Income Tax Officer, Ward-3-2, Jaipur vs Silver Sand Builders Pvt. Ltd., Jaipur on 2 August, 2019

[Cites 19, Cited by 0]

Income Tax Appellate Tribunal - Jaipur

Income Tax Officer, Ward-3-2, Jaipur vs Silver Sand Builders Pvt. Ltd., Jaipur on 2 August, 2019

                       vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
      IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH 'B', JAIPUR


     Jh fot; iky jkWo] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k
     BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SINGH YADAV, AM


                  vk;dj vihy la-@ITA Nos. 1240, 1241 & 1242/JP/2018
                fu/kZkj.k o"kZ@Assessment Years : 2008-09, 09-10 & 10-11.

The Income tax Officer,           cuke M/s. Silver Sand Builders Pvt. Ltd.,
Ward 3(2),                        Vs. C-3A/1A, Sawai Jai Singh Highway,
Jaipur.                               Bani Park,
                                      Jaipur.
LFkk;h ys[kk la-@thvkbZvkj     la-@PAN No. AAECS 7851 E
vihykFkhZ@Appellant                   izR;FkhZ@Respondent

      jktLo dh vksj ls@ Revenue by:          Smt. Neena Jeph (JCIT)
      fu/kZkfjrh dh vksj ls@ Assessee by :   Shri S.R. Sharma (CA) &
                                             Shri R.K. Bhatra (CA)


                 lquokbZ dh rkjh[k@ Date of Hearing :   18.07.2019.
      ?kks"k.kk dh rkjh[k@ Date of Pronouncement :      02/08/2019.


                                        vkns'k@ ORDER

PER VIJAY PAL RAO, JM :

These three appeals by the revenue are directed against three separate orders of the ld. CIT (Appeals)-1, Jaipur all dated 20th August, 2018 for the assessment years 2008-09, 09-10 and 10-11 respectively. The revenue has raised common grounds except quantum of deletion of addition in these appeals as under

:-

ITA No. 1440/JP/2018 :

" Whether in the facts and in the circumstances of the case and in law, the ld. CIT (A) was justified in deleting the addition of Rs.

ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

1,20,39,569/- made by the AO on the basis of Hon'ble Delhi High Court's decision in CIT vs. Ansal Housing Finance & Leasing Co. Ltd. in ITA No. 18/1999 dated 31.10.2012 against which assessee's SLP has been admitted by the Apex Court in (2018) 95 taxman.com 17 (SC) and decision is pending on the issue ?"

Apart from the ground raised in Form No. 36, the revenue has also raised a common additional ground for all the three years which reads as under :-

" Whether in the facts and in the circumstances of the case and in law, the ld. CIT (A) was justified in quashing the reassessment proceedings holding that the conditions required for initiation of reassessment proceedings as stipulated in the proviso to sec. 147 of the Act were not satisfied ignoring Explanation-1 to sec. 147 which states that "Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso."

2. We have heard the ld. D/R as well as the ld. A/R on the admission of additional ground as it is apparent from the additional ground itself that the revenue has challenged the finding of the ld. CIT (A) on the issue of validity of reopening whereby the ld. CIT (A) has quashed the reassessment. Thus it is clear that the additional ground raised by the revenue is not a new plea which otherwise cannot be raised by the AO but it is an issue emanating from the impugned orders of the ld. CIT (A) and, therefore, if the said ground is not taken in Form No. 36 due to the oversight or bonafide mistake, the same can be raised even by way of additional ground. Thus when the additional ground is not raising a new issue or plea, then in the facts and circumstances of the case, we admit the additional ground raised by the revenue for adjudication on merit. Since the additional ground raised by the 3 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

revenue is purely legal in nature and goes to the root of the matter, therefore, first we take up for adjudication of the additional ground.

