DCIT Vs Haware Construction Private Limited (ITAT Mumbai)
The Mumbai ITAT disposed of Revenue appeals arising from orders of the CIT(A)-24, Mumbai, concerning A.Ys. 2012-13 and 2013-14. The appeals involved the treatment of completed but unsold flats and shops held by the assessee, a company engaged in building, developing and civil construction, as stock-in-trade of its real estate development business.
For A.Y. 2012-13, the assessee filed its return on 28.09.2012 declaring a loss of Rs.4,13,31,436/-. During assessment under Section 143(3) of the Income Tax Act, 1961, the Assessing Officer noted closing stock of completed unsold flats/shops valued at Rs.31,75,24,853/-. Relying on CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Del), the AO treated the annual lettable value (ALV) of the units as taxable under “Income from house property” and estimated it at 8% of their book value, resulting in ALV of Rs.2,54,01,988/-. After allowing a statutory deduction of Rs.76,20,596/- under Section 24(b), the AO made a net addition of Rs.1,77,81,892/-.
The CIT(A) deleted the addition, noting that identical additions for A.Ys. 2009-10, 2010-11 and 2011-12 had been deleted in earlier proceedings. Before the ITAT, the assessee relied on the Tribunal’s decision in its own case for A.Y. 2010-11, while the Departmental Representative relied on the AO’s order.
The ITAT noted that the completed unsold flats/shops were undisputedly held as closing stock of the assessee’s real estate development business. It considered CIT Vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj), PCIT, Central-1 Vs. M/s Classique Associate Ltd. (ITA No.1216 of 2016, dated 28.01.2019) and Chennai Properties & Investments Ltd. Vs. CIT (2015) 377 ITR 673 (SC), along with earlier Tribunal decisions concerning the assessee and its sister concern.
The Tribunal also noted that its earlier orders for A.Ys. 2009-10, 2010-11 and 2011-12 had concluded that ALV of vacant flats/shops held as stock-in-trade of the real estate development business could not be assessed under “Income from house property”. A similar view had been taken in Haware Engineers and Builders Pvt. Ltd. Vs. DCIT, Central Circle-4(2), Mumbai [ITA No. 7155/Mum/2016, dated 10.10.2018], as well as in M/s Runwal Construction Vs. ACIT [ITA No. 5408/Mum/2016, dated 22.02.2018] and Progressive Homes Vs. ACIT [ITA No.5082 /Mum/2016, dated 16.05.2018].
The ITAT held that the issue was squarely covered in favour of the assessee and found no infirmity in the CIT(A)’s order deleting the addition. It accordingly upheld the CIT(A)’s order and dismissed the Revenue’s appeal for A.Y. 2012-13.
For A.Y. 2013-14, the assessee held completed unsold flats/shops valued at Rs.26,20,38,008/-. The AO estimated ALV at 8.5% of the respective cost of construction, determining deemed house property income of Rs.2,22,73,231/-. After a Section 24(b) deduction of Rs.66,81,969/-, a net addition of Rs.1,55,91,262/- was made. The CIT(A) deleted the addition following the earlier years’ orders. The ITAT held that the facts and issue were the same as in A.Y. 2012-13 and applied its earlier order mutatis mutandis. The Revenue’s appeal was consequently dismissed.
Thus, the Revenue appeals for A.Ys. 2012-13 and 2013-14 were dismissed, and the deletion of the additions relating to deemed income from house property on completed unsold flats/shops held as stock-in-trade was upheld.
Cases Discussed
- PCIT, Central-1 Vs. M/s Classique Associate Ltd. (Bombay High Court), ITA No.1216 of 2016, dated 28.01.2019
- DCT-15(2)(1), Mumbai Vs. M/s Haware Construction Pvt. Ltd. (ITAT), [ITA No. 4539/Mum/2017]
- ACIT Vs. Haware Construction Pvt. ltd. (ITAT), [ITA No.3321/Mum/2018 & 3172/Mum/2016, dated 31.08.2018]
- Haware Engineers and Builders Pvt. Ltd. Vs. DCIT, Central Circle-4(2), Mumbai (ITAT), [ITA No. 7155/Mum/2016, dated 10.10.2018]
- M/s Runwal Construction Vs. ACIT (ITAT), [ITA No. 5408/Mum/2016, dated 22.02.2018]
- Progressive Homes Vs. ACIT (ITAT), [ITA No.5082 /Mum/2016, dated 16.05.2018]
- Chennai Properties & Investments Ltd. Vs. CIT (Supreme Court), (2015) 377 ITR 673 (SC)
- CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (Delhi High Court), (2013) 354 ITR 180 (Del)
- CIT Vs. Neha Builders Pvt. ltd. (Gujarat High Court), (2008) 296 ITR 661 (Guj)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeals filed by the revenue are directed against the respective orders passed by the CIT(A)-24, Mumbai, dated 28.02.2018 for A.Y. 2012-13 and A.Y. 2013-14, which in turns arises from the respective assessment orders passed under Sec.143(3) of the Income Tax Act, 1961 (for short „I-T Act‟). As common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first advert to the appeal of the revenue for A.Y. 2012-13. The revenue has assailed the order of the CIT(A) by raising the following grounds of appeal before us :
“In view of the appellate Order of the CIT(A)-24, Mumbai, in the case of M/s. Haware Construction Pvt. Ltd. for the Assessment year 201213. I hereby direct the DCIT-15(2)(1), Mumbai to file an appeal to the Appellate Tribunal, Mumbai against the order of the CIT(A)-24, Mumbai bearing No. CIT(A)-24/ACIT- 15(2)(1)/IT-153/2016-17 dated 28.02.2018 in the above case on the following ground:
1. On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) has erred in holding the unsold flats as stock-in-trade used for business relying on the decision of Hon‟ble Supreme Court in the case of Chennai Properties and Investment Ltd., when the said decision pertains to assessee involved in the business of letting out properties.
