TaxTMI 
TaxTMI 
2026 (4) TMI 342
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....and the decision rendered therein shall apply mutatis mutandis to the assessee's appeal for the assessment year 2016-17. ITA No.6354/Mum/2025 Assessee's Appeal - A.Y. 2017-18 3. During the hearing, the assessee filed the revised grounds of appeal, which were taken on record, and are reproduced as follows: - "1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the additions made by Ld. AO amounting to Rs. 4,30,92,138/-on account of deemed notional income from house property from unsold inventory held as stock-in-trade by the Appellant. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that the issue relating to deemed notional income from house property' was concluded in favour of the Appellant in their own case for previous Assessment Years by the Hon'ble Tribunal. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not following the binding judicial decisions rendered by the Hon'ble Tribunal as well as various Hon'ble High Courts on the issue of 'deemed notional income from house property'. 4....
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....ny Ltd., reported in (2013) 354 ITR 180 (Del.). 7. In response, the assessee placed reliance upon the decision of the Hon'ble Gujarat High Court in CIT vs. Neha Builders Pvt. Ltd., reported in (2008) 296 ITR 661 (Guj.). The assessee also placed reliance upon the decision rendered in its own case for earlier years as well as decisions rendered in group cases in support of the contention that since the assessee's main business activity is that of a builder, the units developed by it are primarily business assets of the assessee and the income derived therefrom is taxable under the head "business income". 8. The Assessing Officer ("AO"), vide order dated 24.06.2019 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that the issue is squarely covered by the decision of the Hon'ble Delhi High Court in Ansal Housing Finance and Leasing Company Ltd. (supra). Accordingly, the AO computed the Annual Letting Value of these properties at 8.5% of the cost of construction and, after allowing a deduction of 30% under section 24(b) of the Act, made an addition of Rs. 3,01,64,518/- under the head "income from house property". 9. The learned ....
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....der section 143(3) of the Act by placing reliance upon the decision of the Hon'ble Delhi High Court in Ansal Housing Finance and Leasing Company Ltd. (supra), held that notional rent needs to be computed on the unsold stock lying vacant with the assessee and held as stock-in-trade. 13. The learned CIT(A), vide impugned order, following the decisions of the Coordinate Benches of the Tribunal in Dimple Enterprises vs. DCIT, reported in [2023] 154 taxmann.com 53 (Mum - Trib.), DCIT vs. Rustomjee Evershine Joint Venture in ITA No. 1349/Mum/2022 dated 31.07.2023, and Ramesh Dungarshi Shah vs. DCIT, reported in [2025] 174 taxmann.com 589 (Mum - Trib.), which in turn have followed the decision of the Hon'ble Delhi High Court in Ansal Housing Finance and Leasing Company Ltd. (supra), dismissed the grounds raised by the assessee on this issue and upheld the computation of notional rent on unsold inventory/stock held by the assessee as stock-intrade. 14. As per the assessee, this issue is covered by the decision of the Hon'ble Gujarat High Court in Neha Builders Pvt. Ltd. (supra), wherein it was held that if a property is held as stock-in-trade, then the said property would partake the....
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....rty constructed by it was held to be assessable under the head "income from house property". Accordingly, in paragraph 13, the Coordinate Bench noted the divergent views of the Hon'ble Bombay High Court and the Hon'ble Gujarat High Court on the nature of rental income received by the taxpayer from the unsold stock or property given on rent. The relevant observations of the Coordinate Bench in paragraph 13 of its order are reproduced as follows: - "13. Thus, in all these cases there was actual receipt rental income from the unsold stock of property and the controversy of whether income is to be assets under the head income from house property or business income. Hon'ble Bombay High Court in all the aforesaid decisions has taken a contrary view to judgment of Hon'ble Gujarat High Court in the case of Neha Builders and held that the rent received from property held as stock-in-trade and any rent received on such unsold closing stock, then income is assessable as 'income from house property' and not as a "business income"." 17. Thereafter, the Coordinate Bench in M/s. Inorbit Mall Pvt. Ltd. (supra) held that neither the ratio of the Hon'ble Gujarat High Cour....
