2019 (7) TMI 430 - AT - Income Tax

Income from house property - taxability of deemed rent in respect of six unsold flats / bunglows held in stock-in- trade by the assessee u/s 23 - HELD THAT - Identical issue arose in the case of assessee s sister concern i.e., M/s. Kolte Patil Developers Limited 2019 (5) TMI 675 - ITAT PUNE in A.Y. 2012-13, wherein the issue was decided in favour of the assessee as held when the business of the assessee is to construct the property and sell it or to construct or let out then that would be the business and the business stocks which may include movable and immovable properties would be taken to be stock-in- trade and any income derived from such stocks cannot be termed as income from house property Thus no addition on account of deemed rent of 6 unsold flats/bunglows can be made in the hands of assessee. We therefore set aside the addition made by the AO. Thus, the grounds of assessee are allowed.

Summary

Issues involved:
Taxability of deemed rent on unsold units held as stock in trade by the assessee under section 22 r.w.s. 23(4) of the Income Tax Act for the assessment year 2014-15.

Detailed Analysis:
The appeal filed by the assessee challenges the addition of deemed rent on unsold units held as stock in trade. The assessee argued that since the units were held for business purposes, there was no basis to tax them as income from house property under section 22. The assessee further contended that even if the units were taxable under section 22, since they were vacant throughout the year, the income should be considered as nil under section 23(1)(c). The grounds raised were considered inter-connected.

During assessment, the Assessing Officer (AO) noted that the assessee had unsold flats/bungalows but had not offered any deemed rent. The AO calculated deemed rent based on Annual Letting Value (ALV) and made an addition to the total income. The Commissioner of Income Tax (Appeals) upheld the AO's decision, citing relevant case laws. The assessee then appealed to the Income Tax Appellate Tribunal (ITAT).

The ITAT analyzed a similar case involving the assessee's sister concern for the assessment year 2012-13, where the issue was decided in favor of the assessee. The Tribunal referenced various judicial decisions, including the Hon'ble Gujarat High Court ruling that income from property held as stock-in-trade is considered business income, not income from house property. The ITAT also highlighted the decision of the Hon'ble Delhi High Court, which held that annual rental value on unsold flats built by a construction business is assessable as income from house property.

The ITAT compared the facts of the present case with the previous decision involving the assessee's sister concern and found no distinguishing features. As the Revenue failed to demonstrate any overruling of the previous decision, the ITAT concluded that no addition on account of deemed rent could be made in the present case. Therefore, the ITAT set aside the AO's addition and allowed the appeal of the assessee.

In conclusion, the ITAT ruled in favor of the assessee, holding that no addition on account of deemed rent of unsold units held as stock in trade could be made. The ITAT's decision was based on the precedent set by the previous case involving the assessee's sister concern and the interpretation of relevant legal provisions and judicial decisions.