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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 ..... ecision rendered thereon would apply with equal force for other assessment years also in respect of identical issues except with variance in figures. ITA No.350/Mum/2021 (A.Y.2016-17) 3. The ground No.1 raised by the assessee is general in nature and does not require any specific adjudication. 4. The ground Nos. 2-11 raised by the assessee are with regard to addition made on account of deemed rental income on unsold flats / units held by the assessee as 'stock in trade'. 5. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of building, maintaining, operating of information technology parks and industrial parks and residential projects. On the basis of search and survey action of ABIL Group on 21/07/2017 proceedings u/s.153C of the Act were initiated in the hands of the assessee. 5.1. During the year under consideration, assessee has shown income from business or profession and income from other sources. The assessee as per regular practice of its business, starts advertisement for selling the flats once the project is launched. The booking for the project starts from the day the project is launched a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units and thereby calculated deemed rent on proportionate basis on these units and disallowed the same and allowed standard deduction. The details of the additions are as follows - Sr. No. Particulars Amount (Rs.) A Notional income on account of deemed rent (68,570 *12m* 12 sq/ft) 98,74,501 B Less: Standard deduction @30% as per sec 24(a) (29,62,215) C Net addition (A-B) 69,11,836 5.6. The ld. CIT(A) did not follow the decision of the Tribunal for AYs 2013-14 and AY 2014-15 in assessee's own case dated 09/11/2019 which had in turn relied upon the decision of Hon'ble Gujarat High Court in case of Neha Builders Pvt Ltd (296 ITR 661) but followed decision of the and Hon'ble Delhi High Court in case of Ansal Leasing Finance & Co. Ltd (354 ITR 180) and Hon'ble Bombay High Court in case of Mangla Homes P Ltd (325 ITR 281) and upheld the addition made by the Ld. AO on account of notional rent on unsold flats vacant. 5.7. It was specifically pointed out that assessee is a builder / developer engaged in the business of construction and income earned from sale of flats is offered to tax as business income and that the unsold flats are treated as 'stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. DR vehemently argued that Section 23(4) of the Act is a deeming provision and it triggers the moment the assessee is the owner of more than two houses. Hence, it is immaterial whether the flats are shown in the balance sheet as investments or as stock-in-trade. He argued that the decision of the Hon'ble Jurisdictional High Court in the case of Mangla Homes Pvt. Ltd., would be applicable here. 5.11. It is not in dispute that the assessee is a builder or developer and had been showing the income derived from sale of flats as and when they are sold and the flats remaining unsold are shown as inventories in the balance sheet of the assessee as 'stock-in-trade'. These unsold stocks when it is sold subsequently would again get taxed only under the head 'income from business'. We find that the assessee being a builder or developer would be interested in selling those flats and earn profits out of the same. No business man would be interested in keeping the properties idle. Hence, the intention of the assessee company being a builder or developer was always to sell the same. 5.12. Since all the unsold flats are lying as 'stock in trade', the resultant income arising out of sale wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that all the decisions relied upon by the Hon'ble Bombay High Court in Mangla Homes Pvt. Ltd., were prior to the decision of the Hon'ble High Court in the case of Chennai Properties referred to supra. This is the background in which all the Tribunal decisions had followed the decision of the Hon'ble Gujarat High Court in the case of Neha Builders reported in 296 ITR 661. We find that the issue in dispute is also covered by the decision of Pune Tribunal in the case of Kumar Properties and Real Estates Pvt. Ltd., vs. DCIT in ITA No.2977/PUN/2017 for A.Y.2013-14 dated 28/04/2021. For the sake of convenience, the entire order is reproduced hereunder:- "This appeal by the assessee is directed against the order passed by the CIT(A)-7, Pune on 01.09.2017 in relation to the assessment year 2013-14. 2. The assessee has assailed confirmation of addition of Rs. 1,47,65,688/- towards deemed rental income on stock-in-trade of unsold flats/bungalows held by the assessee, as a first major issue. Succinctly, the factual panorama of the case is that the assessee has been engaged in the business of development of properties with the projects `Kumar Infinia' and `Kumar Picasso' ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to fall in the exclusion clause, the following conditions must be satisfied: i. The property or its part should be occupied by the assessee as an owner. ii. Any business or profession should be carried on by the assessee-owner. iii. Occupation of the property should be for the purpose of business or profession iv. Profits of such business or profession should be chargeable to income-tax. ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited 5. Only when the above four conditions are cumulatively satisfied that the property or its part goes outside the ken of section 22, not requiring computation of the annual letting value therefrom. Let us see if the above conditions are satisfied in the instant case ad seriatim. 