TaxTMI 
TaxTMI 
2026 (8) TMI 377
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....e exclusion of stock on which advances were allegedly received, without providing any opportunity to the Assessing Officer to verify the same and in doing so, the Ld. CIT(A) has acted in clear contravention of Rule 46A of the Income Tax Rules, 1962, thereby vitiating the order to that extent. 2. On the facts and in the circumstances of the case and in law, the Ld. CITIA) erred in restricting the Annual Lettable Value (ALV) of the unsold stock to 2% as against the 8% estimated by the Assessing Officer, thereby the Ld. CIT(A) failed to appreciate that the AO's estimation was based on the book value (cost) and not the market value; hence, the reduction is arbitrary and lacks any factual or evidentiary nexus to the prevailing rental yields in the specific locality of the projects. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying upon judicial precedents such as RustomjeeEvershine Joint Venture and Chalet Hotels Ltd to grant relief, failing to notice that those decisions were rendered on their own specific facts where the assessee had provided concrete evidence of lower rental value, whereas in the present case, the a....
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.... Aggrieved by the order, the assessee filed appeal before the first appellate authority contesting the addition on various propositions. It was stated that no show cause notice was issued before making the addition.in regard to upward variation to its income was issued by proposing addition. Besides, the provisions of section 23(5) of the Act were not applicable to the facts of its case as the main charging section 22 of the Act carves out an exception in respect of property occupied for the purposes of the assessee's business. To fall within its purport, what is essential is that there should be some nexus with the business. The profit from the sale of the offices held by the assessee is chargeable under the head "Profit for Business". Besides, the property held by it is a business asset which is not intended for lease but for sale to a prospective purchaser. In these circumstances, the provisions of section 28 of the Act overrides the provisions of section 22 of the Act. Its stock in trade consists of shops/offices. Shops/offices were unoccupied as there were no purchasers for the same. Therefore, there was no malafide intention to hoard the shops/offices since there were no read....
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....k/flats to the tune of Rs. 20,52,53,093/-, estimated the ALV @ 2% of the closing stock which works out to Rs. 41,05,061/- and thereafter allowed 30% standard deduction as provided u/s 24(a) of the Act, and resultantly assessed the income from house property at Rs. 23,73,543/-." "Lastly, the AO to estimate the ALV after ascertaining Municipal Letable Value for computing the notional rent as held by the Hon'ble Bombay High Court in the case of CIT Vs. Tip Top Typography reported in 368 ITR 30 or @ 2% which was estimated by AO whichever is less. Therefore, the ground no. 3 of the revenue is partly allowed for statistical purposes." 5.2 The assessee furthermore relied on decision of the Hon'ble Mumbai ITAT in case of ACIT, Central Circle 4(2) v. M/s. Chalet Hotels Ltd (As a M/s. Magna Distribution & Warehousing Pvt. Ltd.), which held as under: 43. The next question before us is the manner of computation of ALV for arriving at the notional rental income assessable u/s 22 & 23 of the Act. It is noted that the AO had relied upon the decisions of ITO Vs Chem Mech (P) Ltd (83 ITD 427) and ACIT Vs Om Prakash & Co. (2 SOT 1) to justify the estimation at 8.5% of value of i....
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....son 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." 48. Having considered the rival submissions and the decision of the Hon'ble Bombay High Court (supra), we note that the annual municipal value of the property in question, which is otherwise the safe-guide for estimating of annual value, is not available. Accordingly, the prevailing market rate of the property in question has to be taken into account to ascertain the annual value of the unsold units for the purposes of Section 22 & 23 of the Act. Having perused the decisions relied upon by the AO to estimate annual value at 8.5%, we note that the years involved in these cases we....
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.... value of Rs. 37,98,79,084/- in the project Neelkanth Business Park belongs 60% to the Assessee and 40% with GNRC. The Assessing Officer had factually erred in making addition u/s 23(5) on 100% value of stock in books of the Assessee instead of only on 60% which belonged to it. 6. The ld.CIT(A) after taking into account the submissions of the assessee observed and concluded as below: - In this ground, the appellant contended that the provisions of section 23(5) are not applicable to the facts of its case as per section 22 of the Income Tax Act. Section 22 of the Act which is the charging section for the head "Income from House Property' charges annual value of the property being buildings or land appurtenant thereto to tax under the head `Income from House Property'. However, it carves out an exception in respect of property occupied for the purposes of the appellant's business. The appellant has contended that since the property held by it is occupied/in possession for business purpose, the provisions of section 23(5) are not applicable. The contention of the appellant is not tenable. The provisions of section 23(5) are applicable to "property consisting of any buildin....
