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2019 (8) TMI 1668 - AT - Income TaxIncome from house property - estimation of notional rent in respect of unsold plots - Disallowance by estimating the Annual Letting Value (ALV) of unsold flats forming part of closing stock in trade and assessing the same as Income from house property. - HELD THAT - The issue of estimation of notional rent in respect of unsold plots has been decided in the case of assessee s sister concern Makewaves Sea Resort Pvt. Ltd 2019 (3) TMI 1871 - ITAT MUMBAI wherein as relying on case of Ferani Hotels Pvt. Ltd. 2014 (11) TMI 985 - ITAT MUMBAI wherein as deleted the addition confirmed by the CIT (A) on account of notional rent determined by the AO by holding that the ALV of the unsold unit of assessee project is assessable under the head income from house property . Since, the findings of the Ld.CIT (A) is not in accordance with the decision of the coordinate Bench rendered in the case of Ferani Hotels Pvt. Ltd. (supra), we respectfully following the decision of the coordinate Bench set aside the order of the Ld. CIT (A) and allow the appeal of the assessee and direct the AO to delete the addition made under the head income from house property . We find that the issue is squarely covered in favour of the assessee and, hence, the order of the CIT(A) upholding the addition made by AO estimating the ALV in respect of unsold flats cannot be sustained. The decision relied upon by the learned DR in the case of CIT vs. Gundecha Builders 2019 (1) TMI 112 - BOMBAY HIGH COURT is distinguishable on facts as in that case the unsold portion of the property constructed by the builder was given on rent and rental income was treated as business income. Whereas, in the present case, the assessee has not let out any flats and all were lying unsold as stock in trade. Accordingly, we are inclined to set aside the order of the CIT(A) and direct the AO to delete the addition on account of estimation of ALV in respect of unsold flats for A.Y. 2013-14. Appeal of the assessee is allowed.
Issues Involved:
1. Disallowance of ?6,52,243/- by estimating the Annual Letting Value (ALV) of unsold flats as 'Income from house property' for A.Y. 2013-14. 2. Identical issue of disallowance for A.Y. 2014-15. Issue-wise Detailed Analysis: 1. Disallowance of ?6,52,243/- by estimating the Annual Letting Value (ALV) of unsold flats as 'Income from house property' for A.Y. 2013-14: During the assessment proceedings, the Assessing Officer (AO) observed that the assessee held unsold flats as stock-in-trade in various projects. The AO considered these flats as property liable to be assessed under 'Income from house property' and estimated the ALV at ?9,31,776/-. After allowing a statutory deduction of 30% (?2,79,533/-), the AO added ?6,52,243/- to the net taxable income under 'Income from house property'. The assessee's representative (AR) argued that the issue was covered in favor of the assessee by a decision of the co-ordinate Bench in the case of the assessee's sister concern, Makewaves Sea Resort Pvt. Ltd., where a similar addition was deleted by the Tribunal. The AR requested the deletion of the addition by following the aforementioned Tribunal order. The Department's representative (DR) countered that the AO rightly treated the unsold flats as property assessable under 'Income from house property', relying on the Bombay High Court decision in CIT vs. Gundecha Builders, where rental income from unsold property was assessed as 'Income from house property'. Upon reviewing the submissions and the material on record, the Tribunal noted that the issue had been decided in favor of the assessee in the case of Makewaves Sea Resort Pvt. Ltd. The Tribunal cited several precedents, including the Gujarat High Court's decision in Neha Builders Pvt. Ltd., which held that income from property treated as stock-in-trade should be assessed as business income, not as 'Income from house property'. The Tribunal also referenced the Supreme Court's decision in Chennai Properties & Investments Ltd. vs. CIT, which supported treating rental income from properties let out as business income if it aligns with the company's main objective. The Tribunal concluded that the AO's estimation of notional rent and assessment under 'Income from house property' was incorrect. The unsold flats, treated as stock-in-trade, should be assessed under 'Income from business'. The Tribunal directed the AO to delete the addition of ?6,52,243/- for A.Y. 2013-14. 2. Identical issue of disallowance for A.Y. 2014-15: The issue for A.Y. 2014-15 was identical to that of A.Y. 2013-14. Following the same reasoning and findings, the Tribunal set aside the order of the CIT(A) for A.Y. 2014-15 and directed the AO to delete the addition made on the same grounds. Conclusion: The appeals for both A.Y. 2013-14 and A.Y. 2014-15 were allowed. The Tribunal directed the deletion of the additions made by the AO on account of estimating the ALV of unsold flats as 'Income from house property'. The Tribunal's order was pronounced in the open court on 22nd August 2019.
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