2021 (12) TMI 1210 - AT - Income Tax

Tribunal allows assessee's appeals, deletes deemed rental income & protective addition, deems interest & penalties issues premature.

The Tribunal allowed the assessee's appeals for all assessment years. The additions for deemed rental income and protective addition under section 69A ... Addition made on account of deemed rental income on unsold flats / units held by the assessee as ‘stock in trade’ - HELD THAT:- We hold that no addition on account of deemed rental income could be made in respect of unsold stock of flats held as ‘stock in trade’ upto A.Y.2017-18. However, the amendment has been brought in the statute in Section 23(5) from A.Y.2018-19 providing a moratorium period of two years. Hence, no addition could be made even for A.Y.2018-19 also. Accordingly, the ground raised by the assessee for all the three years in respect of addition made on account of deemed rental income of unsold stock of flats as ‘stock in trade’ are allowed. Addition u/s.69A on account of alleged unaccounted cash - whether any protective addition could at all survive when no substantive addition at all were made in the hands of any other person? - HELD THAT:- Admittedly, no substantive addition was made by the revenue either in the hands of M/s Fisher Health Resorts Pvt ltd or in the hands of any other person. In Respectfully following the aforesaid decision of VIKASH IRON & STEEL PRIVATE LIMITED [2015 (7) TMI 1394 - ITAT KOLKATA] since no substantive addition was made, the protective addition made in the hands of the assessee company does not survive. Hence, we have no hesitation in directing the ld. AO to delete the addition made in the sum of ₹ 13,86,600/- on protective basis u/s.69A of the Act for A.Y.2018-19. Accordingly, the ground raised by the assessee is allowed. Issues Involved:1. Addition on account of deemed rental income on unsold flats/units held as 'stock in trade'.2. Chargeability of interest under section 234B of the Income Tax Act.3. Initiation of penalty under section 271(1)(c) of the Income Tax Act.4. Addition under section 69A of the Income Tax Act on account of alleged unaccounted cash.Issue-Wise Detailed Analysis:1. Addition on account of deemed rental income on unsold flats/units held as 'stock in trade':The primary issue in these appeals was the addition made by the Assessing Officer (AO) on account of deemed rental income for unsold flats/units held by the assessee as 'stock in trade'. The assessee, engaged in the business of building and selling flats, argued that these unsold flats should not be subjected to deemed rental income as they are held as inventory. The AO, relying on decisions from the Hon'ble Delhi High Court and the Hon'ble Bombay High Court, determined the Annual Letting Value (ALV) of these unsold flats and added the deemed rental income to the assessee's income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition.However, the Tribunal found that the assessee, being a builder/developer, showed the unsold flats as stock-in-trade and intended to sell them. The Tribunal referred to the amendment in Section 23(5) of the Act effective from A.Y. 2018-19, which provides that the annual value of such property held as stock-in-trade shall be taken as nil for up to two years from the end of the financial year in which the completion certificate is obtained. The Tribunal concluded that prior to A.Y. 2018-19, there was no provision in the Act to tax deemed rental income on unsold stock of properties lying as stock-in-trade. The Tribunal also noted that the decision of the Hon'ble Gujarat High Court in the case of Neha Builders Pvt. Ltd. supported the assessee's position. Consequently, the Tribunal held that no addition on account of deemed rental income could be made for the assessment years under consideration.2. Chargeability of interest under section 234B of the Income Tax Act:The ground regarding the chargeability of interest under section 234B of the Act was deemed consequential in nature. As the primary issue regarding deemed rental income was decided in favor of the assessee, the interest under section 234B would be recalculated accordingly.3. Initiation of penalty under section 271(1)(c) of the Income Tax Act:The ground regarding the initiation of penalty under section 271(1)(c) of the Act was considered premature for adjudication at this stage. The Tribunal did not provide a detailed analysis on this issue, as it would be addressed in subsequent proceedings if necessary.4. Addition under section 69A of the Income Tax Act on account of alleged unaccounted cash:For A.Y. 2018-19, the AO made an addition of Rs. 13,86,600 under section 69A of the Act on a protective basis, claiming it was unaccounted cash found during a search action. The assessee explained that this cash belonged to M/s. Fisher Health Resorts Pvt. Ltd., which had common directors with the assessee. The AO did not make any substantive addition for this cash in the hands of Fisher Health Resorts Pvt. Ltd. or any other entity.The Tribunal found that protective assessments are typically made when there is uncertainty about the rightful owner of the income. In this case, no substantive addition was made in the hands of any other party. The Tribunal, relying on judicial precedents, held that a protective addition cannot survive without a corresponding substantive addition. Therefore, the Tribunal directed the AO to delete the protective addition of Rs. 13,86,600 made under section 69A of the Act for A.Y. 2018-19.Conclusion:The Tribunal allowed the appeals of the assessee for all the assessment years under consideration. The additions made on account of deemed rental income and the protective addition under section 69A were deleted. The issues regarding interest under section 234B and penalties under section 271(1)(c) were deemed consequential or premature for adjudication at this stage.