No Addition of Notional Income from Vacant Flats held as Stock-in-Trade by Builder: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it, held that no addition of notional income can be made from vacant flats held as stock- in trade by builder.

The aforesaid observation was made by the Mumbai ITAT, when an appeal was preferred before it by the assessee, as directed against the order of Principal Commissioner of Income Tax (Central), Mumbai [ PCIT], dated 31/03/2022, passed under section 263 of the Income Tax Act, 1961, for the Assessment Year 2017-18.

The primary issue involved in the assessee’s appeal being the question as to whether the PCIT has erred in invoking the revisionary powers u/s. 263 of the Income Tax Act, 1961 on an issue where two views were possible, and the Assessing Officer has taken one of the possible views, it was submitted by Shri Mahavir Jain, the Authorized Representative for the assessee, that the PCIT in exercise of revisional jurisdiction , has held that the Assessing Officer has not made enquiries with respect to notional rent u/s. 23 of the Income Tax Act.

Narrating the facts of the case, it was submitted by the AR for the assessee that the assessee was a Developer, who had constructed residential buildings, and during the Financial Year 2016-17 relevant to assessment year 2017-18, the assessee could sell only one flat. The remaining unsold vacant flats amounting to Rs.29,58,00,065/- were carry forward as closing stock.

It so happened that during the course of the scrutiny assessment proceedings, the Assessing Officer made a specific enquiry with respect to the closing stock, and after being satisfied with submissions of the assessee, he did not make any addition on account of the notional rent in respect of the carry forward of the closing stock i.e., unsold flats lying vacant.

However, though this view taken by the Assessing Officer in not making addition on account of notional rent, was in line with the decision of Tribunal in the case of Osho Developers vs. ACIT, the PCIT, on the other hand, followed the decision in the case of CIT vs. Ansal Housing Finance & Leasing Company Ltd., thus invoking the revisionary powers u/s. 263 of the Income Tax Act.

It was submitted by the AR for the assessee that the PCIT had, in the exercise of his revisional jurisdiction held that the Assessing Officer has not made enquiries with respect to notional rent u/s. 23 of the Act, while the Assessing Officer had, by following the judicial discipline, decided the issue at hand in line with the view taken by the Jurisdictional Tribunal.

With the Authorized Representative for the assessee further submitting that the Assessing Officer had taken one of the possible views which was duly supported by the decision of Tribunal, the PCIT had followed the decision in the case of CIT vs. Ansal Housing Finance & Leasing Company Ltd., thereby neglecting the well  settled law that where two views are possible and the Assessing Officer has taken one of the possible view, the PCIT cannot invoke revisionary powers merely for the reason that the view taken by Assessing Officer is contrary to the view of PCIT, Per contra, Shri Jayant Jhaveri, the DR representing the Department, vehemently defended the impugned order.

While the DR, relying upon the decision of CIT vs. Ansal Housing Finance & Leasing Company Ltd, submitted that the Assessing Officer had failed to charge notional rent on vacant flats held as stock-in-trade, in accordance with the provisions of section23 of the Income Tax Act, the Mumbai ITAT consisting of M. Balaganesh, the Accountant Member, along with Vikas Awasthy, the Judicial Member observed:

“It is a well settled law that where two views are possible and the Assessing Officer has taken one of the possible views, the PCIT cannot substitute his view in exercise of revisional jurisdiction u/s. 263 of the Act. In the instant case the PCIT has tried to super impose his view in exercise of powers u/s. 263 of the Act over one of the possible views taken by Assessing Officer. This is not in accordance with the settled law. Thus, the PCIT has exceeded his jurisdiction in exercise of revisionary powers.”

Thus, allowing the assessee’s appeal the Mumbai ITAT therefore held:

“Thus, in facts of the case, we find merit in appeal of the assessee, hence, impugned order is quashed and appeal of the assessee is allowed.”

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