2023 (10) TMI 837 - AT - Income Tax

Unexplained expenditure u/s 69C - AO in the course of assessment had made enquiries from the vendors u/s 133(6) and since none of them responded to the same doubted genuineness of the transactions - whether the documents/evidences furnished by the assessee/vendor were sufficient to substantiate the genuineness of the payments? - HELD THAT - There were no immediate cash withdrawals from the bank account, which would otherwise raise suspicion. As far as non-compliance of summons is concerned, we note that, the documents furnished by the vendor clearly showed that their registered office was at Delhi and that they did not have any corporate/branch office in Bangalore. We thus find force in the Ld. AR s contention that the AO/DDIT had erred in sending notices / conducting field enquiry at their erstwhile site office at Bangalore, which had since been shut down after completion of the hotel project. On these given facts therefore, we find that the reasons for non-service of notice issued to the vendor s Bangalore site office stood explained. For the reasons as discussed in the foregoing, we accordingly hold that the lower authorities were unjustified in doubting the genuineness of the payments so made by the assessee. We hold that the payments made by the assessee to the six (6) vendors in question were genuine and the disallowances u/s 69C made by the AO in this regard is held to be unsustainable. Disallowance u/s 14A r/with Rule 8D both while computing income under normal provisions and book profit u/s 115JB - HELD THAT - As relying own case 2021 (1) TMI 1134 - ITAT MUMBAI since the assessee did not earn any exempt income during the relevant year, we do not see any infirmity in the action of the Ld. CIT(A) in having deleted the disallowance made under Section 14A read with Rule 8D(2). Thus as the assessee did not earn any exempt income during the relevant year, we uphold the action of Ld. CIT(A) deleting the disallowance made by the AO u/s 14A of the Act, both while computing income under normal provisions and book profit u/s 115JB of the Act. Deemed rental income - taxed by the AO under the head Income from House Property in relation to the unsold units held - HELD THAT - AO is noted to have estimated the notional income by relying on the decision of the CIT vs Ansal Housing Finance and Leasing Company Limited 2012 (11) TMI 323 - DELHI HIGH COURT We note that the coordinate Bench in the case of DCIT v. M/s. Inorbit Malls Pvt. Ltd. 2022 (10) TMI 1150 - ITAT MUMBAI has recently examined this particular issue and after considering the jurisprudence available on this subject which was also relied upon by the Ld. CIT(A) and the assessee before us , has departed from the earlier position and answered the same in favour of the Revenue. Thus we uphold the action of the AO seeking to tax the notional rental income in relation to the vacant unsold units lying as stock-in-trade with the assessee at the end of the relevant AY. Hence, the order of the Ld. CIT(A) to that extent is reversed. Manner of computation of ALV for arriving at the notional rental income assessable u/s 22 23 - HELD THAT - We agree with the Ld. AR that the economics of real-estate sector, demography, people s lifestyle, infrastructure in urban areas, overall economic scenario was vastly different and hence the estimation exercise undertaken in these decisions cannot be considered as a comparable barometer for the years in question before us. Instead, having regard to the research / survey reports cited by the AR, we find force in the assessee s plea that the rental yield of 8.5% estimated by the AO on the value of the vacant inventory was excessive in today s scenario. As noted from these market research reports, the rental yield of immovable properties in metro cities are generally in the range of 2-3% of the value of investment. We note that, this Tribunal in the case of DCIT Vs Rustomjee Evershine Joint Venture 2023 (7) TMI 1305 - ITAT MUMBAI has also countenanced the Revenue s action of estimating rental yield at 2% of the value of unsold inventory. Having regard to the comparative details of a luxuriously furnished flat, fully furnished flat and bare-shell flat (unsold inventory), we find sufficient force in the Ld. AR s plea that the fair rental rate of the unsold inventories, which were bare-shell accommodation, would indeed be lower than the rental rate of a fully furnished flat i.e. Rs. 147 per sq ft. We find it fit to allow further discount of 40% to the comparative rental rate of a fully furnished flat. According to us, therefore, the fair annual lettable value of the unsold properties for FY 2017-18 would work out to Rs. 88.20 per sq ft 147 X 60% . We agree with the Ld. AR that this rate has to be further adjusted for inflation/escalation. AO is thus directed to re-compute and assess the gross annual lettable value of the unsold inventory as laid down in the table above. Needless to say, the same shall be further subjected to standard deduction u/s 24(b) of the Act. With these directions, this ground of appeal stands disposed. Revised claim made by the assessee in the return filed u/s 153A - HELD THAT - Fresh/modified claim in the returns filed u/s 153A of the Act in relation to the abated assessment years Allowed. See ACIT Vs Gigaplex Estate Pvt Ltd 2023 (1) TMI 1301 - ITAT MUMBAI - We uphold the order of the Ld. CIT(A) allowing the revised/modified claim raised by the assessee regarding claim for set-off of brought forward correct losses from AY 2016-17. Coming to the issue of quantification of the brought forward short term capital loss of AY 2016-17 eligible for set-off in AY 2017-18, the AO is directed to re-compute and allow the loss, as finally quantified and allowed to be carried forward in AY 2016-17 upon giving effect to the appellate order/s, in accordance with law.

