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2023 (4) TMI 1286 - AT - Income TaxDeemed income from house property - Rental Income for the properties held as Stock in Trade - as per AO Assessee has received possession of certain property/bungalow plot and had neither used nor offered to earn any income under the head income from other sources - AO said that property was treated as deemed to be let out and he determined the actual value of the property for the purpose of section 23(1) and determined the rent at 10% of the value in respect of the property and accordingly additions made - HELD THAT - As relying on M/S. PEGASUS PROPERTIES PVT. LTD. 2021 (12) TMI 1210 - ITAT MUMBAI assessee had kept various flats as stock in trade and they were not sold. No addition on account of deemed rental income can be made in respect of unsold stock of flats held as stock in trade up to A.Y.2017-18. In the present case the assessment involved in A.Y.2014-15 therefore the addition proposed by the Assessing Officer is directed to be deleted. Assessee appeal allowed.
Issues Involved:
1. Deemed or Notional Rental Income for properties held as Stock in Trade. 2. Estimate addition for Property No. 1 under the head Income from House Property. 3. Addition at 8.5% of Annual Value of Property No. 2 and Property No. 3 under the head Income from House Property. Summary: Issue 1: Deemed or Notional Rental Income for properties held as Stock in Trade The assessee argued that properties held as stock in trade should not attract deemed rental income. The amendment to Section 23(5) applicable from A.Y. 2018-19 supports this, as it provides a moratorium period of two years for unsold stock. The Tribunal agreed, noting that prior to A.Y. 2018-19, there was no provision to tax deemed rental income on unsold stock of properties held as stock in trade. The Tribunal cited the case of Pegasus Properties (P.) Ltd. v. DCIT, which held that no addition on account of deemed rental income could be made for unsold stock held as stock in trade up to A.Y. 2017-18. Therefore, the deemed rental income determined by the Assessing Officer for A.Y. 2014-15 was not proper and was directed to be deleted. Issue 2: Estimate addition for Property No. 1 under the head Income from House Property The assessee contended that the estimate addition of Rs. 60,000/- for Property No. 1 lacked basis and should be deleted. The Tribunal noted that the property was shown as inventory and referenced the case of Sunil Kumar vs. ACIT, which held that estimation of annual letting value not based on reasonable working should be deleted. The Tribunal directed the deletion of the estimated addition for deemed rental income for Property No. 1. Issue 3: Addition at 8.5% of Annual Value of Property No. 2 and Property No. 3 under the head Income from House Property The assessee argued that Property No. 2 and Property No. 3 were shown as inventories and should not attract deemed rental income. Additionally, Property No. 3 had not received an occupancy certificate, making it legally non-occupiable. The Tribunal referenced several cases, including the Karnataka High Court in Brigade Enterprises Ltd. vs. Addl. CIT, which held that no notional income should be assessed for properties without an occupancy certificate. The Tribunal also noted that the CIT(A)'s reliance on ITO vs. Chem Mech Pvt. Ltd. was not applicable as the facts differed significantly. Consequently, the Tribunal directed the deletion of the addition at 8.5% of the property value for both properties. Conclusion: The Tribunal allowed the appeal filed by the assessee, directing the deletion of additions made on account of deemed rental income for properties held as stock in trade for A.Y. 2014-15. The Tribunal emphasized that no addition could be made for deemed rental income on unsold stock of flats held as stock in trade up to A.Y. 2017-18.
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