3. The assessee company is a builder and developer and the dispute is regarding commercial complex, namely, 'Silver Square' developed by the assessee at C-18 Bhagwan Das Road, Jaipur. The assessee filed its original returns of income under section 139(1) of the IT Act for these three assessment years and scrutiny assessments under section 143(3) were passed by the AO. Subsequently the AO has reopened the assessments by recording the reasons which are common for all these years except the relevant date of filing of the returns and completion of the assessments under section 143(3) to assess the income from house property in respect of the closing stock in the said commercial complex in view of the finding of Hon'ble Delhi High Court in case of CIT vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. 354 ITR 180 (Del.). The AO completed the reassessments under section 147 read with section 143(3) for all the three years and made the additions on account of income from house property by determining the annual letting value of the closing stock being the 4th floor of the said commercial complex. The assessee challenged the action of the AO before the ld. CIT (A) and also objected to the validity of the reopening of the assessments. The ld. CIT (A) held that reopening is not valid and quashed the reassessments. The ld. CIT (A) has also decided the issue of assessment of income from house property by applying notional rent on the closing stock in favour of the assessee by following the decision of this Tribunal in assessee's own case for the assessment year 2012-13.

4. Before us, the ld. D/R has submitted that as it is clear from the reasons recorded by the AO that the Assessing Officer has reopened the assessment in view 4 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

of the decision of Hon'ble Delhi High Court in case of CIT vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. (supra) and, therefore, a subsequent decision of Hon'ble High Court would constitute a tangible material for forming the belief that income assessable to tax has escaped assessment. The ld. D/R has also relied upon the decision of Hon'ble Allahabad High Court in case of Kartikeya International vs. CIT, 329 ITR 539 (All.) and submitted that the Hon'ble High Court has held that court declares the law as it stood right from the beginning. The interpretation of a provision relates back to the date of law itself and cannot be prospective of the judgment. Therefore, such declaration of law by the Hon'ble High Court itself constitutes material to reopen the assessment under section 147 of the IT Act. The ld. D/R has also relied upon the decision of the Hon'ble Delhi High Court in case of 67 DTR 356 (Del.). Accordingly, the ld. D/R has submitted that when the provisions of sections 22 and 23 have been interpreted by the Hon'ble High Court whereby it was held that the unsold closing stock of builder and developer is assessable to tax under the head Income from House Property, the vacant space is accordingly liable to be assessed as Income from House Property in terms of provisions of section 23(1)(c) of the IT Act.

5. On the other hand, the ld. A/R of the assessee has submitted that the reopening of the assessment for all the three years is after the expiry of four years from the end of the relevant assessment year, therefore, in the absence of any allegation that the income assessable to tax has escaped assessment due to failure on the part of the assessee to disclose fully and truly all relevant facts necessary for the assessment, such reopening after expiry of four years is not valid. The ld. A/R 5 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

has submitted that the reopening in the case of the assessee is hit by the proviso to section 147 of the IT Act and, therefore, the ld. CIT (A) has rightly quashed the reassessment by treating the same as invalid. The assessee has disclosed all the relevant facts in the return of income as well as in the statement of income, the closing stock is not in dispute as it was part of the record and also part of the computation of income of the assessee. Therefore, when the assessee disclosed all material facts in the original return of income filed under section 139(1) as well as during the scrutiny assessment framed under section 143(3) by the AO, then the subsequent reopening is nothing but based on change of opinion. He has supported the impugned order of the ld. CIT (A) and submitted that the assessee relied on various decisions before the ld. CIT (A) which have been followed by the ld. CIT (A) while deciding the issue.

6. We have considered the rival submissions as well as the relevant material on record. The original return of income filed under section 139(1) for all the three years were subjected to scrutiny assessment under section 143(3). Subsequently the AO has proposed to assess the income being notional rent in respect of the closing stock in the commercial complex, namely, Silver Square. The said space which was to be assessed as Income from House Property is at 4th Floor of the said commercial complex. The AO has recorded identical reasons for all the three years. The recorded reasons for the assessment year 2007-08 are as under :-

" Return of income for the A.Y. 2008-09 was filed on 20.07.2009 at an income of Rs. 1,83,170/-. During the course of assessment proceedings for A.Y. 6 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

2012-13 it is found that the assessee is a builder and developer and has developed a commercial complex Silver Square at C-18, Bhagwan Das Road, Jaipur. The project was started on 15.08.2003 and was completed on 10.08.2005. The assessee was requested to file the details of total area constructed and year-wise area sold. In response, the assessee filed details of opening stock as on 1.4.2011 and closing stock as on 31.03.2012. One more request was made vide letter dated 17.03.2015 to file year-wise details of area sold from the date of completion of project but no compliance was made.

