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2022 (10) TMI 344 - AT - Income TaxRevision u/s 263 by CIT - gain on sale of property - whether the unsold property which is held as stock in trade by the assessee can be assessed under the head income from house property by notionally computing the annual letting value from such property? - HELD THAT - As perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We find merit in the submission of ld Counsel for the assessee and observed that issue under consideration is no longer res-integra. That is, the issue raised by the PCIT is squarely covered in favour of assessee by the judgment of Co-ordinate Bench in the case of Jayprakash Khanchand Aswani, 2018 (12) TMI 1963 - ITAT SURAT wherein the Tribunal has considered the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT and rendered the decision in favour of assessee. The phrase prejudicial to the interest of revenue has to be read in conjunction with an erroneous order passed by the A.O. Every loss of revenue as a consequence of an order of AO, cannot be treated as prejudicial to the interest of revenue, for example, when an ITO, adopted one of the course permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue. Unless the view taken by ITO is unsustainable in law. We note that flats not sold by assessee were its stock-in-trade and income arising on its sale is liable to be taxed as business income, therefore, issue raised by ld PCIT in his revision order under section 263 of the Act, is not tenable in law. In any event, we note that the Assessing Officer has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the revenue as held by Hon ble Supreme Court in Malabar Industries Ltd. 2000 (2) TMI 10 - SUPREME COURT Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is null in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Principal CIT. Therefore, we quash the order of the Principal CIT dated 29.03.2022, being ab initio void. Appeal of assessee allowed.
Issues Involved:
1. Assumption of jurisdiction under section 263 of the Income Tax Act. 2. Merits of taxing notional rent on unsold units. 3. Miscellaneous grounds for appeal. Issue-wise Detailed Analysis: 1. Assumption of Jurisdiction: The Principal Commissioner of Income Tax (PCIT) assumed jurisdiction under section 263 of the Income Tax Act 1961, asserting that the Assessing Officer (AO) passed the assessment order without proper inquiry or verification, making it erroneous and prejudicial to the interest of Revenue. The assessee contended that the PCIT was not justified in assuming jurisdiction without satisfying the necessary conditions and was driven by extraneous considerations. 2. Merits of Taxing Notional Rent on Unsold Units: The PCIT initiated proceedings to tax notional rent on unsold units (completed residential/commercial units) for an Assessment Year prior to the amendment deeming such notional rent to tax. The assessee argued that the flats were shown as stock-in-trade and not intended for rental income, citing the judgment of the Hon'ble Gujarat High Court in Neha Builders Pvt. Ltd. and the Income Tax Appellate Tribunal (ITAT) in Shanti Enterprise. The PCIT rejected this contention, stating that prior to the insertion of section 23(5), notional rent was to be charged under section 23(1) read with section 22 of the Act. The PCIT held that the assessment order was erroneous and prejudicial to the interest of Revenue, directing the AO to pass a fresh assessment order. 3. Miscellaneous Grounds for Appeal: The appellant sought the leave to add, alter, or vary any of the grounds of appeal. Tribunal's Findings: The Tribunal found merit in the assessee's submission, noting that the issue was covered by the judgment of the Co-ordinate Bench in Jayprakash Khanchand Aswani, which considered the judgment of the Hon'ble Gujarat High Court in Neha Builders Pvt. Ltd. The Tribunal observed that the unsold flats, treated as stock-in-trade, should be assessed under the head 'business income' rather than 'income from house property.' The Tribunal emphasized that the AO's order, adopting one of the permissible courses in law, could not be deemed erroneous and prejudicial to the interest of Revenue. Conclusion: The Tribunal concluded that the provisions of section 23 were not applicable to the assessee's case. The AO's decision to treat the unsold flats as stock-in-trade was justified, and the PCIT's assumption of jurisdiction under section 263 was invalid. The Tribunal quashed the PCIT's order dated 29.03.2022, declaring it ab initio void, and allowed the appeal filed by the assessee. Order Pronouncement: The order was pronounced in the open court on 06/10/2022, with the result placed on the Notice Board.
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