2017 (12) TMI 519 - AT - Income Tax

Estimation of income from the unsold vacant units as income on notional basis - Held that - As relying on case of C.R. Developments Pvt. Ltd. 2015 (5) TMI 1161 - ITAT MUMBAI relying on the case of M/s Chennai Properties Investments Ltd. Vs. CIT (2015 (5) TMI 46 - SUPREME COURT) held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income the action of AO treating the rental income as income from house property in place of income from business shown by the assessee was held to be not justified. On the very same analogy in the instant case assessee is engaged in business of construction and development which is main object of the assessee company. 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. Accordingly we do not find any 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 - Decided in favour of assessee.

Summary

Issues:
Estimation of income from unsold vacant units as income on a notional basis.

Analysis:
The appellant, engaged in construction of residential-cum-commercial complexes, appealed against the CIT(A)'s order for A.Y. 2011-12, primarily challenging the estimation of income from unsold vacant units. The Assessing Officer (AO) considered the unsold units as owned house properties, applying Section 23(4) and estimating their annual letting value, which was added to the appellant's income under the head "Income from House Property." The CIT(A) upheld the AO's decision. The appellant cited a Tribunal decision that income from unsold units should be taxed as business income, not house property income. The Departmental Representative relied on a Delhi High Court decision supporting taxing such income as house property income.

The Tribunal reviewed the Delhi High Court decision and a Supreme Court judgment, concluding that the appellant, being in the business of construction and development, should not be taxed on the rental income of unsold units as house property income. Following the Supreme Court's reasoning, the Tribunal held that the unsold units were stock-in-trade, and the income from their sale should be taxed as business income. Thus, the Tribunal set aside the CIT(A)'s order and deleted the addition made by estimating the letting value of the unsold units. The decision favored the appellant, aligning with the Supreme Court's interpretation and previous Tribunal rulings.

Therefore, the appeal by the assessee was allowed, emphasizing that the income from unsold units should be treated as business income, not income from house property. The Tribunal's decision was based on the precedent set by the Supreme Court, ensuring consistency in tax treatment for similar cases.