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2022 (6) TMI 1271
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....0 & 12/Mum/2021 for A.Y.2015-16 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-52, Mumbai in appeal No.CIT(A), Mumbai-52/10104/2019-20 dated 15/10/2020 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 16/12/2019 by the ld. Dy. Commissioner of Income Tax, Central Circle 4(2), Mumbai (hereinafter referred to as ld. AO). Identical issues involved in these appeals and hence, they are taken up together and disposed of by this common order for the sake of convenience. 2. The ld. DR before us requested that appeal for the A.Y.2017-18 may be taken up first. Accordingly, we are taking up the assessee's appeal for A.Y.2017-18 in ITA No.1954/Mum/2020. 2.1. Though the assessee has raised several grounds, the only issue involved in this appeal is whether the ld. CIT(A) was justified in confirming the addition made on account of notional rent from house property in respect of flats held as 'stock in trade' by the assessee in the facts and circumstances of the instant case. 3. We have heard rival submissions and perused the materials available on record. We find that asse....
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....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. Succinctly, the factual panorama of the case is that the assessee has been engaged in the business of development of properties with the projects `Kumar Infinia' and `Kumar Picasso' ITA No.2977/PUN/2017 Kumar Properties and Real Estate Private Limited having certain unsold flats/bungalows for ready possession at the year end.....
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....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 assessee is owner of the flats/bungalows lying unsold at the year end. Now the question is whether these flats etc. can be said to be `occupied' by the assessee? The term `occupy' has neither been defined in section 2 (general definitions under the Act) nor section 27 (definitions relating to income from house property). Rath....
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....ture 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 Properties and Real Estate Private Limited profits of the business of property development by the assessee are chargeable to income-tax. 10. On a bird's-eye view, we find that that flats/bungalows are occupied by the assessee owner; business of property development is carried on by the assessee; the occupation of th....
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....n-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 financial year in which the certificate of completion of construction of the property is obtained on and from the A.Y. 2018-19. Instantly, we are concerned with the assessment year 2013-14. As such, the amendment cannot apply to the year under consideration. In the absence of the applicability of such an amendment, no income can....
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....tage terms is less than 10%. The ld. AO by applying the provisions of Section 43CA of the Act proceeded to make an addition of Rs.3,88,500/- in the assessment. We find that there is a proviso introduced in Section 43CA of the Act wherein it has been stated that if the difference between the consideration value and the stamp duty value is less than 10%, then no addition is required to be made. This proviso is inserted w.e.f. A.Y.2019-20 onwards. Now, the short point that arises for our consideration is whether this proviso could be given retrospective effect so as to confer benefit to the assessee in the instant case. We find that this issue is no longer res integra in view of the decision of this Tribunal in the case of Maria Fernandes Cheryl vs. Income Tax Officer reported in 187 ITD 738 wherein the third proviso inserted in Section 50C of the Act has been held to be retrospective in operation from 01/04/2003 onwards. Though this decision has been rendered in the context of Section 50C of the Act for a capital asset, the same analogy could be drawn for Section 43CA also for asset held as 'stock in trade'. For the sake of convenience, the relevant operative portion of the said judg....
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.... 6. Learned Departmental Representative contends that the amendments can only be prospective in nature as the law states so specifically. The relevant submissions, in his written note, are as follows: The Honourable Member directed the undersigned to submit a note on the larger question of retrospective applicability of third proviso of Section 50C whereby a variation of 5% wef 1-4-2019 [10% wef 1-4-2021 as Act no. 12 of 2020] is permissible in the sale consideration vis-a-vis valuation adopted by Stamp valuation authorities. In this regard, it is humbly submitted that the Finance Act 2018 specifically mentions that the third proviso will come into force prospectively from 1-4-2019 and likewise the Act No 12 of 2020 enhancing the variation from 5% to 10% also specifically states that the enhanced variation will be effective from 1-4-2021. The relevant amendments and explanatory notes are reproduced below for ready reference: The Finance Act 2018 inserted Second proviso to section 50C as under: Amendment of section 50C. 20. In section 50C of the Income-tax Act, in sub-section (1), after the second proviso, the following proviso s....
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....ted or assessed or assessable shall for the purpose of computing profits and gains from transfer of such assets, be deemed to be the full value of consideration. The said section also provide that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration. Section 50C of the Act provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by stamp valuation authority for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration and capital gains shall be computed on the basis of such consideration under section 48 of the Act. The said section also provides that where the v....
