TaxTMI 
TaxTMI 
2021 (12) TMI 1210
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of both the parties, the appeal for the A.Y.2016-17 is taken as the lead case and the decision rendered thereon would apply with equal force for other assessment years also in respect of identical issues except with variance in figures. ITA No.350/Mum/2021 (A.Y.2016-17) 3. The ground No.1 raised by the assessee is general in nature and does not require any specific adjudication. 4. The ground Nos. 2-11 raised by the assessee are with regard to addition made on account of deemed rental income on unsold flats / units held by the assessee as 'stock in trade'. 5. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of building, maintaining, operating of information technology parks and industrial parks and residential projects. On the basis of search and survey action of ABIL Group on 21/07/2017 proceedings u/s.153C of the Act were initiated in the hands of the assessee. 5.1. During the year under consideration, assessee has shown income from business or profession and income from other sources. The assessee as per regular practice of its business, starts advertisement for selling the flats once....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Sq. Ft. Based on the same, the ld. AO applied the fair value rent of Rs. 12 per sq. ft. to the total saleable area of the unsold flats/ units and thereby calculated deemed rent on proportionate basis on these units and disallowed the same and allowed standard deduction. The details of the additions are as follows - Sr. No. Particulars Amount (Rs.) A Notional income on account of deemed rent (68,570 *12m* 12 sq/ft) 98,74,501 B Less: Standard deduction @30% as per sec 24(a) (29,62,215) C Net addition (A-B) 69,11,836 5.6. The ld. CIT(A) did not follow the decision of the Tribunal for AYs 2013-14 and AY 2014-15 in assessee's own case dated 09/11/2019 which had in turn relied upon the decision of Hon'ble Gujarat High Court in case of Neha Builders Pvt Ltd (296 ITR 661) but followed decision of the and Hon'ble Delhi High Court in case of Ansal Leasing Finance & Co. Ltd (354 ITR 180) and Hon'ble Bombay High Court in case of Mangla Homes P Ltd (325 ITR 281) and upheld the addition made by the Ld. AO on account of notional rent on unsold flats vacant. 5.7. It was specifically pointed out that assessee is a builder / developer engage....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.]" 5.10. Per contra, the ld. DR vehemently argued that Section 23(4) of the Act is a deeming provision and it triggers the moment the assessee is the owner of more than two houses. Hence, it is immaterial whether the flats are shown in the balance sheet as investments or as stock-in-trade. He argued that the decision of the Hon'ble Jurisdictional High Court in the case of Mangla Homes Pvt. Ltd., would be applicable here. 5.11. It is not in dispute that the assessee is a builder or developer and had been showing the income derived from sale of flats as and when they are sold and the flats remaining unsold are shown as inventories in the balance sheet of the assessee as 'stock-in-trade'. These unsold stocks when it is sold subsequently would again get taxed only under the head 'income from business'. We find that the assessee being a builder or developer would be interested in selling those flats and earn profits out of the same. No business man would be interested in keeping the properties idle. Hence, the intention of the assessee com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion could be made in respect of deemed rental income on unsold stock of flats lying as stock in trade as they are used for the purpose of business of the assessee. 5.13. We find that all the decisions relied upon by the Hon'ble Bombay High Court in Mangla Homes Pvt. Ltd., were prior to the decision of the Hon'ble High Court in the case of Chennai Properties referred to supra. This is the background in which all the Tribunal decisions had followed the decision of the Hon'ble Gujarat High Court in the case of Neha Builders reported in 296 ITR 661. We find that the issue in dispute is also covered by the decision of Pune Tribunal in the case of Kumar Properties and Real Estates Pvt. Ltd., vs. DCIT in ITA No.2977/PUN/2017 for A.Y.2013-14 dated 28/04/2021. For the sake of convenience, the entire order is reproduced hereunder:- "This appeal by the assessee is directed against the order passed by the CIT(A)-7, Pune on 01.09.2017 in relation to the assessment year 2013-14. 2. The assessee has assailed confirmation of addition of Rs. 1,47,65,688/- towards deemed rental income on stock-in-trade of unsold flats/bungalows held by the assessee, as a first major issue. Succi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any such property or its part, which is occupied by the assessee for the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax, shall be excluded. Thus, in order to fall in the exclusion clause, the following conditions must be satisfied: i. The property or its part should be occupied by the assessee as an owner. ii. Any business or profession should be carried on by the assessee-owner. iii. Occupation of the property should be for the purpose of business or profession iv. Profits of such business or profession should be chargeable to income-tax. ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited 5. Only when the above four conditions are cumulatively satisfied that the property or its part goes outside the ken of section 22, not requiring computation of the annual letting value therefrom. Let us see if the above conditions are satisfied in the instant case ad seriatim. 6. The first condition is that the property or its part should be occupied by the assessee as an owner. The assessee is engaged in the business of developing buildings. Admittedly, the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purposes of the business or profession'. This has been interpreted to be wider in its scope vis-à-vis the expression `for the purpose of making or earning such income' as used in section 57(iii), providing deduction under the head `Income from other sources'. Reverting to section 22, we find that the legislature has used a wider expression: `for the purpose of business' with occupation of the property rather than any narrower expression indicating that the business must be carried on from such property or something like that as a sine qua non for exception. If the intention of the legislature had been to provide exception in a limited manner, it would have used a suitable constrained expression. Coming back to the factual scenario prevailing in the instant case, we find that the purpose of occupation of the flats is to hold them either for readying them for final sale or during the interregnum from the ready stage to sale stage, which satisfies the test of `for the purpose of business'. 9. The last condition is that profits of such business or profession should be chargeable to income-tax. It is indisputable that the ITA No.2977/PUN/2017 Kumar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iod up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.' 13. A close scrutiny of the provision inducted by the Finance Act, 2017, transpires that where a property is held as stock-in-trade which is not let out during the year, its annual value for a period of ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited one year, which was later enhanced by the Finance Act, 2019 to two years, from the end of the financial year in which the completion certificate is received, shall be taken as Nil. The amendment has been carried out w.e.f. 1.4.2018 and the Memorandum explaining the provisions of the Finance Bill also clearly provides that this amendment will take effect from 01.04.2018 and will, accordingly apply in relation to the assessment year 2018-19 and subsequent years. Obviously, it is a prospective amendment. The effect of this amendment is that stock-in-trade of buildings etc. shall be considered for computation of annual value under the head 'Income from house property' after one/two years from the end of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2413, Kumar Capital, East Street, Pune-411001. M/s. Fisher Health Resorts Pvt. Ltd., is engaged into the business of running health and fitness club having PAN AAACF2830J. A statement of oath of Shri Manoj Shah, GM (Finance) was recorded by the search party on 22/07/2017 wherein he had stated that total cash in hand of entity and all individuals is Rs. 13,98,728/-. However, during the search conducted u/s.132 of the Act at the registered office of the assessee, cash of Rs. 27,85,300/- was found in the cabin of Shri Keval Jain. It was submitted to the search party that an amount of Rs. 13,98,728/- belong to various group entities of the assessee and certain individuals which was also reconciled with their books of accounts. With regard to query raised by the search party for the excess cash of Rs. 13,86,600/-, Shri Manoj Shah stated that the said excess cash belongs to Fisher Health Resorts Pvt. Ltd. It was also submitted that the assessee and Fisher Health Resorts Pvt. Ltd., had common Director and hence, the cash belonging to Fisher Health Resorts Pvt. Ltd., was kept in the premises of the assessee. It was also submitted that the source of such cash for Fisher Health Resorts Pvt.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hancement of income by converting the protective addition into a substantive addition in the hands of the assessee company. Now, the short point that arises for our consideration is that whether any protective addition could at all survive when no substantive addition at all were made in the hands of any other person. We find that this issue has been addressed by the Co-ordinate Bench of Kolkata Tribunal in detail in the case of Vikash Iron and Steel Pvt. Ltd., vs. ITO in ITA No.332-334/Kol/2012 and ITO vs. Vikash Iron & Steel Pvt. Ltd., in ITA No.473 to 475/Kol/2011 dated 01/07/2015. For the sake of convenience, the entire order is reproduced hereunder:- "These appeals of the assessee and the Revenue are directed against separate orders of the CIT(A)-I, Kolkata in Appeal No.173-175/CIT(A)-I/Ward-3(2)/10-11 dated 20.12.2011 and Appeal Nos.509-511/CIT(A)-I/3(2)/09-10 dated 15.12.2010 respectively. Assessments were framed by I.T.O., Ward-3(2), Kolkata u/s 147/145(3) of the Income Tax Act, 1961 (hereinafter referred to as "the act") for A.Y. 2003- 04,2004-05 and 2008-09 vide its order dated 30.11.2010. 