TaxTMI 
TaxTMI 
2023 (10) TMI 837
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Distribution Pvt Ltd [since merged with M/s Chalet Hotels Ltd (in short 'assessee')] 2012-13 26.03.2021 928/Mum/2021 (Assessee) 2012-13 26.03.2021 2511/Mum/2021 (Dept) 2013-14 26.03.2021 930/Mum/2021 (Assessee) 2013-14 26.03.2021 2510/Mum/2021 (Dept) 2014-15 26.03.2021 2513/Mum/2021 (Dept) 2016-17 17.06.2021 2507/Mum/2021 (Dept) M/s Genext Hardware & Parks Pvt Ltd [since merged with assessee] 2014-15 06.08.2021 1756/Mum/2021 (Assessee) 2015-16 06.08.2021 1755/Mum/2021 (Assessee) 2016-17 06.08.2021 1754/Mum/2021 (Assessee) M/s Chalet Hotels Ltd 2017-18 17.06.2021 1401/Mum/2021 [Assessee] 2017-18 17.06.2021 2505/Mum/2021 [Dept] 2018-19 17.06.2021 1400/Mum/2021 [Assessee] Since the issues involved across these appeals are common, all of them were heard together. Both the parties also argued them together raising similar arguments on the common issues. Accordingly, for the sake of brevity, we dispose all these appeals together. 2. Before we advert to the grounds taken in the appeals, it would first be relevant to cull out the basic facts of the case. Search u/s 132 of the Income Tax Act [in short 'the Act'] was conducted against the K Raheja Gro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provide the details of purchases and contractual payments made towards various projects undertaken by the Group at Bangalore. In his reply, the AO noted that, Mr. N Krishnamohan had provided the details of both purchases and contractual payments along with sample bills, which were executed by the assessee i.e. M/s Chalet Hotels Ltd. and M/s Magna Warehousing and Distribution Pvt Ltd & M/s Genext Hardware & Parks Pvt. Ltd. (both of which have since merged with the assessee). The AO noted that the Investigating Officer had brought to the notice of Mr. N Krishnamohan that eight vendors were not found at their given Bangalore addresses. The Investigating Officer had therefore required him to give his comments regarding the same, provide the year-wise details of the payments made to these parties, and also explain as to why the transactions with these parties should not be treated as non-genuine. The relevant extracts of the questions posed to Mr. N Krishnamohan and his answers in response thereto, as extracted at Pages 3 & 4 of the assessment order, are reproduced here-under: "Q19 Please provide details of purchases and contract payments made for various projects undertaken by K Rah....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 31.03.2015 On Inspection it was found that no company/concern with the above names were present at the above mentioned address. Please offer your comments regarding the same. Ans. Sir, When we did transaction with these companies these companies existed at the above location. Our payments to these companies are genuine and we have taken genuine services from these companies. I do not know why these companies are not available at the above addresses. I will provide detailed explanation in 7 days' time. Q.26 Please provide the year wise payment made to the above parties. Ans. Sir, I am providing year wise payment made to the above parties under various projects. (Details of year wise payment to the suspicious parties provided by deponent is annexed as Annexure A-6) Q.27 Please explain as to why your transaction with the parties mentioned in question no:25 should not be treated as non-genuine as these parties seem to be non-genuine as they were not found to be in operation in the addresses provided by you. Also as mentioned in question no: 25 above many parties have not filed return in the last two years. Ans. Sir, I shall provide my reply in 7 days time. Q28 TI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t these parties had cancelled their TINs after few years. The AO thus held that the payments made to these six parties by the assessee in various years remained unverifiable. The AO observed that, mere filing of supporting bills/invoices and payment details, was not sufficient to justify the genuineness of the transactions and that the assessee failed to discharge its onus to establish such claim by producing relevant evidence/material in support thereof. The AO accordingly disallowed the payments made to these parties by way of unexplained expenditure u/s 69C of the Act across various years. While disallowing this amount, the AO noted that these expenses had been capitalised under the head 'Work in Progress' [in short 'WIP'] and therefore reduced the same from the closing balances of the WIP in the respective years. Aggrieved by this action of the AO, the assessee preferred appeal before the Ld. CIT(A). 7. On appeal, the Ld. CIT(A) noted that although the AO had observed that the vendors did not respond to the notices, but the documents furnished by the assessee showed that most of these parties had directly responded to the AO's letter and in some cases the vendors had filed the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t from the eight (8) vendors, to which two (2) vendors responded. The AO accordingly accepted the genuineness of the transactions conducted with the two (2) vendors. The AO thereafter made enquiries u/s 133(6) of the Act from the remaining six (6) parties, which according to him, either went unserved or had not been properly complied with. The AO therefore held that the genuineness of the payments made to these vendors remained un-discharged, and hence disallowed the same u/s 69C of the Act, which is now impugned before us. 9. The Ld. CIT(A), on the other hand, is noted to have observed that, the AO's findings regarding non-compliance of notices issued u/s 131/133(6) by the six (6) vendors was factually incorrect. After verifying the case records, the Ld. CIT(A) is noted to have tabulated the details of responses furnished by these six (6) vendors before the AO, which is as follows :- SL No Name of The party Details of information filed 1 Saket Interiors i. Information filed before the AO on 13.12.2019 in compliance to notice u/s 133(6) dated 30.9.2019 received in the office of the DCIT on 26.12.2019 ii. Ledger account of assessee with the vendor filed. iii. Copy of Bank a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dit report. 