2025 (2) TMI 1082 - AT - Income Tax

Revision u/s 263 - Addition under the head income from house property as per Section 22 - HELD THAT - It is true that provisions of Section 23(5) of the Act are effective from 01/04/2018 whereby notional annual value of property/part of the property held as stock-in-trade has been brought to tax subject to conditions specified in that Section. The amendment is substantive and prospective. As relying on Ansal Housing Finance Leasing Co. Ltd. 2012 (11) TMI 323 - DELHI HIGH COURT we hold that the annual let-out value (ALV) has to be taxed in respect of unsold property. Determination of ALV by the AO is not tenable in law as he has taken 8% of the bank FD during the period under consideration and calculated the ALV - ALV should be the actual rent or the fair rent which a property may fetch from the open market in the same locality. Therefore we direct the AO to re-compute the ALV as per the market rate prevalent in and around the same locality and decide the issue afresh after affording a reasonable and adequate opportunity of being heard to the assessee. Accordingly appeal of the assessee is partly allowed. Whether addition made as per the provision of Section 56(2)(viib) is beyond the jurisdiction of the AO when the ld. Pr. CIT has cancelled the original assessment order with a direction to decide the case afresh? - We have carefully perused the order of the ld. Pr. CIT framed u/s 263 of the Act and find that no such addition was proposed by the ld. Pr. CIT. Only issue which prompted the ld. Pr. CIT to assume jurisdiction u/s 263 of the Act was applicability of the provisions of Section 22 of the Act in respect of finished unsold inventory of the assessee and deciding this issue the ld. Pr. CIT cancelled the assessment order and restored the matter to the AO for fresh examination of the issue. As decided in Royal Western India Turf Club Ltd 2019 (2) TMI 241 - BOMBAY HIGH COURT Assessing Officer on his own examined said issue. The Commissioner undoubtedly has powers under Section 263 of the Act to annul the entire assessment and required passing of fresh assessment order. However when the Commissioner as in the present case requires the Assessing Officer to carry out inquiries with respect to specified issues the jurisdiction of the AO to pass fresh order must be confined to such issues failing which we would be giving the power to the Assessing Officer to make reassessment. We find that the ld. CIT(A) has followed the aforementioned binding decision of the Hon ble Jurisdictional High Court. Therefore no interference is called for. Accordingly effective grounds raised by the revenue are dismissed.

Summary

The Appellate Tribunal heard cross-appeals by the assessee and the revenue against an order dated 14/08/2023 by NFAC, Delhi, pertaining to AY 2015-16. The main issue was the addition of Rs. 10,59,48,467 under income from house property as per Section 22 of the Act. The assessee, engaged in real estate business, argued against the application of Section 22 to unsold finished inventory. The AO calculated the annual letting value (ALV) of the unsold inventory and determined the taxable income. The assessee cited precedents but the AO did not accept the arguments.The Tribunal considered the applicability of Section 23(5) effective from 01/04/2018, taxing notional annual value of property held as stock-in-trade. Relying on the decision in Ansal Housing Finance & Leasing Co. Ltd., the Tribunal held that ALV should be taxed in respect of unsold property. However, the Tribunal found the AO's ALV calculation based on bank FD rate not tenable and directed a re-computation based on market rates.Regarding the revenue's appeal, questioning the jurisdiction of the AO to add under Section 56(2)(viib) when the assessment was set aside by the ld. Pr. CIT, the Tribunal noted that the ld. Pr. CIT's jurisdictional issue was about Section 22, not Section 56(2)(viib). Citing the Bombay High Court's decision in PCIT vs. Royal Western India Turf Club Ltd., the Tribunal held that the AO's jurisdiction in reassessment should be confined to issues specified by the revisional order. As the ld. CIT(A) followed the binding decision, the revenue's appeal was dismissed.In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal. The ALV calculation was directed to be re-computed based on market rates, and the revenue's jurisdictional argument was rejected based on the ld. Pr. CIT's order. The order was pronounced on 25th February 2025 in Mumbai.