Revision under s.263 fails; unsold flats taxability debatable under SC precedent; s.23(5) amendment effective 01.04.2018; s.36(1)(iii) disallowance upheld on verification

ITAT MUMBAI held that revision under s.263 fails and decided for the assessee. On taxability of unsold flats, the Tribunal found the issue debatable with two possible views and, following SC precedent, held s.263 inapplicable; the Finance Act, 2017 insertion to s.23(5) applied only from 01.04.2018 and not to the year under scrutiny. On disallowance under s.36(1)(iii), the AO's computation of opening CWIP and reduction of interest was found correct after verification, so the PCIT's revision on this point also failed.

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Issues Involved:
1. Invocation of Section 263 of the Income-tax Act by the Principal Commissioner of Income-tax (PCIT).
2. Taxability of unsold flats under the head "Income from House Property."
3. Disallowance of interest under Section 36(1)(iii) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income-tax Act by the Principal Commissioner of Income-tax (PCIT):
The appellant contested the invocation of Section 263 by the PCIT, arguing that the order passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the revenue. The appellant maintained that the AO had considered all relevant details and taken one of the possible views, which should not be subject to revision. The appellant cited the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which established that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the revenue. The Tribunal agreed with the appellant, noting that the AO had indeed examined the issues and adopted a possible view, thereby making the invocation of Section 263 unwarranted.

2. Taxability of Unsold Flats under the Head "Income from House Property":
The PCIT argued that the AO should have taxed the unsold flats under "Income from House Property," referencing the Delhi High Court's decision in CIT v. Ansal Housing Finance & Leasing Co. Ltd. The appellant countered that the unsold flats were treated as stock-in-trade, and income from such stock should be considered "Income from Business," supported by the Gujarat High Court's decision in CIT v. Neha Builders (P.) Ltd. The Tribunal noted that the issue was debatable, with two possible views. Given that the AO had taken one of these possible views, the order could not be considered erroneous or prejudicial to the revenue. Additionally, the Tribunal highlighted that Section 23(5) of the Income-tax Act, which addresses the taxability of unsold flats, was applicable only from Assessment Year 2018-19 and not retrospectively.

3. Disallowance of Interest under Section 36(1)(iii) of the Income-tax Act:
The PCIT contended that the AO had incorrectly calculated the Capital Work-in-Progress (CWIP) and consequently the disallowance of interest. The appellant provided detailed explanations and calculations to demonstrate that the AO had correctly determined the CWIP and the interest disallowance. The Tribunal reviewed the AO's calculations and found them to be accurate, noting that the AO had reduced the interest disallowance correctly. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the revenue on this issue as well.

Conclusion:
The Tribunal held that the conditions for invoking Section 263 were not met in this case. The AO had taken a possible view on the taxability of unsold flats and correctly calculated the CWIP and interest disallowance. Therefore, the Tribunal allowed the appeal and set aside the PCIT's order.

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