2. The first common issue in these appeals of assessee is against....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessments are made in the hands of the assessee company. On query from the Bench the ld. JCIT, Sr. DR Shri Prabal Chowdhury fairly conceded that no substantive addition is made in the hands of any person but only protective addition is made. But he relied on the orders of the authorities qua the assessee‟s appeal. Qua Revenue‟s appeal, he relied on the assessment order. We find that this issue dealt with by CIT(A) vide para 5.1. of his appellate order which reads as under :- "5.1. The argument of the appellant is misplaced in view of the fact that addition has been made on the basis of information collected during the course of survey, enquiry and investigation made by the A.O. The protective addition was made in order to protect the interest of the revenue on the basis of the information received from the A.O. of the persons with whom the appellant has made transactions. Since the addition is protective and subject to outcome of assessment in the case of persons with whom appellant has made transactions, the appellant has no basis to be aggrieved. It amounts to the appellant‟s insistence to make the assessment on the basis of its own statement given wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ji Haridas v. ITO [1961] 43 ITR 387. The Hon‟ble Supreme Court held that where it appears to the income-tax authorities that certain income has been received doing the relevant assessment year; but it is not clear who has received that income and prima facie, it appears that income may have been received either by the A or B or by both together, it would be open to the relevant income-tax authority to determine the said question by taking appropriate proceedings both against A and B. The Supreme Court, however, observed that in the proceedings taken against the one or the other, an exhaustive enquiry should be made and the question as to who is liable to pay the tax in question should be determined after hearing objections and that the proceedings against the other person may also continue and be concluded but until proceedings against the one has been finally determined, no assessment order should be passed. A final determination had, therefore, to be made in one of the proceedings. 25. The Tribunal thereafter opined that a Protective assessment is not confined to making assessment of same income in the hands of two different persons; but can also be made in the cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... different from substantive addition and hence the reassessment proceedings be upheld, we find that ultimately the same conclusion will follow if the substantive addition is struck down at a place where it was made. In such a scenario the protective addition will get converted into substantive addition in the reassessment. That will also run contrary to the format of reassessment, being to tax an income which has escaped assessment. In that case again it will tantamount to reopening assessment on the basis of an item of income or disallowance, which has already been made in block assessment of the assessee, thereby leaving no income escaping assessment. Under these circumstances we are satisfied that having made addition of Rs. 527.85 lakhs in the block assessment, the Assessing Officer was not justified in forming the belief, either on substantive or protective basis, that the same income has escaped assessment in the instant year. CIT VS. Wipro Finance Ltd. (2008) 10DTR (Kar) 281 relied on;" 5. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the issue raised by the ld. Sr.Advocate has been answered by the HonR....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ay not escape taxation altogether. In other words, the respondent‟s case clearly is that the notices issued against the two brothers by their respective Income-tax Officers are intended to determine who is responsible to pay tax for the income in question; now though Mr.Nambiar wanted to argue that protective or precautionary assessment of tax is not justified by any of the provisions of the Act he did not seriously contest the position that at the initial stage it would be open to the income-tax authorities to determine by proper proceedings who is in fact responsible for the payment of tax, and that is all that is being done at the present stage. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. That being so, we do not think that Mr.Nambiar would be justified in resisting the enquiry which is proposed to....