6. The first condition is that the property or its part should be occupied by the assessee as an owner. The assessee is engaged in the business of developing buildings. Admittedly, the assessee is owner of the flats/bungalows lying unsold at the year end. Now the question is whether these flats etc. can be said to be `occupied' by the assessee? The term `occupy' has neither been defined in section 2 (general definitions under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sources'. Reverting to section 22, we find that the legislature has used a wider expression: `for the purpose of business' with occupation of the property rather than any narrower expression indicating that the business must be carried on from such property or something like that as a sine qua non for exception. If the intention of the legislature had been to provide exception in a limited manner, it would have used a suitable constrained expression. Coming back to the factual scenario prevailing in the instant case, we find that the purpose of occupation of the flats is to hold them either for readying them for final sale or during the interregnum from the ready stage to sale stage, which satisfies the test of `for the purpose of business'. 9. The last condition is that profits of such business or profession should be chargeable to income-tax. It is indisputable that the ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited profits of the business of property development by the assessee are chargeable to income-tax. 10. On a bird's-eye view, we find that that flats/bungalows are occupied by the assessee owner; business of property development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty is held as stock-in-trade which is not let out during the year, its annual value for a period of ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited one year, which was later enhanced by the Finance Act, 2019 to two years, from the end of the financial year in which the completion certificate is received, shall be taken as Nil. The amendment has been carried out w.e.f. 1.4.2018 and the Memorandum explaining the provisions of the Finance Bill also clearly provides that this amendment will take effect from 01.04.2018 and will, accordingly apply in relation to the assessment year 2018-19 and subsequent years. Obviously, it is a prospective amendment. The effect of this amendment is that stock-in-trade of buildings etc. shall be considered for computation of annual value under the head 'Income from house property' after one/two years from the end of the financial year in which the certificate of completion of construction of the property is obtained on and from the A.Y. 2018-19. Instantly, we are concerned with the assessment year 2013-14. As such, the amendment cannot apply to the year under consideration. In the absence of the applicability of such an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and all individuals is Rs. 13,98,728/-. However, during the search conducted u/s.132 of the Act at the registered office of the assessee, cash of Rs. 27,85,300/- was found in the cabin of Shri Keval Jain. It was submitted to the search party that an amount of Rs. 13,98,728/- belong to various group entities of the assessee and certain individuals which was also reconciled with their books of accounts. With regard to query raised by the search party for the excess cash of Rs. 13,86,600/-, Shri Manoj Shah stated that the said excess cash belongs to Fisher Health Resorts Pvt. Ltd. It was also submitted that the assessee and Fisher Health Resorts Pvt. Ltd., had common Director and hence, the cash belonging to Fisher Health Resorts Pvt. Ltd., was kept in the premises of the assessee. It was also submitted that the source of such cash for Fisher Health Resorts Pvt. Ltd., was from subscription from members for health club facilities. The ld. AO however, disregarded these contentions of the assessee and proceeded to tax the aforesaid excess cash of Rs. 13,86,600/- in the hands of the assessee on protective basis u/s.69A of the Act. The ld. AO does not make any mention as to whether any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this issue has been addressed by the Co-ordinate Bench of Kolkata Tribunal in detail in the case of Vikash Iron and Steel Pvt. Ltd., vs. ITO in ITA No.332-334/Kol/2012 and ITO vs. Vikash Iron & Steel Pvt. Ltd., in ITA No.473 to 475/Kol/2011 dated 01/07/2015. For the sake of convenience, the entire order is reproduced hereunder:- "These appeals of the assessee and the Revenue are directed against separate orders of the CIT(A)-I, Kolkata in Appeal No.173-175/CIT(A)-I/Ward-3(2)/10-11 dated 20.12.2011 and Appeal Nos.509-511/CIT(A)-I/3(2)/09-10 dated 15.12.2010 respectively. Assessments were framed by I.T.O., Ward-3(2), Kolkata u/s 147/145(3) of the Income Tax Act, 1961 (hereinafter referred to as "the act") for A.Y. 2003- 04,2004-05 and 2008-09 vide its order dated 30.11.2010. 