3. Income tax computation 4. IT Return acknowledgement. 5. Audited annual report and financial statements. 6. List of vendor's business connection with company. 7. List of client's business connection. 8. Copy of bank statements. 9. Details of main business - being water proofing services, repair and maintenance, trading of waterproofing material, labour work and supply. 10. The Ld. DR appearing on behalf of the Revenue was unable to controvert the above findings of the Ld. CIT(A) regarding the fact that the vendors had indeed responded to the enquiries made by the AO, either directly or through the assessee. We therefore countenance the Ld. CIT(A)'s findings that the AO's observations regarding non-compliance of his letters/notices by these six (6) vendors was factually untenable. 11. We now proceed to examine the genuineness of the transactions with these six (6) parties. The Ld. DR has argued that, irrespective of whether the vendors or the assessee, had filed the details/evidences in relation to these payments, the fact remained that none of these six (6) vendors attended the summons personally. He argued that the AO was unable to examine these v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed out of Bangalore. The Ld. AR explained that they had only set-up a temporary shop/site at Bangalore for carrying out the project / contract obtained from the assessee and after completion of the hotel, they had shut down the same. Similarly, from the documents available on record, the Ld. AR showed us that, one of the vendors, M/s Total Environment Woodworks Pvt Ltd. was undergoing Corporate Insolvency Resolution Proceedings and therefore the Board of this company had remitted their office. The Ld. AR thus submitted that the non-compliance by this particular vendor also could not have been viewed adversely. 12. He further showed us that, these vendors were amongst the several vendors engaged by the assessee for the hotel project and for all practical purposes, the assessee cannot be expected to have a continuing relationship with each one of them or know their exact whereabouts, that too three to four years after completion of business with them. He also submitted that, since the project was complete, work orders had been executed, payments had already been made, the assessee no longer held influence over them to ensure proper and timely compliance to the summons issued by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts made to those five (5) parties, which were deleted by the Ld. CIT(A). Having perused the documents placed before us and the order of the ld. CIT(A), it is noted that both the assessee as well as the vendors had furnished relevant evidences in support of the payments / transactions. We find that the AO vide notice u/s 142(1) dated 23.01.2019 [Page 48 to 51 of Paper Book] had required the appellant to furnish details / documents in relation to the transactions with these six (6) vendors inter alia including nature and type of purchases, purchase order, agreements, details of loading/unloading, transport details, delivery challans, stock register, bank statement, excise invoice, order number, latest address of these parties etc. It is noted that the assessee under the cover of letters dated 14.10.2019 and 22.10.2019 had furnished the relevant evidences as sought for by the AO. On perusal of the same, it is observed as under: i. M/s Saket Interiors : The assessee had explained that this vendor was rendering interior services and executing civil & structural work. Accordingly it was a composite contract with this vendor involving both material and labour and the work order dated 0....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... invoices along with certificate of payments are also found to have been submitted by the assessee. All these documents are found placed at Pages 171 to 369 of paper book. The Ld. AR rightly explained that these loose furniture did not constitute any stock-in-trade or stores and therefore there was no requirement of maintenance of any stock register or obtaining any certificate from store keeper. The assessee is also noted to have specifically pointed out to the AO that this vendor was undergoing IBC proceedings and therefore required the AO to address the IRP appointed by NCLT for future communications with this vendor. The relevant supporting's in this regard as filed before the AO, are found placed at Pages 165 to 167 of Paper Book. iii. Tec Workshop Interiors India Pvt Ltd :- This vendor was engaged to provide materials and also render interior services at the hotel project of the assessee. It is noted that the assessee had detailed work order which is found placed at Pages 370 to 439 of the Paper Book giving detailed description of each of the sub-tasks required to be performed by the vendor. iv. Nina Concrete Systems Pvt