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....s. Inorbit Mall Pvt. Ltd. (supra) held that the Revenue was correct in computing the notional rent on unsold stock. Further, following the decision of the Hon'ble Jurisdictional High Court in CIT vs. Tip Top Typography, reported in (2014) 48 taxmann.com 191 (Bom.), the Coordinate Bench of the Tribunal directed the AO to compute the Annual Letting Value as per the Municipal Rateable Value. The relevant findings of the Coordinate Bench of the Tribunal, in this regard, are reproduced as follows: - "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. Howev....
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....f one year (which was increased 2 years), shall be computed as income from house property and up to period of one year/two years income shall be taken to be 'nil'. Thus, when specific provision has been brought with the effect 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. 21. Firstly, ....
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....ordingly, ground No.1 of the revenue is partly allowed for statistical purposes." 19. During the hearing, the learned AR placed reliance upon the decision of the Hon'ble Jurisdictional High Court in M/s. Classique Associates Ltd. (supra). From the perusal of the said decision, we find that in the facts of the case before the Hon'ble High Court, the taxpayer earned an amount of Rs. 1.51 crore (approx.) by leasing out certain flats and treated such income as "business income". The Hon'ble High Court, vide its order dated 28.01.2019 passed in ITA No.1216/2016, dismissed the Revenue's appeal in M/s. Classique Associates Ltd. (supra) and upheld the findings of the Tribunal by placing reliance upon the decision of the Hon'ble Gujarat High Court in Neha Builders Pvt. Ltd. (supra). Therefore, in M/s. Classique Associates Ltd. (supra), the Hon'ble High Court was dealing with a case where the property considered as stock-in-trade was given on rent and rental income was earned by the taxpayer. Thus, it is ostensible that the facts and the issue involved in M/s. Classique Associates Ltd. (supra) is distinguishable from the facts and issue involved in the present case, i.e. computation of no....
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....nce there was no letting out, the basis of assessment had to be ALV, which was rational and scientific. 5. Counsel for the assessee argued that there is no universal rule as urged by the revenue. It was submitted that unlike in the case cited, i.e. Azimganj Estate (P.) Ltd.'s case (supra) assessee in the present case did not actually let out the vacant flats; it was not even in the business of renting out its flats, unlike in the case of East India Housing & Land Development Trust v. CIT [1961] 42 ITR 49 (SC) or in Sultan Bros. v. CIT [1960] 38 ITR 353 (Bom.) Learned counsel submitted that letting but vacant or other properties was not part of the business or objectives of the assessee, and its case stands on a better footing than the other judgments, because in fact the assessee did not derive an income as a result of letting out. Counsel underlined that income tax is a levy on the income received, and not only notional calculations. In other words, the levy of income tax is for receipts, and not for notional amounts. It is also argued, in the alternative, that the flats cannot be taxed on the basis of their ALV, notionally because the owner is an occupant, and such o....
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....e of it to another on rent. Where this happens, the Appropriate head to apply is "income from property" (s. 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business cannot be said to treat them as landowner but as trader The cases which have been cited in this case both for and against the assessee company must be applied with this distinction properly borne in mind. In deciding whether a company dealt with its properties as owner,, one must see not to the form which it gave to the transaction but to the substance of the matter. The Californian Copper Syndicate case ((1904) 5 T. C 159) illustrates vividly dealings with mineral rights and concessions by a company as part of the objects of its business, or, in other words, in the doing of the business. The Calcutta cases and the case of Fry v. Salisbury House Estate Ltd. (1930 A. C. 432) illustrate the contrary Proposition. There, the property, though dealt with by a company intending to do bu....
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....the owner of the buildings or lands appurtenant thereto. In case the assessee is the owner of the buildings or lands appurtenant thereto, he would be liable to pay tax under the above provision even if the object of the assessee in purchasing the landed property was to promote and develop market thereon. It would also make no difference if the assessee was a company which had been incorporated with the object of buying and developing landed properties and promoting and setting no markets thereon. The income derived by such a company from the tenants of the shops and stalls, constructed on the land for the purposes of setting up market, would not be taxed as "business income" under section 10 of the Act... " 9. Again, in the case of CIT v. Vikram Cotton Mills Ltd. AIR 1988 SC 460. it was observed that whether a particular income is income from business or from investment must be decided according to the general commonsense view of those who deal with those matters in the particular circumstances and the conduct of the parties concerned. In O. Rm. Sp. Sv. Firm v. CIT [1960] 39 ITR 327 the Madras High Court held that: "Under the Indian Income-tax Act, 1922, the incom....
