2023 (3) TMI 1188 - AT - Income Tax

Revision u/s 263 - Income from house property - deemed rent on un-sold flats - as per CIT assessment order as erroneous as well as prejudicial to the revenue and directing the AO to make fresh assessment by taxing the annual value of the property forming part of the closing stock, under the head Income from House Property - annual value shall be computed as per the provision of section 23(1)(a) of the Act and deduction if any admissible u/s 24 of the Act shall be allowed while computing the income from house property - HELD THAT - AO had carried out investigation into the flats including that of unsold flats which was held as stock in trade by the assessee. Moreover it is noted that the assessee was not into the business of letting out the property for rent and its business was Real Estate Development as well as re-development. And we also note that the AO had framed the assessment order on 24.04.2019, and so it can be seen that the AO s decision on this issue, not to tax the deemed rent on un-sold flats was after the Parliament has inserted sub-section (5) in Section 23 of the Act vide Finance Act 2017, w.e.f 01.04.2018, ie., from AY. 2018-19. Since CBDT Circular/Instruction are binding on AO and Income Tax Authorities, the AO can be presumed to have taken note of CBDT classification dated 15.02.2018, while framing assessment order on 24.04.2019. Therefore, AO has rightly followed the CBDT Circular (supra) and did not determine the notional income from unsold flats held by assessee as stock-in-trade. AO has discharged his dual role as an investigator as well as adjudicator. As noted he has examined the relevant facts of unsold flats as well as decision not to determine ALV is in line with the CBDT Circular dated 15.02.2018 and therefore his decision cannot be held to be erroneous as well as prejudicial to the revenue. Therefore, we find the Ld. PCIT has erred in invoking revisional jurisdiction u/s 263 of the Act, only for imposing his view, which is not permissible; and so we are inclined to quash the impugned order of Ld. PCIT. Decided in favour of assessee.

Summary

Issues Involved:
1. Invocation of revisional jurisdiction under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).
2. Determination of Annual Letting Value (ALV) of unsold flats held as stock-in-trade.

Detailed Analysis:

1. Invocation of Revisional Jurisdiction under Section 263 of the Income Tax Act:

The primary issue revolves around the invocation of revisional jurisdiction by the PCIT under Section 263 of the Income Tax Act. The assessee contested that the PCIT did not satisfy the conditions precedent as stipulated under Section 263. According to the judicial precedent set by the Hon'ble Supreme Court in Malabar Industries Ltd. vs. CIT, the twin conditions that must be satisfied for invoking Section 263 are: (i) the order of the Assessing Officer (AO) must be erroneous, and (ii) as a consequence of the erroneous order, prejudice must be caused to the interest of the Revenue.

The Tribunal examined whether the PCIT could successfully invoke revisional jurisdiction. The PCIT pointed out that the AO's order did not tax the ALV of unsold flats held as stock-in-trade, which he deemed erroneous and prejudicial to the Revenue. However, the Tribunal noted that the AO had conducted a proper inquiry into the closing stock of unsold flats during the assessment proceedings. The AO had taken a conscious and plausible view not to levy notional rent on these unsold flats, considering the insertion of sub-section (5) in Section 23 of the Act, which applies from AY 2018-19.

The Tribunal emphasized that the AO's decision was in line with the CBDT Circular No. 02/2018, which clarified that the annual value of house property held as stock-in-trade shall be taken as nil for one year from the end of the financial year in which the certificate of completion is obtained. Therefore, the AO's order was neither erroneous nor prejudicial to the Revenue, and the PCIT's invocation of Section 263 was unjustified.

2. Determination of Annual Letting Value (ALV) of Unsold Flats Held as Stock-in-Trade:

The PCIT argued that the ALV of the unsold flats should have been brought to tax as deemed rent under Section 23(1)(a) of the Act. He calculated the deemed rent as 8% of the value of unsold flats, amounting to Rs. 96,14,895/-, and directed the AO to tax this under the head "Income from House Property."

The Tribunal noted that the AO had already considered the issue of unsold flats during the assessment proceedings and had decided not to levy notional rent, as the relevant provision (sub-section (5) of Section 23) was applicable only from AY 2018-19. The Tribunal referred to the CBDT Circular and the Co-ordinate Bench's decision in the case of M/s. Tata Housing Development, which held that the amendment is prospective and applicable from AY 2018-19.

The Tribunal concluded that the AO's decision was in consonance with the law and the CBDT Circular, and hence, it could not be termed as erroneous or prejudicial to the Revenue. The PCIT's direction to tax the deemed rent was therefore unwarranted.

Conclusion:

The Tribunal quashed the impugned order of the PCIT, holding that the AO had conducted a proper inquiry and taken a plausible view in line with the CBDT Circular. The invocation of revisional jurisdiction under Section 263 by the PCIT was deemed unjustified, and the appeal of the assessee was allowed. The order was pronounced in the open court on 03/02/2023.