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....of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority expires in the year 2015-16 and 2017-18 in respect of Neelkanth business park and Neelkanth corporate park respectively. Hence, the appellant qualifies for the computation of notional rent on the closing stock as appearing in the books of account at the end of the financial year 2017-18 relevant to the Ay 2018-19. - The next issue under contention of the appellant is AO has calculated the notional rent on the closing stock @ 8% which is not in accordance with the principles for determination of Annual Letting Value of the property. The principles laid down by the Hon'ble High Court of Delhi and Mumbai for determination of Annual Letting Value of the property in the case(s) of CIT v/s Moni Kumar Subba (2011 333 ITR 838) and CIT v/s Tip Top Typography (2014 368 ITR 330) respectively is reproduced as under: (i) ALV would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances. (ii) An inflated or deflated rent based on extraneous considerat....
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.... of section 23(5) of the Act were applicable to the relevant assessment year and the AO rightly followed the provisions contained therein. It is further submitted that the ld.CIT(A) violated the provisions of Rule 46A in not remanding the issue of reduction of advance and decided the same suo moto in favour of the assessee. No opportunity was allowed to the AO to examine the merits of the claim. 8. Before us, the ld.AR has made a written submission and also made elaborate arguments on all aspects of the case mainly reiteration of the same contentions made before the ld.CIT(A).As regards, the exclusion of the advance received against the closing stock figures for the purposes of estimation, the ld.AR has submitted that the assessee provided such details of project wise opening stock, closing stock including advances received in respect of the same alongwith the details for Neelkanth Business Park and for Neelkanth Corporate Park). It was only with respect to Office No.606 of Neelkanth Corporate Park that it has received an advance, where the carpet area of the property is 3,613 sq.ft. 8.1 Regarding quantification of annual letting value, the contentions made before the appella....
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....after referred to as 'the CIT(A)'] for the Assessment Year 2017-18, whereby the Ld. CIT(A) had allowed the appeal of the Assessee against the Assessment Order, dated 23/12/2019, passed under Section 143(3) of the Income Tax Act, 1961 (Assessment Year: 2017-18) (hereinafter referred to as 'the Act'). 2. The Revenue has raised the following grounds of appeal: "1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition made by the AO u/s 23 of the Act, on account of notional rent on flats held by the assessee as stock in trade ignoring the fact that the provision of Section 23(5) were introduced in the Act, from the A.Y. 2018-19 onwards merely for granting relief to the builders. 2. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 3. The relevant facts in brief are that the Assessee is a domestic company engaged in the business of builders and developers. The Assessee filed return of income for the Assessment Year 2017-18 on 31/03/2018 declaring total Income of INR 6,54,46,210/-.The case of the Assesse....
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....d the aforesaid contention of the Assessee; allowed the appeal of the Assessee; and deleted the addition of INR 1,77,89,901/- made by the Assessing Officer under Section 23(1)(a) of the Act. 5. Being aggrieved, the Revenue is now in appeal before us on the (Assessment Year: 2017-18) grounds reproduced in paragraph 2 above. 6. The Ld. Departmental Representative relied upon the decision of the Tribunal in the case of Dimple Enterprises Vs. DCIT [ITA No. 5269/Mum/2019, dated 21/05/2021] which was approved in the case of DCIT, Central Circle 4(2), Mumbai Vs. M/s Inorbit Mall Pvt. Ltd., [ITA No. 2220/Mum/2021, dated 11/10/2022.] and submitted that the issue raised in the present appeal stands decided in favour of the Revenue. It was further submitted that the Assessing Officer was justified in bringing to tax the notional rental income computed at the rate of 8% of the value of closing stock of units held by the Assessee. The CIT(A) had incorrectly concluded that there was no provision to bring to tax the aforesaid rental income in the hands of the Assessee prior to the insertion of Section 23(5) of the Act which was applicable from Assessment Year 2018-19. 7....
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....d judgments were not applicable to a case where there was no actual receipt of rental income in the present case. The relevant extract of the decision of the Tribunal reads as under: 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‟. 14. The aforesaid ratio and principle, either of the Hon'ble Gujarat High Court or the Hon'ble Bombay High Court is not applicable on the facts of the present case, because, here in this case the Assessee had unsold units which were lying vacant and were in the possession of the Assessee Company. Assessing Officer held that these properties are liable to be taxed on notional rental income ....
