2023 (2) TMI 116 - AT - Income Tax

Revision u/s 263 - taxability of annual letting value of unsold stock of flats as income from house property - As per CIT assessee s case was selected for scrutiny to examine the high closing stock appearing in the books of the assessee company, however, the annual letting value of the completed stock has not been added to the total income of the assessee and no enquiry was carried out by the AO during the assessment proceedings on this issue - HELD THAT - The issue of whether the annual letting value on unsold stock of flats is taxable is a debatable issue and in view of the decision of CIT vs Max India 2007 (11) TMI 12 - SUPREME COURT the revision proceedings under section 263 of the Act on this issue cannot be upheld. Further, as noted above, during the assessment proceedings, the AO called for details regarding the opening and closing stock, which was duly provided by the assessee and therefore it cannot be said that there was no enquiry by the AO on this issue. Accordingly, we set aside the impugned order passed under section 263 of the Act on this issue. As a result, grounds No. 2-5 raised in assessee s appeal are allowed. Claim of loss on sale of car - We find that vide notice issued under section 142(1) of the Act, the AO asked for claim of expenditure under the head of other expenses and subhead of miscellaneous expenses, vide point no.24. In reply to the said notice, the assessee vide letter filed before the AO, submitted that the loss has been incurred on sale of car, which was used by the partners for the smooth functioning of the business, and the same has been incurred wholly and exclusively for the purpose of business. We further find that vide aforesaid notice the AO also sought bills, vouchers with documentary proof, and justification for incurring the expenditure wholly and exclusively for business purposes. Apart from making the aforesaid submission, no details as sought by the AO were furnished by the assessee in support of its claim that the car was used by the partners wholly and exclusively for the purpose of business. We also find that there was no further enquiry on this issue by the AO and the claim of the assessee was accepted in absence of any documentary evidence. Allowability of TDS interest and penalty - We find that the AO did not make any enquiry, whatsoever, on this issue and no notice/questionnaire was issued. Thus, we are of the considered view that the assessment order to the extent of these two issues is erroneous insofar as it is prejudicial to the interest of Revenue, in view of Explanation 2 to section 263 of the Act. Accordingly, the impugned order passed by the learned CIT to this extent is upheld. Appeal by the assessee is partly allowed.

Summary

Issues Involved:
1. Challenge to order passed under section 263 of the Income Tax Act, 1961.
2. Interpretation of the decision in Malabar Industrial Co. Ltd. vs. CIT.
3. Invocation of revisionary proceedings under section 263 based on judicial decisions.
4. Application of notional rent on Transferable Development Rights.
5. Disallowance of loss on sale of car.
6. Disallowance of TDS interest and penalty.

Detailed Analysis:
1. The appellant challenged the order passed under section 263 of the Income Tax Act, 1961, arguing that the assessment order was not erroneous or prejudicial to the revenue's interest. The appellant contended that two views were possible on certain issues, citing the decision in Malabar Industrial Co. Ltd. vs. CIT. Additionally, the appellant argued that revisionary proceedings were invoked based on a decision without considering favorable judgments for the assessee by the Jurisdictional Tribunal and the Gujarat High Court.

2. The case involved a real estate development company whose return of income was selected for scrutiny. The Assessing Officer (AO) computed the total income after making various additions. Subsequently, revisionary proceedings were initiated, focusing on issues such as the taxability of annual letting value of unsold stock, loss on sale of a car, and TDS interest and penalty. The Principal Commissioner of Income Tax set aside the assessment order for further examination of these issues.

3. During the hearing, the appellant argued that the taxability of annual letting value on unsold stock was debatable, citing relevant judicial decisions. The Departmental Representative contended that there was no divergence in judicial opinion on this issue. The tribunal found that the issue was debatable, and the AO had made inquiries during the assessment proceedings, leading to the setting aside of the revisionary order on this issue.

4. The tribunal upheld the revisionary order regarding the disallowance of the loss on the sale of a car and the TDS interest and penalty. The AO had not conducted thorough inquiries or requested necessary details on these issues, leading to the conclusion that the assessment order was erroneous and prejudicial to the revenue's interest. Consequently, the appeal was partly allowed, with specific grounds being upheld and dismissed based on the detailed analysis of each issue.

5. The tribunal's comprehensive analysis considered the facts, submissions, relevant legal precedents, and the actions of the Assessing Officer in each issue raised by the appellant. The judgment provided a balanced assessment of the grounds raised and the application of the law to the specific circumstances of the case, resulting in a partially allowed appeal.