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2022 (3) TMI 1345 - AT - Income TaxReopening of assessment u/s 147 - Eligibility of reasons to believe - AO has proposed to assess the income being notional rent in respect of the closing stock in the commercial complex, namely, Kreishna Square - HELD THAT - There is no allegation by the AO in the reasons recorded that the income proposed to be assessed in the reassessment proceedings has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Even otherwise, we find that all the relevant material in respect of the issue of assessment of rental income of the unsold stock was already available with the Assessing Officer at the time of scrutiny assessment. Hence, when the original assessment was framed under section 143(3) and the reopening is after the expiry of four years from the end of the relevant assessment year then the Assessing Officer is not permitted to reopen the assessment until and unless the conditions prescribed in the proviso to section 147 are satisfied. Assessing Officer himself has not alleged that the income proposed to assess has escaped assessment for want of disclosure of all material facts necessary for assessment. Thus in view of the above facts and circumstances as well as the binding precedents on the issue being decision of GKN Driveshafts (India) Ltd, 2002 (11) TMI 7 - SUPREME COURT and CIT Udaipur vs. Hindustan Zinc Ltd. 2016 (6) TMI 1045 - RAJASTHAN HIGH COURT , we are of the considered view that the assessee deserves to succeed and the impugned order of the ld. CIT (A) for A.Y. 2010-11 is set aside. Addition of the respective amounts by determining the ALV in respect of unsold stock of the assessee at Krishna Square the commercial complex - Notional ALV of the units held as stock in trade cannot be chargeable as income in the case of builder since the property is not constructed for letting out but the same is held for sale and actually was sold out on subsequent dates. Further, the builders take booking advance from several parties against the units and is under obligation to deliver possession of unsold stock to the concerned parties and such units cannot be let out by the builder. Therefore in absence of any specific provision in law ALV of stock in trade cannot be taxed. The sub-section (5) of section 23 was inserted by Finance Act 2017 with effect from 01.04.2018. The amended provision of sub section (5) of section 23 allows relaxation from taxability of ALV on unsold stock for the period upto 2 (two) years from the end of the financial year in which the certificate of completion of construction of the property is obtained. In the case of the assessee, construction of the property was completed on 31.08.2009. Even if we consider the relaxation period upto two years as envisaged in section 23(5), the ALV on unsold stock cannot be taxed for assessment year 2010-11 and 2011-12. Accordingly,e decide this issue against the revenue and in favour of the assessee and consequently the additions made by the AO and sustained by the ld. CIT (A) for A.Y. 2010-11 and 2011-12 are deleted and the order of the ld. CIT (A) is set aside.
Issues Involved:
1. Legality of the reassessment proceedings under Section 147 of the Income Tax Act. 2. Applicability of Section 23(5) of the Income Tax Act retrospectively. 3. Estimation of Annual Letting Value (ALV) of unsold stock of the assessee. Detailed Analysis: 1. Legality of the Reassessment Proceedings Under Section 147 of the Income Tax Act: The assessee argued that the reassessment proceedings were illegal, bad in law, and without jurisdiction as they were based on a change of opinion and violated the proviso to Section 147 of the Income Tax Act. The proviso states that no action can be taken for reopening an assessment after four years unless the Assessing Officer (AO) has reason to believe that income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment. The Tribunal noted that the original return for AY 2010-11 was subjected to scrutiny under Section 143(3) and that all relevant facts were available with the AO at the time of the original assessment. The Tribunal found no allegation by the AO that the income proposed to be assessed had escaped due to the assessee's failure to disclose material facts. Therefore, the reassessment for AY 2010-11 was deemed invalid as it violated the proviso to Section 147. However, for AY 2011-12, the Tribunal upheld the reassessment as there was no scrutiny assessment for that year, and the benefit of the proviso to Section 147 was not available. 2. Applicability of Section 23(5) of the Income Tax Act Retrospectively: The assessee contended that the provisions of Section 23(5) of the Income Tax Act, inserted by the Finance Act, 2017 and applicable from 01.04.2018, could not be applied retrospectively to AY 2010-11. The Tribunal agreed, stating that the amendment clearly applies prospectively. The Tribunal noted that the provision allows a relaxation from taxability of ALV on unsold stock for up to two years from the end of the financial year in which the certificate of completion of construction is obtained. Since the construction was completed on 31.08.2009, the relaxation period would cover AY 2010-11 and 2011-12, making the application of ALV on unsold stock for these years invalid. 3. Estimation of Annual Letting Value (ALV) of Unsold Stock of the Assessee: The AO had estimated the ALV of the unsold stock at ?43,36,356/- for AY 2010-11 and ?48,14,460/- for AY 2011-12, based on the rent received from a small portion of the property. The Tribunal noted that the assessee's business was to construct and sell properties, not to let them out. The Tribunal referred to several judicial precedents, including the Gujarat High Court's decision in CIT vs. Neha Builders Pvt. Ltd., which held that income derived from property held as stock-in-trade should be treated as business income and not as income from house property. The Tribunal also noted that there was no provision in the Income Tax Act for taxing the notional ALV of unsold stock held as business assets before the insertion of Section 23(5). Consequently, the Tribunal ruled that the AO's estimation of ALV was arbitrary and not supported by any independent inquiry. The Tribunal deleted the additions made by the AO for both AY 2010-11 and 2011-12. Conclusion: - The reassessment for AY 2010-11 was invalid due to the violation of the proviso to Section 147. - The provisions of Section 23(5) of the Income Tax Act could not be applied retrospectively to AY 2010-11. - The estimation of ALV of the unsold stock was arbitrary and not supported by law, leading to the deletion of the additions for both AY 2010-11 and 2011-12. Final Order: - The appeal for AY 2010-11 was allowed. - The appeal for AY 2011-12 was partly allowed, with the reassessment being upheld but the addition on merits being deleted.
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