2021 (12) TMI 976 - AT - Income Tax

Income from house property - Deemed let out value of the closing stock under the head income from house property - AO adopted 8% of the cost as fair and reasonable ALV of the property - Assessee contended that the notional rent cannot be charged on the unsold flats which are closing stock of the assessee - HELD THAT - As decided in M/S. RUNWAL CONSTRUCTIONS RUNWAL AND OMKAR ESQUARE 2018 (2) TMI 1707 - ITAT MUMBAI in the case on hand before us it is an undisputed fact that both assessees have treated the unsold flats as stock in trade in the books of account and the flats sold by them were assessed under the head income from business . Thus, respectfully following the above said decisions we hold that the unsold flats which are stock in trade when they were sold they are assessable under the head income from business when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect of those unsold flats under the head income from house property . Thus, we direct the AO to delete the addition made under Section 23 of the Act as income from house property Thus allow the grounds raised by the assessee and direct the Assessing Officer to delete the notional rent assessed on the property held as stock in trade. Grounds raised by the assessee are allowed.

Summary

Issues:
Appeal against the order of the Learned Commissioner of Income Tax (Appeals) regarding the addition of deemed let out value of closing stock under income from house property.

Detailed Analysis:

Issue 1: Addition of deemed let out value of closing stock
The Assessing Officer computed the annual letting value of unsold flats as 8% of the closing stock. The assessee argued that notional rent cannot be charged on unsold flats. The Ld.CIT(A) upheld the AO's decision. The assessee cited precedents from Mumbai benches of the Tribunal and decisions from the Hon'ble Gujarat and Culcutta High Courts. The Tribunal noted that the property was stock in trade and held that notional rent cannot be assessed under income from house property. Referring to a similar case, the Tribunal emphasized that income from stock in trade is business income, not income from house property. The Coordinate Bench also ruled that unsold flats held as stock in trade should be assessed under business income, not house property income. Citing the Hon'ble Supreme Court's decision, the Tribunal held that rental income from properties held as stock in trade is assessable as business income. The Tribunal directed the AO to delete the addition made under Section 23 of the Act as income from house property.

Conclusion:
The Tribunal allowed the appeal, directing the Assessing Officer to delete the notional rent assessed on the property held as stock in trade. The decision was based on the principle that income from unsold flats held as stock in trade should be treated as business income, not income from house property. The Tribunal's ruling was in line with previous judgments and legal interpretations, emphasizing the distinction between income from business and income from property.