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TMI Blog2022 (3) TMI 1345X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the income proposed to assess has escaped assessment for want of disclosure of all material facts necessary for assessment. Thus in view of the above facts and circumstances as well as the binding precedents on the issue being decision of GKN Driveshafts (India) Ltd,[ 2002 (11) TMI 7 - SUPREME COURT] and CIT Udaipur vs. Hindustan Zinc Ltd. [ 2016 (6) TMI 1045 - RAJASTHAN HIGH COURT] , we are of the considered view that the assessee deserves to succeed and the impugned order of the ld. CIT (A) for A.Y. 2010-11 is set aside. Addition of the respective amounts by determining the ALV in respect of unsold stock of the assessee at Krishna Square the commercial complex - Notional ALV of the units held as stock in trade cannot be chargeable as income in the case of builder since the property is not constructed for letting out but the same is held for sale and actually was sold out on subsequent dates. Further, the builders take booking advance from several parties against the units and is under obligation to deliver possession of unsold stock to the concerned parties and such units cannot be let out by the builder. Therefore in absence of any specific provision in law AL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o appreciate while making/sustaining the addition that the provisions of section 23(5) of Income Tax Act, 1961 were inserted by Finance Act, 2017 and made applicable w.e.f. 01.04.2018 hence these provisions cannot be applied retrospectively i.e. in AY 2010-11 on stock in trade. It is contended that the amendment clearly applies prospectively and since a separate sub section (5) was inserted in section 23, it is clear that the legislative intent is that the peculiar situation in sub section (5) was not already covered by sub section (1) of section 23 and ld. CIT (A) decided this issue on wrong facts. 3. On the facts and in the circumstances and in law the ld. CIT (A) erred in sustaining the action of ld. AO of estimating the ALV of unsold stock of the assessee ₹ 43,36,356/- and after allowing the deduction u/s 24(a) of Income Tax Act, 1961 making the addition of ₹ 30,35,256/-. It is also contended that no basis/detailed working was given in support of alleged ALV determined by ld. AO for unsold stock in trade. 4. The assessee prays for leave to add, to amend, to delete, to modify the all or any grounds of appeal on or before the hearing of appeal. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sments under section 143(3) to assess the income from house property in respect of the closing stock in the said commercial complex in view of the finding that the assessee has failed to declare rental income of ₹ 30,35,256/- for the assessment year 2010-11 and ₹ 48,14,460/- for the assessment year 2011-12. The AO completed the reassessments under section 147 read with section 143(3) for both the years and made the additions on account of income from house property by determining the annual letting value of the closing stock being 25,810 sq. ft. of constructed area @ ₹ 24/- per sq. ft. for the A.Y. 2010-11 and 19,105 sq. ft. of constructed area @ ₹ 30/- per sq. ft. for the A.Y. 2011-12 of the said commercial complex. The assessee challenged the action of the AO before the ld. CIT (A) and also objected to the validity of the reopening of the assessments. The ld. CIT (A) placing reliance on the decision of Hon ble Mumbai High Court in the case of Yuvraj vs. Union of India (2009) 315 ITR 84 (Bombay) rejected the ground raised objecting to reopening of assessment. The ld. CIT (A) has also placed reliance on the judgment of the Hon ble Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed u/s 143(3) of Income Tax Act, 1961. It is further relevant to mention here that during the course of assessment proceedings completed u/s 143(3) of Income Tax Act, 1961 the ld. AO herself treated the rental income shown by the assessee as income from business profession which shows that this issue has already examine during the assessment proceedings and during the course of assessment proceedings the ld. AO was in conscious view that no deemed rental should be taxed on stock in trade. In view of above submission this is to submit that reassessment proceedings initiated u/s 148 of Income Tax Act, 1961 is bad in law, void-ab initio and deserve to be annulled. The ld. A/R has submitted that this objection of the assessee was not disposed off by the ld. AO while passing the order dated 20-11-2017 disposing of the objection raised against the issuance of notice u/s 148 of the I.T. Act. The copy of the said order is placed at Paper Book pages 99-104. In this regard the ld. A/R placed reliance on the decision of Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO 259 ITR 19 (SC). The ld. A/R further relied on the following decisions: - (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I.T. Act initiated in violation of proviso to section 147 of I.T Act inspite of the fact that no income chargeable to tax has escaped assessment for the assessment year 2010-11 by the reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the said assessment year. 5.1 The ld. A/R further submitted that the obligation of the assessee is only to disclose facts and no obligation to indicate legal inference and no allegation of ld AO that the assessee had not fully disclosed the primary facts or had falsified or disclosed incorrect primary facts. It is further relevant to mention here that the obligation of the assessee is to disclose fully