Ltd :- It is noted that this vendor was engaged to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../ service tax by each of these vendors. It is not the case that these indirect central levies collected by them were found to be unpaid to the Central Government. Instead, the AO is noted to have simply emphasised on (a) the field enquiries conducted by search team which stated that there were not found at their given addresses and (b) that their local TINs were found to be subsequently cancelled, to justify the impugned addition. In this regard, as noted by us, from the documents/ evidences placed before the AO, that three (3) out of these five (5) vendors were located outside Bangalore i.e. Chennai, Mumbai, Delhi etc. These vendors are noted to have set-up temporary branch/site offices at Bangalore to execute their work orders obtained from the assessee. The assessee and/or the vendor are noted to have brought this material fact to the attention of the Investigating Officer and/or the Assessing Officer. We thus find merit in the submission of the Ld. AR that the non-availability of these three (3) vendors at their local/branch addresses at Bangalore in the course of field enquiries which were conducted more than 4-5 years after completion of the hotel project cannot be viewed sus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ese accounts are not accommodation entries. There are no Cheque deposits and immediate withdrawals or vice versa. Further, the AO has not commented on the reply filed. The vendor has rendered a service which includes supply of materials and necessary work orders have been provided. There is no evidence of Saket Interiors being a bogus entity and its office address is in Mumbai while the site address was in Bangalore which was wound after completion of the contract. A search on the internet reveals website in the name of the vendor and various places where it is carrying on its activities. The vendor has a significant presence in Mumbai and offers services related to Hotels and commercial spaces. The website even refers to the work done by the vendor for Raheja Group at Whitefield, Bangalore. Clearly, the AO's inference that the vendor is non-existent or that the vendor has not worked for the assessee is not based on sound evidences. The amount paid to this party for work done by the party is found to be genuine and explained and the addition of the amount under section 69C is not found correct. The addition made is directed to be deleted (ii) Total Environment Woodworks Pvt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e u/s 133(6) of the Act. He has inferred that since the parties are not in existence, the payment made to these parties are presumed not to be genuine. The documents filed by the assessee reveal that the reply to notice u/s 133(6) of the Act has been filed by the vendor on 14th October, 2019. In the reply, the proprietor of the firm Mr Shinath has offered to appear personally if so desired by the AO. The vendor works in the area of air conditioning and has rendered services relating to HVAC. It is also submitted by the vendor that they have ceased operation since last four years, most employees have left and the CA of the firm passed away recently and thus the firm has provided sufficient reason for part furnishing of information which is credible and acceptable. The reply reveals that the vendor was existing and has actually rendered services to the appellant. As such, the inference drawn by the AO that the party is a bogus or non-existing party is not found correct. The amount paid to this party for work done by the party is found to be genuine and explained and the addition of the amount under section 69C is not found correct. The addition made is directed to be deleted. .......
X X X X Extracts X X X X
X X X X Extracts X X X X
....FY 2014-15. The company has responded with various details as already listed above. The vendor is a works contractor which includes supply of material too. The vendor has filed its reply well in advance and the receipt stamp of the AO is clear on the office copy but the reason for not discussing this reply in the assessment order is not understood. Necessary documents have been filed by the vendor in addition to the basic documents line contract copy and work order which has already been filed by the assessee before the AO The AO has neither discussed the deficiencies in the documents filed by the assessee or the unacceptability of the documents filed by the vendor. Perusal of these documents clearly reveals genuineness of the services rendered. There is no evidence of the water proofing services having been rendered by any other party. As such, the inference drawn by the AO that the party is a bogus or non-existing party is not found correct. The amount paid to this party for work done by the party is found to be explained and the addition of the amount under section 69C is not found correct. The addition made is directed to be deleted." 18. Having carefully perused the above ana....