2018 (10) TMI 1910 - AT - Income Tax

Income from house property u/s 22 - ALV of the unsold units - Adding the ALV of the unsold units which constitutes stock-in-trade - scope of amendment - 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 view of the above amendment to section 23 we are not adverting to the case laws relied on by the Ld. counsel and Ld. DR. In the instant case the assessee is in the business of real estate development. The issue of taxability is with regard to unsold flats/units held by the appellant under the head Closing Inventories . 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 hereinbefore we set aside the order of the Ld. CIT(A) Disallowance of interest expenditure on notional basis - HELD THAT - We keep in mind that where an additional evidence has been allowed to be adduced the interests of justice demand that the other side must be given an opportunity to explain or rebut such additional evidence as clarified in the decision in Smt. Urmila Ratilal 1981 (6) TMI 25 - GUJARAT HIGH COURT ; Hiralal Devdutt Jagadhri 1980 (2) TMI 282 - PUNJAB AND HARYANA HIGH COURT We set aside the order of the Ld. CIT(A) and remit the matter relating to the 3rd and 4th ground of appeal to the file of the AO to make a de novo order as per the ratio laid down in Madhav Prasad Jatia 1979 (4) TMI 2 - SUPREME COURT and Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence before the AO.

Summary

Issues:
1. Taxability of unsold units as "Income from house property"
2. Disallowance of interest expenditure on notional basis

Issue 1: Taxability of unsold units as "Income from house property"

The appellant, a real estate developer, appealed against the addition of the Annual Letting Value (ALV) of unsold units as "Income from house property" under section 22 of the Income Tax Act, 1961. The Assessing Officer (AO) added the ALV based on the decision in Ansal Housing Finance & Leasing Co. Ltd. The Commissioner of Income Tax (Appeals) upheld this addition. However, the appellant cited the decision in Neha Builders Pvt. Ltd. and amendments to section 23 by the Finance Act, 2017, to argue against the taxability of unsold units. The ITAT Mumbai set aside the CIT(A)'s order, considering the amendment to section 23 and allowed the appeal on this issue.

Issue 2: Disallowance of interest expenditure on notional basis

The appellant claimed interest expenditure on unsecured loans against interest income, but the AO disallowed a portion of the interest expenses on notional basis. The AO relied on the decision in Punjab Stainless Steel Inds and disallowed the interest expenses. The CIT(A) upheld this disallowance, stating the appellant failed to prove the availability of interest-free funds for advancing loans. The appellant cited the decision in Reliance Utilities & Power Ltd. and submitted additional evidence to support its claim. The ITAT admitted the additional evidence and remitted the matter to the AO for a fresh decision, considering the legal requirements for claiming deductions under section 36(1)(iii). The appeal was allowed on this issue for statistical purposes.

In conclusion, the ITAT Mumbai partially allowed the appeal, setting aside the additions related to taxability of unsold units and interest expenditure disallowance. The judgment provided a detailed analysis of the legal provisions, case laws, and factual circumstances to arrive at a reasoned decision on each issue raised in the appeal.