Tribunal Dismisses Revenue's Appeal; Assessee Gains Relief on Notional Rent and Deductions u/s 80IB(10.

The Tribunal dismissed the Revenue's appeal due to the low tax effect, adhering to CBDT Circular No. 3/2018. The assessee's appeal was partly allowed, granting relief on notional rent and deductions under Section 80IB(10) while restricting disallowance under Section 14A to the exempt income amount. Grounds 3 and 4 were dismissed as 'not pressed', and ground 8 required no adjudication. Consequently, the Revenue's appeal was dismissed, and the assessee's appeal was partly allowed.

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Issues Involved:
1. Maintainability of Revenue's appeal based on monetary limits.
2. Protective addition on account of notional rent of unsold area.
3. Disallowance under Section 14A of the Income Tax Act.
4. Deduction under Section 80IB(10) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Maintainability of Revenue's appeal based on monetary limits:

The Revenue's appeal was contested based on the CBDT Circular No. 3/2018, dated 11.07.2018, which revised the monetary limits for filing appeals by the Department before the Tribunal to Rs. 20 Lakhs. Both parties agreed that the tax effect in the present appeal was less than Rs. 20 Lakhs. The Tribunal, considering the circular applicable to both future and pending appeals, dismissed the Revenue's appeal due to the low tax effect. The Tribunal also clarified that the Revenue could seek restoration of the appeal if it falls under the exceptions prescribed in para 10 of the Circular.

2. Protective addition on account of notional rent of unsold area:

The assessee's appeal contested the confirmation of protective addition made by the Assessing Officer (AO) on account of notional rent of unsold area held as 'stock-in-trade'. The Tribunal referred to a similar case in ITA No.1914/PUN/2018, where it was held that properties held as stock-in-trade by a builder should not have their Annual Letting Value determined under Section 23 of the Income Tax Act. The Tribunal noted that the income from such properties should be chargeable under the head "Profits and gains from business or profession" and not as "Income from house property". Consequently, the Tribunal allowed the assessee's grounds 1 and 2, aligning with the precedent that hypothetical income not sanctioned by any provision under Chapter IV-D cannot be taxed.

3. Disallowance under Section 14A of the Income Tax Act:

The assessee contested the disallowance of Rs. 54,161 under Section 14A, arguing that no deduction was claimed for expenses related to the exempt income of Rs. 22,000. The AO had invoked Section 14A, observing that the assessee did not maintain separate funds for business and investments yielding exempt income. The Tribunal noted that the CIT(A) upheld the AO's addition based on the decision in Godrej & Boyce (328 ITR 81), authorizing recomputation under Rule 8D. However, the Tribunal found no basis for disallowance exceeding the exempt income and restricted the disallowance to Rs. 22,000, thus allowing ground No. 5.

4. Deduction under Section 80IB(10) of the Income Tax Act:

The assessee also contested the denial of deduction under Section 80IB(10). The Tribunal referred to its earlier decision in the assessee's case for the assessment year 2005-06 (ITA No.344/PUN/2010), where it was held that the assessee was entitled to proportionate deduction for units fulfilling the conditions of having a built-up area of 1500 sq.ft. Following this precedent, the Tribunal allowed grounds 6 and 7, granting the deduction under Section 80IB(10).

Conclusion:

The Tribunal dismissed the Revenue's appeal due to low tax effect and partly allowed the assessee's appeal, granting relief on the issues of notional rent and Section 80IB(10) deductions while restricting the disallowance under Section 14A to the exempt income earned. Ground Nos. 3 and 4 were dismissed as 'not pressed', and ground No. 8 required no adjudication. The combined result was that the Revenue's appeal was dismissed, and the assessee's appeal was partly allowed.

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