2020 (9) TMI 183 - AT - Income Tax

Revision u/s 263 - assessee has not offered notional rent on its unsold flats, which are assessee s stock in trade - assessee submitted that the flats are unsold stock in trade of the assessee - HELD THAT - We find that the unsold flats are stock in trade of the assessee. The relevant provision for bringing the same under the ambit of income from house property has been introduced by Finance Act by introduction of Section 23(5). Provision in the Act for BRINGING to tax the notional rent on unsold stock of house property was brought into effect from assessment year 2018-19. In the present case, the assessment year is 2014-15 and hence the said provision is not at all applicable for the current assessment year. As referred by the learned counsel of the assessee in the decision of Hon'ble Gujrat High Court in the case of Neha Builders (P.) Ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT it was held that notional house rent cannot be computed for stock in trade. The Hon'ble Supreme Court in the case of CIT vs Vegetable Products Ltd., 1973 (1) TMI 1 - SUPREME COURT has expounded that if two constructions are possible, one in favour of assessee has to be adopted. Even from this point of view on the touchstone of Hon'ble Gujrat High Court decision, as referred above, notional house rental income cannot be computed for the unsold flats of the assessee. Admittedly, when an issue is before the Hon'ble Supreme Court and has not yet been decided, the issue can be considered to be a debatable issue and in such circumstances as long as there is existence of debate about both point of view, the learned CIT is not empowered to exercise jurisdiction under Section 263 of the Act in support of one point of view to which he subscribes. This view is duly supported by the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs CIT 2000 (2) TMI 10 - SUPREME COURT . Thus exercise of jurisdiction under Section 263 of the Act by the learned CIT is not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction under Section 263 of the Income Tax Act regarding notional rent on unsold flats.
2. Interpretation of Section 23(5) of the Income Tax Act.
3. Applicability of the provision for bringing notional rent on unsold stock of house property.
4. Consideration of debatable issues and decisions of higher courts.

Detailed Analysis:
1. The appeal was against the order of the Principal Commissioner of Income Tax (PCIT) dated 25.03.2019 regarding the jurisdiction under Section 263 of the Income Tax Act for notional rent on unsold flats. The PCIT held that the Assessing Officer's order was erroneous and prejudicial to the interest of Revenue. The delay in filing the appeal was condoned due to a reasonable cause attributed to a mistake by an employee. The Tribunal found that the unsold flats were stock in trade of the assessee, and the PCIT's exercise of jurisdiction was not sustainable.

2. The Tribunal analyzed Section 23(5) of the Income Tax Act, which pertains to the annual value of property held as stock-in-trade and not let during the previous year. The provision for bringing notional rent on unsold stock of house property was introduced from assessment year 2018-19, making it inapplicable for the current assessment year of 2014-15. The Tribunal referred to the decision of the Hon'ble Gujarat High Court and the Supreme Court's principle of adopting a construction in favor of the assessee when two interpretations are possible.

3. The Tribunal highlighted that notional house rent cannot be computed for stock in trade as per the decision of the Hon'ble Gujarat High Court. The issue was considered debatable, especially since it was pending before the Hon'ble Supreme Court. The Tribunal emphasized that as long as there is a debate on both viewpoints, the PCIT cannot exercise jurisdiction under Section 263 to support a specific viewpoint. This view was supported by the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs CIT.

4. The Tribunal concluded that the exercise of jurisdiction under Section 263 by the PCIT was not sustainable based on the precedent and the debatable nature of the issue. The appeal was allowed in favor of the assessee, emphasizing the importance of considering debatable issues and decisions of higher courts in such matters. The pronouncement of the order was delayed due to the Covid-19 pandemic, in accordance with the relevant rules and decisions of the Bombay High Court.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's reasoning in reaching its decision.