Assessment for A.Y. 2012-13 has been completed u/s 143(3) of the I.T. Act, treating the income from unsold portion of project under the head Income from house property keeping in view the finding of Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. in ITA 18/1999 dated 31.10.2012 wherein it is held that the income from unsold portion of stock in trade is also assessable under the head Income from house property.

On examination of details filed, it is found that the assessee was having 12722.82 Sq. ft. unsold area as on 1.4.2011, meaning thereby that at least this portion of stock 12722.82 sq. ft. was unsold during the F.Y. 2007-08 also.

Further, as per the rent agreement dated 27.06.2006 entered by the assessee with M/s. Dominos Pizza India Ltd. as regards 447.32 sq. ft. of the ground floor of the project, rent of Rs. 70 per sq. ft. per month is shown to be receivable on the let out portion.

Since no details of unsold portion for the F.Y. 2007-08 have been filed by the assessee, and unsold portion of 12722.82 sq. ft. was available with the assessee as on 01.04.2011, it is clear that at least area of 12722.82 sq. ft. was unsold during the F.Y. 2007-08 also. Keeping in view the above facts, I 7 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

have reason to believe that income to the tune of Rs. 1,06,87,168 (12722.82 sq. ft. x 70 per sq. ft. per month x 12 months) has escaped assessment to tax under the head Income from house property for the A.Y. 2008-09 within the meaning of provisions of sec. 147 of the I.T. Act. Therefore, permission is being sought for issue of notice u/s 148 of the I.T. Act."

Accordingly, the AO issued notices under section 148 of the IT Act for the assessment year 2008-09 on 30th March, 2015, for the assessment year 2009-10 on 22nd March, 2016 and for the assessment year 2010-11 on 29th March, 2017. Thus the notices issued under section 148 for all the three years are after the expiry of four years from the end of the respective assessment year. The revenue has not disputed this fact that the reopening in respect of all the three years is after the expiry of four years from the end of the assessment year. It is apparent from the reasons recorded by the AO that the AO proposed to assess the notional rent after determining the ALV of the unsold space at 4th Floor of the commercial complex in question in view of the decision of Hon'ble Delhi High Court in case of CIT vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. (supra). The reasons do not indicate that the AO has received any fresh factual information but all the relevant facts, information and record were available with the AO at the time of framing the scrutiny assessment for all these three assessment years. Though the assessment under section 143(3) for the assessment year 2012-13 was completed prior to the reopening of these assessments and therefore, the said assessment order for the assessment year 2012-13 may constitute tangible material apart from the decision of the Hon'ble Delhi High Court in case of CIT vs. M/s. Ansal Housing Finance & 8 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

Leasing Co. Ltd. (supra) for forming the belief that income assessable to tax on account of notional rent in respect of unsold stock of the assessee escaped assessment. However, even if the decision of Hon'ble Delhi High Court and the assessment order passed under section 143(3) for the assessment year 2012-13 may constitute tangible material for forming the belief, the same shall be subject to the fulfillment of the conditions as prescribed in the first proviso to section 147 of the IT Act. There is no allegation by the Assessing Officer in the reasons recorded that the income proposed to be assessed in the reassessment proceedings has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Even otherwise, we find that all the relevant material in respect of the issue of assessment of rental income of the unsold stock was already available with the Assessing Officer at the time of scrutiny assessment. Hence, when the original assessment was framed under section 143(3) and the reopening is after the expiry of four years from the end of the relevant assessment year then the Assessing Officer is not permitted to reopen the assessment until and unless the conditions prescribed in the proviso to section 147 are satisfied. The Assessing Officer himself has not alleged that the income proposed to assess has escaped assessment for want of disclosure of all material facts necessary for assessment. The ld. Commissioner of Income Tax (Appeals) has considered this issue in para 3.1.2 as under :-

ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

Thus it is clear that the ld. CIT (A) has followed various decisions including the decision of Hon'ble Jurisdictional High Court in case of CIT vs. Hindustan Zinc Ltd.

393 ITR 264 (Raj.) Accordingly, in view of the above facts and circumstances as well as the binding precedents on the issue, we do not find any error or illegality in the impugned order of the ld. CIT (A) qua this issue.

