2019 (2) TMI 1867 - AT - Income Tax

Addition under the head income from house property on the four unsold flats/ godowns by the assessee - HELD THAT - It is an undisputed fact that assessee is in the business of Civil Engineers Builders and Developers and had in the closing stock the four unsold flats. It is also an undisputed fact that these four flats were vacant throughout the year under consideration and no rental income was derived by the assessee during the year. We find that on identical issue the Co-ordinate Bench of Mumbai Tribunal in the case of Runwal Constructions 2018 (2) TMI 1707 - ITAT MUMBAI after considering the decision of Neha Builders (P) Ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT the decision of Mumbai Tribunal in the case of C.R. Developments Pvt. Ltd. 2015 (5) TMI 1161 - ITAT MUMBAI the decision in the case of CIT Vs. Ansal Housing and Construction 2012 (11) TMI 323 - DELHI HIGH COURT and other decisions cited in the order has held that when the unsold flats which are held as stockin- trade and when the income from such unsold flats on its sale is treated as income from business then no notional annual letting value in respect of unsold flats can be taxed under the head of income from house property . Revenue has not brought any material on record to demonstrate that the aforesaid decision of Mumbai Tribunal in thecase of M/s. Runwal Construction (supra) has been set aside / stayed by higher Judicial Forum. In the present case AO was not correct in bringing to tax notional annual letting value of four unsold flats under the head income from house property . We therefore set aside the addition made by AO. Thus the ground of the assessee is allowed.

Summary

Issues:
Addition under the head 'income from house property' on four unsold flats by the assessee.

Detailed Analysis:

1. The appeal filed by the assessee challenges the order of the Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The primary issue revolves around the addition under the head 'income from house property' concerning four unsold flats held by the assessee.

2. The Assessing Officer (AO) invoked Section 23(4) of the Act to deem the annual value of the unsold flats as being let out, resulting in the addition of deemed income. The assessee contended that the flats were held as stock in trade and not let out, emphasizing that the annual value should not exceed the municipal valuation. However, the AO, based on field inquiries, determined the annual value at a higher amount and made the addition.

3. The Commissioner of Income Tax (Appeals) upheld the AO's order, citing the decision of the Hon'ble Delhi High Court and the Supreme Court, emphasizing that the levy of notional tax is based on ownership, not on whether the property is used for business purposes. The CIT(A) also noted the absence of documentary evidence supporting the contention that the municipal valuation was incorrect.

4. The assessee, in the subsequent appeal, reiterated arguments and cited relevant case laws supporting their position. They emphasized that the unsold flats, treated as stock in trade, should not attract notional annual letting value under the head 'income from house property.'

5. The Tribunal analyzed precedents and held that when unsold flats are treated as stock in trade and sold under the head 'income from business,' no notional annual letting value can be taxed under 'income from house property.' Citing relevant decisions, the Tribunal directed the AO to delete the addition made under Section 23 of the Act.

6. The Tribunal found no evidence to challenge the decision of the Mumbai Tribunal in a similar case, thus allowing the appeal and setting aside the addition made by the AO. Consequently, the ground of the assessee was allowed, and the appeal was granted in favor of the assessee.

In conclusion, the Tribunal's decision favored the assessee, emphasizing that unsold flats treated as stock in trade and sold under the business income category should not attract notional annual letting value under the head 'income from house property.' The appeal was allowed, and the addition made by the AO was set aside based on relevant legal precedents and interpretations of the tax laws.