2021 (4) TMI 238 - AT - Income Tax

Income from house property - determining the ALV value of the unsold flats - HELD THAT - As decided in own case. 2019 (8) TMI 1668 - ITAT MUMBAI as relying on case of Ferani Hotels Pvt. Ltd. 2014 (11) TMI 985 - ITAT MUMBAI wherein as deleted the addition confirmed by the CIT (A) on account of notional rent determined by the AO by holding that the ALV of the unsold unit of assessee project is assessable under the head income from house property . Since, the findings of the Ld.CIT (A) is not in accordance with the decision of the coordinate Bench rendered in the case of Ferani Hotels Pvt. Ltd. (supra), we respectfully following the decision of the coordinate Bench set aside the order of the Ld. CIT (A) and allow the appeal of the assessee and direct the AO to delete the addition made under the head income from house property . - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of Annual Letting Value (ALV) of unsold flats treated as "Income from House Property."
2. Non-following of jurisdictional ITAT decisions by CIT(A).

Issue-wise Detailed Analysis:

1. Disallowance of Annual Letting Value (ALV) of Unsold Flats Treated as "Income from House Property":

The assessee, engaged in real estate development, filed a return of income for the Assessment Year 2016-17. During scrutiny, the Assessing Officer (AO) observed that the assessee had unsold flats listed as inventory. The AO computed the Annual Letting Value (ALV) of these unsold flats and treated it as "Income from House Property," resulting in an addition of ?1,20,19,841/-. This computation was based on the proviso to section 23 of the Income Tax Act, 1961, considering a 7% ALV on the investment value of the flats.

The CIT(A) upheld the AO's decision, referencing judicial decisions and concluding that the AO rightly assessed deemed income from the unsold units under sections 22 and 23 of the Act. The CIT(A) adopted a rate of 7% of the investments made, aligning with the decision in Radha Devi Dalmia (4 Taxman 183)(ALL HC).

2. Non-following of Jurisdictional ITAT Decisions by CIT(A):

The assessee argued that the CIT(A) erred by not following jurisdictional ITAT decisions that were favorable to the assessee. The assessee cited several cases where the ITAT had ruled that unsold flats held as stock-in-trade should not be treated as "Income from House Property." Notably, the ITAT had previously granted relief to the assessee on similar issues in ITA No. 2811 & 2812/Mum/2018, involving the assessee's sister concern Makewaves Sea Resort Pvt. Ltd.

The ITAT in the present appeal reviewed the submissions and relevant judicial precedents. The Tribunal noted that in the case of Ferani Hotels Pvt. Ltd., the coordinate bench had held that unsold flats held as stock-in-trade should be assessed under "Business Income" and not "Income from House Property." This decision was based on the principle that properties held as stock-in-trade are not subject to notional rent under section 23.

The Tribunal also referenced the Hon'ble Supreme Court's ruling in Chennai Properties & Investments Ltd. vs. CIT, which established that rental income from properties held as stock-in-trade should be treated as business income. The Tribunal emphasized that the assessee's main business was real estate development, and the unsold flats were part of its stock-in-trade, not intended for letting out.

Conclusion:

The ITAT concluded that the CIT(A) had erred in confirming the AO's addition of notional ALV of unsold flats as "Income from House Property." The Tribunal followed the judicial precedents and directed the AO to delete the addition, thereby allowing the appeal in favor of the assessee.

Final Order:

The appeal filed by the assessee was allowed, and the order pronounced on 22.03.2021, directed the AO to delete the addition made on account of estimation of ALV in respect of unsold flats.