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TMI Blog2024 (2) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... and the amendment, the annual value of unsold flats held as stock in trade has to considered as per the amendment in the finance Act 2017 under section 23(5) of the Act is applicable from A.Y 2018-19 and the present case is A.Y. 2012-13. Accordingly we fallow the judicial precedence and rely on the ratio of the legal decisions and the applicability of amendment u/sec 23(5) of the act and we set aside the order of the CIT(A) and direct the assessing officer to delete the addition of annual let out value ( ALV) of the unsold flats and allow the grounds of appeal in favour of the assessee. - SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER For the Appellant : Shri. H.S. Raheja.AR For the Respondent : Ms. Bhumika Patel- Sr.DR ORDER PER PAVAN KUMAR GADALE - JM: These two appeals are filed by the assessee against the separate orders of National Faceless Appeal Centre (NFAC) Delhi/CIT (A passed under section 143(3) and u/sec 250 of the Income Tax Act, 1961 ( the Act ). 2. Since the issues in these two appeals are similar and identical, hence are clubbed, heard and a consolidated order passed. For the sake of convenie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial year. 8. The appellant craves leave to add to, alter or vary the grounds of appeal at or before the hearing of the appeal. 3. The brief facts of the case are that, the assessee company is engaged in business of construction works. The assessee has filed the return of income for A.Y.2012-13 electronically on 21.09.2012 disclosing a total loss of Rs. 6,24,226/- and the return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS and notice u/sec 143(2) and U/sec 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee appeared from time to time and the submitted the details. The Assessing Officer (A.O) found that the assessee has constructed 20 flats in a building known as Sham Sharan at TPS Sangamwadi, Pune and the assessee disclosed 6 flats as transferred to fixed assets and remaining 14 flats are treated as stock in trade and are disclosed in the balance sheet. The assessing officer on perusal of the Audited financial statements found that the assessee company has disclosed inventory value of 14 flats at cost of Rs. 45,91,986/-. Whereas the remaining 6 flats are disclosed under the fixed Asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,67,910/- and passed the order u/s 143(3) of the Act dated 31.03.2015. 5. Aggrieved, by the order, the assessee has filed an appeal with the CIT(A). The CIT(A) has considered the grounds of appeal, statement of facts, submission of the assessee and findings of the assessing officer but has confirmed the action of the AO and dismissed the assessee s appeal. Aggrieved by the CIT(A)order, the assessee has filed an appeal before the Hon ble Tribunal. 6. At the time of hearing, the Ld.AR submitted that the CIT(A) has erred in confirming the action of assessing officer in computing the Annual let out value(ALV) of the flats disclosed under the stock in trade and the assessee made sincere efforts to sell the flats in the financial year but due to market conditions, the stock in trade consisting the flats could not be sold. The ALV determined without considering the factual aspects and actual rental value in respect of other flats. Further the amendment in finance Act 2017, in respect of provisions U/sec 23 (5) of the Act is applicable to unsold inventory of flats disclosed under stock in trade is effective from A.Y. 2018-19 and not to the present A.Y. 2012-13. The Ld. AR substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties and also perused the material on record including the decision relied upon by the assessee. As pointed out by the Ld. counsel the coordinate Bench has decided the identical issue in favour of the assessee in the case of Ferani Hotels Ltd. vs. ACIT (supra). The findings of the coordinate Bench are as under:- 6. Under this issue the assessee has challenged the confirmation of the addition of Rs. 13,22,90,044/- under the head of income from house property on account of deemed income from unsold unit/ flat which was closing stock of the appellant as per provisions of Sections 22 and 23 of the Act. At the very outset, the Ld. Representative of the assessee has argued that the assessee is deriving its income from hotel business and construction. The assessee was also deriving income from dividend, share of profit and sale of flats and due to the recession, the assessee failed to sold out all the flats, therefore, some flats remain vacant which was being treated as stock in trade. The AO has wrongly assessed the notional rent and assessed the rent in view of the provision u/s 24 of the Act wrongly which can only be treated under the head of income from business, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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, would be taken to be 'stock-in-trade', and any income derived from such stocks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the developer is liable to be taxed as income from house property. 5. We have considered rival contentions and perused the record. The issue under consideration has been restored by the CIT(A) to the file of AO to compute the annual value. Recently the Hon ble Supreme Court in the case of M/s Chennai Properties Investments Ltd. Vs. CIT, reported in (2015) 42 SCD 651, vide judgment dated 9-4-2015 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 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned by letting out these 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 letting out the flats. The flats not sold was its stock in trade and income arising on its sale is liable to be taxed as business income. Accordingly, we do not find any justification in the order of AO for estimating rental income from these vacant flats u/s. 23 which is assessee s stock in trade as at the end of the year. Accordingly, the AO is directed to delete the addition made by estimating letting value of the flats u/s. 23 of the I.T. Act. 8. In the factual position of the present case is quite similar to the facts of the case mentioned above. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elete the addition and allow the grounds of appeal of the assessee. 9. In the result, the appeal filed by the assessee is allowed. 8. The Ld.AR contentions are the amendment in finance Act 2017, in respect of provisions u/sec 23 (5) of the Act is applicable to unsold inventory of flats disclosed under stock in trade is effective from A.Y.2018-19 and not to the present A.Y. 2012-13. Therefore, there is no provision to assess notional rent/ALV of unsold flats u/sec 22 of the Income Tax Act in the year under consideration. We consider it appropriate to refer to the observations of the Coordinate Bench of the Hon ble Tribunal in case of NMS Enterprises Vs Pr.CIT in ITA No. 1103/M/2022 for assessment year 2017-18 dated 25.01.2023, though in the context of revision u/sec. 263 of the Act has dealt on the applicability of provisions of section 23(5) of the Act prospectively and granted relief observing at Para 7 to 9 of the order read as under:- 7. We heard the rival submissions and perused the material on record. The Ld. AR contentions are that the order passed by the AO does not satisfy the twin conditions being erroneous and prejudicial to the interest of the revenue. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us and prejudicial to the interest of the revenue. Accordingly, we set aside the order of the Pr.CIT and allow the grounds of appeal in favour of the assessee. 9. In the result, the appeal filed by the assessee is allowed. 9. We considering the facts, circumstances and the amendment, the annual value of unsold flats held as stock in trade has to considered as per the amendment in the finance Act 2017 under section 23(5) of the Act is applicable from A.Y 2018-19 and the present case is A.Y. 2012-13. Accordingly we fallow the judicial precedence and rely on the ratio of the legal decisions and the applicability of amendment u/sec 23(5) of the act and we set aside the order of the CIT(A) and direct the assessing officer to delete the addition of annual let out value ( ALV) of the unsold flats and allow the grounds of appeal in favour of the assessee. 10. In the result, the appeal filed by the assessee is allowed. ITA No.2777/Mum/2023 A.Y.2014-15 11. As the facts and circumstances in this appeal is identical to ITA No. 2779/M/2023 for the assessment year 2012-13 (except variance in figures) and the decision rendered in above paragraphs would apply mutatis mutandi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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