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TMI Blog2022 (10) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... er of AO, cannot be treated as prejudicial to the interest of revenue, for example, when an ITO, adopted one of the course permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue. Unless the view taken by ITO is unsustainable in law. We note that flats not sold by assessee were its stock-in-trade and income arising on its sale is liable to be taxed as business income, therefore, issue raised by ld PCIT in his revision order under section 263 of the Act, is not tenable in law. In any event, we note that the Assessing Officer has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the revenue as held by Hon ble Supreme Court in Malabar Industries Ltd. [ 2000 (2) TMI 10 - SUPREME COURT] Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances nar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has exercised his jurisdiction under section 263 of the Income Tax Act 1961. Ongoing through the assessment records, it has been observed by ld PCIT that case of the assessee firm was selected for scrutiny, one of the reasons for selection for scrutiny being Real Estate business with high closing stock . During the assessment proceedings, various questions were asked to the assessee, pertaining to closing stock, vide notices issued u/s 142(1) of the Act dated 16/08/2019 and 29/11/2019. It has been observed that as per ITR Balance sheet of the assessee firm for the year under consideration, the closing stock value was shown at Rs.11,44,27,749/-. Further, as per records available on assessment record, BU Permission was obtained on 20/10/2014 for Buildings A, B, C, D, E, G, H, and I and on 20.05.2015 for building F. Hence, it is clear that BU permissions were received by the assessee firm and the unsold units have been shown by the assessee firm as closing stock of Rs.11,44,27,749/- in the balance sheet as on 31/03/2017. However, the same have not been considered for computing notional rent income under the head income from house property as stipulated u/s 22 r.w.s. 23 of IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 143(3) of the Act dated 15.12.2019 for AY.2017-18 in the case of above-mentioned assessee, is erroneous and prejudicial to the interest of Revenue therefore ld PCIT set aside the same with a direction to the Assessing Officer to pass fresh assessment order. 8. Aggrieved by the order of the ld. PCIT, the assessee is in appeal before us. 9. The Learned Counsel for the assessee, at the outset submitted that the issue raised by the ld. PCIT is squarely covered in favour of assessee by the judgment of Co-ordinate Bench in the case of Jayprakash Khanchand Aswani, in ITA No. 2237/AHD/2015 for AY.2011-12, order dated 18.12.2018, wherein the Tribunal has considered the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd. (2007) 164 taxman 342 (Gujarat) and rendered the decision in favour of assessee. The ld Counsel pointed out that assessee is engaged in business of construction and development, which is main object of the assessee. The flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these flats as income from house property was not justified insofar as these flats were ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the rental income received from any property in the construction business can be claimed under the head income from property even though the said property was included in the closing stock. The Hon'ble Gujarat High Court held that if the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the business and the business stocks, which may include movable and immovable, would be taken to be stock in trade and any income derived from such stocks cannot be termed as income from house property. While holding so the Hon'ble High Court observed as under:- 8. True it is, that income derived from the property would always be termed as income from the property, but if the property is used as stock-in-trade , then the said property would become or partake the character of the stock, and any income derived from the stock, would be income from the business, and not income from the property. If the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the business and the business stocks, which may include movable and immovable, wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015 has held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of AO treating the rental income as income from house property in place of income from business shown by the assessee was held to be not justified. The Hon'ble Supreme Court held that since the assessee company s main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business. On the very same analogy in the instant case, assessee is engaged in business of construction and development, which is main object of the assessee company. The three flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principle of natural Justice or without application of mind. The 'phrase prejudicial to the interest of revenue' is not an expression of art and is not defined in the Act. Understood it is ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provision of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of revenue. The phrase prejudicial to the interest of revenue has to be read in conjunction with an erroneous order passed by the A.O. Every loss of revenue as a consequence of an order of AO, cannot be treated as prejudicial to the interest of revenue, for example, when an ITO, adopted one of the course permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the PCIT does not agree, it cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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