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2021 (4) TMI 849 - AT - Income TaxAddition on account of notional rent u/s 23 - whether or not the ALV of the properties held by the assessee as stock-in-trade of its business as that a real estate developer is liable to be brought to tax in its hands under Sec.22? - HELD THAT - It is a matter of fact borne from the records that the property in question was held by the assessee as stock-in-trade of its business of construction and development of real estate properties. As observed the solitary issue involved in the present appeal is as to whether or not the ALV of the properties held by the assessee as stock-in-trade of its business as that a real estate developer is liable to be brought to tax in its hands under Sec.22. As stated by the ld. A.R, and rightly so, the issue herein involved is squarely covered by the order of the ITAT C bench, Mumbai, in the case of M/s Osho Developers Vs. ACIT-32, Mumbai, 2020 (11) TMI 218 - ITAT MUMBAI wherein direct the A.O to delete the addition made by him towards the ALV of the flats held by the assessee as stock-in-trade of its business as that of a builder and developer As such, finding no infirmity in the view taken by the CIT(A) we herein concur with him that the A.O was in error in assessing the notional lettable value of the flats held by the assessee as stock-in-trade of its business as that of a real estate developer. Appeal filed by the revenue is dismissed.
Issues Involved:
1. Deletion of addition made by the Assessing Officer on account of notional rent under Section 23 of the Income Tax Act. 2. Applicability of judicial precedents and conflicting decisions of non-jurisdictional High Courts. 3. Assessment of Annual Lettable Value (ALV) of unsold flats held as stock-in-trade under the head 'Income from House Property.' Issue-Wise Detailed Analysis: 1. Deletion of Addition Made by the Assessing Officer on Account of Notional Rent Under Section 23: The primary issue revolves around the deletion of an addition of ?2,44,04,876/- made by the Assessing Officer (A.O) on account of notional rent under Section 23 of the Income Tax Act. The A.O had determined the Annual Lettable Value (ALV) of the unsold flats held by the assessee as stock-in-trade at 8% of the closing stock value, which amounted to ?3,48,64,109/-. After allowing a deduction under Section 24(a) at 30% of the ALV, the A.O assessed the income under the head 'house property' at ?2,44,04,876/-. The CIT(A) deleted this addition, leading to the revenue's appeal. 2. Applicability of Judicial Precedents and Conflicting Decisions of Non-Jurisdictional High Courts: The CIT(A) observed that the A.O relied on the judgment of the Hon’ble Delhi High Court in CIT Vs. Ansal Housing Finance & Leasing Company Limited (2013) 354 ITR 180 (Del), which held that the ALV of finished flats owned by the assessee should be assessed under the head 'income from house property.' In contrast, the assessee relied on the judgment of the Hon’ble Gujarat High Court in CIT Vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj), which held that rental income derived from property treated as stock-in-trade is assessable as business income. The CIT(A) followed the decision of the ITAT, Mumbai in C.R. Development Pvt. Ltd. Vs. JCIT (OSD) and Runwal Constructions Vs. ACIT, concluding that the addition made by the A.O could not be sustained. 3. Assessment of Annual Lettable Value (ALV) of Unsold Flats Held as Stock-in-Trade Under the Head 'Income from House Property': The Tribunal considered whether the ALV of properties held by the assessee as stock-in-trade should be brought to tax under Section 22 of the Act. The Tribunal noted that the flats were held as stock-in-trade and had not been let out, thus not yielding any rental income. The Tribunal referred to the conflicting decisions of the Hon’ble Delhi High Court in Ansal Housing Finance & Leasing Co. Ltd., which supported the revenue's view, and the Hon’ble Gujarat High Court in Neha Builders, which supported the assessee's view. The Tribunal preferred the view favorable to the assessee, following the principle that in case of conflicting decisions, the view in favor of the assessee should be adopted. The Tribunal also referred to the ITAT, Mumbai's decision in Shri. Rajendra Godshalwar Vs. ITO-21(3)(1), which held that the ALV of unsold property held as stock-in-trade could not be determined and brought to tax under the head 'house property.' The Tribunal distinguished the case from the Hon’ble Bombay High Court's decision in CIT Vs. Gundecha Builders, which dealt with actual rental income from property held as stock-in-trade and not notional income. Conclusion: The Tribunal concluded that the ALV of flats held by the assessee as stock-in-trade could not be determined and brought to tax under the head 'house property.' The Tribunal set aside the order of the CIT(A) and directed the A.O to delete the addition made towards the ALV of the flats held by the assessee as stock-in-trade. The appeal filed by the revenue was dismissed. Order Pronouncement: The order was pronounced in the open court on 23.03.2021.
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