2. The appellant craves leave to add, amend or alter any grounds or add a new ground of appeal at any time before or at the time of hearing of appeal.
3. The appellant prays that the order of CIT (A) on the above ground be set aside and that of the assessing officer be restored.”
2. Briefly stated, the assessee company which is engaged in the business activities of building, developing and civil construction had e-filed its return of income for A.Y. 2012-13 on 28.09.2012, declaring loss of Rs.4,13,31,436/-. Since the assessee had also a „book loss‟ of Rs.4,14,26,615/- in the return of income, therefore, no tax was payable u/s 115JB of the I-T Act. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I-T Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
3. During the course of the assessment proceedings, it was observed by the A.O, that the assessee had shown the „Closing stock‟ of the completed flats/shops that remained unsold during the year under consideration at Rs.31,75,24,853/-. The A.O being of the view that the „Annual lettable value‟ (for short „ALV‟) of the aforesaid „closing stock‟ of unsold completed units of flats/shops was liable to be brought to tax under the head “Income from house property”, thus, called upon the assessee to put forth its explanation as regards the same. The A.O while holding the aforesaid conviction took support of the judgment of the Hon’ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance & Leasing Company Ld. (2013) 354 ITR 180 (Del). Further, the A.O called upon the assessee to explain as to why the annual lettable value of the unsold stock of flats/shops may not be taken @ 8% of its value shown in the books of accounts and, therein be brought to tax under the head „house property‟. In reply, the assessee submitted, that as the aforesaid units were held by it as stock-in-trade of its business as that of a developer, therefore, the „ALV‟ of the same could not be assessed under the head “income from house property”. However, the aforesaid contention of the assessee did not find favour with the A.O. Accordingly, the A.O estimated the ALV of the unsold stock of the flats/shops @ 8% of their book value. On the basis of his aforesaid observations the A.O worked out the ALV of the unsold flats/shops held by the assessee as its „closing stock‟ at Rs.2,54,01,988/-[i.e @ 8% of Rs.31,75,24,853/-). Further, after allowing the statutory deduction of Rs. 76,20,596/- under Sec. 24(b) i.e @ 30% of the „ALV‟ of Rs. 2,54,01,988/- the A.O made a net addition of Rs. 1,77,81,892/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee observed, that similar additions made in the case of the assessee for the preceding years viz. A.Ys 2009-10, 2010-11 and 2011-12, wherein identical facts were involved, on appeal, were deleted by his predecessor in the said respective years. Accordingly, the CIT(A) following the view taken by his predecessor deleted the addition made by the A.O during the year under consideration and allowed the appeal.
5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „R‟) for the assessee, at the very outset of the hearing of the appeal submitted, that the issue involved in the present case was squarely covered by the order of the Tribunal in the assesses own case for A.Y 2010-11 viz. DCIT-15(2)(1) Vs. Haware Construction (P) Ltd. (ITA No. 4539/Mum/2017, dated 09.04.2019.(copy placed on record) It was submitted by the ld. A.R, that the CIT(A) rightly appreciating that the „ALV‟ of the unsold completed units of flats/shops held by the assessee as „closing stock‟ of its business of developer of real estate could not be brought to tax under the head “income from house property”, had thus rightly vacated the additions made by the A.O on the said count.
6. Per contra, the ld. Departmental Representative (for short „R‟) relied on the order of the A.O.
7. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the assessee company which is engaged in the business activities of building, developing and civil construction was holding „closing stock‟ of completed unsold units of flats/shops of a book value of Rs.31,75,24,853/-. In sum and substance, there is no dispute on the fact that the completed unsold units of flats/shops were held by the assessee as the „closing stock‟ of its business as that of a developer of real estate.
