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TMI Blog2021 (4) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... DR ORDER PER SHRI PAVANKUMAR GADALE JM : The assessee has filed the appeal against the order of the Ld. Commissioner of Income Tax (Appeals)-52 (for short 'the CIT(A)'), Mumbai passed u/sec. 143(3) and 250 of the Income Tax Act, 1961 (for short 'the Act'). The assessee has raised the following grounds of appeal: 1(a). On the facts and in the circumstances of the case as well as in law, learned CIT(A) erred in confirming the disallowance amounting to ₹ 1,20,19,841/- considering the Annual Letting Value of unsold flats which is closing stock of the appellant, treated as Income from House Property . 1(b). On the facts and in the circumstances of the case as well as in law, learned CIT(A) erred in not following jurisdictional ITAT decisions which squarely apply to the facts of the appellant's case, which are as under:- Sr. No. Description (i) Makewaves Sea Resort Pvt. Ltd. v/s DCIT, Central Circle -4(1), Mumbai, ITA No. 36/MUM/2018 and 37/MUM/2018 decided on 20 th March, 2019. (ii) Ferani Hotels Pvt. Ltd. v/s ACIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO find that the stock of finished goods consists of flats of value of ₹ 32,44,35,530/- and required the assessee to explain why Annual Letting Value (ALV) of the unsold properties should not be computed. In response to the same, the assessee has filed the details referred at para-5.2 of the assessment order. The A.O. considered the submissions and proviso to section 23 of the Act and the judicial decisions and finally observed that the Annual Letting value (ALV) of the finished flats held by the assessee as closing stock has to be treated as Income from House Property after allowing the deductions. The A.O. worked out ALV @ 7% on the investments of flats being ₹ 1,71,71,201/- and allowed deduction @30% of the ALV and made addition of ALV of unoccupied properties in three projects to the extent of ₹ 1,20,19,841/-. Similarly, the AO made a disallowance of ₹ 2,49,386/- by adopting rate@12% on interest free funds and assessed the total income of ₹ 2,16,01,41,680/- and passed the order u/s. 143(3) of the Act dated 18.12.2018. 3. Aggrieved by the order of AO, the assessee has filed the appeal before the CIT(A). The CIT(A) dealt on the disputed issue of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under:- 6. Under this issue the assessee has challenged the confirmation of the addition of ₹ 13,22,90,044/- under the head of income from house property on account of deemed income from unsold unit/flat which was closing stock of the appellant as per provisions of Sections 22 and 23 of the Act. At the very outset, the Ld. Representative of the assessee has argued that the assessee is deriving its income from hotel business and construction. The assessee was also deriving income from dividend, share of profit and sale of flats and due to the recession, the assessee failed to sold out all the flats, therefore, some flats remain vacant which was being treated as stock in trade. The AO has wrongly assessed the notional rent and assessed the rent in view of the provision u/s. 24 of the Act wrongly which can only be treated under the head of income from business, therefore, the finding of the CIT(A) is wrong against law and facts and is liable to be set aside. It is also argued that the case of the assessee is fully covered by the case of Runwal Construction Vs. ACIT in ITA. No. 5408/M/2016 C.R. Developments Vs. JCIT in ITA. No. 4277/M/2012 dated 13.05.2015. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess stocks, which may include movable and immovable, would be taken to be stock in trade and any income derived from such stocks cannot be termed as income from house property. While holding so the Hon'ble High Court observed as under:- 8. True it is, that income derived from the property would always be termed as 'income' from the property, but if the property is used as 'stock-in-trade', then the said property would become or partake the character of the stock, and any income derived from the stock, would be 'income' from the business, and not income from the property. If the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the 'business' and the business stocks, which may include movable and immovable, would be taken to be 'stock-in-trade', and any income derived from such stocks cannot be termed as 'income from property'. Even otherwise, it is to be seen that there was distinction between the 'income from business' and 'income from property' on one side, and 'any income from other sources'. The Tribunal, in our considered op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Supreme Court in the case of M/s. Chennai Properties Investments Ltd. Vs. CIT, reported in (2015) 42 SCD 651, vide judgment dated 9-4-2015 has held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of AO treating the rental income as income from house property in place of income from business shown by the assessee was held to be not justified. The Hon'ble Supreme Court held that since the assessee company's main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business. On the very same analogy in the instant case, assessee is engaged in business of construction and development, which is main object of the assessee company. The three 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 these three flats as income from house property was not justified insofar as these flats were neither given on rent no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, assessee is engaged in business of construction and development, which is main object of the assessee company. The three 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 these three 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 of the I.T. Act. 8. In the factual position of the present case is quite similar to the facts of the case mentioned above. In view of the law relied upon the law representative of the assessee i.e. M/s. Runwal Constructions Vs. ACIT and M/s. C.R. Developments P. Ltd. Vs. JCIT (supra), we are of the view that the finding of the CIT(A) on this is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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