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....ective effect is neither mentioned in the provisions of section 50C nor in the Explanatory Notes to Finance Act 2018 issued vide Circular 8/2018 ... (c) the variation permissible is only 5% as on date and the enhanced variation of 10% is applicable only from 1-4-2021. Lastly it is also submitted that in case the Honourable Tribunal is not inclined to accept the submissions, it is requested that it may kindly be mentioned that relief is being provided as a special case and this decision may not be considered as a precedent. 7. These submissions, however, do not impress us. As noted by the Central Board of Direct Taxes circular # 8 of 2018, explaining the reason for the insertion of the third proviso to Section 50C(1), has observed that "It has been pointed out that the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location". Once the CBDT itself accepts that these variations could be on account of a variety of factors, essentially bonafide factors, and, for this reason, Section 50C(1) should not come into pl....
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.... Madras High Court in the judgment reported as CIT v. Vummudi Amarendran [2020] 120 taxmann.com 171/429 ITR 97]. The question that we must take a call on, therefore, is as to what is the rationale behind the insertion of the third proviso to section 50C(1), and if that rationale is to provide a remedy for unintended consequences of the main provision, we must hold that the third proviso to section 50C(1) comes into force with effect from the same date on which the main provision, unintended provisions of which are sought to be nullified, itself was brought into effect. Let us understand what the nature of the provisions of section 50C is. In terms of this provision, if the property is sold below the stamp duty valuation rate, which is often called circle rate, this stamp duty valuation report is assumed as sale consideration for the property in question, and, accordingly, capital gains tax is levied. This deeming fiction to substitute apparent sale considerations by notional consideration computed on the basis of a stamp duty valuation rate, was thus to address the issue with respect to potential evasion of taxes by understating the sale consideration amount in a sale deed. As note....
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....imation of market price is an estimation nevertheless, even if by a statutory authority like the stamp duty valuation authority, and such a valuation can never be elevated to the status of such a precise computation which admits no variations. The rigour of Section 50C(1) was thus relaxed, and very thoughtfully so, to take these bonafide cases of small variations between the stated sale consideration vis-à-vis stamp duty valuation, out of the scope of adjustments contemplated in the computation of capital gains under this anti-avoidance provision. In our humble understanding, it is a case of a curative amendment to take care of unintended consequences of the scheme of Section 50C. It makes perfect sense, and truly reflects a very pragmatic approach full of compassion and fairness, that just because there is a small variation between the stated sale consideration of a property and stamp duty valuation of the same property, one cannot proceed to draw an inference against the assessee, and subject the assessee to practically prove his being truthful in stating the sale consideration. Clearly, therefore, this insertion of the third proviso to Section 50C(1) is in the nature of a....
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....nder section 50C will not be invoked. 8. Once legislature very graciously accepts, by introducing the legal amendments in question, that there were lacunas in the provisions of section 50C in the sense that even in the cases of genuine variations between the stated consideration and the stamp duty valuation, anti-avoidance provisions under section 50C could be pressed into service, and thus remedied the law, there is no escape from holding that these amendments are effective with effect from the date on which the related provision, i.e., Section 50C, itself was introduced. These amendments are thus held to be retrospective in effect. In our considered view, therefore, the provisions of the third proviso to Section 50C (1), as they stand now, must be held to be effective with effect from 1st April 2003. We order accordingly. Learned Departmental Representative, however, does not give up. Learned Departmental Representative has suggested that we may mention in our order that "relief is being provided as a special case and this decision may not be considered as a precedent". Nothing can be farther from a judicious approach to the process of dispensation of justice, and such a....
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....even under normal provisions of the Act vide assessee's appeal for the A.Y.2017-18 supra. Hence, automatically the said sum would have to be deleted while computing book profits u/s.115JB of the Act also. 5.2. Similarly, we have already deleted the addition made u/s.43CA of the Act in the sum of Rs.3,88,500/- supra. Hence, the said sum would have to be deleted while computing book profits u/s.115JB of the Act. In any case, both these items would not fall within the ambit of Explanation 1 to Section 115JB(2) of the Act as the item eligible for addition to book profit u/s.115JB of the Act. Hence, the ld. CIT(A) had rightly deleted the same. Accordingly, the ground No.3 raised by the Revenue is dismissed. 6. The ground No.2 raised by the Revenue is challenging the action of the ld. CIT(A) in allowing the claim of the assessee to carry forward losses on sale of redeemable non-convertible zero coupon bonds, which was neither claimed by the assessee in the original return of income u/s.139(1) of the Act nor in the revised return filed u/s.139(5) of the Act but claimed during the course of assessment proceedings. 6.1. We have heard rival submissions and perused the materials avai....
