2021 (7) TMI 217 - AT - Income Tax

Income from house property - Taxability of annual letting value in respect of unsold stocks in the case of builder / construction companies - deemed income from unsold unit/flats which was the closing stock of the assessee under the year of consideration in view of the provisions u/s 22 2 - HELD THAT - As decided in own case 2019 (3) TMI 1892 - ITAT MUMBAI flats which could not be sold at the end of the year was shown as stock-in- trade. - Estimating rental income by the AO for 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. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Taxability of annual letting value of unsold flats under the head 'Income from House Property'.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed appeals for A.Y. 2014-15 and 2015-16 with delays of 382 days and 233 days, respectively. The assessee argued that the delay was due to a lack of clarity on whether the annual letting value of unsold flats in the case of builders and construction companies would be taxable under 'Income from House Property'. The Tribunal had divergent views on this issue, and the assessee waited for a consistent decision. The Tribunal noted several cases where the issue was decided in favor of the assessee, including decisions by the Hon’ble Gujarat High Court and other High Courts, which constituted sufficient cause for the delay. The Tribunal referred to guidelines laid down by the Hon'ble Supreme Court and various High Courts, emphasizing a liberal approach towards condonation of delay to ensure substantial justice. The Tribunal found no evidence of deliberate delay or malafide intent by the assessee and thus condoned the delay, admitting the appeals for adjudication.

2. Taxability of Annual Letting Value of Unsold Flats:
The core issue was whether the annual letting value of unsold flats, considered as closing stock, should be taxed under 'Income from House Property'. The Tribunal observed that both parties agreed that the issue had been decided in favor of the assessee in its own case for A.Y. 2013-14. The Tribunal cited multiple decisions, including those of the Hon’ble Gujarat High Court in CIT vs. Neha Builders Pvt. Ltd., which held that if properties are treated as stock-in-trade, any income derived from them should be considered 'Income from Business' and not 'Income from House Property'. The Tribunal also referenced decisions in cases like Ferani Hotels Pvt. Ltd., Runwal Constructions, and C.R. Developments Pvt. Ltd., where it was consistently held that unsold flats held as stock-in-trade should not be taxed under 'Income from House Property'. The Tribunal concluded that the assessee's unsold flats, being stock-in-trade, should be assessed under 'Income from Business' and directed the AO to delete the addition made under Section 23 of the Act.

Conclusion:
The Tribunal allowed the appeals of the assessee, condoning the delay in filing and ruling that the annual letting value of unsold flats held as stock-in-trade should not be taxed under 'Income from House Property'. The decision was pronounced on 01/07/2021.