Summary

Issues Involved:
1. Addition of unexplained expenditure under Section 69C of the Income Tax Act.
2. Disallowance under Section 14A of the Income Tax Act.
3. Deemed rent on vacant properties.
4. Carry forward of Short Term Capital Loss (STCL).

Summary:

1. Addition of Unexplained Expenditure under Section 69C:
The primary issue involved was the addition made by the AO under Section 69C for unexplained expenditure. The AO disallowed payments to certain vendors, suspecting the genuineness of transactions due to non-compliance with notices and cancellation of TINs. The Ld. CIT(A) partly allowed the appeal, accepting the genuineness of transactions with five vendors but upheld the disallowance for one vendor, M/s Vistar Constructions Pvt Ltd. The Tribunal upheld the Ld. CIT(A)'s decision for the five vendors, emphasizing that mere non-attendance of summons does not invalidate the transactions, especially when sufficient documentary evidence was provided. For M/s Vistar Constructions Pvt Ltd, the Tribunal found the lower authorities' reasons for disallowance unjustified and allowed the appeal in favor of the assessee.

2. Disallowance under Section 14A:
The AO made disallowances under Section 14A read with Rule 8D, even in years where no exempt income was earned. The Ld. CIT(A) deleted these disallowances, relying on the decision of the Hon'ble Bombay High Court in Nirved Traders Pvt. Ltd., which held that in the absence of exempt income, no disallowance under Section 14A is warranted. The Tribunal upheld the Ld. CIT(A)'s decision, reiterating that the amendment to Section 14A by the Finance Act 2022, which allows disallowance even without exempt income, is applicable prospectively from AY 2022-23 and not retrospectively.

3. Deemed Rent on Vacant Properties:
The AO added notional rental income for unsold properties held as stock-in-trade under the head 'Income from House Property'. The Ld. CIT(A) deleted this addition, but the Tribunal reversed this decision, following the Hon'ble Delhi High Court's ruling in Ansal Housing Finance and Leasing Company. The Tribunal directed the AO to compute the annual lettable value based on market rates, considering adjustments for inflation and the nature of the property (bare-shell vs. furnished).

4. Carry Forward of Short Term Capital Loss (STCL):
The assessee revised its claim for STCL in the return filed under Section 153A, which the AO disallowed, stating that new claims cannot be made in 153A assessments. The Ld. CIT(A) allowed the revised claim, noting that in abated assessments, new claims can be considered. The Tribunal upheld the Ld. CIT(A)'s decision, directing the AO to verify and allow the correct brought forward STCL from AY 2016-17.

Conclusion:
The Tribunal provided a detailed examination of each issue, upholding the Ld. CIT(A)'s decisions in most instances, emphasizing the importance of documentary evidence and the correct application of legal provisions. The Tribunal also provided specific directions for the AO to follow in computing the final tax liabilities.