ON MERITS :

7. Now we take up the ground raised by the revenue on the merits of the addition deleted by the ld. CIT (A).

8. We have heard the ld. D/R as well as the ld. A/R and considered the relevant material on record. We note that the AO has made the addition of the respective amounts by determining the ALV in respect of unsold stock of the assessee at 4th Floor of the commercial complex in question. There is no dispute that the space at 4th Floor was vacant except for one office space given to the Country Club for a short period and subsequently the said tenant also vacated the premises when the authorities initiated the proceedings to demolish the 4th Floor of the commercial complex constructed in violation of the sanctioned plan. The ld. CIT (A) has decided this issue by following the decision of this Tribunal in the assessee's own case on the issue for the assessment year 2012-13. At the outset, we note that this Tribunal in assessee's own case for the assessment year 2012-13 in ITA No. 284/JP/2017 vide order dated 27th April 2018 has considered and decided this issue in para 7 to 7.2 as under :-

"7. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee has shown the unsold space in the commercial complex, namely, Silver 23 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

Square as stock-in-trade. The AO proposed to determine the ALV of the unsold space which is not let out by taking into consideration the rent in respect of the portion let out at ground floor of the complex. As regards the question of taxability of notional rental income in respect of unsold space held as stock-in-trade, there are divergent views on this issue. The Hon'ble Delhi High Court in the case of CIT vs. Ansal Housing Finance and Leasing Pvt. Ltd. (supra) has taken a view against the assessee and in favour of the revenue by holding that the incident of charges of tax under section 22 and 23 is because of the fact of ownership and not because of the nature of the property as stock-in-trade or capital asset. Whereas the Hon'ble Gujarat High Court in case of CIT vs. Neha Builders Pvt. Ltd. (supra) has taken a contrary view and held that the income derived from the property would always be termed as Income from property but if the property is used as stock-in-trade, then the said property would become or partake the character of stock and any income derived from the stock would be income from business and not income from property. 7.1. Therefore, in view of the contrary decisions on this issue, we would first consider the factual aspect of the matter whether the unauthorized construction at 4th floor which is also temporary in nature can be considered as property consisting of any building as per section 22 of the Act and consequently the annual value of such an unauthorized construction can be determined under section 23(1) of the Act. The revenue has not disputed this fact that the 4th floor of the property is unauthorized construction as beyond the sanctioned plan and, therefore, the Municipal Authorities have already proposed action for demolition of the said property against which the assessee has approached the Hon'ble High Court for protection of the property in question. Further, it is also not disputed that the solitary tenant at the 4th floor had already vacated the premises after the local authorities have proposed to demolish the said construction. Thus in view of the 24 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

fact that the 4th floor of the property is facing the demolition action by the local authorities for being unauthorized, the ALV of such property cannot be determined by considering the rent for which the ground floor of the property or the other portion of the said complex was let out. The income from house property is measured as annual value of the property and section 23(1) contemplates the manner in which annual value of the property has to be determined. Since the property in question is newly constructed property and has never been let out, therefore, the provisions of section 23(1)(a) envisages the method for determining the ALV of such property. The AO has to determine the sum for which the property might reasonably be expected to fetch the rent from year to year. Thus the fair market rent as expected to be fetched by the property by letting out from year to year is the relevant facts to be taken into consideration. There is no method provided in the Income Tax Act for determination of the reasonable rent expected to be fetched by the property. However, there are judicial precedents on this issue wherein the Hon'ble Supreme Court in a series of decisions has held that the standard rent of the property is a relevant criteria and basis for determination of the annual letting value. In case of Mrs. Sheela Kaushik vs. CIT, 131 ITR 435 (SC), the Hon'ble Supreme Court has held that for determination of annual value standard rent should be the basis and the annual rent received by the landlord is not relevant. Further, in case of Deewan Daulat Rai Kapoor vs. NDMC, 122 ITR 700 (SC), the Hon'ble Supreme Court has again while deciding the issue of computation of rateable value of the property held that even if the standard rent was not fixed, the annual value of the building should be determined for the purpose of levy of house tax as per the provisions of Rent Control Act as the landlord cannot reasonably expect to receive rent from hypothetical tenant anything more than the standard rent determinable under the provisions of Rent Control Act. The Hon'ble Calcutta High Court in the 25 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

