form part of total income, disallowed by the AO under Rule 8D(2)(i) is confirmed. - decided partly in favour of assessee

Summary

Issues involved:
1. Addition of notional income under the head 'Income from House Property' for unsold flats.
2. Disallowance of expenses under section 14A related to exempt dividend income.

Issue 1: Addition of notional income under the head 'Income from House Property' for unsold flats:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals)-52, Mumbai regarding the addition of notional income under the head 'Income from House Property' for unsold flats. The Assessing Officer observed unsold flats in the assessee's inventory and added the Annual Letting Value (ALV) to the total income. The CIT(A) reduced the addition based on fair market rent calculations. The ITAT Mumbai noted the insertion of sub-section (5) in section 23 by the Finance Act, 2017, providing relief to Real Estate Developers. Considering this amendment, the ITAT set aside the CIT(A)'s order and allowed the appeal.

Issue 2: Disallowance of expenses under section 14A related to exempt dividend income:
The AO made a disallowance under section 14A related to exempt dividend income. The CIT(A) confirmed this disallowance based on Rule 8D calculations. The ITAT Mumbai, considering the partner's capital account balance exceeding the investment in mutual funds, referred to relevant case laws. Citing the HDFC Bank Ltd. case, the ITAT deleted the disallowance made under Rule 8D(2)(ii). Referring to the Godrej & Boyce Mfg. Co. Ltd. case, the ITAT confirmed the disallowance under Rule 8D(2)(iii) and Rule 8D(2)(i). The appeal was partly allowed based on these considerations.

This judgment by the Appellate Tribunal ITAT Mumbai addressed the issues of addition of notional income for unsold flats under 'Income from House Property' and the disallowance of expenses under section 14A related to exempt dividend income. The ITAT Mumbai's detailed analysis considered legal amendments, case laws, and financial aspects to provide a comprehensive decision on each issue raised in the appeal.