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oes not match the signature in the documents enclosed. As such, this letter cannot be accepted as valid evidence. Without prejudice to this fact, even the contents of this letter are found to be irrelevant to the matter. The three running invoices contained with this letter do not provide any evidence with respect to the actual work done. The part period bank account (only for one months ie, from 27.9.2013 to 15.10.2013) does not throw any light on the work done by the vendor. The income tax returns submitted in support of the activity do not indicate significant activity done by this vendor. The vendor is a works contractor but the labor payments are insignificant in the P&L account while huge administrative expenses are shown which do not support the factum of service. In light of the above discussion, the submission made by the assessee in support of the service are not found sufficient. It is also noted that inspite of notice issued by the AO at address provided by the assessee, the vendor has not filed any reply to the AO and the email correspondence with respect to the new address is also made to the assessee. The documents filed in the letter purported to be written to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ferent persons in charge of different departments viz., purchases, sales, finance, marketing, taxation, etc. and therefore the persons who signed the works contract/invoices could be different from the person who was in charge of the taxation affairs of the company who has drafted and submitted the letter addressed to the AO. We thus do not find any merit in this particular finding of the Ld. CIT(A) as well. 22. Furthermore, from the material placed before us, it is noted that the vendor, M/s Vistar Construction Pvt Ltd was a regular income-tax assessee having PAN - AAACV1033H. Their financial statements for FY 2011-12, which was placed at Pages 591 to 614 of Paper Book, shows that the vendor had reported gross turnover of Rs. 2376.49 lacs in the accounts for the year ended 31st March 2012. The vendor had filed income-tax return for AY 2012-13 declaring a total income of Rs. 255 lacs on which it had paid taxes in excess of Rs. 75.89 lacs [Pg 590 of Paper Book]. Similarly, in AY 2013-14, this vendor had reported turnover in excess of Rs. 1066.45 lacs [Pg 571 of Paper Book] and had reported taxable income of Rs. 51.54 lacs [Pg 562 of Paper Book]. It is also noted that, the transacti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CWIP by way of unexplained expenditure u/s 69C of the Act in relation to payments made to M/s Saket Interiors, M/s Total Environment Woodworks Pvt Ltd, Vistar Constructions Pvt Ltd & Tech Workshop Interiors Pvt Ltd. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO to justify this addition and the Ld. CIT(A) to allow partial relief is verbatim same as in AY 2012-13. 27. Following our reasons and conclusions recorded in Paras 13 to 23 above, we hold that the disallowance of Rs. 8,71,87,346/- made by the AO u/s 69C of the Act was unsustainable both on facts and in law. We therefore direct the AO to delete the impugned addition made u/s 69C of the Act for AY 2013-14. Accordingly Ground No. 2 of the assessee's appeal is allowed and Ground No. 1 raised by the Revenue in their appeal is dismissed. 28. Ground No. 2 taken by the Revenue is against the Ld. CIT(A)'s action of allowing the consequential depreciation on the Capital Work-in-Progress ('CWIP'). The facts concerning this ground are that, upon making the disallowance/s u/s 69C of the Act in relation to the expenses paid towards the real estate project ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....leting the disallowance made by the AO under Section 14A of the Act in accordance with Rule 8D both while computing income under normal provisions and book profit u/s 115JB of the Act. Facts in brief are that the assessee held investments in shares of various associate companies, none of which yielded any exempt income during the year. The AO however had applied the provisions of Section 14A read with Rule 8D to make disallowance to the tune of Rs. 16,04,12,564/-. On appeal, the Ld. CIT(A) relying on the decision of the Hon'ble Bombay High Court in the case of Nirved Traders Pvt. Ltd. (ITA No. 149 of 2017) held that, in absence of exempt income, no disallowance u/s 14A was warranted. The Ld. CIT(A) therefore deleted the disallowance made by the AO. Aggrieved by this action of the Ld. CIT(A), the Revenue is now in appeal before us. 35. Heard both the parties. It is noted that similar issue had come up for consideration in assessee's own case for AY 2015-16 in ITA No. 3747/Mum/2019. In that case, this Tribunal had held that the disallowance cannot exceed the exempt income. The relevant findings of the Tribunal are noted to be as follows :- "We noted that the short point of dispute....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income." 46. In this regard, useful reference can be made to the decision of the Hon'ble Supreme Court in the case of M/s M.M. Aqua Technologies Ltd. vs. CIT (supra), in particular Para 22 thereof, wherein the Hon'ble Supreme Court has held that if the retrospectivity of a taxing statute is urged due to the use of the expression "for the removal of doubts" in the Statute, it cannot be presumed to be retrospective, if it alters or changes the law as it stood earlier. The relevant extracts of the decision of the Hon'ble Apex Court is as under: "22. Second, a retrospective provision in a tax act which is 'for the removal of doubts' cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... per Cape Brandy Syndicate v. Inland Revenue Commissioner (supra) as followed by judgments of this Court - See Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 at paras 60 to 70 per Kapadia, C.J. and para 333, 334 per Radhakrishnan, J ." 