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2022 (6) TMI 1271 - AT - Income TaxIncome from house property - notional rent from house property in respect of flats held as stock in trade by the assessee - deemed rental income on unsold flats / units held by the assessee as stock in trade - assessee is in the business of real estate construction and development in India - AO noted that assessee had certain flats as unsold finished stock in its balance sheet and these represented the house properties owned by the assessee - HELD THAT - It is not in dispute that the unsold flats lying in the balance sheet with the assessee were held as stock in trade by the assessee. It is not in dispute that the sale of flats shall be assessable as business income in the hands of the assessee, being stock in trade. We find that the provisions of Section 23(5) of the Act had been introduced in the statute for taxability of notional rent in respect of properties held as stock in trade , has been introduced only from A.Y.2018-19 onwards. Hence, the said provision cannot be made applicable upto A.Y.2017-18. We find that the issue in dispute is no longer res-integra in view of the decision of this Tribunal in the case of Pegasus Properties (P) Ltd 2021 (12) TMI 1210 - ITAT MUMBAI to hold that no addition on account of deemed rental income could be made in respect of unsold stock of flats held as stock in trade upto A.Y.2017-18. However, the amendment has been brought in the statute in Section 23(5) from A.Y.2018-19 providing a moratorium period of two years. Hence, no addition could be made even for A.Y.2018-19 also. Accordingly, the addition made towards notional rent is hereby directed to be deleted both under normal provisions of the Act as well as in the computation of book profits u/s.115JB. Addition u/s.43CA - Addition deleted as difference in value between the stamp duty authority and the consideration reported by the assessee is less than 10% - whether this proviso could be given retrospective effect so as to confer benefit to the assessee in the instant case? - HELD THAT - We find that this issue is no longer res integra in view of the decision of this Tribunal in the case of Maria Fernandes Cheryl vs. Income Tax Officer 2021 (1) TMI 620 - ITAT MUMBAI wherein the third proviso inserted in Section 50C of the Act has been held to be retrospective in operation from 01/04/2003 onwards. Though this decision has been rendered in the context of Section 50C of the Act for a capital asset, the same analogy could be drawn for Section 43CA also for asset held as stock in trade . CIT(A) had rightly deleted the addition made u/s.43CA of the Act both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act. In any case, this sum does not fall within the ambit of Explanation to Section 115JB (2) of the Act and hence, the same can never be added back in the computation of book profits u/s.115JB of the Act. Accordingly, the grounds raised by the Revenue in this regard are dismissed. Carry forward losses on sale of redeemable non-convertible zero coupon bonds, which was neither claimed by the assessee in the original return of income u/s.139(1) of the Act nor in the revised return filed u/s.139(5) of the Act but claimed during the course of assessment proceedings - HELD THAT - The assessee succeeded on this issue before the ld. CIT(A) who by placing reliance on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd 2012 (7) TMI 158 - BOMBAY HIGH COURT and also by placing reliance on the decision of the Hon ble Supreme Court in the case of Goetze India Ltd., referred to supra stating that the claim of carry forward of loss of Rs.188 Crores could be allowed by the ld. CIT(A) even though it is not claimed in the return of income by the assessee. CIT(A) also observed that the restriction placed by the Hon ble Supreme Court in the case of Goetze India Ltd. 2006 (3) TMI 75 - SUPREME COURT relied upon by the ld. AO does not apply to appellate authorities and the same applies only to the ld. AO. Accordingly, he directed the ld. AO to allow the long term capital loss after examining the correctness of its computation. The genuinity of the claim of this loss was not doubted by the lower authorities in the instant case. Even the ld. CIT(A) had merely directed the ld. AO to ascertain the correctness of the computation of loss claimed by the assessee. It is a fact that assessee had actually incurred a loss of Rs.188 Crores in the instant case on sale of non-convertible zero coupon bonds. In view of the decision of Hon ble Jurisdictional High Court in the case of Pruthvi Share Brokers referred to supra, the loss even though not claimed by the assessee in the return of income would be eligible for carry forward to subsequent years. In any case, the law is very settled that there is no estoppel against this statute and Revenue cannot take undue advantage of the ignorance of the assessee and that Article 265 of the Constitution clearly mandates that no tax shall be collected except by an authority of law. Hence, it is obligatory on the part of the ld. AO to educate the assessee of its legitimate rights and duties. Accordingly, we do not find any infirmity in the action of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the ground No.2 raised by the Revenue is dismissed. MAT computation - whether the assessee is entitled for reduction towards an item which is mentioned as an audit qualification in the statutory audit report, while computing book profits u/s.115JB? - HELD THAT - As the financial statements prepared in accordance with part II part III of the Schedule-VI of the Companies Act, 1956, should be read together with notes on accounts and the audit qualifications for the purpose of computing the book profits u/s.115JB - this conjoint reading of financial statements together with notes on accounts and audit report alone would be in full compliance with the provisions of Section 211 of the Companies Act, 1956. Section 115JB mandates that the accounts of the assessee company should be prepared as per the mandate provided in Section 211 of the Companies Act. Hence, we hold that audit report together with the audit qualification and notes on accounts should be read together with the balance sheet and profit and loss account for the purpose of determination of book profits u/s.115JB - Hence, the adjustment made by the statutory auditor in the revised form No.29B while computing revised book profits u/s.115JB is in order. Accordingly, we direct the ld. AO to grant deduction while computing book profits u/s.115JB of the Act. Accordingly, the grounds raised by the assessee are allowed.
