2019 (1) TMI 1879 - AT - Income Tax

Addition under the head Income from House Property representing Annual Letting Value of unsold flat - notional ALV of the unsold flat, which is held by the assessee as stock-in-trade - HELD THAT - We find that our case of C.R. Developments Pvt. Ltd. 2015 (5) TMI 1161 - ITAT MUMBAI dealt with charging of notional income under the head Income from House Property in respect of unsold shops which were shown by assessee therein as part of stock-in-trade . As per the Tribunal The three flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by letting out the flats. The flats not sold was its stock-in-trade and income arising on its sale is liable to be taxed as business income. No justification in the order of AO for estimating rental income from these vacant flats u/s 23 which is assessee s stock in trade as at the end of the year. Accordingly, the AO is directed to delete the addition made by estimating letting value of the flats u/s 23 of the I.T. Act. The aforesaid observation of our coordinate Bench squarely applies to the facts of the present case. We find that Sec. 23(5) of the Act has been inserted by the Finance Act, 2017 w.e.f. 01.04.2018. In terms of the said section, it is prescribed that where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil . Though the said provision is effective from 01.04.2018, yet even if one is to see the present case from the standpoint of Sec. 23(5) of the Act, no addition is permissible in the instant year - completion certificate is stated to have been obtained on 28.11.2011 and going by the provisions of Sec. 23(5) of the Act, no addition is permissible in the instant assessment year. Be that as it may, we are only trying point out that the assessability of notional income in respect of unsold flat, which is taken as stock-in-trade, is not merited in the instant case - we set-aside the order of CIT(A) and direct the Assessing Officer to delete the addition. - Decided in favour of assessee.

Summary

Issues:
Validity of addition of notional Annual Letting Value (ALV) of unsold flat under 'Income from House Property'.

Analysis:
1. The appeal challenged the addition of ?18,50,176/- by the CIT(A) under 'Income from House Property' for the Assessment Year 2012-13, concerning an unsold flat held as stock-in-trade by the assessee.

2. The appellant, engaged in real estate development, argued that the unsold flat, a part of stock-in-trade, should not be taxed under 'Income from House Property.' Citing precedents, the appellant contended that the flat's notional ALV should not be added as it was not let-out and eventually sold.

3. The Tribunal noted that the flat in question did not generate rental income and was unsold at the year-end, constituting stock-in-trade. Referring to previous judgments, the Tribunal emphasized that unsold properties held as stock-in-trade should not attract ALV tax under 'Income from House Property.'

4. Relying on the decisions of the coordinate Bench and other High Courts, the Tribunal concluded that the unsold flat, treated as stock-in-trade, should be assessed under 'Income from Business' upon sale, not as 'Income from House Property.' The Tribunal directed the Assessing Officer to delete the addition of notional ALV.

5. The Tribunal distinguished the case cited by the CIT(A), emphasizing that the unsold flat did not yield rental income and was held as stock-in-trade, making the notional income assessment invalid. Additionally, the Tribunal highlighted the insertion of Sec. 23(5) by the Finance Act, 2017, which further supported the non-taxability of unsold properties held as stock-in-trade.

6. Consequently, the Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the deletion of the addition. The judgment clarified that assessing notional income of unsold flats held as stock-in-trade under 'Income from House Property' was unwarranted, affirming the appellant's position.