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....ng the use of it to another on rent. Where this happens the appropriate head to apply is "Income from property" (s. 9) even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view of leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of the business, cannot be said to treat them as landowner but as trader." 11. This court is conscious about indivisibility of the levy of income tax, which are neither general or specific for the purpose of any source of income, as held in United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688. where the Supreme Court observed that: "No one of those sections can be treated to be general or specific for the purpose of any one particular source of income; they are all specific and deal with the various heads in which an item of income, profits and gains of an assessee falls. These sections are mutually exclusive and where an item of income falls specifically under one head it has to be charged under that head and no other." 12. Likewise, in CIT v. Chugandas & Co. [....
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....n in Vikram Cotton Mills Ltd.' case (supra) indicates that in every case, the Court has to discern the intention of the assessee; in this case the intention of the assessee was to hold the properties till they were sold. The capacity of being an owner was not diminished one whit, because the assessee carried on business of developing, building and selling flats in housing estates. The argument that income tax is levied not on the actual receipt (which never arose in this case) but on a notional basis, i.e. ALV and that it is therefore not sanctioned by law, in the opinion of the Court is meritless. ALV is a method to arrive at a figure on the basis of which the impost is to be effectuated. The existence of an artificial method itself would not mean that levy is impermissible. Parliament has resorted to several other presumptive methods, for the purpose of calculation of income and collection of tax. Furthermore, application of ALV to determine the tax is regardless of whether actual income is received; it is premised on what constitutes a reasonable letting value, if the property were to be leased out in the marketplace. If the assessee's contention were to be accepted, the....
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....e assessee's sister concern are distinguishable and thus not applicable to the present case. Further, from the perusal of the decision in Dosti Realty Ltd. vs. DCIT, reported in [2025] 177 taxmann.com 317 (Mum-Trib.), relied upon by the learned AR, we find that the Coordinate Bench followed the decision in M/s. Classique Associates Ltd. (supra), which, as noted in the preceding paragraph, has been rendered in a different factual matrix. 22. Therefore, having carefully considered the decision relied upon by both sides, we are of the considered view that since in the present case the issue is of notional rental income from the unsold units lying vacant in possession of the assessee as stock-in-trade, the same is squarely covered by the decision of the Hon'ble Delhi High Court in Ansal Housing Finance and Leasing Company Ltd. (supra). Thus, concurring with the observations of the Coordinate Bench of the Tribunal in M/s. Inorbit Malls Pvt. Ltd. (supra), as noted in the foregoing paragraphs, we are of the considered view that the decision in Neha Builders Pvt. Ltd.(supra) was rendered in a different factual matrix, wherein part of the property was given on rent and income derived the....
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....r passed under section 143(3) of the Act, held that the expense for a non-business purpose by the assessee cannot be ruled out and made an ad hoc disallowance of 10%, being Rs. 66,397/-. 26. Even during the appellate proceedings before the learned CIT(A), the assessee failed to substantiate its case with documentary evidence. Accordingly, the learned CIT(A) dismissed the ground raised by the assessee on this issue. 27. In the appeal before us, apart from raising the ground, the assessee has not produced any bills/vouchers and necessary documentary evidence in respect of its claim of incurring business promotion expenditure of Rs. 6,63,972/-. Accordingly, we do not find any infirmity in the disallowance of 10% made by the lower authorities. As a result, Ground No.5 raised in assessee's appeal is dismissed. 28. Ground No.6, raised in assessee's appeal, pertains to the disallowance made under section 43CA of the Act. 29. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case pertaining to this issue are that during the assessment proceedings, from the details filed by the assessee, it was observed that the....