8. We find that our indulgence in the present appeal has been sought by the assessee for adjudicating, as to whether, the CIT(A) is right in law and the facts of the case in observing that the „Annual Lettable Value‟ of the vacant unsold units of flats/shops held by the assessee as stock-in-trade of its business of a real estate developer, were not liable to be brought to tax under the head “Income from house property”. Admittedly, the assessee on 31.03.2012 was holding stock-in-trade of vacant unsold completed flats/shops of a book value Rs.31,75,24,853/-. The A.O drawing support from the judgment of the Hon‟ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del), had concluded, that the „ALV‟ of the aforesaid vacant properties held by the assessee as stock-in-trade of its business of a real estate developer was liable to be assessed under the head “Income from house property”. Relying on the aforesaid judgment, the A.O had estimated the „ALV‟ of the completed unsold units of flats/shops held by the assessee as „closing stock‟ of its business of real estate developer @ 8% of their aggregate book value and, had worked out the same at Rs. 2,54,01,988/- [i.e @ 8% of Rs.31,75,24,853/-]. Further, after allowing the statutory deduction of Rs. 76,20,596/- under Sec. 24(b) i.e @ 30% of the ALV of Rs. 2,54,01,988/-, the A.O had brought the balance amount of Rs.1,77,81,392/- to tax under the head “Income from house property”.
9. We have deliberated at length on the issue under consideration, in the backdrop of the observations of the lower authorities. We find, that the Hon’ble High Court of Gujarat in the case of CIT Vs. Neha Builders (P) ltd. (2008) 296 ITR 661 (Guj) had observed, that if the business of the assessee is to construct property and sell it or to construct and let out the same, then any income derived from the immovable properties held by it as its stock-in-trade cannot be assessed under the head “Income from house property”. The Hon‟ble High Court while concluding as herein above, had observed as under:
“8. 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 the said property would become or ‘ partake the character of the stock, and any income derived from the stock, would be ‘income’ from p 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 ‘business’ and the business stocks, which may include movable and immovable, would be taken to be „stock-in-trade‟, and any income derived from such stocks cannot be termed as ‘income from property’. Even otherwise, it is to be seen that there was distinction between the ‘income from business’ and ‘income from property’ on one side, and ‘any income from other sources’. The Tribunal, in our considered opinion, was absolutely unjustified in comparing the rental income with the dividend income on the Shares or interest income on the deposits. Even otherwise, this question was not raised before the subordinate Tribunals and, all of sudden, the Tribunal started applying the analogy.”
10. Further, we find, that the Hon’ble High Court of Bombay in the case of PCIT, Central-1 Vs. M/s Classique Associate Ltd. (ITA No.1216 of 2016, dated 28.01.2019) concurring with the view taken by the Hon‟ble High Court of Gujarat in the case of CIT Vs. Neha Builders Pvt. ltd. (2008) 296 ITR 661 (Guj) and, further relying on the judgment of the Hon‟ble Supreme Court in the case of Chennai Properties & Investments Ltd. Vs. CIT (2015) 377 ITR 673 (SC), had observed, that the income generated by an assessee who was engaged in the business of acquiring and holding properties from such source would be its „business income‟, and not its income under the head „house property‟.
11. Also, we find that the Tribunal while disposing off the appeals of the revenue in the assesses own case for A.Y 2009-10 and A.Y 201112 had upheld the view taken by the CIT(A), who we find had vacated the addition of the „ALV‟ that was made by the A.O in respect of the completed units of flats/shops, which were held by the assessee as stock-in-trade of its business of a real estate developer during the said respective years. As is discernible from the order of the CIT(A) for the year under consideration, the latter had vacated the addition of the „ALV‟ that was made by the A.O in respect of the flats/shops which were held by the assessee as stock-in-trade of its business of a real estate developer during the year by following the orders of his predecessor for A.Ys. 2009-10, 2010-11 & 2011-12. We find that the appeals of the revenue in the case of the assessee for the aforementioned years had been dismissed by the Tribunal for A.Y 2009-10 & 2011-12 in ACIT Vs. Haware Construction Pvt. ltd. [ITA No.3321/Mum/2018 & 3172/Mum/2016, dated 31.08.2018]. Further, we find that the appeal of the revenue in the case of the assessee for A.Y 2010-11, had also recently been dismissed by the Tribunal, viz. DCT-15(2)(1), Mumbai Vs. M/s Haware Construction Pvt. Ltd. [ITA No. 4539/Mum/2017]. As is discernible from the aforesaid orders, the Tribunal had while dismissing the appeals of the revenue in the assesses own case for A.Ys 2009-10, 2010-11 & 201112, had concluded, that the „ALV‟ of the vacant flats/shops held by the