and truly the primary or material facts during the course of assessment proceedings which has been done by the assessee during the course of assessment proceedings u/s 143(3) of Income Tax Act, 1961. The details of inventories were filed before the ld AO wherein the finished stock has been disclosed at 25810 Sq Ft. The value of finished stock has been disclosed in Balance sheet at ₹ 5,50,67,312/-. The assessee has fulfilled their duties by disclosing fully and trul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issues and case laws in para 4 to 11 and concluding findings were made in para 12 and 13 as under:- 12. In the backdrop of the settled position of law noticed hereinabove adverting to the facts of the present case, it is to be noticed that the assessee had made true and full disclosure of all relevant facts relating to the claim of additional depreciation and also in respect of claim for grant of deduction under Section 80 IA. A separate audit report in the prescribed form 10CCB in support of the claim for deduction under Section 80IA/80IB was also duly submitted. The assessee had also submitted reply pursuant to all queries made by AO during the assessment proceedings under Section 143(3) of the Act. In this view of the matter, the contention sought to be raised by the Revenue about non-disclosure on the basis of the failure on the part of the assessee in mentioned bifurcated amount of additional depreciation allowable in the depreciation chart is absolutely baseless. It is to be noticed that all that has been said by the AO is that after scrutiny assessment, it was observed that assessee has made incorrect claim of additional depreciation on CPP whereas, the claim for additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as stock-in-trade, the ld. A/R of the assessee submitted detailed submissions as under :- a) The assessee is a builder and constructed a building naming Krishna Square and the saleable area in this building was offices situated at first floor, second floor and third floor and unsold offices were held by it as stock in trade. The assessee has also obtained booking advance from the customers against the sale of office. The assessee s business was not to let out the properties and it has constructed the offices with intention not to let out the same but the same were constructed with intention to sell the same. However, out of the units/space remained unsold (in stock), a few areas was let out in order to motivate the customers for buying the units and occupying the units. The whole intention was to show the prospective buyers that people are occupied the units and very soon the market rate of the units will jump. This motivates the marketing of the units as well as stops the cancellation of booking. However, the area was let out on temporarily basis. This fact can be verified from the assessment records of the assessee that wherein the units which were given on rent to M/s M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Assessment Year Area in sq ft sold Sale Consideration (Rs) Income offered as business income (Rs) 2010-11 2011-12 6705.75 2,04,27,000 17,60,590.70 2011-12 2012-13 5535.25 1,81,36,000 19,33,726.88 2012-13 2013-14 1934.75 69,13,000 -3,17,251.40 2013-14 2014-15 341.00 15,00,000 46,694.64 2014-15 2015-16 990.00 48,62,000 16,89,933.37 2015-16 2016-17 1501.50 93,00,000 4,97,844.41 2016-17 2017-18 6146.25 3,86,94,000 94,38,914.00 2017-18 2018-19 1470.00 85,00,000 32,01,507 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the assessee on such units remain for limited purpose which is only for completing the construction work or some pending formalities and such booked units cannot be used by the assessee for any other purposes. Therefore, technically for the units which has been agreed to be sold by the assessee by accepting the advance, the same cannot be let out to others and no ALV of such units can be charged as tax in the hands of the assessee. Further the remaining units also cannot be let out because the same were constructed with intention to sales, therefore the same has to be keep vacant to handing over the possession to the buyer as and when the some buyer ready to buy such units. d) In this regard we would like to draw your kind attention towards the provisions of section 23(5) of Income Tax Act, 1961 which were inserted by Finance Act, 2017 and made applicable w.e.f. 01.04.2018: - (Copy at PB Page No. 168) Following sub-section (5) shall be inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 1-4-2018 : (5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is owner of the property or not. In the case of the assessee there is no dispute over the ownership of the property but the issue involved in the case of assessee is taxability of ALV on unsold stock held as business stock. (ii) In the case of S. G. Mercantile Corp. (P) Ltd the issueinvolved was taxability of income as business income or income from other source. In this case the assessee took a property on lease, set up a market thereon and letting out shops and stalls in that market. The issue involved was - since assessee was not owner of property in question and taking of property on lease and sub-letting portions thereof was part of business and trading activity of assessee, income from said property was assessable under section 10 of 1922 Act as business income or income from other source u/s 12 of 1922 Act. h) We place the reliance on following decisions: - i) In the case of CIT vs. Neha Builders Pvt. Ltd. (296 ITR 661) (Gujarat) (Copy at PB Page No. 140-141) held that if the business of the assessee