47. According to Ld. AR, therefore the amendment brought in by Finance Act, 2022 cannot be said to be retrospective and for that proposition he cited the Constitution Bench decision of the Hon'ble Supreme Court in the case of CIT vs. Vatika Township Pvt. Ltd. (supra) wherein it was held as under: "42.1. "Notes on Clauses" appended to the Finance Bill, 2002 while proposing insertion of proviso categorically states that 'this amendment will take effect from 1 .6.2002.' These become epigraphic 1 words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that a few other amendments in the Income tax Act made by the same Finance Act specifically making those amendments retrospective. For example, clause 40 seeks to amend S. 92-F. Clause (iii-a) of S. 92-F is amended "so as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at it was clarificatory or that the intent of Parliament was to give it retrospective effect. 31. The consequence is that in A.Y. 2008-2009, the loss which occurred to the assessee as a result of its activity of trading in shares (a loss arising from the business of speculation) was not capable of being set off against the profits which it had earned against the business of futures and options since the latter did not constitute profits and gains of a speculative business." 49. In view of the above therefore, in order to test whether the amendment brought in Section 14A of the Act, is retrospective or not, one has to apply the test as laid by the Hon'ble Supreme Court in the case of M/s Snowtex Investment Ltd.(supra) wherein the Hon'ble Supreme Court took note of the law laid down on this issue by the Constitution Bench in M/s Vatika Township Ltd. (supra) and held that the intent of the Parliament/Legislature needs to be looked into for ascertaining whether the amendment should be retrospective or not. In the case of Vatika Township Ltd. (supra), the Hon'ble Supreme Court held that the notes on clauses appended to the Finance Bill will throw light as to the legislat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income . 5. This amendment will take effect from 1 st April, 2022. 6. It is also proposed to amend sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Income -tax Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act. 7. This amendment will take effect from 1 st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years." 51. It is further noted the Notes of Clauses of Finance Act, 2022, is explicitly clear that the new Explanation will take effect from 1 st April, 2022 and therefore will accordingly apply to the Assessment Year 2022-23 and subsequent years. The relevant Notes to Clauses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and perused the material on record. It is admitted position that the Hon'ble Bombay High Court and the Hon'ble Supreme Court have clearly held that disallowance under Section 14A of the Act cannot exceed the amount of exempt income earned by the Assessee during the relevant previous year. The stand of the Revenue is that amendments to Section 14A introduced by the Finance Act 2022 apply retrospectively and therefore, the aforesaid judgments no longer hold good. Whereas the contention of the Assessee is that the said amendments to Section 14A of the Act are prospective in nature and therefore, the order of CIT(A), passed by following the binding judgments of the Hon'ble Jurisdictional High Court, cannot be set aside by the applying the amended provisions of Section 14A of the Act. 7. We note that the Mumbai Bench of the Tribunal has, in the case of Assistant Commissioner of Income Tax- Circle 3(1)(1) Vs ITA No. 2137/Mum/2021 Assessment Year: 2015-16 Bajaj Capital Ventures (P.) Ltd.: [2022] 140 taxmann.com 1 (Mumbai - Trib.)[29-06-2022] and also in the case of Assistant Commissioner Of Income Tax Vs. K Raheja Corporate Services Private Limited [ITA No. 2521 to 2527], held that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....16) deleted the aforesaid addition made by the AO. Hence, the Revenue is now in appeal before us. 41. We have heard the rival submissions and perused the material placed before us. It is a fact on record that the assessee had unsold closing stock, which was lying vacant during the relevant AY 2014-15. The AO is noted to have estimated the notional income by relying on the decision of the CIT vs Ansal Housing Finance and Leasing Company Limited (supra). We note that the coordinate Bench in the case of DCIT v. M/s. Inorbit Malls Pvt. Ltd. in ITA No. 2220/Mum/2021 dated 11.10.2022 has recently examined this particular issue and after considering the jurisprudence available on this subject [which was also relied upon by the Ld. CIT(A) and the assessee before us], has departed from the earlier position and answered the same in favour of the Revenue. The relevant findings of this Tribunal are reproduced hereunder :- "7. We have heard the rival submissions and perused the relevant finding given in the impugned orders. The main controversy as raised in ground No.1 is, whether notional income from unsold units held as stock-in-trade can be assessed under the head, "income from house prop....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the bank would be taken to be income from other sources, therefore, any income derived under the head of "rent" would also become income from the property, it accordingly allowed the appeal and directed reconsideration of the matter." 8.1. The Hon'ble High Court, then observed and held as under; "9. From the order passed by the learned Commissioner of Income-tax 7 (Appeals), it would clearly appear that the case of the assessee was that the company was incorporated with the main object of purchase, take on lease, or acquire by sale, or let-out the buildings constructed by the assessee. The development of land or property would also be one of the businesses for which the company was incorporated". 