2023 (4) TMI 1345 - AT - Income Tax

Revision u/s 263 - determination of correct head of income - As per CIT assessee being in the business of real estate, had closing stock of completed units, but no income therefrom had been returned in terms of deemed annual letting value (ALV) u/s 22 to be subjected to tax as Income from house property - assessee pointed out that the AO had rightly not invoked the provisions of section 22 on the unsold completed units of the assessee, since the units constituted stock-in-trade of the assessee and income if any from the same was assessable to tax under the head Income from business and professions and not under the head Income from house property HELD THAT - The income from constructed units of the assessee held as stock-in- trade was not assessable under the head income from house property as held by the ld.Pr.CIT. See Neha Builders 2006 (8) TMI 105 - GUJARAT HIGH COURT . As noted that even before the AO this issue was raised by the AO vide his notice issued u/s 142(1) specifically asking the assessee to show cause as to why notional income from house property u/s 22 should not be worked out and added to the income of the assessee for the impugned year. There was no error in the order of the AO who had accepted the explanation of the assessee that no income from completed units was assessable under the head income from house property following the decision of jurisdictional High Court in the case of Neha Builders P. Ltd. (supra). Appeal of the assessee is allowed.

Issues:
1. Jurisdiction of revision under section 263 of the Income Tax Act, 1961.
2. Taxability of notional rent from stock-in-trade under "Income from House Property."
3. Allowance of vacancy allowance and estimation of annual letting value.

Issue 1: Jurisdiction of revision under section 263 of the Income Tax Act, 1961

The appeal was filed against the order passed by the Principal Commissioner of Income Tax under section 263 of the Income Tax Act for the Assessment Year 2017-18. The grounds raised by the assessee challenged the jurisdiction of the Principal Commissioner under section 263, arguing that the original assessment order was not erroneous or prejudicial to the Revenue. The Principal Commissioner invoked jurisdiction based on the assessee's business of real estate and the failure to report rental income from completed units under the head "Income from House Property." The Principal Commissioner found the original assessment erroneous as it did not consider the deemed annual letting value under section 22 of the Act, causing prejudice to the Revenue. The assessee contended that the completed units were stock-in-trade and income should be taxed under "Income from Business and Professions." The Tribunal held that the jurisdictional High Court's decision in a similar case was applicable, and the income from stock-in-trade was not taxable under "Income from House Property." The Tribunal set aside the Principal Commissioner's order under section 263, allowing the assessee's appeal.

Issue 2: Taxability of notional rent from stock-in-trade under "Income from House Property"

The Principal Commissioner argued that the assessee should have reported notional rental income from completed units held as stock-in-trade under "Income from House Property." The assessee contended that the units were stock-in-trade and income should be taxed under "Income from Business and Professions." The Tribunal found that the nature of the property, whether stock-in-trade or not, was crucial for determining the taxability. The Tribunal held that the decision of the jurisdictional High Court in a similar case applied, and the income from stock-in-trade was not taxable under "Income from House Property." The Tribunal noted that the AO had correctly accepted the assessee's explanation based on the High Court's decision. Consequently, the Tribunal set aside the Principal Commissioner's order and allowed the assessee's appeal.

Issue 3: Allowance of vacancy allowance and estimation of annual letting value

The assessee also challenged the Principal Commissioner's decision not to allow vacancy allowance and to estimate the annual letting value of closing inventory. The Tribunal found merit in the assessee's contentions based on the High Court's decision. The Tribunal held that the AO had correctly followed the High Court's decision, and there was no error in not allowing vacancy allowance or estimating annual letting value. Consequently, the Tribunal set aside the Principal Commissioner's order and allowed the assessee's appeal.

In conclusion, the Tribunal ruled in favor of the assessee, setting aside the Principal Commissioner's order under section 263 and allowing the appeal. The Tribunal held that income from completed units held as stock-in-trade was not taxable under "Income from House Property," following the jurisdictional High Court's decision. The Tribunal also upheld the AO's decision regarding vacancy allowance and annual letting value estimation based on the High Court's precedent.

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