BHGAWATI ABHILASHA CONVENTURE,MUMBAI vs. THE ACIT 26(1), MUMBAI

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ITA 8591/MUM/2025Status: DisposedITAT Mumbai21 August 2026AY 2017-186 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that for Assessment Year 2017-18, deemed rental income on unsold stock-in-trade cannot be assessed as the relevant amendment to Section 23(5) of the Act was effective only from April 1, 2018. Therefore, the addition made by the Assessing Officer was directed to be deleted.

What were the facts?

The assessee's appeal concerned an addition of Rs. 31,56,978/- on account of deemed rental income from unsold stock-in-trade for AY 2017-18. The assessee argued that Section 23(5) of the Income Tax Act, which deals with deemed rental income on unsold stock, was amended to apply only from AY 2018-19 onwards.

What were the issues?

Whether deemed rental income can be assessed on unsold stock-in-trade for AY 2017-18, considering the applicability of Section 23(5) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 23(5)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: SHRI CHALLA NAGENDRA PRASAD & SHRI MAKARAND VASANT MAHADEOKAR

Pronounced: 21/08/2026

PER SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER:

This appeal is filed by the assessee against the order of the learned CIT(A)-NFAC, Delhi, dated 16.10.2025 for the assessment year 2017-18.

2.

The assessee has raised the following grounds of appeal:

“1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in dismissing the appeal against the assessment order dated 24.03.2023 for AY2017-18. 2. On the facts & in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the Addition of Rs.31,56,978/- on account of Deemed rental income i.r.o. finished stock in trade as per assessment order for AY2017-18. 3. On the facts & in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in not fully and properly appreciating the facts and submissions.” 2. Ld. Counsel for the assessee, at the outset, submitted that the addition was made on account of deemed rental income on unsold flats, which were shown as stock-in-trade by the assessee, is in the business of real estate/construction. Ld. Counsel for the assessee further submitted that in assessee's own case for the assessment year 2018-19, the issue came up for consideration pursuant to the proceedings u/s 263 of the Act by the learned CIT, holding that the assessment framed u/s 143(3) for the assessment year 2018-19 is erroneous and prejudicial to the interests of the Revenue for the reason that the Assessing Officer did not bring to tax the notional deemed rental income as per the provisions of section 23(5) of the Act. Ld. Counsel for the assessee submitted that the Tribunal in ITA No.1698/Mum/2023, vide order dated 18.12.2023, considering the submissions of the assessee and various decisions, though agreeing with the contention of the assessee that there cannot 2 be any deemed notional rental value assessable in respect of unsold stock-in-trade for Assessment Year 2017-18. However, by virtue of the amendment to the provisions of section 23(5) of the Act, the unsold stock-in-trade also attracts deemed rental income from 01.04.2018 relevant to assessment year 2018-19 onwards. Ld. Counsel therefore submitted that until the assessment year 2017-18, no deemed rental value can be assessable on the unsold stock-in-trade of the assessee. Reliance was placed on the decisions of the Coordinate Benches in the case of DCIT vs. M/s Bengal Shapoorji Housing Development Pvt. Ltd. in ITA No. 4369/Mum/2019, dated 23.03.2021 and DCIT vs. Neepa Real Estate (P) Ltd. reported in (2024) 116 ITR (Trib) 247 (Mumbai).

3.

Heard rival contentions, perused the orders of the authorities below. On perusal of the order of the Tribunal, it is observed that the aforesaid issue as to whether there can be a deemed notional rental value assessable on the unsold stock-in- trade of the assessee u/s 23(5) of the Act was addressed holding that for the assessment year 2017-18 there cannot be any deemed notional rental value on the unsold stock-in-trade of the assessee. The Tribunal held that by virtue of the amendment of section 23(5) of the Act, which was brought into the statute from 01.04.2018 for assessing the deemed rental value on unsold stock-in-trade applies only from the assessment year 2018-19 onwards. Therefore, while disposing of the appeal against the order passed by the learned PCIT for the assessment year 2018-19, though the Tribunal held that the Ld. PCIT is right in holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue for the reason that no deemed rental value was assessed by Assessing Officer on the unsold stock-in-trade for Assessment Year 2018-19, the Tribunal observed that since the provisions of section 23(5) of the Act are not applicable for the assessment year 2017-18, deemed rental value on the unsold stock-in-trade of the assessee cannot be assessed for Assessment Year 2017- 18.

4.

The view of the Tribunal that there cannot be any notional rental value on the unsold stock-in-trade of the assessee was upheld by the Hon'ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd. as reported in 296 ITR 661 (Guj.), which decision was consistently followed by the Mumbai Bench of the Tribunal in C.R. Development Pvt. Ltd. vs. JCIT (OSD), ITA No.4277/Mum/2012, and Runwal Constructions vs. ACIT in ITA No. 5408/Mum/2016. We are also aware of the decision of the Hon'ble Delhi High Court in the case of CIT vs. Ansal Housing Finance & Leasing Company Ltd., (2013) 354 ITR 180 (Del), which was held against the assessee. However, in view of the conflicting decisions, the Coordinate Benches, following the decision of the Hon'ble Supreme Court in the case of Commissioner of Income-Tax vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC), the decision in favour of the assessee was adopted.

5.

Thus, in view of the above discussion, we direct the Assessing Officer to delete the addition made in respect of deemed rental income on the unsold flats held in stock-in-trade by the assessee for Assessment Year 2017-18. The grounds raised by the assessee are allowed.

6.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 21/08/2026

Sd/- Sd/- MAKARAND VASANT MAHADEOKAR CHALLA NAGENDRA PRASAD ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 21/08/2026 Prabhat Copy to: BHGAWATI ABHILASHA CONVENTURE, A-35, PATIL BHUVAN, N.S. ROAD, 1 MULUND WEST., MUMBAI-400080, MAHARASHTRA THE ACIT 26(1), ROOM NO. 302, 3 RD FLOOR, KAUTILYA 2 BHAVAN, C-41 TO C-43 G-BLOCK. BKC, BANDRA EAST., MUMBAI-400051, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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