is to construct the property and sell it then that would be the business and the business stocks, which may include movable and immovable, would be taken to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et out at ₹ 24/- per sq ft per month. Such assumption is beyond the ground realty. Even section 23(4)(5) of I.Tax Act envisages the gestation period of 2 years from completion of the project, and this gestation period was allowed after considering the business exigencies. Therefore, the estimation of ALV by the AO is mere presumption and not based o proper inquiries. (k) On the basis of rental income from few buildup area, it cannot be presumed that whole of the project was lettable. The assessee s business was not to let out the properties and it has not constructed the offices with intention to let out the same but the same were constructed with intention to sell the same and on sale the profit from the office was taxable under business income. However, out of the units/space remained unsold (in stock), a few areas was let out in order to motivate the customers for buying the units and occupying the units. The whole intention was to show the prospective buyers that people are occupied the units and very soon the market rate of the units will jump. This motivates the marketing of the units as well as stops the cancellation of booking. However, the area was let out on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this area could not be let out.This area was given to run restaurant and other units in the project was for office. The rent of restaurant always remains very high than rent of office space. Therefore, the rent received for running a restaurant cannot be a basis to estimate the ALV for other units meant for office. (iii) During this year, the assessee received rent of ₹ 51000/- for the period 11/12/09 to 31/01/2010 from M/s Mobitel Telelink Pvt. Ltd. Against letting of S-219 and S-220 total area 1246 sq ft at second floor. This was only casual letting only for 51 days. Therefore, the rent given by M/s Mobitel Telelink Pvt. Ltd. for two offices at second floor that too only for one month cannot be adopted as basis to estimate ALV for the other offices at first floor, second and third floor. The rate of rent of particular property let out to particular partycannot be applied on the whole units because of factor of location of property its floor, area of property and period for which the property is to be let out. etc..Therefore the ALV of entire building cannot be estimated on the basis of rent received against single property that too for few periods. (iv) The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acancy the actual rent received or receivable is less than the sum referred to in clause (a). In clause (ii) the word whole or any part of the previous year is used by the legislature meaning thereby that the legislature seeks not to tax the notional income from the property which is vacant throughout the previous year. The provisions relating to vacancy allowance are pari material to section 23(4)(5) of I. Tax which envisages the no taxability of ALV of unsold stock for one year/two years by allowing gestation period one year/two years considering the business exigencies. o) The ld CIT(A) has relied upon the following decisions and the ratio laid down in these decisions are not applicable to the case of assessee:- i) CIT v/s Ansal Housing Finance Leasing Co Ltd (Delhi High Court) In this case charging section 22 has not been discussed in the case. Further the SLP filed by the assessee has been admitted in Hon ble Supreme Court which is pending as on today. Further so many benches of Hon ble ITAT has followed the ratio laid down by Hon ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Neha Builders (P.) Ltd. (supra) for deciding this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e commercial complex, namely, Krishna Square . The said space which was to be assessed as Income from House Property is at First Floor 9533 sq. ft., Second Floor 2258 sq. ft. and Third Floor 14019 sq. ft. total 25,810 sq. ft. for A.Y. 2010-11 and of the First Floor 6379 sq. ft., Second Floor 965 sq. ft. and Third Floor 11,761 sq. ft. total 19,105 sq. ft. for A.Y. 2011-12 of the said commercial complex. The AO has recorded reasons for the assessment year 2010-11 are as under :- The assessee company filed its return income declaring income of ₹ 22,55,930/-on 08.09.2010. The case was assessed u/s 143(3) on 29.03.2013 on total income of ₹ 1,60,17,160/-. The assessee company has derived income from construction/development and sale of building. During the year under consideration, the assessee has completed construction of commercial complex namely Krishna Square. It has been found that the construction of building was completed on 31.08.2009. The assessee has rented 1246 sq. ft. area for ₹ 30,000/- per month which gives ₹ 24/- per sq. ft. per month but no income was declared for remaining construction area of 25,810 sq. ft. adopting the fair market valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years. Though the assessments under section 143(3) for the assessment years 2010-11 was completed prior to the reopening of the assessment and therefore, the said assessment orders for the assessment year 2010-11 may constitute tangible material apart from the decision of the Hon ble Supreme Court in case of GKN Driveshafts (India) Ltd. (supra) for forming the belief that income assessable to tax on account of notional rent in respect of unsold stock of the assessee escaped assessment. However, even if the decision of Hon