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2021 (7) TMI 40 - AT - Income TaxIncome from house property - disallowance on account of annual letting value of unsold flats which was lying in closing stock under the head income from house property - HELD THAT - Since the assessee company‟s main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business. 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 stockin-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 Thus as relying on assessee's own case above 2019 (3) TMI 1892 - ITAT MUMBAI delete addition raised by AO on account of notional income of the vacant flats. Accordingly, these issues are decided in favour of the assessee against the revenue.
Issues Involved:
1. Whether the CIT(A) was justified in confirming the disallowance of ?21,70,233/- on account of the annual letting value of unsold flats lying in closing stock under the head "income from house property." Issue-Wise Detailed Analysis: 1. Confirmation of Disallowance on Annual Letting Value of Unsold Flats: The primary issue in this appeal is whether the CIT(A) was justified in confirming the disallowance amounting to ?21,70,233/- on account of the annual letting value of unsold flats, which were lying in closing stock under the head "income from house property." The assessment was framed by the ACIT for the AY 2016-17 under section 143(3) of the Income-tax Act, 1961. The assessee filed a detailed written submission dated 19.02.2021, which was considered by the Tribunal. It was noted that the issue in dispute was already covered by the decision of the Tribunal in the assessee’s own case for AY 2013-14 in ITA No.5062/Mum/2017 dated 13.03.2019, under identical facts and circumstances. In the AY 2013-14 case, the assessee filed its return of income declaring a total income of ?9,72,43,120/-. The case was selected for scrutiny, and the notional value of the unsold units was assessed after deduction under section 24 of the Act. The AO assessed the notional income and added it to the income of the assessee, which was confirmed by the CIT(A). The Tribunal, however, found that the assessee was carrying on the business of construction and development, and the unsold units were part of the stock-in-trade. The Tribunal referred to several decisions, including: - Ferani Hotels Pvt. Ltd. Vs. ACIT, where it was held that the unsold flats which are stock-in-trade should be assessed under the head "business income" and not "income from house property." - M/s. Runwal Constructions Vs. ACIT, where the Tribunal held that the AO was not justified in estimating rental income from unsold flats under section 23 of the Act. - M/s. C.R. Developments P. Ltd. Vs. JCIT, where the Supreme Court held that rental income from properties held as stock-in-trade should be treated as business income. The Tribunal in the present case found that the factual position was similar to the earlier case and other cited decisions. Therefore, by honoring these decisions, the Tribunal deleted the addition raised by the AO on account of notional income of the vacant flats. Conclusion: The Tribunal concluded that the CIT(A) was not justified in confirming the disallowance of ?21,70,233/- on account of the annual letting value of unsold flats lying in closing stock under the head "income from house property." The grounds raised by the assessee were allowed, and the appeal was decided in favor of the assessee. The order was pronounced in the open court on 22.06.2021.
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