2023 (4) TMI 312 - AT - Income Tax

Deemed rent u/s. 23(4) - rent on unsold flats - deemed rent in respect of unsold units be brought to tax under the head Income from house property - assessee is a company engaged in the business of property development - As explained that the 15 unsold flats cumulatively admeasuring 17341 sq. ft. were not sold during the year under consideration and they were treated as closing stock - HELD THAT - We note that the assessee treated the same as 15 unsold flats as stock-in-trade which means that the profits on its sale would be offered as business income and no rental income received by the assessee from such 15 unsold flats. Therefore, facts in the case of Gundecha Builders 2019 (1) TMI 112 - BOMBAY HIGH COURT are different from the facts of the present case in hand. Thus, we reject the arguments of ld. DR of applicability of observation in the case of Gundecha Builders (supra). This Tribunal in the case of Sai Spacecon India Pvt. Ltd. 2022 (1) TMI 1361 - ITAT PUNE held no addition on account of deemed rent on unsold flats could be made in the hands of the assessee. We hold that the order of CIT(A) is not justified in confirming the view of AO in levying deemed rent u/s. 23(4) of the Act on account of income from house property. Grounds raised by the assessee are allowed.

Summary

Issues:
Questioning the action of CIT(A) in confirming the order of AO on account of deemed rent u/s. 23(4) of the Act.

Analysis:
The appellant, a company engaged in property development, contested the levy of deemed rent on unsold units under the head "Income from house property." The AO and CIT(A) held that the appellant, having passive possession of unsold flats, should be charged deemed rent under section 23(4) of the Act. The appellant argued that no rent was derived from the unsold flats as they were not let out and treated them as closing stock. The appellant cited case laws supporting their stance. The DR, however, referenced judgments holding that deemed rent on unsold flats is chargeable. The Tribunal examined the facts, distinguishing them from previous cases, and concluded that no addition on account of deemed rent could be made in the appellant's case, as the flats were treated as stock-in-trade and not let out. The Tribunal highlighted the conditions for exclusion under section 22 of the Act, which were satisfied in the appellant's case, leading to the allowance of the appeal.

In light of the above analysis, the Tribunal held that the CIT(A) erred in confirming the AO's decision to levy deemed rent under section 23(4) of the Act. Consequently, the grounds raised by the appellant were allowed, and the appeal was allowed in favor of the appellant.