Revision-bound assessment jurisdiction bars unrelated share-premium additions, while unsold property inventory remains subject to market-based annual letting value taxation.
In section 263 consequential proceedings, the Assessing Officer's jurisdiction is confined to matters specifically identified in the revisional direction; an addition for share premium under section 56(2)(viib), not covered by that direction, was beyond jurisdiction and deleted. For years before section 23(5) took effect, unsold completed property held as stock-in-trade remained taxable under the head Income from House Property on its annual letting value, notwithstanding non-letting. However, annual letting value cannot be computed by applying bank fixed-deposit rates and must be determined from actual or fair market rent in the relevant locality. Fresh market-based computation was required.
Issues: (i) Whether annual letting value of unsold finished inventory held as stock-in-trade could be brought to tax under the head income from house property for the assessment year in question. (ii) Whether, in proceedings arising from revision under section 263, the Assessing Officer could make an addition under section 56(2)(viib) when that issue was not part of the revisional direction.
Issue (i): Whether annual letting value of unsold finished inventory held as stock-in-trade could be brought to tax under the head income from house property for the assessment year in question.
Analysis: The applicable law treated the amendment introducing section 23(5) as prospective from 01.04.2018. For the year under consideration, the Tribunal followed binding precedent holding that ownership of house property attracts taxation on a notional basis even where the property is held as part of business inventory, and that the absence of actual letting does not exclude application of the annual letting value method. However, the computation adopted by the Assessing Officer, based on a percentage of bank fixed deposit rates, was found to be legally unsustainable because annual letting value must reflect actual rent or fair market rent in the relevant locality.
Conclusion: The unsold inventory was held liable to tax on annual letting value, but the matter was remitted for fresh computation on a market-rent basis. The issue was decided partly against the assessee.
Issue (ii): Whether, in proceedings arising from revision under section 263, the Assessing Officer could make an addition under section 56(2)(viib) when that issue was not part of the revisional direction.
Analysis: The revisional order under section 263 was read as confining the fresh assessment to the specific issue of taxation of unsold finished inventory under the head income from house property. The reassessment could not travel beyond the scope of the revisional directions. Since the addition under section 56(2)(viib) was not among the matters referred for fresh examination, the Assessing Officer lacked jurisdiction to make that addition in the consequential proceedings.
Conclusion: The addition under section 56(2)(viib) was held to be beyond jurisdiction and was deleted. The issue was decided in favour of the assessee.
Final Conclusion: The assessee succeeded on the jurisdictional challenge to the additional adjustment, but the taxation of unsold inventory on annual letting value was sustained subject to fresh quantification by the Assessing Officer on a proper market-based basis.
Ratio Decidendi: In proceedings consequential to a section 263 revision, the Assessing Officer's jurisdiction is confined to the specific issues identified in the revisional order, and for years prior to the commencement of section 23(5), unsold property held as stock-in-trade could still be subjected to annual letting value taxation under the existing law, though the value must be computed on a fair market basis.