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.... the ld. AO does not apply to appellate authorities and the same applies only to the ld. AO. Accordingly, he directed the ld. AO to allow the long term capital loss after examining the correctness of its computation. 6.2. We find that the genuinity of the claim of this loss was not doubted by the lower authorities in the instant case. Even the ld. CIT(A) had merely directed the ld. AO to ascertain the correctness of the computation of loss claimed by the assessee. It is a fact that assessee had actually incurred a loss of Rs.188 Crores in the instant case on sale of non-convertible zero coupon bonds. In view of the decision of Hon'ble Jurisdictional High Court in the case of Pruthvi Share Brokers referred to supra, the loss even though not claimed by the assessee in the return of income would be eligible for carry forward to subsequent years. In any case, the law is very settled that there is no estoppel against this statute and Revenue cannot take undue advantage of the ignorance of the assessee and that Article 265 of the Constitution clearly mandates that no tax shall be collected except by an authority of law. Hence, it is obligatory on the part of the ld. AO to educate the ....
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....l statements and had specifically mentioned that the benefit of waiver of loan on OTS with the lenders had been credited to the profit & loss account of the company prior to the fulfilment of the conditions of the settlement, and that such credit has not yet accrued to the assessee. It is stated by the auditors that taking of such credit which had not yet accrued' to the company had translated the loss to the extent of Rs. 162,30,33,516/-into profit, and the same had an equivalent effect to the reserves and surpluses of the company. Further, the assessee company had in its revised return of income categorically claimed that the waiver of principal and interest amount under OTS with the lenders amounting to Rs. 162,30,33,516/- was not liable to be included in the total income for the purpose of computing the book profit' as per Sec. 115JB of the Act. It is thus a matter of record that the auditors of the assessee company had at the very initial stage disclosed all the particulars, and by way of qualification notes' to the auditors report had mentioned that the benefit of the OTS made with the lenders resulting in waiver of principal and interest had been credited by the ....
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....te evident if the provisions of sub-s. (6) of s. 211 of the Companies Act, are read in conjunction with, sub-s. (1A), as well as, the Explanation to s. 115J of the Act." Still further, the coordinate bench of the Tribunal i.e ITAT, Pune in K.K Nag (supra) observing that in view of Sec. 211 of the Companies Act, 1956 the net profit' as shown in the profit and loss account for the purpose of Explanation 1 of the second proviso to Sec. 115JB was to be understood with reference to the notes' to accounts accompanying the annual accounts, has held as under: "12. In our view, the aforesaid parity of reasoning is squarely applicable in the present situation also, inasmuch as the provisions of section 115J of the Act and 115JB of the Act which are before us, are pari materia in so far as it relates to the obligation on a corporate assessee to prepare its Profit & Loss account for the relevant previous year in accordance with the provisions of Part II & III of Schedule VI to Companies Act, 1956. Therefore, having regard to the aforesaid parity of reasoning, once it is clear that the information towards incremental liability of leave encashment, which has not been pr....
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.... settled position of law, are of the considered view that the A.O while determining the book profit' under Sec. 115JB had erred in failing to consider the notes' to the accounts, wherein it was clearly mentioned by the auditors that by crediting the benefit of the amount of waiver of loan' which had not yet accrued' to the company the loss to the extent of Rs. 162,30,33,516/- was translated into profit and the same had an equivalent effect to the reserves and surpluses of the company. In our considered view, now when the auditors of the assessee company had disclosed all the particulars and had qualified the crediting of the amount of Rs. 162,30,33,516/- in the profit & loss account by way of notes' to the accounts, therefore, it was obligatory on the part of the A.O to have considered the same while determining the book profit' under Sec. 115JB of the IT Act. We are unable to persuade ourselves to subscribe to the reading of the profit & loss account in isolation by the A.O, de hors qualification of the same by way of notes' of the auditors to the financial statements. We thus in all fairness are of the considered view that as the A.O had failed to cons....