TaxTMI 
TaxTMI 
2026 (9) TMI 598
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....m house property and deemed rental income on these units are chargeable to tax even if not actually let out by the builder 2) Whether on the facts on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is correct in law in holding the notional income from unsold stock in trade is not assessable under the head Income from House Property without appreciating the fact that the assessee is not in the business of letting out the property so as to treat the said income under the head income from business. 3) Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition u s 92CA(3) of Rs. 8735269 based on the decision of the CIT(A) for A Y 2016 17 WHARE the addition was deleted on the grounds that the matter was not referred to the TPO whereas in the current year i.e. A.Y. 2015 16 the case had been referred to the TPO and the addition made is originating from the TPOs order 4) The appellant craves leave to add amend alter OR delete the said ground of appeal 2. The brief facts of the case are that the assessee, Ferani Hotels Pvt. Ltd., is engaged in the business of hotels as well as cons....
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....e addition of Rs.14,12,92,574/- towards notional rental income, the learned CIT(A) examined the nature of the assessee's business, the treatment of the unsold units as stock-in-trade and the judicial precedents relied upon by the assessee, including the decisions of the Tribunal in the assessee's own case. The learned CIT(A) held that there was no justification for estimating rental income under section 23 of the Act in respect of the vacant flats forming part of the assessee's stock-in-trade and accordingly directed the Assessing Officer to delete the addition of Rs.14,12,92,574/-. 6. As regards the transfer pricing adjustment of Rs.87,35,269/-, the learned CIT(A) noticed that the TPO had merely stated that the normal brokerage rate in India was 2%, without disclosing the method adopted for benchmarking the transaction and without giving any comparable instance supporting such rate.The learned CIT(A) further examined the functions performed by KRRPL and noticed that KRRPL was engaged in the business of real estate broking and marketing and was the sole selling arm for the flats and commercial units developed by the Group. KRRPL undertook advertisement and publicity,....
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....ucting and selling properties and the unsold properties are reflected as closing stock, such properties partake the character of stock-in-trade. 13. The Coordinate Bench made the following observations: "Accordingly, income generated from unsold stock-in-trade must be assessed under the head 'Income from Business and Profession' and not under 'Income from House Property.' Furthermore, Section 23 of the Act is a deeming provision, operating in conjunction with Section 22. However, in the present case, the application of Section 22 is inapplicable, and consequently, the determination of ALV is unwarranted." 14. The Coordinate Bench accordingly deleted the addition sustained by the learned CIT(A) and allowed the assessee's ground while dismissing the corresponding appeal of the Revenue. 15. It is also relevant that the Coordinate Bench, while deciding ITA Nos. 3859 & 3860/Mum/2024, took note of the earlier decision in the assessee's own case in ITA No. 6332/Mum/2016 for A.Y. 2012-13 dated 21.12.2018, wherein an identical addition on account of notional rental income from vacant flats had been deleted. The relevant finding reproduced in the subsequent order re....
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....er consideration, there was no specific charging section which could subject this income in the hands of the assessee. We also observe that the Ahmedabad Tribunal in the case Takshashila Realities (P.) Ltd. v. Deputy Commissioner of Income-tax[2023] [2023] 156 taxmann.com 175 (Ahmedabad - ITAT)vide order dated 01.09.2023 has held that where assessee, a builder and developer had unsold flats in various building which were shown as closing stock and no rental income was earned, in view of the amendment to Section 23 effective from A.Y. 2018-19 providing that if an assessee holds house property as stock-in-trade and does not let out for the whole or part of the year, annual value will be considered NIL up to one year from Financial Year in which a completion certificate is obtained any addition made on account of notional ALV is liable to be deleted. 11. Accordingly, in view of the above discussion, we are of the considered view that the aforesaid amount is not liable to be added as income of the assessee under the head "income from house property". 12. In the result the appeal of the assessee is allowed. 20. The aforesaid principle has thereafter been reiterated ....
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....al held that the Revenue could not apply the subsequently introduced provision to an assessment year preceding Assessment Year 2018-19. The relevant observations of the Tribunal are reproduced below: "In our considered view, the introduction of section 23(5) by the Finance Act, 2017 demonstrates that prior thereto there was no specific Statutory provision governing the taxation of notional Annual Letting Value of unsold stock-in-trade held by builders. If the existing provisions of sections 22 and 23 were by themselves sufficient to bring such income to tax, there was no necessity for Parliament to enact a specific provision applicable from Assessment Year 2018-19." "It is a settled principle of interpretation that every legislative amendment is presumed to have a purpose and cannot be treated as redundant or superfluous. Equally well settled is the principle that a charging provision must receive strict interpretation and no tax can be levied unless the charging section clearly authorises such levy." "The above observations leave no manner of doubt that the Legislature consciously altered the legal position only with effect from Assessment Year ....
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....tion of instalments, assistance in arranging home loans, TDS-related assistance and specialised services for NRI customers. Thus, the brokerage paid by the assessee had to be examined keeping in view the actual functions performed by KRRPL. 28. The TPO, however, did not accept the brokerage rate of 2.87%. The TPO observed that the normal brokerage rate in India was 2% and restricted the arm's length brokerage to Rs.2,00,81,079/-, thereby proposing an adjustment of Rs.87,35,269/-. The Assessing Officer incorporated the adjustment in the assessment order. 29. The learned CIT(A) examined the matter in detail and found a fundamental weakness in the benchmarking carried out by the TPO. The TPO had adopted 2% as the arm's length rate merely by stating that the normal brokerage rate in India was 2%. The TPO did not identify any comparable uncontrolled transaction where similar services had been rendered at 2%. The TPO also did not bring any independent market data on record to establish that 2% was the prevailing arm's length rate for the kind of comprehensive services rendered by KRRPL. More importantly, the TPO did not properly examine the functions actually performed ....