2022 (10) TMI 344 - AT - Income Tax

Assessee's Appeal Allowed: PCIT's Jurisdiction Invalid under Income Tax Act

Vrundavan Enterprises Versus The PCIT-1, Surat

Vrundavan Enterprises Versus The PCIT-1, Surat - TMI Issues Involved:1. Assumption of jurisdiction under section 263 of the Income Tax Act.2. Merits of taxing notional rent on unsold units.3. Miscellaneous grounds for appeal.Issue-wise Detailed Analysis:1. Assumption of Jurisdiction:The Principal Commissioner of Income Tax (PCIT) assumed jurisdiction under section 263 of the Income Tax Act 1961, asserting that the Assessing Officer (AO) passed the assessment order without proper inquiry or verification, making it erroneous and prejudicial to the interest of Revenue. The assessee contended that the PCIT was not justified in assuming jurisdiction without satisfying the necessary conditions and was driven by extraneous considerations.2. Merits of Taxing Notional Rent on Unsold Units:The PCIT initiated proceedings to tax notional rent on unsold units (completed residential/commercial units) for an Assessment Year prior to the amendment deeming such notional rent to tax. The assessee argued that the flats were shown as stock-in-trade and not intended for rental income, citing the judgment of the Hon'ble Gujarat High Court in Neha Builders Pvt. Ltd. and the Income Tax Appellate Tribunal (ITAT) in Shanti Enterprise. The PCIT rejected this contention, stating that prior to the insertion of section 23(5), notional rent was to be charged under section 23(1) read with section 22 of the Act. The PCIT held that the assessment order was erroneous and prejudicial to the interest of Revenue, directing the AO to pass a fresh assessment order.3. Miscellaneous Grounds for Appeal:The appellant sought the leave to add, alter, or vary any of the grounds of appeal.Tribunal's Findings:The Tribunal found merit in the assessee's submission, noting that the issue was covered by the judgment of the Co-ordinate Bench in Jayprakash Khanchand Aswani, which considered the judgment of the Hon'ble Gujarat High Court in Neha Builders Pvt. Ltd. The Tribunal observed that the unsold flats, treated as stock-in-trade, should be assessed under the head 'business income' rather than 'income from house property.' The Tribunal emphasized that the AO's order, adopting one of the permissible courses in law, could not be deemed erroneous and prejudicial to the interest of Revenue.Conclusion:The Tribunal concluded that the provisions of section 23 were not applicable to the assessee's case. The AO's decision to treat the unsold flats as stock-in-trade was justified, and the PCIT's assumption of jurisdiction under section 263 was invalid. The Tribunal quashed the PCIT's order dated 29.03.2022, declaring it ab initio void, and allowed the appeal filed by the assessee.Order Pronouncement:The order was pronounced in the open court on 06/10/2022, with the result placed on the Notice Board.