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....he value adopted by the authority of the State Government for the purpose of payment of stamp duty, then the value so adopted by the authority of State Government shall be deemed to be the full value of consideration received for computing the profits and gains from transfer of such asset. It is pertinent to note that vide Finance Act, 2018 first proviso was inserted to section 43CA(1) of the Act, w.e.f. 01.04.2019, which reads as follows: - "Provided 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." 32. Therefore, as per the aforesaid proviso inserted by the Finance Act 2018, w.e.f. 01.04.2019, if the value adopted by the authority for the payment of stamp duty is not more than 105% of the consideration received as a result of the transfer of the immovable property, then the consideration....
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....ure intended consequence could have retrospective effect, even though not specifically provided for, and speaking through one of us (i.e. the Vice President), the coordinate bench had, after a detailed analysis of the legal position, observed that, "Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced". Referring to this decision, and extensively reproducing from the same, including the portion extracted above, Hon'ble Delhi High Court, in the case of CIT v. Ansal Landmark Township (P.) Ltd. [2015] 61 taxmann.com 45/234 Taxman 825/377 ITR 635 (Delhi), has approved this approach and observed that "the Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second ....
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....mp duty valuation notification, is an estimate, and there can always be bonafide variations, though to a certain limited extent, in these estimations. Unless, therefore, some kind of a tolerance band or a safe harbour provision, in respect of such bonafide variations, is implicit in the scheme of law, the assessee's are bound to face undue hardships. The mechanism under section 50C proceeds on the assumption that when the sale consideration is less than the stamp duty valuation, the sale consideration is to be treated as understated. This assumption is, however, laid to rest when the variations between the stated consideration and the stamp duty valuation figure are treated as explained. The insertion of the third proviso to Section 50C(1) provides for this tolerance band with respect to a certain degree of variations between the stamp duty valuation and the stated consideration of an immovable property. In other words, as long as the variations are within the permissible limits, the anti-avoidance provisions of Section 50C do not come into play. As we have noted earlier, the CBDT itself accepts that there could be various bonafide reasons explaining the small variations between th....
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....sion, was increased to 10%. There is no particular reason to justify any particular time frame for implementing this enhancement of tolerance band or safe harbour provision. The reasons assigned by the CBDT, i.e., "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," was as much valid in 2003 as it is in 2021. There is no variation in the material facts in this respect in 2021 vis-à-vis the material facts in 2003. What holds good in 2021 was also good in 2003. If variations up to 10% need to be tolerated and need not be probed further, under section 50C, in 2021, there were no good reasons to probe such variations, under section 50C, in the earlier periods as well. We are, therefore, satisfied that the amendment in the scheme of Section 50 C(1), by inserting the third proviso thereto and by enhancing the tolerance band for variations between the stated sale consideration vis-à-vis stamp duty valuation to 10%, are curative in nature, and, therefore, these provisions, even though stated to be prospective, must be ....
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....ing retrospective application, the same analogy would apply to the provisions of section 43CA of the Act. Both the sections are similarly worded except that both the sections have application on different sets of assessee. As has been pointed earlier, section 43CA gets attracted where the consideration received or accrues as a result of transfer of an asset (other than a capital asset) being land or building or both. Whereas, provisions of section 50C operates where the consideration received or accrues as a result of transfer of a capital asset being land or building or both. Both the sections induce deeming fiction to substitute actual sale consideration with notional value of asset based on Stamp Duty valuation. Further, a perusal of Circular 8 of 2018 (supra), would show that identical reasons have been given in Para 16 for 'Rationalization of Sections 43CA and 50C'. The proviso has been inserted and subsequently tolerance band limit has been enhanced to mitigate hardship of genuine transactions in the real estate sector. Ergo, in the light of reasoning given for insertion of the proviso and exposition by the Tribunal for retrospective application of the said proviso, I....
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....m house property from unsold inventory held as stock-in-trade by the Appellant. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that the issue relating to deemed notional income from house property' was concluded in favour of the Appellant in their own case for previous Assessment Years by the Hon'ble Tribunal. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not following the binding judicial decisions rendered by the Hon'ble Tribunal as well as various Hon'ble High Courts on the issue of deemed notional income from house property'. 4. Without prejudice to above grounds, on facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the excessive valuation adopted by the Ld. AO to make the additions, without any justification, basis and rationale. 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the disallowances made by Ld. AO on account of business expenses amounting to Rs. 1,84,507/- without considering the explanation provided by the Appellant." 40. Ground No.1-4, rai....