Case Law Details
Sukhwani Developers Vs Pr. CIT (Central) (ITAT Pune)
ITAT held that when two views are legally possible and Assessing Officer adopts one view the Assessment Order cannot be said to be erroneous for the CIT to invoke jurisdiction u/s.263 of the Act.
The other issue on which the Ld.Pr.CIT has invoked Section 263 is that according to the Ld.Pr.CIT the Annual Letting Value of completed stock of Project Elmwood should have been added to the income of the assessee in the light of decision of Hon’ble Delhi High Court in the case of Ansal Housing and Finance 354 ITR 180. Ld.Pr.CIT is of the opinion that the AO has not examined this issue. It is observed that the year under consideration is A.Y.2017-18.
The assessee had filed copies of B/S and P&L A/c during the assessment proceedings. The assessee had shown closing stock. Thus during the assessment proceedings the AO was aware that there was closing stock of ready flats. However, AO decided not to tax these as Income from House Property. This is A.Y.2017-18. At that point of time,for A.Y.2017-18,there were two views on taxability of these ready flats which have been shown as Stock in trade. The AO took a view of not taxing it under the head Income from House property. When there are two legally possible views and AO adopts one of them, the Assessment order cannot be said to be erroneous on this ground.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the Assessee is directed against the order of ld.Pr.Commissioner of Income Tax(Central), Pune, dated 25.03.2022 emanating from assessment order dated 19.06.2019 under section 143(3)of the I.T.Act, 1961 for the A.Y.2017-18. The Assessee has raised the following grounds of appeal:
“1. On the facts and circumstances prevailing in the case and as per provisions of Law it be held that order passed by the PCIT [Central], dated 25/03/2022 is perverse, unlawful, unwarranted and not sustainable in Law.2.
2. Without prejudice to the Ground No. 1, the Order passed u/s 263 is without considering the detailed submission made by the assessee stating the reasons/ explanations in response to hearing notice u/s 263 of Income Tax Act, 1961.
3. The appellant prays to be allowed to add, amend, modify, rectify, delete raise any grounds of appeal at the time of hearing.”
Brief facts of the case :
2. The assessee is a builder and engaged in the business of construction. The assessee filed its return of income for the assessment year 2017-18 on 11/10/2017 declaring total income at Rs. 1,84,10,230/-, The case was selected for scrutiny assessment under the CASS. Subsequently, the notice u/s 143(2) was issued on 13/08/2018 electronically and duly served upon the assessee through this office mail id. Further, a Notice u/s.142(1) of the income-Tax Act, 1961, dated 02/04/2019 was issued and duly served upon the assessee. The Assessing Officer(AO) passed assessment order under section 143(3) at total income of Rs.1,84,10,230/-, without making any addition. The ld.Pr.CIT invoked section 263 of the Act.
Findings and Analysis :
3. In this case the Ld.Pr.CIT has invoked provisions of section 263 on following grounds :
(i) Assessee claimed TDS of Rs.10,34,119/- however, corresponding income has not been offered for tax, AO has not verified this issue.
(ii) Interest on TDS is not an allowable expenses however the AO has not verified the issue.
(iii) AO has not verified the applicability of Decision of the Hon’ble Delhi High Cour in the case of Ansal Housing & Finance 354 ITR 180, regarding taxing the unsold flats u/s.23 of the Act.
4. At the outset the Ld.AR submitted that he will not like to press the issue of TDS and Interest on TDS. The Ld.AR accepted that there was no inquiry by the AO on the issue of TDS and interest on TDS. Accordingly we hold that the Assessment Order is erroneous and prejudicial to the interest of the revenue with reference to the issue of TDS of Rs.10,34,119/- as AO failed to carry out necessary verification and on the issue of Interest on TDS. Accordingly the, order u/s.263 is upheld qua TDS claim of Rs.10,34,119/- and Interest on TDS.
5. The other issue on which the Ld.Pr.CIT has invoked Section 263 is that according to the Ld.Pr.CIT the Annual Letting Value of completed stock of Project Elmwood should have been added to the income of the assessee in the light of decision of Hon’ble Delhi High Court in the case of Ansal Housing and Finance 354 ITR 180. Ld.Pr.CIT is of the opinion that the AO has not examined this issue. It is observed that the year under consideration is A.Y.2017-18.
6. The assessee had filed copies of B/S and P&L A/c during the assessment proceedings. The assessee had shown closing stock. Thus during the assessment proceedings the AO was aware that there was closing stock of ready flats. However, AO decided not to tax these as Income from House Property. This is A.Y.2017-18. At that point of time,for A.Y.2017-18,there were two views on taxability of these ready flats which have been shown as Stock in trade. The AO took a view of not taxing it under the head Income from House property. When there are two legally possible views and AO adopts one of them, the Assessment order cannot be said to be erroneous on this ground.