Issues Involved:
1. Addition on account of notional rent from house property for flats held as 'stock in trade'. 2. Addition under Section 43CA due to difference between stamp duty value and sale consideration. 3. Claim of carry forward losses on sale of redeemable non-convertible zero coupon bonds. 4. Reduction of audit qualification amount while computing book profits under Section 115JB. Issue-wise Detailed Analysis: 1. Addition on Account of Notional Rent from House Property for Flats Held as 'Stock in Trade': The primary issue was whether the addition made on account of notional rent from house property in respect of flats held as 'stock in trade' by the assessee was justified. The assessee, engaged in real estate construction and development, had certain unsold flats shown as 'stock in trade'. The Assessing Officer (AO) determined the deemed income of rent from these unsold flats by adopting 8.5% of the construction cost as the fair rent, resulting in a taxable income of Rs.35,79,549/- under 'income from house property'. However, the Tribunal noted that Section 23(5) of the Income Tax Act, which taxes notional rent for properties held as 'stock in trade', was introduced only from A.Y. 2018-19 and thus not applicable for A.Y. 2017-18. The Tribunal referenced prior decisions, including those of the Pune Tribunal and the Bombay High Court, to conclude that no addition on account of deemed rental income could be made for unsold flats held as 'stock in trade' for A.Y. 2017-18. Consequently, the addition of Rs.35,79,549/- was deleted. 2. Addition Under Section 43CA Due to Difference Between Stamp Duty Value and Sale Consideration: The second issue was the deletion of an addition made under Section 43CA due to a difference between the stamp duty value and the sale consideration of a property. The AO had added Rs.3,88,500/- to the assessee's income, citing the difference between the stamp duty value and the sale consideration. The Tribunal noted that a proviso to Section 43CA, introduced from A.Y. 2019-20, allows no addition if the difference is less than 10%. The Tribunal held that this proviso should be applied retrospectively, referencing the decision in Maria Fernandes Cheryl vs. Income Tax Officer, which treated a similar proviso under Section 50C as retrospective. Thus, the addition of Rs.3,88,500/- was deleted. 3. Claim of Carry Forward Losses on Sale of Redeemable Non-Convertible Zero Coupon Bonds: The third issue involved the assessee's claim to carry forward a long-term capital loss of Rs.188 Crores on the sale of redeemable non-convertible zero coupon bonds. The AO had denied this claim because it was not included in the original or revised returns. However, the Tribunal, referencing the decision of the Jurisdictional High Court in CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd., held that such a claim could be allowed by appellate authorities even if not claimed in the return of income. The Tribunal directed the AO to examine the correctness of the computation of the loss and allow the carry forward. 4. Reduction of Audit Qualification Amount While Computing Book Profits Under Section 115JB: The final issue was whether the assessee was entitled to a reduction of Rs.5,51,89,912/- towards an audit qualification while computing book profits under Section 115JB. The assessee had revised its book profits by reducing this amount based on an audit qualification regarding provision for property tax demand. The Tribunal held that financial statements, including notes on accounts and audit qualifications, should be read together for computing book profits under Section 115JB. Citing the decision in Mukand Ltd. vs. ITO, the Tribunal concluded that the adjustment made by the statutory auditor in the revised Form No.29B was valid. Therefore, the Tribunal directed the AO to allow the deduction of Rs.5,51,89,912/- while computing book profits. Conclusion: The appeals filed by the assessee for A.Y. 2015-16 and 2017-18 were allowed, and the appeals filed by the Revenue for the same assessment years were dismissed. The Tribunal's decisions were based on established legal precedents and interpretations of relevant provisions of the Income Tax Act.
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