2025 (2) TMI 1079 - AT - Income Tax

Addition of rental income on unsold inventories held by the Assessee under the head income from house property - as argued If the property is shown as stock-in-trade then the said property would partake the charcter of stock of the assessee and income derived from stock would be income from business and not income from house property - HELD THAT - We are of the considered view that for the impugned year under consideration there was no spedific charging section which could subject notional value of unsold stock/inventory as income under the head income from other sources. We note that sub-section (5) to Section 23 of the Act was introduced w.e.f. 01.04.2018 to tax income from property held as stock-in-trade. Accordingly for the impugned year under consideration there was no specific charging section which could subject this income in the hands of the assessee. As in Ahmedabad Tribunal in the case Takshshila Realties 2023 (9) TMI 219 - ITAT AHMEDABAD has held that where assessee a builder and developer had unsold flats in various building which were shown as closing stock and no rental income was earned in view of the amendment to Section 23 effective from A.Y. 2018-19 providing that if an assessee holds house property as stock-in-trade and does not let out for the whole or part of the year annual value will be considered NIL up to one year from Financial Year in which a completion certificate is obtained any addition made on account of notional ALV is liable to be deleted. Thus the aforesaid amount is not liable to be added as income of the assessee under the head income from house property . Appeal of the assessee is allowed.

Summary

The appeal in this case was filed by the Assessee against an order passed by the Ld. Commissioner of Income Tax (Appeals) for the assessment year 2014-15. The core issues presented and considered in this case were related to the additions and disallowances made by the tax authorities, specifically regarding the computation of rental income on unsold inventories held by the Assessee under the head "income from house property."The Assessee argued that the unsold inventories were held as stock-in-trade and not as fixed assets, therefore not liable to be assessed as rental income under the head "income from house property." The Assessing Officer, however, held that as per Section 22 of the Income Tax Act, the property owner is liable to pay tax on the property, and even if the property is not let out, the notional value of the property should be offered as rental income.In the appeal, the Ld. CIT(A) dismissed the appeal of the Assessee on the grounds of non-appearance and lack of evidence to support the claim. The Ld. CIT(A) emphasized that the burden of proof is on the Assessee to prove exemption or challenge the taxability of income.Upon further review, the Appellate Tribunal noted that for the relevant assessment year, there was no specific charging section that could subject the notional value of unsold stock/inventory as income under the head "income from other sources." The Tribunal referred to a precedent where it was held that if an Assessee holds house property as stock-in-trade and does not let it out, the annual value would be considered nil for a certain period. Therefore, the Tribunal concluded that the amount in question was not liable to be added as income under the head "income from house property."In conclusion, the appeal of the Assessee was allowed, and the addition of the disputed amount as income from house property was set aside. The Tribunal's decision was based on the absence of a specific charging section for the relevant assessment year and the precedent supporting the Assessee's position.This judgment highlights the importance of specific legal provisions and precedents in determining the taxability of income, especially in cases involving the treatment of unsold inventories held by real estate developers.