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TMI Blog2021 (12) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the aforesaid decision of VIKASH IRON STEEL PRIVATE LIMITED [ 2015 (7) TMI 1394 - ITAT KOLKATA] since no substantive addition was made, the protective addition made in the hands of the assessee company does not survive. Hence, we have no hesitation in directing the ld. AO to delete the addition made in the sum of ₹ 13,86,600/- on protective basis u/s.69A of the Act for A.Y.2018-19. Accordingly, the ground raised by the assessee is allowed. - ITA No.350-352/Mum/2021 - - - Dated:- 23-12-2021 - Shri M.Balaganesh, Accountant Member And Shri Laliet Kumar, Judicial Member For the Assessee : Shri Rajan Vora Shri Nikhil Tiwari For the Revenue : Shri Rakesh Garg ORDER PER BENCH: These appeals in ITA Nos.350/Mum/2021 to 352/Mum/2021 for A.Yrs. 2016-17 to 2018-19 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-48, Mumbai in appeal No.CIT(A)-48/IT-21/DCCC-2(3)/2019-20 dated 29/01/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.153C r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 26/01/2019 by the ld. Dy. Commissioner of Income Tax, Central Circle-2(3), Mumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he project, the unsold flat is treated as stock-in-trade under the head Inventories . As at 31st March 2016, the assessee had 47 unsold flats for which completion certificate was received. The project and site-wise details of the unsold flats as on 31 March 2016 are given below: Sr. No. Name of the Project No. of unsold flats Area (Sq.Ft) 1. Sangria 44 65,062 2. Sparklet 01 950 3. Splendor 02 2558 Total 47 68,570 5.4. The assessee had never given the unsold flats / units on rent and no rental income has been earned either in the past or in future. The assessee also placed on record the computation of income from A.Yrs. 2012-13 to 2018-19 wherein income from sale of flats had been offered to tax as business income and there is no rental income earned by the assessee. The same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 325 ITR 281 which was relied upon by the lower authorities. The ld. AR also pointed out that in the case of Mangla Homes Pvt. Ltd, the main object of the company was to carry on business of dealing and investment in properties, flats, warehouses, shops, commercial and residential houses. In other words, that company was letting out properties as an investor and not as a builder where as assessee is a builder / developer. The rental income in the hands of Mangla Homes Pvt. Ltd., was assessed to tax under the head income from house property . One more distinguishing feature of Mangla Homes Pvt. Ltd., pointed out by the ld. AR was that in that case the only activity was letting out properties on rent and the rental income derived thereon was assessed under the head income from house property , whereas the question involved in the present case is with respect to deemed rental income earned from unsold flats of a builder and not rental income earned from letting out of the properties. The ld. AR also pointed out that the issue is covered in favour of the assessee by the decision of the Hon ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd., reported in 296 ITR 661. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f two years from the date of obtaining completion certificate from the competent authority, the annual value of such property would be determined as Nil . In other words, there would be no addition towards deemed rental income in respect of unsold stock of properties held as stock in trade for a period of two years from the date of obtaining the completion certificate from the competent authority. This specific provision has been brought in the statute from A.Y.2018-19 onwards. Hence, prior to A.Y.2018-19, there is no provision provided in the Act to tax the deemed rental income on unsold stock of properties lying as stock in trade under the head income from house property . The provisions of Section 23(4) of the Act are meant only for properties that are held as investments and not as stock in trade. We find that decision rendered by the Hon ble Jurisdictional High Court in the case of Mangla Homes Pvt. Ltd., reported in 325 ITR 281 would not be applicable in the instant case as the main object of that company was to make investment in properties, flats, warehouses, shops etc and let out the same and derive rental income. In any case, principle laid down in Mangla Homes Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered deemed notional rental income on such vacant flats/bungalows. The assessee submitted that the flats/bungalows were its stock-in-trade, from which no income could be taxed under the head 'Income from house property'. Relying on judgment of the Hon'ble Delhi High Court in CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del), the AO computed the annual letting value of the unsold flats u/s.23 of the Income-tax Act, 1961 (hereinafter also called `the Act') at ₹ 1,47,65,688/- and made addition for the same. The ld. CIT(A) echoed the addition, against which the assessee has approached the Tribunal. 