7. The ITAT Pune Bench in the case of Kumar Properties and Real Estate (P.) Ltd. Vs CIT 190 ITD 212 vide the order dated 28/04/2021 authored by the Hon’ble Vice President, R. S. Syal has held as under :
Quote, “ 11. The authorities below have canvassed a view that the annual letting value of flats/bungalows is income chargeable to tax as ‘Income from house property’ by relying on Ansal Housing Finance and Leasing Company Ltd. (supra). There is no doubt that the Hon’ble Delhi High Court in the said case has held that Annual letting value of unsold flats at the year end is chargeable to tax under the head ‘Income from house property’. At the same time, we find that the Hon’ble Gujarat High Court in CIT v. Neha Builders (P.) Ltd . [2007] 164 Taxman 342/[2008] 296 ITR 661 has held that income from the properties held as stock in trade can be treated as Income from business and not as ‘Income from house property’. Our attention has been drawn towards certain Tribunal decisions including Cosmopolis Construction v. ITO [IT Appeal No. 230 & 231 (PUN) of 2018, dated 12-9-2018], wherein, after taking note of both the above judgments and finding none of them from the jurisdictional High Court, a view has been canvassed in favour of the assessee by holding that no income from house property can result in respect of unsold flats held by a builder at the year end. Similar view has been reiterated by the Pune Bench of the Tribunal in Mahanagar Construction v. ITO [IT Appeal No. 623 (PUN) of 2018, dated 5-9-2019].
12. At this juncture, it is relevant to mention that the Finance Act, 2017 has inserted sub-section (5) of section 23 w.e.f. 1-4-2018 reading as under:—
‘Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from 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.’
13. A close scrutiny of the provision inducted by the Finance Act, 2017, transpires that where a property is held as stock-in-trade which is not let out during the year, its annual value for a period of one year, which was later enhanced by the Finance Act, 2019 to two years, from the end of the financial year in which the completion certificate is received, shall be taken as Nil.
The amendment has been carried out w.e.f. 1-4-2018 and the Memorandum explaining the provisions of the Finance Bill also clearly provides that this amendment will take effect from 1-4-2018 and will, accordingly apply in relation to the assessment year 2018 19 and subsequent years. Obviously, it is a prospective amendment. The effect of this amendment is that stock-in-trade of buildings etc. shall be considered for computation of annual value under the head ‘Income from house property’ after one/two years from the end of the financial year in which the certificate of completion of construction of the property is obtained on and from the A.Y. 2018 19. Instantly, we are concerned with the assessment year 2013-14. As such, the amendment cannot apply to the year under consideration. In the absence of the applicability of such an amendment, no income can be said to have accrued to the assessee from unsold flats available as stock-in-trade. We, therefore, overturn the impugned order on this score and delete the addition of Rs. 1.47 crore sustained in the first appeal.” Unquote
7.1 Thus, there is no doubt that there were two views on this impugned issue.
7.2 The Hon’ble Supreme Court in the case of CIT Vs. Amitabh Bachchan, 384 ITR 200(SC) observed as under :
“21. There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from.”
7.3 The Hon’ble High Court in the case of CIT v/s Mepco Industries Ltd. 294 ITR 121 (Madras) held as under :
Quote, “8. Therefore, on the facts of the case, when two views are possible and it is not the case of the Revenue that the view taken by the Assessing Officer is not permissible in law, the CIT is not justified in invoking the jurisdiction under section 263 of the Act. ” Unquote.
7.4 The Hon’ble Bombay High Court in the case of CIT Vs. Future Corporate Resources Ltd in IT Appeal No.1275 of 2017 vide order dated September 29, 2021 held as under :
Quote ,“ 7. In the order of PCIT it is stated “in paragraph 4.3 of the assessment order, the Assessing Officer has recorded that from the details submitted by the assessee and the explanation given by him, it was observed that assessee had regular business connection with the company in which investment had been made and also there was business income to the assessee from the same. Therefore, interest expense debited by the assessee has not been considered for the calculation of disallowance under section 14A because the same has been incurred for the purpose of business.” The PCIT therefore agrees that the Assessing Officer has recorded from the details submitted by respondent and the explanation given by respondent that the assessee had regular business connection with the company in which investment has been made and also there was a business income to the assessee from the same. He notes that the Assessing Officer, therefore did not consider the calculation of disallowance under section 14A the interest expense debited by the assessee because the same has been incurred for the purpose of business. The PCIT though was unhappy with the view of the Assessing Officer, the PCIT himself does not say why it should have been considered for the calculation of disallowance under section 14A. Even if one assumes that he has, after reading of the order expressed his views, but still the position is two views therefore were possible. Therefore, if one of the two possible views was taken by the Assessing Officer, the PCIT could not have exercised his powers under section 263 of the Act. 8. ” Unquote
7.5 Thus, the principle of the law emanating from the above decision of the Hon’ble Supreme Court, the Hon’ble Bombay High Court is that when two views are legally possible and Assessing Officer adopts one view the Assessment Order cannot be said to be erroneous for the CIT to invoke jurisdiction u/s.263 of the Act.
8. In the case under consideration the AO has adopted one of the legally possible view qua Unsold Flats shown as closing stock. Therefore, the Assessment Order is not erroneous qua unsold flats shown as Stock. Accordingly, the grounds of the assessee are partially allowed.
9. In the result, appeal of the Assessee is Partly Allowed. Order pronounced in the open Court on 29thMarch, 2023.
