2022 (1) TMI 1361 - AT - Income Tax

Income from house property - Addition on account of notional income in respect of the unsold flats - unsold 37 flats shown as stock in trade - assessee filed return showing income from such business and also engaged in the business of property development - HELD THAT - In the present case that there is no dispute that the profits of the business of construction by the assessee are chargeable to income-tax. Therefore, in our view that the unsold 37 flats are occupied by the assessee are as owner; business of construction is carried on by the assessee; the occupation of the flats is for the purpose of business; and profits of such business are chargeable to Income-tax. Thus, in our opinion, all the four conditions provided in exclusion clause in section 22 of the Act are to be excluded, therefore, we hold that no addition on account of deemed rent on unsold 37 flats can be made in the hands of the assessee. DR did not dispute that the assessee recognized the unsold flats as stock-in-trade but however relied on the order of CIT(A). Thus, the order of CIT(A) is not justified and it is set aside. Thus, the grounds raised by the assessee are allowed.

Summary

Issues:
Whether the addition made by the AO on account of notional income from unsold flats is justified.

Analysis:
The appeal was filed by the assessee against the CIT(A)'s order for the assessment year 2014-15. The main issue was whether the addition made by the AO on account of notional income from unsold flats was justified. The assessee, a Private Limited Company engaged in various businesses, had 37 unsold flats for which completion certificates were issued. The AO calculated deemed rent for these flats as the assessee had not offered any rental income. The assessee claimed the flats were stock-in-trade, and income from them should be considered as business income, not house property income. The CIT(A) confirmed the AO's addition. The assessee argued that the issue was in their favor, citing a Tribunal order in a similar case. The Tribunal discussed the conditions for exclusion under section 22 of the Act, emphasizing that if the property is occupied by the assessee as an owner for business purposes, the income should not be considered for taxation. The Tribunal found that all conditions for exclusion were met in this case, and hence, no addition for deemed rent on unsold flats was justified. The order of the CIT(A) was set aside, and the grounds raised by the assessee were allowed.

In conclusion, the Tribunal allowed the appeal of the assessee, holding that no addition on account of deemed rent on unsold flats could be made. The decision was based on the assessee meeting all the conditions for exclusion under section 22 of the Act, as the unsold flats were considered stock-in-trade and used for business purposes.