2. The first common issue in these appeals of assessee is against assumption of jurisdiction by AO u/s 147/145(3) or 143(3) of the Act for making protective addition despite the fact that there is no substantive addition. For this the assessee has raised common grounds in its appeals and the ground as raised in ITA NO.332/Kol/2012 for A.Y.2003-04 reads as under :- "1. For that in the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. We find that this issue dealt with by CIT(A) vide para 5.1. of his appellate order which reads as under :- "5.1. The argument of the appellant is misplaced in view of the fact that addition has been made on the basis of information collected during the course of survey, enquiry and investigation made by the A.O. The protective addition was made in order to protect the interest of the revenue on the basis of the information received from the A.O. of the persons with whom the appellant has made transactions. Since the addition is protective and subject to outcome of assessment in the case of persons with whom appellant has made transactions, the appellant has no basis to be aggrieved. It amounts to the appellant‟s insistence to make the assessment on the basis of its own statement given without allowing for cross verification with the other persons transaction. In fact, the A.O. has resorted to protective addition only when the related persons did not corroborate to the statement given by the appellant on oath. In that case, the statement of the appellant on oath may require further probe. Thus, the addition of the A.O. on protective basis is held to be correct. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermine the said question by taking appropriate proceedings both against A and B. The Supreme Court, however, observed that in the proceedings taken against the one or the other, an exhaustive enquiry should be made and the question as to who is liable to pay the tax in question should be determined after hearing objections and that the proceedings against the other person may also continue and be concluded but until proceedings against the one has been finally determined, no assessment order should be passed. A final determination had, therefore, to be made in one of the proceedings. 25. The Tribunal thereafter opined that a Protective assessment is not confined to making assessment of same income in the hands of two different persons; but can also be made in the case of income of one person where the Assessing Officer is uncertain as to the year in which the income had been earned. The Tribunal thereafter held that protective assessment cannot be independent of substantive assessment but always has to be later in pint of time to the substantive assessment." Further he drew our attention to the findings of ITAT Mumbai Bench of this Tribunal in the case of M.P.Ramachandran vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In that case again it will tantamount to reopening assessment on the basis of an item of income or disallowance, which has already been made in block assessment of the assessee, thereby leaving no income escaping assessment. Under these circumstances we are satisfied that having made addition of Rs. 527.85 lakhs in the block assessment, the Assessing Officer was not justified in forming the belief, either on substantive or protective basis, that the same income has escaped assessment in the instant year. CIT VS. Wipro Finance Ltd. (2008) 10DTR (Kar) 281 relied on;" 5. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the issue raised by the ld. Sr.Advocate has been answered by the Hon‟ble Supreme Court in the case of Lalji Haridas vs ITO [1961] 43 ITR 387 which reads as under :- "The main argument which is urged by Mr.Nambiar in support of this appeal is that respondent No.1, the Income-tax Officer, who has issued the impugned notice, has no jurisdiction to assess the appellant for the income in question, because he contends that even according to respondent No.,1 the said proposed assessment would be in the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that at the initial stage it would be open to the income-tax authorities to determine by proper proceedings who is in fact responsible for the payment of tax, and that is all that is being done at the present stage. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. That being so, we do not think that Mr.Nambiar would be justified in resisting the enquiry which is proposed to be held by respondent No.1 in pursuance of the impugned notice issued by him against the appellant. Under these circumstances we do not propose to deal with the point of law sought to be raised by Mr.Nambiar. We would, however, like to add one direction in fairness to the appellants. The proceedings taken against both the appellants should continue and should be dealt with expeditiously having regard to the fact that the matter is fairly ol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee are allowed and that of the revenue‟s appeals are dismissed. 8. In the result the appeals of the assessee are allowed and the appeals of the revenue are dismissed. 9.3. In the instant case before us, admittedly, no substantive addition of Rs. 13,86,600/- was made by the revenue either in the hands of M/s Fisher Health Resorts Pvt ltd or in the hands of any other person. In Respectfully following the aforesaid decision, 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 Rs. 13,86,600/- on protective basis u/s.69A of the Act for A.Y.2018-19. Accordingly, the ground No.12 raised by the assessee is allowed. 10. The ground No.13 raised by the assessee for A.Y.2018-19 is challenging the initiation of penalty u/s.271AAB of the Act, which would be premature for adjudication at this stage. 11. The ground No.14 raised by the assessee for A.Y.2018-19 is challenging the initiation of penalty u/s.271(1)(c) of the Act, which would be premature for adjudication at this stage. 12. In view of aforesaid observa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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