case of CIT vs. Smt. Prabhabati Bansali, 141 ITR 419 (Cal.) as well as the Hon'ble Bombay High Court in case of M.V. Sonavala vs. CIT, 177 ITR 246 (Bom.) have taken a consistent view that annual value of the property for the purpose of municipal taxes should be computed as per the provisions of Rent Control Act for computing the standard rent. Therefore, it is mandate that the AO has to determine the annual letting value by considering the reasonable rent expected to be fetched by the property on the basis of the method provided for fixation of standard rent or computation of rateable value. Since in the case in hand the 4th floor of the property is not eligible for fixation of standard rent being unauthorized construction and subjected to demolition action of the Municipal authorities, therefore, in the normal circumstances the reasonable rent expected to be fetched by such property would be nil.

7.2. There is another aspect in the matter that since the property in question is newly constructed and held as stock-in-trade, therefore the vacancy of the property being not let out is not intentional or deliberate act on the part of the assessee but it is beyond the control of the assessee to find a tenant for such unauthorized construction. Once the non-letting of the property is not due to the reason of intentionally keeping vacant by the assessee but it is because of the fact and circumstances that the said space could not be let out despite the best efforts of the assessee, the benefit of vacancy under section 23(1)(c) would be available to the assessee. For ready reference, we quote the provisions of section 23(1) as under :-

" 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be--

(a) the 57sum for which the property might reasonably be expected to let from year to year; or

(b) where the property or any part of the property is let57 and the actual rent57 received or receivable57 by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or 26 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable"

There is no dispute on the point that the property was vacant during the whole of the previous year and, therefore, owing to such vacancy the sum referred in clause (1) of section 23 shall be the actual rent received or receivable by the assessee which no doubt is Nil. There is no denial of the fact that the process of letting out may take some time in searching the suitable tenant and for settling the terms and conditions of letting out. Therefore, even if for the sake of argument it is presumed that the house was ready for occupation, if the same is not kept vacant intentionally by the assessee then vacancy allowance under section 23(1)(c) would be available to the assessee. The revenue would argue that the benefit of section 23(1)(c) is available only when the property was let out at first place and then remain vacant. However, as per the provisions of section 23(1)(c) the property can be vacant during the whole of relevant previous year and, therefore, both situation cannot co-exist that the property is actually let out and also the same is vacant during the whole year. Accordingly, in the facts and circumstances of the case when it was not possible for the assessee to let out the property, then the benefit of section 23(1)(c) would be available to the assessee. Hence the initial delay in letting out the property first time cannot be considered as deemed let out as per the provisions of section 23 of the Act. Accordingly, in the facts and circumstances of the case, we are of the considered view that the ALV of the property in question would be Nil as it was not possible to let out the property during the year under consideration and further the unauthorized construction of the property is otherwise not eligible for determination of standard rent or rateable value and consequently there is no basis for determination of ALV of the property 27 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

under section 23(1)(a) of the Act. Hence we delete the addition made by the AO."

Thus the facts and the issue for all these three years are identical to the facts and issue involved for the assessment year 2012-13. Accordingly, following the earlier order of this Tribunal, we decide this issue against the revenue and in favour of the assessee and consequently the order of the ld. CIT (A) qua this issue is upheld.

9. In the result, all the three appeals of the revenue are dismissed.

Order is pronounced in the open court on 02/08/2019.

              Sd/-                                                Sd/-
         (foØe flag ;kno)                                   (fot; iky jkWo ½
        (VIKRAM SINGH YADAV )                               (VIJAY PAL RAO)
ys[kk lnL;@Accountant Member                         U;kf;d lnL;@Judicial Member

Jaipur
Dated:-      02/08/2019.
Das/

vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:

1. The Appellant- The ITO Ward 3(2), Jaipur.

2. The Respondent - M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

3. The CIT(A).

4. The CIT,

5. The DR, ITAT, Jaipur

6. Guard File (ITA No. 1240, 1241 & 1242/JP/2018) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 28 ITA Nos. 1240,1241 & 1242/JP/2018 M/s. Silver Sand Builders Pvt. Ltd., Jaipur.

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Income Tax Appellate Tribunal - Jaipur

Income Tax Officer, Ward-3-2, Jaipur vs Silver Sand Builders Pvt. Ltd., Jaipur on 2 August, 2019