3. We have heard the rival submissions through Virtual Court and gone through the relevant material on record. Indisputably, the assessee has been engaged in the business of development of properties. Certain flats/bungalows out of the two buildings were unsold as at the year end. The authorities below have canvassed a view that annual letting value of such unsold flats/bungalows lying as stock-in-trade at the end of the year is income chargeable to tax under the head `Income from house property'. Section 22 is the ITA No.2977 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have to understand its connotation in common parlance. The term `occupation' (in land law) has been defined in the Oxford Dictionary of Law to mean `the physical possession and control of land'. Thus, occupation of a property means having its physical possession coupled with dominion rather than the physical possession coupled with actual use. Once a property is in physical possession and control of a ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited person, it is said to be in his occupation, even if it is not actually used by him. Adverting to the facts of the extant case, we find it not to be a case of the AO or that of the ld. DR that the unsold flats etc. were not in the physical possession and control of the assessee. In fact, there is no one other than the assessee having physical possession and control over such flats, thereby making the assessee solely in their `occupation'. Thus the first condition is fulfilled as the flats etc. were occupied by the assessee-owner. 7. The second condition is that any business or profession should be carried on by the assessee-owner. Obviously, the assessee is engaged in the business of property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re chargeable to income-tax. Ergo, all the four conditions for exclusion from section 22 of the Act are cumulatively satisfied in the present case. 11. The authorities below have canvassed a view that the annual letting value of flats/bungalows is income chargeable to tax as `Income from house property' by relying on Ansal Housing Finance and Leasing Company Ltd. (supra). There is no doubt that the Hon'ble Delhi High Court in the said case has held that Annual letting value of unsold flats at the year end is chargeable to tax under the head 'Income from house property'. At the same time, we find that the Hon'ble Gujarat High Court in CIT Vs. Neha Builders (Pvt.) Ltd. (2008) 296 ITR 661(Guj) has held that income from the properties held as stock in trade can be treated as Income from business and not as `Income from house property. Our attention has been drawn towards certain Tribunal decisions including ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited Cosmopolis Construction, Pune vs. ITO dated 18.06.2018 (ITA NO. 230 231/PUN/2018), wherein, after taking note of both the above judgments and finding none of them from the jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. We, therefore, overturn the impugned order on this score and delete the addition of ₹ 1.47 crore sustained in the first appeal. 5.14. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we 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. 5.15. Accordingly, the ground raised by the assessee for all the three years in respect of addition made on account of deemed rental income of unsold stock of flats as stock in trade are allowed. 6. The grounds No.12 raised by the assessee for A.Y.2016-17 is chargeability of interest u/s.234B of the Act which is consequential in nature. 7. The ground No.13 raised by the assessee for A.Y.2016-17 is with regard to initiation of penalty u/s.271(1)(c) of the Act which would be premature for adjudication at this stage. ITA No.352/Mum/2021 (A.Y.2017-18) 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed made for the same excess cash of ₹ 13,86,600/- in the hands of Fisher Health Resorts Pvt. Ltd or any other person. The ld. CIT(A) observed that there is no evidence that Fisher Health Resorts Pvt. Ltd., had owned up this cash and no confirmation from the company has been filed regarding cash belonging to them and not to the assessee. He also observed that no explanation has been given by the assessee that this cash has been considered in the hands of Fisher Health Resorts Pvt. Ltd., Accordingly, he upheld the action of the ld. AO. 9.2. From the aforesaid narration of facts, it could be seen that only protective addition has been made in the excess cash of ₹ 13,86,600/- in the hands of the assessee company. We find that assessee right from the date of search had given an explanation that the excess cash of ₹ 13,86,600/- belongs to Fisher Health Resorts Pvt. Ltd., The assessee had also given an explanation that in view of the common Directors, assessee company and Fisher Health Resorts Pvt. Ltd., the said cash of ₹ 13,86,600/- was found in the premises of the assessee. Normally protective assessment is made only if the revenue entertains doubt as to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case, the Ld.A.O. erred in making protective additions in an order u/s 147/145(3) and as such the entire order is void ab- initio since an order passed u/s 147/145(3) cannot be on the basis of suspicion or doubt while a protective addition is made only when there is a doubt. The action of the A.O. was wholly unreasonable, uncalled for and bad in law. The ld. CIT(A) was unjustified in confirming the action of AO. Similarly the assessee has also raised the issue under rule 27 of Income Tax (Appellate Tribunal) Rule 1963 whereby the ld. Counsel for the assessee raised the same issue qua the revenue‟s appeal also and he wanted to support the order of CIT(A) on this issue. As we have reproduced the ground raised by assessee in ITA No.332/Kol/2012, the issue is crystallized. 