assessee as stock-in-trade of its business of real estate developer, could not be assessed under the head “Income from house property”. Apart there from, we find that the Tribunal while disposing off the appeal in the case of the „sister concern‟ of the assessee in Haware Engineers and Builders Pvt. Ltd. Vs. DCIT, Central Circle-4(2), Mumbai [ITA No. 7155/Mum/2016, dated 10.10.2018] had also taken a similar view, and therein concluded that if an immovable property in the shape of flats/shops is held by the assessee as stock-in-trade of its business, then it becomes part of its trading operations, and any income derived there from would be its „business income‟ and not „Income from house property‟. On the basis of the aforesaid deliberations, the Tribunal while disposing off the aforesaid appeal had vacated the addition of the „ALV‟ that was made by the lower authorities in respect of the flats/shops which were held by the assessee before them as stock-in-trade of its business of a real estate developer. In fact, the Tribunal while concluding as hereinabove, had primarily relied on its earlier view taken in the case of the assessee before us viz. ACIT Vs. Haware Construction Pvt. ltd. [ITA No.3321/Mum/2018 & 3172/Mum/2016, dated 31.08.2018], for A.Y 2009-10 & AY. 2011-12. Apart there from, we find that a similar view had also been taken by the coordinate benches of the tribunal in certain other cases viz. (i) M/s Runwal Construction Vs. ACIT [ITA No. 5408/Mum/2016, dated 22.02.2018]; and (ii). Progressive Homes Vs. ACIT [ITA No.5082 /Mum/2016, dated 16.05.2018].
12. In the backdrop of the aforesaid facts, we are of the considered view that the issue involved in the present appeal is squarely covered in the favour of the assessee. It may also be relevant and pertinent to point out, that the Tribunal while disposing off the appeal in the assesses own case for A.Y 2009-10 & 2011-12, viz. ACIT Vs. Haware Construction Pvt. Ltd. [ITA No.3321/Mum/2018 & 3172/Mum/2016, dated 31.08.2018], had duly considered the judgment of the Hon‟ble High Court of Delhi in CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Del).
13. We thus in the backdrop of our aforesaid deliberations and, respectfully following the aforesaid judicial pronouncements, find no infirmity in the order of the CIT(A), who in our considered view had correctly deleted the addition of Rs.1,77,81,392/- that was made by the A.O towards deemed income from „house property‟. Accordingly, we uphold the order of the CIT(A).
14. The appeal of the revenue is dismissed.
ITA No. 3578/Mum/2018 A.Y. 2013-14
15. We shall now advert to the appeal of the assessee for A.Y. 201314. Briefly stated, the assessee company had e-filed its return of income for A.Y. 2013-14 on 30.11.2013, declaring total income of Rs. 19,73,60,680/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I.T Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
16. During the course of the assessment proceedings, it was observed by the A.O, that the assessee was holding „closing stock‟ of completed unsold units of flats/shops of Rs. 26,20,38,008/-. The A.O relying on the judgment of the Hon‟ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Del), was of the view, that the „ALV‟ of the completed unsold flats/shops held by the assessee were liable to be brought to tax under the head “Income from house property”. On the basis of his aforesaid observations the „ALV‟ of the properties was estimated by the A.O @ 8.5% of their respective cost of construction and, was brought to tax by him under the head „Income from house property‟. Accordingly, the total deemed income of the assessee from “house property” was worked out at Rs. 2,22,73,231/-. Further, after allowing the statutory deduction of Rs. 66,81,969/- under Sec. 24(b) i.e @ 30% of the „ALV‟ of Rs. 2,22,73,231/-, the net addition of Rs. 1,55,91,262/- was made to the total income of the assessee.
17. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee observed, that additions made in the case of the assessee for the preceding years viz. A.Ys 2009-10 and 2011-12, wherein identical facts were involved, was on appeal deleted by his predecessor in the said respective years. Accordingly, the CIT(A) following the view taken by his predecessor deleted the addition made by the A.O during the year under consideration and allowed the appeal.
18. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that as the facts and the issue involved in the present appeal remains the same, as were there before us in the appeal of the revenue in the assesses own case for the immediately preceding year i.e A.Y. 2012-13 in ITA No. 3586/Mum/2018, therefore, our order passed while disposing off the aforesaid appeal shall apply mutatis mutandis for the purpose of disposing off the present appeal of the revenue for A.Y. 2013-14 in ITA No. 3578/Mum/2018.
19. Accordingly, the appeal filed by the revenue is dismissed in terms of our aforesaid observations.
20. The appeals filed by the revenue for A.Y. 2012-13 in ITA No. 3586/Mum/2018 and for A.Y. 2013-14 in ITA No. 3578/Mum/2018 are dismissed in terms of our aforesaid observations.
Order pronounced in the open court on 13.06.2019
