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2023 (1) TMI 1345 - AT - Income TaxRevision u/s 263 - ALV determination of property under the head income from house property - CIT has discussed on the Provisions of Sec. 22 r.w.s 23(1)(a) of the Act and is of the opinion that the assessee was owner of flats which constitute property within the meaning of Sec. 22 of the Act and therefore the annual value of the flats owned by the assessee is form part of the closing stock and is taxable under the head income from house property in the A.Y 2017-18 and the AO has not considered these facts and excluded Contentions of the Ld. AR that when the charging of income under income from house property applying the deemed provisions is applicable from A.Y.2018-19 is a debatable and therefore revision proceedings shall not sustained HELD THAT - AO in the assessment proceedings having satisfied with the claim has not made any comment on the issue. Further the contentions of the Ld. AR that the ALV of the house property held as stock in trade has to be considered on deeming provisions as per finance Act 2017 from the A.Y 2018-19 and whereas the current A. 2017-18. Further if any query is raised in the assessement proceedings and it was responded by the assessee, mere fact that it is not dealt with by the A.O. in the order cannot implied that there is no application of mind. Therefore observations of the Pr.CIT cannot be acceptable as the order passed by the A.O. does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. Appeal of assessee allowed.
Issues Involved:
1. Validity of the assumption of jurisdiction by the Pr. CIT under Section 263. 2. Taxability of annual value of unsold flats held as stock-in-trade under the head "Income from House Property" for the A.Y. 2017-18. 3. Applicability of the amendment to Section 23(5) of the IT Act, 1961. Detailed Analysis: 1. Validity of the Assumption of Jurisdiction by the Pr. CIT Under Section 263: The primary issue raised by the assessee was that the Pr. CIT erred in holding the order framed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act on 09.05.2019 to be erroneous and prejudicial to the interest of revenue. The Pr. CIT issued a show cause notice under Section 263, indicating that the AO had not made any enquiry or verification of facts while passing the assessment order. The Pr. CIT argued that the AO failed to tax the annual value of the property forming part of the closing stock under the head "Income from House Property," thereby rendering the assessment order erroneous and prejudicial to the revenue's interest. The assessee contended that the AO had duly verified the financials and details called for during the assessment proceedings, and the order was passed after due consideration. The assessee further argued that the AO had adopted a possible view, and the Pr. CIT's action was based on a debatable issue, which does not satisfy the twin conditions of being erroneous and prejudicial to the revenue. 2. Taxability of Annual Value of Unsold Flats Held as Stock-in-Trade: The Pr. CIT directed the AO to compute the income under the head "Income from House Property" by taxing the annual value of unsold flats forming part of the closing stock as per Section 23(1)(a) of the IT Act. The Pr. CIT relied on the decision of the Gujarat High Court in the case of Bipin Vadilal Family Trust vs. CIT, where 8% of the cost of the property was reckoned as the value for which the property might reasonably be let out during the year. The assessee argued that the annual value in respect of vacant unsold units held as stock-in-trade was not liable to tax in the year under appeal. The assessee cited various judicial decisions, including those of the Pune ITAT and the jurisdictional Mumbai Tribunal, which held that stock-in-trade should be treated as income from business and not as income from house property. 3. Applicability of the Amendment to Section 23(5) of the IT Act, 1961: The assessee pointed out that by the Finance Act, 2017, subsection (5) was inserted in Section 23, providing that if any property is held as stock-in-trade and not actually let out, the annual value of such property for a period of one year from the end of the financial year in which the certificate of completion of construction is obtained is to be taken as Nil. This amendment is prospective and applicable from the A.Y. 2018-19. The assessee argued that prior to this amendment, there was no provision to assess such notional annual value under Section 22 of the IT Act, 1961, and hence, the income in respect of vacant unsold units held as stock-in-trade was not required to be assessed to tax for the A.Y. 2017-18. The assessee relied on the decision of the Pune ITAT in the case of Kumar Properties and Real Estate P. Ltd., which held that the amendment to Section 23 is prospective and applicable from the A.Y. 2018-19. Conclusion: The Tribunal accepted the assessee's arguments, noting that the AO had duly verified the financials and details called for during the assessment proceedings. The Tribunal found that the AO's order was not erroneous or prejudicial to the interest of the revenue, as the AO had adopted a possible view. The Tribunal also agreed that the amendment to Section 23(5) is prospective and applicable from the A.Y. 2018-19, and hence, the annual value of unsold flats held as stock-in-trade was not liable to tax for the A.Y. 2017-18. Consequently, the Tribunal set aside the order of the Pr. CIT and allowed the appeal filed by the assessee.
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