3. At the outset, the ld. Counsel for the assessee Sr. Advocate Shri R.P.Agarwal submitted the reasons recorded for issuing notice u/s 148 of the Act and almost similar reasons in the impugned assessment years. The relevant reasons as reproduced by CIT(A) for A.Yr. 2005-06 reads as under :- Return of income was filed on 31.10.2005 showing returned income Nil. A survey op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis is held to be correct. Thus, the appellant fails to get relief on this issue. 4. On this issue the ld. Counsel for the assessee relied upon the decision of Mumbai E‟ Bench in the case of Suresh K.Jajoo vs ACIT, Circle-4(2), Mumbai [2010] 39 SOT 514 (Mum) and argued that the Co-ordinate Bench of this Tribunal relying on another decision of ITAT in the case of M.P.Ramachandran vs D.CIT [IT Appeal No.587 (Mum) of 2005] has laid down the following principles :- 23. Before us, both the learned counsel for the assessee and the learned D.R. have relied on the decision of Mumbai Bench of the ITAT in the case of M.P.Ramachandran v. Dy.CIT [IT Appeal No.587(Mum) of 2005]. In the aforesaid case, facts were that in assessment under section 143(3) for assessment year 1997-98 was completed on 25-2- 2000. On 3-22-2000, there was a search and consequent there to, notice under section 148 dated 26-3-2003 was issued to the assessee. Consequent to the search, block assessment order was framed on 30-11-2008 in which, sum of ₹ 5.27 crores was held to be expenditure not related to the business of the assessee and considered as undisclosed income for the block period. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT Mumbai Bench of this Tribunal in the case of M.P.Ramachandran vs DCIT (2009) 32 SOT 592 wherein it has held as under :- Though from the reasons recorded by the A.O., it comes up that he had taken the steps for including this amount in the reassessment with a view to protect the interest of Revenue, but he had not specifically spelt out his mind that the addition was to be made on protective basis. It is another matter that while passing the order u/s.143(3) r.w.s. 147 addition of ₹ 527.85 lakhs was made on protective basis. Be that as it may, we shall proceed to decide the matter with the presumption that the AO reopened the original assessment made u/s 143(3) on this count for the purpose of making the disallowance of advertisement expenses on protective basis. Protective assessment cannot be independent of substantive assessment. Thus protective assessment is 'always successive to the substantive assessment. There may be a substantive assessment without any protective assessment, but there cannot be any protective assessment without there being a substantive assessment. In simple words there has to be some substantive assessment/addition first which enables t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds that even according to respondent No.,1 the said proposed assessment would be in the nature of a precautionary or protective assessment, and Mr.Nambiar‟s case is that this concept of a precautionary or protective assessment is not recognised by the Act and as such any attempt to levy such assessment would be illegal. In support of this argument Mr.Nambiar strongly relied on the finding recorded against the appellant‟s brother, Lalji, in the ex parte assessment order which had originally been passed against him. It is no doubt true that the said ex parte order had held that Lalji was liable to pay the tax on the amount of income in question; but the said order has been subsequently set aside, and, as we have already seen, fresh proceedings against Lalji have been commenced at Jamnagar. Mr. Nambiar also relied on the admission made by the respondent in his statement of the case before this court, and he contended that the respondent himself seems to concede that the assessment proposed to be made against the appellant is no more than precautionary. It is true that paragraph 3 of the statement avers that steps are being taken against the appellant for taxation of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and should be dealt with expeditiously having regard to the fact that the matter is fairly old. In the proceedings taken against Lalji the Income-tax Officer should make an exhaustive enquiry and determine the question as to whether Lalji is liable to pay the tax on the income in question. All objections which Lalji may have to raise against his alleged liability would undoubtedly have to be considered in the said proceedings. Proceedings against Chhotalal may also be taken by the Income-tax Officer and continued and concluded, but until the proceedings against Lalji are finally determined no assessment order should be passed in the proceedings taken against Chhotalal. If in the proceedings taken against Lalji it is finally decided that it is Lalji who is responsible to pay tax for the income in question it may not become necessary to make any order against Chhotalal. If, however, in the said proceedings Lalji is not held to pay tax or it is found that Lalji is liable to pay tax along with Chhotalal it may become necessary to pass appropriate orders against Chhotalal. When we suggested to the learned counsel that we propose to make an order on these lines they all agreed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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