2019 (3) TMI 2007 - AT - Income Tax

Addition as income from business or house property u/s. 23 - income derived was stock - alternatively ALV is to be computed by taking 6% as the average rate of investment as against 8% of average rate of investment adopted by the AO - HELD THAT - CIT(A) has sustained the addition made by the AO after placing reliance on the decision of Ansal Housing Properties 2012 (11) TMI 323 - DELHI HIGH COURT wherein as decided that the assessee engaged in business of construction and house property would be liable to pay of ALV of flats laying unsold during the year as income from house property. Also noticed that an amendment has been made by the Finance Act in sub-section (5) of section 23 of the act w.e.f. 01-04-2018. This amendment is not applicable for the year under consideration. With the assistance of ld. representatives we have gone through the decision CIT vs. Neha Builder Pvt. Ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT wherein it is held that if property is used as stock in trade then such property would become or partake character of stock and any income derived from stock would be income from business and not income from property. We have also gone through the judgment in the case of ACIT vs. Haware Construction Pvt. Ltd. 2018 (10) TMI 1523 - ITAT MUMBAI As in the case of Neha Builder Pvt. Ltd 2006 (8) TMI 105 - GUJARAT HIGH COURT and after considering the decision of ITAT Mumbai Bench as cited above we set aside the order of the CIT(A) and consider that in the case of the assessee any income derived was stock would be income from business and not income from property. Thus we set aside the order of the CIT(A) and consider that in the case of the assessee any income derived was stock would be income from business and not income from property therefore allow the appeal of the assessee. Accordingly the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Addition of income from house property u/s. 23 of the act.
2. Computation of ALV for unsold property at 6% or 8% rate of investment.

Analysis:
1. Issue 1 - Addition of Income from House Property:
The case involved an appeal against the assessing officer's decision to add Rs. 46,84,206/- as income from house property u/s. 23 of the act. The assessing officer observed that the assessee, a builder and developer, had unsold finished property in the balance sheet, which was not declared as income. The assessing officer calculated the ALV at 8% of the cost of construction, leading to the addition of the aforementioned amount to the total income. The CIT(A) upheld this decision, citing a Delhi High Court case. However, the appellant contended that the unsold properties were held as stock in trade and any income derived should be taxable as business income, supported by legal precedents. The ITAT Ahmedabad, after considering relevant judgments, concluded that income derived from stock should be considered as business income, not income from property. Therefore, the appeal of the assessee was allowed.

2. Issue 2 - Computation of ALV at 6% or 8% Rate:
The second ground of appeal was related to the computation of ALV for unsold property at a 6% rate of investment instead of the 8% adopted by the assessing officer. The appellant argued for the lower rate based on the average rate of investment. However, the assessing officer's decision was based on the 8% rate. The ITAT Ahmedabad, while deciding in favor of the appellant on the first issue, did not specifically address the alternative computation of ALV at 6% or 8%, as the primary issue of income classification was determinative of the appeal outcome.

In conclusion, the ITAT Ahmedabad allowed the appeal of the assessee, setting aside the CIT(A)'s order and determining that income derived from stock should be treated as business income, not income from property. The decision was based on legal precedents and the specific nature of the appellant's business as a builder and developer.