10. True it is, that income derived from the property would always be termed as "income from the property", but if the property is used as "stock-in-trade", then they said property would become or par take the character of the stock, and any income, derived from the stock, would be "income" from the business, and not income from the property. If the business of the assessee is to construct the property and sell it or to construct and let-out the same, then that would be the "b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ats, warehouses, shops, commercial and residential houses. The ancillary object was to carry on business of leasing, hire purchase, renting, selling, re-selling or otherwise dispose of all forms of movable or immovable properties and assets including buildings, godowns, warehouses and real estate of any kind. The Assessee claimed by the assessee that the flat could not be sold because of recession in the market and hence it let out the flats on license basis for temporary period and earned monthly rental income as license fees. The assessee treated the said rental income as income from the business. The authorities below have concurrently found in favor of the revenue that the rental income cannot be treated as income from business and treated it as "income from house property" under section 22 of the Income-tax Act. The question thus raised was whether the Tribunal is right in so concluding that the rental income is an income from house property. Hon'ble High Court after referring to various decisions of the Hon'ble Supreme Court held that rental income owned by the Assessee was assessable as income from house property. 11. Then, again in the case of CIT Vs. Sane & Doshi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nciple laid down by the Hon'ble Bombay High Court same would have been assessed under the head income from house property. 15. Now, coming to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance & Leasing Company Ltd (Supra), one of the question of law referred before the Hon'ble High Court was as under; "Whether the assessee was liable to pay income tax on the annual letting value of unsold flats owned by it under the head "income from house property"? 15.1 There the facts relevant to the issue raised relate to the addition on account of annual letting value (ALV) of flats, added on notional basis are that the assessee-company engages itself in the business of development of mini-townships, construction of house property, commercial and shop complexes etc. In the assessment completed for the year under consideration, the AO assessed the ALV of flats which the assessee had constructed, but were lying unsold under the head "Income from house property". The assessee however, contended that the said flats were its stock-in trade and therefore the ALV of the flats could not be brought to tax under the head "Income from house property".....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing value, if the property were to be leased out in the marketplace. If the Assessee's contention were to be accepted, the levy of income tax on unoccupied houses and flats would be impermissible which clearly not the case is". 17. Though, the judgment which has been referred by the Hon'ble Delhi High Court in the case in "East India Housing & Land Development Trust (Supra)", "Sultan Bros" and "Karan Pura Development Company Ltd". (Supra) wherein, in all the cases the issue whether the rental income received from the property is to be assessed as business income or income of house property. No where, the Hon'ble Supreme Court in any of the cases which has been referred by the Hon'ble Delhi High Court dealt with issue of notional rental income when the property held as stock-in-trade or closing stock which has not been actually let out, is liable to be taxed as income from house property. However, be that as maybe, there is no contrary decision of any other High Court and therefore, this decision Hon'ble Delhi High Court will have both binding and persuasive value. No direct contrary decision has been brought to our knowledge of any other High Court and we have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t from 01.04.2018 which cannot be applied retrospectively, then in our humble opinion it cannot be imputed that ALV of the flats held as stock in trade should be taxed on notional basis prior to AY 2018-19. Without any legislative intent or specific provision under the Act, such notional or deeming income should not be taxed as cardinal principle, because assessee is not aware that any hypothetical income is to be shown when he has not received any real or actual income. In our view of Hon'ble Delhi High Court is too harsh an interpretation. 20. Since, even prior to the amendment, there is one High Court judgment of Hon'ble Delhi High Court which is directly on this issue and against the Assessee, therefore same needs to be followed. Accordingly, we hold that Assessing Officer is correct in computing ALV on notional rent on unsold stock, but with following riders and directions to the AO as discussed herein after." 42. Following the above decision, we, in principle, uphold the action of the AO seeking to tax the notional rental income in relation to the vacant unsold units lying as stock-in-trade with the assessee at the end of the relevant AY. Hence, the order of the Ld....
