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2023 (2) TMI 579 - AT - Income TaxRevision u/s 263 by CIT - annual letting value of flats/bungalows is income chargeable to tax as Income from house property - HELD THAT - A close scrutiny of the provision inducted by the Finance Act, 2017, transpires that where a property is held as stock-in-trade which is not let out during the year, its annual value for a period of one year, which was later enhanced by the Finance Act, 2019 to two years, from the end of the financial year in which the completion certificate is received, shall be taken as Nil. The amendment has been carried out w.e.f. 1.4.2018 and the Memorandum explaining the provisions of the Finance Bill also clearly provides that this amendment will take effect from 01.04.2018 and will, accordingly apply in relation to the assessment year 2018-19 and subsequent years. Obviously, it is a prospective amendment. The effect of this amendment is that stock-in-trade of buildings etc. shall be considered for computation of annual value under the head 'Income from house property' after one/two years from the end of the financial year in which the certificate of completion of construction of the property is obtained on and from the A.Y. 2018-19. Instantly, we are concerned with the assessment year 2014-15. As such, the amendment cannot apply to the year under consideration. In the absence of the applicability of such an amendment, no income can be said to have accrued to the assessee from unsold flats available as stock-in-trade as per the discussion made hereinabove. We, therefore, vacate the impugned order on this score having the effect that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue requiring any revision u/s 263 of the Act on this count. Disallowance u/s 80IB(10)(f) - The Hon ble Bombay High Court in M/s. Kamat Constructions Pvt. Ltd. vs. ACIT 2020 (12) TMI 90 - BOMBAY HIGH COURT has approved the granting of deduction u/s 80IB(10) on proportionate basis. In that view of the matter, the question of denial of deduction u/s 80IB(10) in full on account of violation of certain conditions qua a part of deduction remains no more res integra. We, therefore, hold that the ld. CIT was not justified in revising the order directing the withdrawal of full amount of deduction u/s 80IB(10) instead of proportionate disallowance, more so, when the proportionate disallowance pertained to an earlier year and the same was also made. Rental income earned by the assessee was shown as income chargeable under the head Profits and gains of business or profession , which should have been Income from house property - While discussing the first issue about the notional rent on unsold units lying with the assessee as stock-in-trade, we have abundantly seen that any income anent to stock in trade can be considered only under the head Profits and gains of business or profession unless expressly provided otherwise. As such, the view point of the ld. CIT in opining that such income should be considered as house property cannot be sustained. Assessee made a consolidated Profit loss account and also separate Profit loss account of 80IB(10) unit. No deduction of interest was claimed in the eligible unit, though such deduction was there in consolidated Profit Loss account. This shows that such deduction was claimed only against the income of non-eligible units. The assessee furnished copious details before the ld. CIT to demonstrate that the loan of Rs.2.50 crore was taken only against Atharwa Vatika project on which the interest of Rs.13.99 lacs was paid and debited to the Profit loss account of this project only. CIT did not find anything amiss in such averments and details, but, still went ahead with his own view. As the interest pertained to Atharwa Vatika project non 80IB(10) unit , there was no rationale in putting such interest fully or partly- in Profit loss account of the eligible unit. We, therefore, hold that the ld. CIT was not justified on this count also. Assessee appeal is allowed.
Issues Involved:
1. Notional rent not charged on property lying in stock-in-trade. 2. Sale of two flats to one person - Deduction u/s 80IB(10) of the Act to be disallowed in entirety. 3. Rental income in respect of stock-in-trade ought to have been offered to tax as 'Income from other sources' instead of 'Business income'. 4. Interest wrongly claimed as deduction in respect of non-80IB(10) unit. Detailed Analysis: 1. Notional Rent on Property Lying in Stock-in-Trade: The CIT held that the assessment order was erroneous for not including the notional rent on unsold units under the head 'Income from house property'. The CIT deemed the unsold properties as let out and computed income based on an 8% rate applied to the value of stock-in-trade, resulting in an income of Rs. 44,57,996. However, the Tribunal noted that the unsold units were occupied by the assessee for business purposes, satisfying all conditions under Section 22 of the Act for exclusion from 'Income from house property'. The Tribunal referred to conflicting judgments from the Delhi High Court and Gujarat High Court but followed the view favoring the assessee, supported by Tribunal decisions in similar cases. Consequently, the Tribunal vacated the CIT's order on this issue. 2. Sale of Two Flats to One Person - Deduction u/s 80IB(10): The CIT disallowed the deduction u/s 80IB(10) for the entire project because two flats were sold to one person, violating Section 80IB(10)(f). The assessee had already agreed to a proportionate disallowance for this violation in the assessment year 2012-13. The Tribunal found that the proportionate disallowance was already made in the earlier year, and there was no basis for disallowing the deduction again in the assessment year 2014-15. The Tribunal also cited the Bombay High Court's approval of proportionate disallowance, concluding that the CIT's direction for full disallowance was unjustified. 3. Rental Income from Stock-in-Trade: The CIT opined that the rental income of Rs. 1,52,000 should be taxed under 'Income from house property' instead of 'Profits and gains of business or profession'. The Tribunal reiterated that income related to stock-in-trade is chargeable under 'Profits and gains of business or profession' unless explicitly stated otherwise. Thus, the Tribunal did not sustain the CIT's viewpoint. 4. Interest Deduction in Non-80IB(10) Unit: The CIT found the assessment order erroneous for allowing an interest deduction of Rs. 13,99,944 related to the Atharwa Vatika project, which was not eligible for deduction u/s 80IB(10). The assessee demonstrated that the interest was correctly debited to the non-eligible project's Profit & Loss account, and no deduction was claimed in the eligible unit. The Tribunal found no fault in the assessee's allocation of interest expenses and held that the CIT's revision on this ground was unwarranted. Conclusion: The Tribunal concluded that the CIT's order was not justified on any of the four points and set aside the impugned order, allowing the appeal. The assessment order was neither erroneous nor prejudicial to the interest of the Revenue.
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