Tribunal rules in favor of assessee in tax appeals for A.Y. 2015-16 and 2017-18

The appeals filed by the assessee for A.Y. 2015-16 and 2017-18 were allowed, and the appeals filed by the Revenue for the same assessment years were dismissed. The Tribunal ruled in favor of the assessee on all issues, including the addition on account of notional rent from house property, deletion of addition under Section 43CA, allowance of carry forward losses on sale of bonds, and reduction of audit qualification amount while computing book profits under Section 115JB. The Tribunal's decisions were supported by legal precedents and interpretations of the Income Tax Act.

---

---

Issues Involved:

1. Addition on account of notional rent from house property for flats held as 'stock in trade'.
2. Addition under Section 43CA due to difference between stamp duty value and sale consideration.
3. Claim of carry forward losses on sale of redeemable non-convertible zero coupon bonds.
4. Reduction of audit qualification amount while computing book profits under Section 115JB.

Issue-wise Detailed Analysis:

1. Addition on Account of Notional Rent from House Property for Flats Held as 'Stock in Trade':

The primary issue was whether the addition made on account of notional rent from house property in respect of flats held as 'stock in trade' by the assessee was justified. The assessee, engaged in real estate construction and development, had certain unsold flats shown as 'stock in trade'. The Assessing Officer (AO) determined the deemed income of rent from these unsold flats by adopting 8.5% of the construction cost as the fair rent, resulting in a taxable income of Rs.35,79,549/- under 'income from house property'. However, the Tribunal noted that Section 23(5) of the Income Tax Act, which taxes notional rent for properties held as 'stock in trade', was introduced only from A.Y. 2018-19 and thus not applicable for A.Y. 2017-18. The Tribunal referenced prior decisions, including those of the Pune Tribunal and the Bombay High Court, to conclude that no addition on account of deemed rental income could be made for unsold flats held as 'stock in trade' for A.Y. 2017-18. Consequently, the addition of Rs.35,79,549/- was deleted.

2. Addition Under Section 43CA Due to Difference Between Stamp Duty Value and Sale Consideration:

The second issue was the deletion of an addition made under Section 43CA due to a difference between the stamp duty value and the sale consideration of a property. The AO had added Rs.3,88,500/- to the assessee's income, citing the difference between the stamp duty value and the sale consideration. The Tribunal noted that a proviso to Section 43CA, introduced from A.Y. 2019-20, allows no addition if the difference is less than 10%. The Tribunal held that this proviso should be applied retrospectively, referencing the decision in Maria Fernandes Cheryl vs. Income Tax Officer, which treated a similar proviso under Section 50C as retrospective. Thus, the addition of Rs.3,88,500/- was deleted.

3. Claim of Carry Forward Losses on Sale of Redeemable Non-Convertible Zero Coupon Bonds:

The third issue involved the assessee's claim to carry forward a long-term capital loss of Rs.188 Crores on the sale of redeemable non-convertible zero coupon bonds. The AO had denied this claim because it was not included in the original or revised returns. However, the Tribunal, referencing the decision of the Jurisdictional High Court in CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd., held that such a claim could be allowed by appellate authorities even if not claimed in the return of income. The Tribunal directed the AO to examine the correctness of the computation of the loss and allow the carry forward.

4. Reduction of Audit Qualification Amount While Computing Book Profits Under Section 115JB:

The final issue was whether the assessee was entitled to a reduction of Rs.5,51,89,912/- towards an audit qualification while computing book profits under Section 115JB. The assessee had revised its book profits by reducing this amount based on an audit qualification regarding provision for property tax demand. The Tribunal held that financial statements, including notes on accounts and audit qualifications, should be read together for computing book profits under Section 115JB. Citing the decision in Mukand Ltd. vs. ITO, the Tribunal concluded that the adjustment made by the statutory auditor in the revised Form No.29B was valid. Therefore, the Tribunal directed the AO to allow the deduction of Rs.5,51,89,912/- while computing book profits.

Conclusion:

The appeals filed by the assessee for A.Y. 2015-16 and 2017-18 were allowed, and the appeals filed by the Revenue for the same assessment years were dismissed. The Tribunal's decisions were based on established legal precedents and interpretations of relevant provisions of the Income Tax Act.

---