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.... that flats are held as part of its inventory of stock-in- trade, and are not let out. The further argument is that unlike in the other instances, where such builders let out flats, here there is no letting out and that deemed income which is the basis for assessment under the ALV method, should not be attributed. This Court is of the opinion that the argument, though attractive cannot be accepted. As repeatedly held, in East India, Housing & Land Development Trust's case (supra) Sultan Bros's case (supra) and Karan Pura Development Co. Ltd.'s case (supra) the levy of income tax in the case of one holding house property is premised not on whether the assessee carries on business, as landlord, but on the ownership. The incidence of charge is because of the fact of ownership. Undoubtedly, the decision 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 estat....
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....CIT (Supra) as cited and relied upon by the Ld. DR has correctly appreciated this distinction. 18. One very important development took place post these judgments, that an amendment has been brought in the statute in section 23(5) which is applicable from AY 2018-19 which reads as under, "Where the property consisting of any building or land appurtenant there to is held as stock-in trade and the property of any part of the property is not let during the whole or any part of the previous year, the annual value (Assessment Year: 2017-18) of such property or part of the property, for the period up to one year form the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil." It is trite that the said amendment has to be given effect prospectively from 01.04.2018 as mentioned in the Explanatory Notes to the provisions of the Finance Act, 2017. It is a cardinal principle of the interpretation that the normal presumption which respect to an amendment is that is applicable prospectively unless and until specifically stated otherwise. The logic behind such as interpr....
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....he notional rent. This is also been held by ITAT Mumbai Bench in the case of Dimple Enterprise Vs. DCIT (Supra), in the following manner:- "Now the question is of the rental value. The assessing officer has not levied the deemed rent on municipal ratable value or any nearly similar instance. The reliability of municipal ratable value has been duly upheld in several decisions. The Assessing Officer cannot make any ad hoc computation of deemed rent. Honourable Bombay High Court decision in the case of CIT vs. Tip Top Typography [2014] 48 taxmann.com 191/[2015] 228 Taxman 244 (Mag.)/[2014] 368 ITR 330 duly supports this proposition. Thus assessing officer has made an ad hoc estimate of 8.5% of investment on the plea that assessee has not been able to provide the municipal ratable value. This is not sustainable on the touchstone of Hon'ble Bombay High Court decision in the case of Tip Top Typography (supra). In our considered opinion nothing stops the assessing officer from obtaining the municipal ratable value from Departmental or government machinery. Hence we direct the assessing officer to compute the valuation of deemed rent in accordance with our observation as above....
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.... Inorbit Mall Pvt. Ltd. (supra). Accordingly, we set aside the order passed by the CIT(A) as well as the addition of INR 1,77,89,901/- made by the Assessing Officer under Section 23(1)(a) of the Act. Ground No. 1 raised by the Revenue is allowed for statistical purposes. 14. In result, the appeal by the Revenue is allowed for statistical purposes." 10. On careful consideration, we find some factual difference qua the assessment for AY 2017-18.First and foremost is the provision of section 23(5) of the Act which are were applicable from the impugned assessment year. Therefore, questioning the validity the said provisions lacks any substance. The AO was therefore, justified in invoking the said provisions and the ld.CIT(A) having agreed, we do not find any infirmity therein. Secondly, in AY 2017-18, the unsold flats were held to be work-in-progress by the ld.CIT(A) though the said order was set aside by the ITAT for verification of such factual finding. In the impugned year, the assessee had apparently received the Occupancy/Completion certificate and this fact has not been denied at any point of time. Therefore, the provisions of section 23(5) of the Act were found appli....
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....rposes. 12.C.O. 130/MUM/2026(A.Y. 2018-19) Grounds of Cross Objection "Without prejudice to the fact that the additions made by the Ld Faceless Assessing Officer, NFAC has been rightly deleted by the CIT(A) on merits, the Assessee contends that the Ld. CIT(A) has erred in dismissing the Assessee's prayer in law that the assessment is void ab initio. The Assessee herein contends that the order u/s 143(3) was passed without issuance of show cause notice and accordingly, the order u/s 143(3) is passed by violating the provisions of section l44B.In the circumstances, the Assessee contends that the assessment order u/s 143(3) is without jurisdiction and is required to be quashed. Without prejudice to the above, the Respondent Assessee craves leave to amend or alter any grounds of cross objection or to submit additional new grounds of cross objection which may be necessary at the time of hearing." 13. In this regard, it was submitted by the ld.AR that there is a delay in filing the cross objections to ITAT. Since the ld. CIT(A) had granted relief on merits by deleting the additions made by the Assessing Officer, the assessee did not consider it necessary to prefer a....