ble Supreme Court and the assessment orders passed under section 143(3) for the assessment year 2010-11 may constitute tangible material for forming the belief, the same shall be subject to the fulfillment of the conditions as prescribed in the first proviso to section 147 of the IT Act. There is no allegation by the Assessing Officer in the reasons recorded that the income proposed to be assessed in the reassessment proceedings has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Even otherwise, we find that all the relevant material in respect of the issue of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was vacant except for some units which were given on rent to M/s. Mobitel Telelink Private Ltd. for 51 days and in next year to M/s. Birla Hospitals only for one month and subsequently the said tenants also vacated the premises. The AO has proposed to assess the notional rent after determining the ALV of the unsold space at Krishna Square of the commercial complex in question. On merit, the ld. CIT (A) sustained the addition by considering the decision of Hon ble Delhi High Court in case of Ansal Housing Construction Ltd. vs. ACIT (2018) 89 taxmann.com 238 (Delhi) and Susham Singla vs. CIT, (2017) 81 taxmann.com 167 (SC). The ld. A/R of the assessee has controverted the finding of the ld. CIT (A) on merit by stating that in the case of CIT vs. Ansal Housing Finance Leasing Co. Ltd. (supra) the charging section 22 has not been discussed. Further the SLP filed by the assessee has been admitted in Hon ble Supreme Court which is pending decision. The ld. A/R submitted that the benches of the ITAT has followed the ratio laid down by Hon ble Gujarat High Court in the case of CIT vs. Neha Builders (P) Ltd. 296 ITR 661 (Guj.) for deciding this issue. Further the ratio laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as stock-in-trade, then the said property would become or partake the character of stock and any income derived from the stock would be income from business and not income from property. 7.1. Therefore, in view of the contrary decisions on this issue, we would first consider the factual aspect of the matter whether the unauthorized construction at 4th floor which is also temporary in nature can be considered as property consisting of any building as per section 22 of the Act and consequently the annual value of such an unauthorized construction can be determined under section 23(1) of the Act. The revenue has not disputed this fact that the 4th floor of the property is unauthorized construction as beyond the sanctioned plan and, therefore, the Municipal Authorities have already proposed action for demolition of the said property against which the assessee has approached the Hon ble High Court for protection of the property in question. Further, it is also not disputed that the solitary tenant at the 4th floor had already vacated the premises after the local authorities have proposed to demolish the said construction. Thus in view of the fact that the 4th floor of the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting the standard rent. Therefore, it is mandate that the AO has to determine the annual letting value by considering the reasonable rent expected to be fetched by the property on the basis of the method provided for fixation of standard rent or computation of rateable value. Since in the case in hand the 4th floor of the property is not eligible for fixation of standard rent being unauthorized construction and subjected to demolition action of the Municipal authorities, therefore, in the normal circumstances the reasonable rent expected to be fetched by such property would be nil. 7.2. There is another aspect in the matter that since the property in question is newly constructed and held as stock-in-trade, therefore the vacancy of the property being not let out is not intentional or deliberate act on the part of the assessee but it is beyond the control of the assessee to find a tenant for such unauthorized construction. Once the non-letting of the property is not due to the reason of intentionally keeping vacant by the assessee but it is because of the fact and circumstances that the said space could not be let out despite the best efforts of the assessee, the benefit of vaca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the ALV of the property in question would be Nil as it was not possible to let out the property during the year under consideration and further the unauthorized construction of the property is otherwise not eligible for determination of standard rent or rateable value and consequently there is no basis for determination of ALV of the property under section 23(1)(a) of the Act. Hence we delete the addition made by the AO. Thus the facts and the issue for all two years are identical to the facts and issue involved for the assessment year 2010-11 and 2011-12. Further, the notional ALV of the units held as stock in trade cannot be chargeable as income in the case of builder since the property is not constructed for letting out but the same is held for sale and actually was sold out on subsequent dates. Further, the builders take booking advance from several parties against the units and is under obligation to deliver possession of unsold stock to the concerned parties and such units cannot be let out by the builder. Therefore in absence of any specific provision in law ALV of stock in trade cannot be taxed. The sub-section (5) of section 23 was inserted by Finance Act 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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