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2019 (4) TMI 2016 - AT - Income TaxIncome from house Property u/s 22 - ALV of the unsold units which constitutes stock in trade - adding the Annual Letting Value (ALV) of unsold unit under the head Income from House Property - scope of amendment - AO estimating the deemed rental income of the assessee in respect of unsold units and after grating statutory deduction of 30% treated the remaining as income of house property - HELD THAT - As decided in own case 2018 (10) TMI 1910 - ITAT MUMBAI section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18) 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. As 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). AO was not justified in bringing the unsold flat / units under income from house property. In the result the grounds of appeal raised by the assessee are allowed. Addition of interest expenditure under section 36(i)(iii) - assessee failed to prove that the interest paid has been utilized wholly and exclusively for the business purpose - HELD THAT - Considering the decision of Tribunal in assessee s own case for earlier year 2018 (10) TMI 1910 - ITAT MUMBAI and the facts that the ld CIT(A) has nor recorded its satisfaction that that he has examined the facts and the books of accounts of the assessee if the assertion of the assessee that out of ₹ 151.06 Crore a sum of ₹ 50.74 Crore was business advances, ₹ 80.78 Crore was advanced to subsidiary and ₹ 6.37 to associate concerns or when the interest free loans of ₹ 86.95 Crore was received by the assessee. Therefore, the grounds of appeal raised by the revenue are also restored back to the file of assessing officer to verify the facts and pass the order in accordance with law.Appeal of revenue is allowed for statistical purpose.
Issues Involved:
1. Addition of Annual Letting Value (ALV) of unsold units as "Income from House Property." 2. Deletion of disallowance of interest expenditure under Section 36(1)(iii). Issue-Wise Detailed Analysis: 1. Addition of Annual Letting Value (ALV) of Unsold Units as "Income from House Property": The primary issue is whether the ALV of unsold units, which constitute stock-in-trade for a real estate developer, should be considered as "Income from House Property" under Section 22 of the Income Tax Act, 1961. The assessee argued that the unsold units are part of its business stock-in-trade and should not be subjected to notional ALV as income from house property. The assessee cited the Gujarat High Court’s decision in Neha Builders Pvt. Ltd. (296 ITR 661), which states that unsold units held as stock-in-trade should not be taxed on a notional basis as income from house property. The Assessing Officer (AO) relied on the Delhi High Court's decision in Ansal Housing Finance and Leasing Company Ltd. (344 ITR 180), where it was held that ALV of unsold units should be treated as income from house property. The AO added ?1,57,30,988/- as ALV of unsold units and, after granting a 30% deduction, treated ?1,10,11,692/- as income from house property. The CIT(A) upheld the AO’s addition. However, the Tribunal noted that in the assessee’s own case for AY 2012-13, similar additions were deleted by the Tribunal. The Tribunal also referred to various other decisions, including those of the Bombay Tribunal in Sarang Property Developers Pvt. Ltd. and Runwal Constructions, which favored the assessee. The Tribunal acknowledged the insertion of sub-section (5) in Section 23 by the Finance Act, 2017, effective from 01.04.2018, which provides relief to real estate developers by considering the annual value of such property as nil for a period up to one year from the end of the financial year in which the completion certificate is obtained. Given the conflicting decisions and the absence of a jurisdictional High Court ruling, the Tribunal followed the decision favorable to the assessee, as per the Supreme Court’s directive in CIT v. Vegetable Products (88 ITR 192). Consequently, the Tribunal directed the AO to delete the addition made on the basis of notional ALV for the unsold units. 2. Deletion of Disallowance of Interest Expenditure under Section 36(1)(iii): The second issue concerns the deletion of disallowance of interest expenditure claimed by the assessee under Section 36(1)(iii). The AO disallowed ?2,23,67,733/- on the grounds that the assessee failed to prove that the interest paid was utilized wholly and exclusively for business purposes. The AO noted that the assessee had taken substantial unsecured loans and also provided interest-free loans and advances to various parties, including subsidiaries and associate concerns. The assessee contended that it had sufficient interest-free funds amounting to ?245.42 Crore, which were used to make interest-free advances of ?151.06 Crore. The assessee argued that these advances were for business purposes and cited the Supreme Court’s decision in S.A. Builders (158 Taxman 74 SC) and the Bombay High Court’s decision in CIT v. Reliance Utilities & Power Ltd. (313 ITR 340 Bom), which support the presumption that if interest-free funds are sufficient, investments are presumed to be made from such funds. The CIT(A) deleted the disallowance, but the Tribunal noted that the CIT(A) did not provide a detailed examination of the facts and the books of accounts. The Tribunal referred to its earlier decision for AY 2012-13, where a similar issue was remitted to the AO for a de novo order. The Tribunal directed the AO to verify the facts and pass an order in accordance with the law, considering the principles laid down in Reliance Utilities & Power Ltd. and S.A. Builders. Conclusion: The Tribunal allowed the assessee's appeals regarding the addition of ALV of unsold units and directed the AO to delete the notional ALV addition. For the disallowance of interest expenditure, the Tribunal remitted the matter back to the AO for verification and a fresh decision, following the principles established in relevant case laws. The appeals for both AY 2013-14 and AY 2014-15 were decided in a consistent manner, following the same rationale and directions.
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