X X X X Extracts X X X X
X X X X Extracts X X X X
....main. The Ld. AR showed us that the rental yields of properties in Indian metro-cities are generally 2%-3% p.a. He also referred to the recent report published by research website, www.moneycontrol.com in which, a survey conducted across India revealed that the rental yields in real-estate projects in metro cities was 2% p.a. The Ld. AR also explained that the reason for the lower rental yields was that, any real estate property yielded return primarily in two modes viz., (a) rent & (b) price appreciation. According to him, the return of 8.5% estimated by the AO was inclusive of both rental yield and price appreciation of the property. He demonstrated that out of the 8.5%, only 1%-2% generally comprised of rental yield and 6.5%-7.5% represented the price appreciation over a year. According to him, as the municipal value of the vacant units was not available, the notional fair rental value could otherwise be estimated at 1.5%-2% of the value of the unsold inventory. 44. To further buttress his contention, the Ld. AR placed before us a copy of rent agreement entered into by one of their investors, Mr. S Pasupuleti with a tenant in the same premises. It is noted that the investor had....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntal rates. 46. The Ld. AR pointed out that, the rental agreements showed that the difference in rental yield between luxuriously furnished flat and fully furnished flat was almost 40%. Referring to comparative statement placed before us, he thus urged that, the rental rate of the fully furnished flat ought to be further discounted by 50% to arrive at the comparable rental yield of a bare-shell flat for AY 2018-19. The Ld. AR explained that, a bare-shell flat (unsold inventory) which did not even have basic amenities cannot be expected to earn equivalent rental yield of a furnished flat. According to him, therefore a reasonable expected return/rent of a bare-shell flat (unsold inventory) for AY 2018-19 would work out to Rs. 73.62 per sq ft. The Ld. AR submitted that, this rental rate would require further inflation / escalation adjustment of 10% per year to arrive at the fair market value rates for AYs 2014-15, 2016-17 & 2017-18. The Ld. AR accordingly worked out the estimated fair rental value, in line with the aforementioned calculations, which is noted to be as follows :- Assessment Year Rate per sq ft 2014-15 48.30 2016-17 59.63 2017-18 66.26 47. The Ld. AR accordingl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-shell accommodation, would indeed be lower than the rental rate of a fully furnished flat i.e. Rs. 147 per sq ft. We find it fit to allow further discount of 40% to the comparative rental rate of a fully furnished flat. According to us, therefore, the fair annual lettable value of the unsold properties for FY 2017-18 would work out to Rs. 88.20 per sq ft [147 X 60%]. We agree with the Ld. AR that this rate has to be further adjusted for inflation/escalation. For this, we take cue from the Cost Inflation Index ('CII'), and the adjusted fair rental rate for the year in question before us is worked out as under :- Asst Year CII Rental Rate per sq ft per annum* AY 2014-15 220 Rs.71.33 / sq ft *Base Year - AY 2018-19 [CII-272] : Rental Rate - Rs. 88.20/sq ft 50. In view of the above, the assessable deemed annual lettable value of the unsold inventory held by the assessee is calculated as follows :- Asst Year Rental Rate per sq ft p.a. Unsold space (in sq ft) Gross Annual Lettable Value AY 2014-15 Rs.71.33 1,24,435 Rs.88,75,949/- 51. The AO is thus directed to re-compute and assess the gross annual lettable value of the unsold inventory as laid down in the table above.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for AY 2014-15, we uphold in principle the order of the holding that the provisions of Section 22 & 23 of the Act was applicable in the relation to the vacant & unsold units held by the assessee at the year-end. Also, following the methodology as discussed and laid down in Paras 43 to 51 above, the fair annual lettable value of the unsold inventory is worked out as under :- Asst Year CII Rental Rate per sq ft per annum* AY 2016-17 254 Rs.82.36 / sq ft *Base Year - AY 2018-19 [CII-272] : Rental Rate - Rs. 88.20/sq ft 59. In view of the above, the assessable deemed annual lettable value of the unsold inventory held by the assessee stands re-computed as follows :- Asst Year Rental Rate per sq ft p.a. Unsold space (in sq ft) Gross Annual Lettable Value AY 2016-17 Rs.82.36 1,05,385 Rs.86,79,509/- 60. The AO is accordingly directed to re-compute and assess the gross annual lettable value of the unsold inventory, in the manner as laid down in the table above. The same shall also be subjected to standard deduction u/s 24(b) of the Act. Hence, this ground raised by the Revenue is partly allowed. 61. Overall therefore, the appeal of the Revenue in ITA (SS) No. 2507/Mum/20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce merged with M/s Chalet Hotels Ltd) wherein we have held that the addition/s made by the AO u/s 69C of the Act was unjustified. We thus direct the AO to restore the WDV of the CWIP back to the value as declared by the assessee in the return of income. Consequentially, the reduction to the current year's depreciation as well as the unabsorbed depreciation brought forward from the transferor company, made by the AO, stands deleted. This ground therefore stands allowed. 67. In the result, the appeal of the assessee in IT(SS) Nos. 1756/Mum/2021 stands allowed. 