Tata Housing Development Co. Ltd. v. PCIT [ITA
Nos. 3492 & 3493/Mum/2019, dt. 28-9-2020] : 2020 TaxPub(DT) 3875
(Mum.-Trib.)
Additions for annual value for vacant flats held as
stock-in-trade -- Per section 23(5) introduction years
Facts:
Assessee in the real estate business had unsold vacant
flats as inventory. The PCIT invoked powers under section 263 and made
additions to annual value on such unsold flats in the hands of the assessee. On
appeal the assessee contended that the case could not have been reopened under
section 263 as the fact of the assessee being in the real estate business and
in possession of vacant flats were all known information and thus the order of
the ITO was not erroneous or prejudicial to the interests of the revenue
besides there being divergent views on the topic.
Held in favour of the assessee that the additions made by
the PCIT for the notional annual value on the unsold flats cannot be sustained.
The invocation of section 263 was bad in law.
Cases where the unsold inventory annual value cannot be
assessed as house property --
(1) C.R. Development (P) Ltd.
v. JCIT (ITA No. 4277/M/2012 (Mum-ITAT))
(2) Runwal Constructions v.
ACIT 52 CCH 569 (Mum-ITAT)
(3) ACIT v. Haware
Constructions Pvt. Ltd., (ITA No. 3321/Mum/2016)
(4) ITO v. Arihant Estates
Pvt. Ltd. 53 CCH 321 (Mum-ITAT)
(5) Mahanagar Constructions
v. ITO (ITA No. 623/Pun/2018) (Pune-ITAT)
(6) CIT v. Neha Builders Pvt.
Ltd., (2008) 296 ITR 661 (Guj-HC) : 2008 TaxPub(DT) 0294 (Guj-HC)
Cases where it has been held against the assessee.
CIT v. Ansal Housing Finance & Leasing Co. Ltd., (2013) 354 ITR 0180 (Del-HC) : 2013 TaxPub(DT) 0681 (Del-HC)
Applied: S.D. Corporation (P) Ltd. v. Pr. CIT, 102
taxmann.com 226 (Mum) : 2019 TaxPub(DT) 2185 (Mum-Trib) and Archie
Creation v. Pr. CIT, ITA No. 4449/M/2019, assessment year 2014-15 decided on
13-7-2020 : 2020 TaxPub(DT) 3646 (Mum-Trib).
"13. We have noted that during the assessment, the
assessee vide its reply/Letter, dated 24-11-2015 furnished the detail of
opening and closing stock consisting of flat readily available for sale in
respect of Imperil project. In the details of inventory, the assessee clearly
bring on record that at the time of opening of written down value of 21 flat,
consisting of area of 80000 (may be sq.ft.) total value of Rs. 170,41,088,56
out of which the assessee has sold 14 flats of total area 48830 (may be sq.ft.)
of value of Rs. 104,01,45,443. Thereby the assessee remained in possession of
total 7 unsold flats consisting area of 31170 (may be sq.ft.) value of which
was shown at Rs. 66,39,63,413. The assessee has also furnished the complete
details of name of parties, flat number and details of the cost of flats sold
during the year. Moreover, the learned Commissioner (Appeals) in the notice
under section 263 has referred that on verification, certain discrepancies were
found in the assessment order. The learned Commissioner (Appeals) has also
referred that the assessee has shown unsold flat valuing of Rs. 66,39,63,413 in
closing stock. Thereby, all the information/details were gathered by the
learned PCIT from the assessment record. We have further noted that in the
notice, the learned Commissioner (Appeals) has referred the decision of Hon'ble
Delhi High Court in Ansal Housing Finance & Leasing Co. Ltd.'s case
(supra). The learned AR of the assessee while making submission has vehemently
submitted that issue is debatable and there is contrary decision of Hon'ble
Gujarat High Court in Neha Builders (P.) Ltd.'s case (supra) wherein the
Hon'ble Court has taken a view that, if property is used as a stock-in-trade,
then said property would become or partake character of stock and any income
derived from such stock would be "Income from Business" and not
"Income from House Property". Therefore, keeping in view the contrary
decision of non-jurisdictional High Court, we are of the view that issue is
debatable and two views are possible. The Hon'ble Supreme Court in Max India
Ltd.'s case (supra) held that when two views are inherently possible, the
provision of section 263 would not attract. We may refer here that the unsold
flat was treated by assessee as stock-in-trade in its books of account. The
flats sold by the assessee were assessed under the head "Income from
Business". Therefore, in our considered view that the order for not
bringing the unsold flats to tax at notional letting value under the head
"Income from Other Sources" is not erroneous. The assessing officer
has taken one of the possible views. Even otherwise, sub-section (5) in section
23 was inserted by Finance Act, 2017 and is applicable only from 1-4-2018 and
not for the assessment year under consideration. Therefore, the twin condition
as prescribed under section 263 are not fulfilled in respect of first issue,
i.e., taxability of unsold flats under the head "Income from House
Property"."
Editorial Note: The
decision would be a good respite to cases prior to introduction of section
23(5). Section 23(5) is inserted to give teeth to the deeming annual value
provision which otherwise would have not been possible due to below counters as
well --
1. Stock in trade vacant flats
cannot be deemed for annual value in house property.
2. Non-existence of section
23(5) would imply that legislature did not contemplate taxing it in the first
place in the years prior to 1-4-2018
3. Assessee can have two
portfolios one a trading and another an investing portfolio -- taxation follows
the mode of holding in each portfolio.