2020 (1) TMI 244

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.... purchase of properties and rental business from properties. The Assessing Officer during the course of assessment proceedings, from the perusal of the balance-sheet and the statements made by the assessee-company noted that value of the closing stock had been changed from Rs. 6,44,22,979/- as on 31.03.2012 to Rs. 7,43,51,279/- as on 31.03.2013. The assessee had filed the breakup of the closing stock and from such details of the inventory, Assessing Officer noticed that the property as per W-54, Greater Kailash which was the rear portion of the building was valued lesser by Rs. 1 crore which than the previous year value, that is, from Rs. 4,37,63,104/- to Rs. 3,37,63,104/-. In response to the show cause notice, the assessee submitted that market rate of the property in that locality had depreciated in the year under reference and hence it was valued at cost or market value, whichever is less. Further, as per the Accounting Standards, it was submitted that in the financial year 2011-12 amount of interest of Rs. 1,99,13,104/- was capitalized to the cost and after conducting market survey for the selling price of the same property, it was realized that the same has been over val....

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....dition based on same reasons adopted by the Assessing Officer. However, he gave direction to the Assessing Officer that in the subsequent assessment year, if the assessee has paid tax on higher income on sale of the same property as the cost of acquisition was deducted at lower value, then correction should be made and Assessing Officer should allow consequential relief in the subsequent years. 4. Before us, the ld. counsel for the assessee, Mr. Manoj Patwari submitted that for the property located at W-54 (both front and rear portion), huge interest was paid on said loan which was capitalized by the assessee to the value of the stock. A sum amounting to Rs. 1,99,13,104/- was added to the cost of the impugned property (i.e. the rear portion of W- 54) in earlier years. This led to overvaluation of the said property making its book value at Rs. 4,37,63,104/-. After considering the market viability and in compliance with Accounting Standard-2 to give true and fair view of financial statement, the management of the assessee-company mutually decided to revalue the said property at market value, and therefore, the cost of said property was valued as on 31/03/2013 at Rs. 3,37,63,104/-.....

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....eard the rival submissions and perused the relevant findings given in the impugned orders. The Assessing Officer has disturbed the revaluation of the closing stock of the inventory of the rear portion of the property situated at W- 54, 1st floor, Greater Kailash, which was valued at Rs. 1 crore less than previous year, i.e., it was reduced from Rs. 4,37,63,104/- to 3,37,63,104/-. The reasoning given by the Assessing Officer has already been discussed above. The assessee's main contention has been that it has taken a bank loan of Rs. 7.56 crores to purchase the property for both, front and rear portion of property, W-54, 1st Floor, Greater Kailash and the interest paid in the said loan has been capitalized to the value of the stock. The sum amounting to Rs. 1,99,13,104/- was added to the cost of the said property being rear portion of W-54, 1st Floor, Greater Kailash in the earlier years, because of this reason there was an overvaluation of the said property and the book value get enhanced of the said amount. After considering the market viability and to give true and fair view of the financial statement, the assessee had revalued the said property and the valuation was reduced by R....

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....le method of accounting for the closing stock, then no interference is called for. Accordingly, the addition made by the Assessing Officer and sustained by the ld. CIT (A) is directed to be deleted. 9. As regards the addition on account of notional rent of Rs. 20,59,417/-, the Assessing Officer noted that there were certain properties which were shown as part of closing stock and one property was taken from stock-in-trade to capital asset and was shown as part of fixed asset as on 31.03.2011. AO held that provision of Section 23(1)(a) is clearly applicable and no notional rent has been offered to tax even for the flats held as stock-in-trade. In support, he relied upon the judgment of Hon'ble Delhi High Court in the case of CIT vs. Ansal Housing Financial and Leasing Co. Ltd. (2013) 354 ITR 180. In response to the show cause notice, the assessee's submission as under: "2. The property C-35, First Floor and second Floor, have been given on rent for 2 months and 3 months respectively for relevant financial year because the above mentioned property was under construction and not ready for let-out during the remaining period of relevant financial year, hence there is no ....

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....rent in the following manner: S. No. Property Description Area (sq. yards) Cost of the property Type of the property Percentage notionalrate Total Notional Rent per Year (in Rs.)   1. B-100, Sarvodaya Enclave First Floor 200 1,65,26,175 Residential 2% 3,30,523   2. W-54, First Floor, Front Portion 990 1,65,26,175 Residential 2% 3,30,523   3. W-54, First Floor 990 4,37,63,104 Residential 2% 8,75,262   Annual Value from properties deemed to be let out Total 16,87,025/- 3.4 In addition to the above, it was further seen that rental income was offered on the property located at C-75, First & Second Floor on which rental income is offered only for a part of the year. The assessee AR stated that application for electricity connection was given only in the month of July 2012. And it took 2-3 months for the property to be ready for letting. However, it is seen that assessee-company has offered rental income only for 2 to 3 months. Therefore, even relying on the assessee's contention and also based on the earning capacity of the property which assessee itself ....

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....use and it was only later that it was occupied by the Director of the appellant company. Hence, the deemed rent for such property cannot be assumed for the full year. 3. Contention in the case of C-75 In the case of property 'C-75, First Floor and Second Floor', the construction of the said property as whole was completed w.e.f. 01.04.2013. This fact can be verified from Assessment Order under Section 123-D of DMC (Amendment) Act, 2003 passed by Deputy Assessor & Collector, South Zone, South Delhi Municipal Corporation. Therefore, the impugned properties were not ready for use in the relevant previous year and applicability of provisions pertaining to deemed rent do not arise. Thus, the addition on account of deemed rent of Rs. 7,60,000/- (First Floor) and Rs. 4,95,000/- (Second Floor) in this case is baseless and liable to be deleted." 14. Thus, he submitted that there are arbitrary assumption and calculation of deemed rent with the impugned property, i.e., 2% of the cost and the entire addition should be deleted. 15. Ld. DR strongly relied upon the order of the Assessing Officer. 16. After considering the rival submission and perusal o....