68. We now take up the appeals in IT(SS) Nos. 1755/Mum/2021 & 1754/Kol/2021 filed by assessee, M/s Gentex Hardware & Parks Pvt Ltd for AYs 2015-16 & 2016-17. The first ground taken in both these appeals relates to denial of consequential depreciation claimed on CWIP. It is noted that this ground is akin to Ground No. 2 taken by this assessee in the appeal for earlier AY 2014-15. Following our reasonings given while deciding the appeal for AY 2014-15, the AO is directed to delete the disallowance made in relation to depreciation claimed by the assessee u/s 32 of the Act in the respective assessment orders for AYs 2015-16 & 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....return filed u/s 139 of the Act. The assessee had explained that it had incurred short term capital loss of Rs. 57,22,815/- on sale of shares of M/s Intime Properties Pvt Ltd which was erroneously regarded as long term in nature in the return of income filed for AY 2016-17 and consequently the assessee had erroneously claimed and carried forward long term capital loss of Rs. 8,89,01,133/- instead of short-term capital loss of Rs. 57,22,815/- incurred on sale of shares to the relevant AY 2017-18. The appellant had revised this mistake in the return of income filed u/s 153A of the Act for AY 2017-18 and accordingly claimed brought forward short-term capital loss of Rs. 57,22,815/- from AY 2016-17. The AO in the assessment order passed u/s 143(3)/153A of the Act had denied this revised claim holding that new deduction or allowance cannot be claimed in the assessments framed u/s 153A of the Act. On appeal the Ld. CIT(A) is noted to have directed the AO to allow set-off for correct brought forward losses by observing as under :- 5.9 The case of the assessee represents an abated assessment. In such an assessment, the normal assessment and the assessment pursuant to search action merge ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erred Miscellaneous Application before this Tribunal in MA No.358/Mum/2022 pursuant to which the order dated 14.06.2022 was recalled and thereafter this Tribunal vide order dated 11.05.2023 directed the AO to verify and allow the claim for short term capital loss. He thus urged that the AO be directed to take cognizance of the same and accordingly allow the set-off for the STCL of AY 2016-17 while computing the taxable income for AY 2017-18. Per contra, the Ld. DR supported the action of the AO. 74. It is noted that identical issue has been considered by this Bench in the case of ACIT Vs Gigaplex Estate Pvt Ltd (ITA No. 2506/Mum/2021) dated 31.01.2023 and it was held that assessee had raise fresh/modified claim in the returns filed u/s 153A of the Act in relation to the abated assessment years. The relevant findings are noted to be as follows :- "Considered the rival submissions and material placed on record. We observe that the assessee is earning income from the let of out of the premises situated in the SEZs and offered to tax in the original return of income filed by the assessee under the head income from House property. However, subsequent to the Search, while filing the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act will apply to the return of income so filed. Consequently, the return filed under Section 153A(1) of the Act is a return furnished under Section 139 of the Act. Consequently, the assessee-assessee is being assessed in respect of abated assessment for the first time under the Act. Therefore the provisions of the Act which would be otherwise applicable in case of return filed in the regular course under Section 139(1) of the Act would also continue to apply in case of return filed under Section 153A of the Act and the case laws on the provision of the Act would equally apply. 22. We observe that similar view was expressed by Hon'ble Bombay High Court while adjudicating similar issues in the case of JSW Steel Ltd (supra) and held as under: - "13. In the present case, search was conducted on the assessee on 30-11-2010. At that point of time assessment in the case of assessee for the assessment year 2008-09 was pending scrutiny since notice under section 143(2) of the Act was issued and assessment was not completed. Therefore, in view of the second proviso to section 153A of the said Act, once assessment got abated, it meant that it was open for both the parties, i.e. th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Hon'ble Bombay High Court in the case of CIT-II, Pune Vs. Magarpatta Township Development and Construction Co. Ltd., (ITA. No. 318 of 2015) wherein the Hon'ble High Court by order dated 19.11.2017 framed the relevant question of law as under: - "(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that income derived from letting out of the premises of the I. T. Park was to be assessed as 'Business Income' when the true character of the income derived is income from property?" 9. And the Hon'ble High Court noted as under: - "4. Reg. Question No.2 (a) Mr. Tejveer Sing, learned Counsel appearing for the revenue states that he is not pressing this question in view of the CBDT Circular No. 16 of 2017 dated 25th April, 2017. The above circular has clarified that income arising form the letting out of the premises in an Industrial Park/SEZ, are to be charged under the head "Profits and gains of business" and not under the head "Income from House Property". It further directs the department to withdraw/not press any appeal, filed, seeking to tax income from letting out of the premises in an Industria....