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2022 (10) TMI 1150 - AT - Income TaxIncome from house property - ALV of the flats held as stock in trade - notional income as income from house properties in respect of unsold units held by the assessee as its stock in trade - HELD THAT - When specific provision has been brought with the effect from 01.04.2018 which cannot be applied retrospectively, then in our humble opinion it cannot be imputed that ALV of the flats held as stock in trade should be taxed on notional basis prior to AY 2018-19. Without any legislative intent or specific provision under the Act, such notional or deeming income should not be taxed as cardinal principle, because assessee is not aware that any hypothetical income is to be shown when he has not received any real or actual income. In our view of Hon‟ble Delhi High Court East India Housing Land Development Trust 1960 (11) TMI 7 - SUPREME COURT is too harsh an interpretation. Since, even prior to the amendment, there is one High Court judgment of Hon‟ble Delhi High Court which is directly on this issue and against the Assessee, therefore same needs to be followed. Accordingly, we hold that Assessing Officer is correct in computing ALV on notional rent on unsold stock, but with following riders and directions to the AO as discussed herein after. Firstly, the flats or units on which assessee has received any advance in this year or in the earlier years but has not delivered or given final possession of the said flat/unit to the buyer, then no notional rent can be charged as it tantamount to sale. Secondly, if unit of flat is shown as work-in-progress in the books then also no notional rent can be computed. And Lastly, Ld. Assessing Officer is not justified in making estimate of 8.5% of investment as ALV which is unsustainable in view of the decision of Hon‟ble Bombay High Court in the case CIT Vs. Tip top Typography 2014 (8) TMI 356 - BOMBAY HIGH COURT wherein, it has been held that rent should be computed at Municipal ratable value. We accordingly direct the AO to ascertain the Municipal rateable value for computing the notional rent. This is also been held by ITAT Mumbai Bench in the case of Dimple Enterprise 2021 (6) TMI 132 - ITAT MUMBAI AO is directed to compute accordingly as per direction given above. Accordingly, ground No.1 of the revenue is partly allowed for statistical purposes. Disallowance u/s 14A - Admittedly the AO has made disallowance u/s 14A much beyond the exempt claimed by the Assessee - Assessee has claimed exempt income and has suo motto disallowed the entire exempt income - CIT (A) has restricted the disallowance to the extent of exempt of income after following the judgment of M/s. Nirved Traders Pvt.Ltd. 2019 (4) TMI 1738 - BOMBAY HIGH COURT - HELD THAT - CIT (A) is justified in restricting the disallowance to the extent of exempt of income. Accordingly, the order of the CIT (A) is confirmed and ground no.2 of the revenue is dismissed. MAT Computation - Disallowance u/s 14A, r.w.s 115JB is also dismissed as already we have deleted the disallowance u/s 14A.
Issues Involved:
1. Deletion of addition of notional income as income from house properties. 2. Restriction of disallowance under section 14A of the IT Act to the extent of exempt income. 3. Deletion of disallowance under section 14A while computing book profits under section 115JB of the IT Act. Issue-wise Detailed Analysis: 1. Deletion of Addition of Notional Income as Income from House Properties: The primary issue was whether notional income from unsold units held as stock-in-trade can be assessed under the head "income from house property." The Assessing Officer (AO) computed the Annual Lettable Value (ALV) of the unsold units based on an 8.5% return on the value of the inventory, resulting in an income of Rs. 6,66,43,442/-. This was contested by the assessee, who argued that such notional income should not be assessed under "income from house property." The CIT(A) relied on various ITAT decisions and the Gujarat High Court judgment in CIT Vs. Neha Builders Pvt. Ltd., which held that notional rental income on unsold inventory cannot be assessed as income from house property. However, the AO cited the Delhi High Court decision in CIT Vs. Ansal Housing Finance & Leasing Company Ltd., which supported the assessment of notional rental income under the head "income from house property." The Tribunal noted the divergent views: the Gujarat High Court's decision favoring the assessee and the Delhi High Court's decision favoring the revenue. It emphasized that the Gujarat High Court's decision did not address notional rental income but actual rental income from stock-in-trade. Conversely, the Delhi High Court's decision specifically dealt with notional rental income from unsold units. The Tribunal concluded that, in the absence of a contrary decision from any other High Court, the Delhi High Court's decision should be followed. However, it provided specific directions for the AO: - No notional rent should be charged for units where advances have been received but possession has not been given. - No notional rent should be computed for units shown as work-in-progress. - The ALV should be computed based on the Municipal ratable value, not an ad hoc estimate of 8.5%. 2. Restriction of Disallowance under Section 14A of the IT Act to the Extent of Exempt Income: The AO disallowed Rs. 42,98,652/- under section 14A, whereas the assessee had claimed exempt income of Rs. 2,47,373/- and had suo moto disallowed the entire exempt income. The CIT(A) restricted the disallowance to the extent of exempt income, following the Bombay High Court's judgment in M/s. Nirved Traders Pvt. Ltd. The Tribunal upheld the CIT(A)'s decision, confirming that disallowance under section 14A should not exceed the exempt income claimed by the assessee. 3. Deletion of Disallowance under Section 14A while Computing Book Profits under Section 115JB of the IT Act: Given that the disallowance under section 14A was restricted to the extent of exempt income, the Tribunal also dismissed the disallowance under section 14A while computing book profits under section 115JB. Conclusion: The appeal of the revenue was partly allowed for statistical purposes. The Tribunal directed the AO to compute the ALV based on the Municipal ratable value and provided specific guidelines for excluding certain units from notional rent computation. The restriction of disallowance under section 14A to the extent of exempt income was upheld, and the related disallowance under section 115JB was dismissed.
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