ASSISTANT COMMISSIONER OF INCOME TAX, DELHI vs. AAKARSHAN ESTATE PVT LTD(EARLIER KNOWN AS PAARTH INFRATECH PVT LTD), DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’, NEW DELHI BEFORE SH. SATBEER SINGH GODARA, JUDICIAL MEMBER AND SH. NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 6019/Del/2025 (Assessment Year : 2018-19) ACIT Vs. AAkarshan Estate Pvt. Ltd. 404, C R Building, I.P. Estate (earlier known as Paarth New Delhi – 110 002 Infratech Pvt. Ltd.) Shop No.20, M2K Mall Mangalam Place Rohini District Centre, Sector – 3, Delhi – 110 085 PAN No. AAECP 5934 D (APPELLANT) (RESPONDENT) Assessee by Shri Shri C. M. Jain, C.A. Revenue by Shri Ravi Kant Choudhary, Sr. D.R. Date of hearing: 18.05.2026 Date of Pronouncement: 05.06.2026

ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER : This captioned appeal has been filed by the Revenue against the order of the learned CIT(A)/NFAC Delhi dated 04.07.2025 arising out of the assessment order under section 143(3) r.w.s.144B of the Income- tax Act, 1961 (hereinafter referred as ‘the Act’) passed on 23.04.2021

ITA No. 6019/DEL/2025 [A.Y 2018-19] ACIT vs. Aakarshan Estate Pvt. Ltd. by the Assessing Officer, ITO, DEL-W-(49)(5) concerning Assessment Year (A.Y.) 2018-19. 2. Brief facts of the case are that the assessee is a company/real estate developer and it has developed/constructed a commercial project name “M2K Corporate Park” in sector-51, May Field, Gurgaon. The assessee had filed its return of income on 31.10.2018 for A.Y. 2018-19 declaring total income of Rs. 1,01,70,868/-. Accordingly, the case was selected for complete scrutiny under the CASS to examine the issues of (i) disallowance u/s 40A(7), (ii) unsecured loan, (iii) investment/advances/loan, (iv) Stock valuation. Subsequently, several notices u/s 143(2)/142(1) of the Act/show cause notices were issued from time to time. 3. The AO noticed that the assessee had converted the entire commercial units of 184294.33 Sq. as its investment but let out 102572 Sq. for a rent of Rs. 5,51,62,000/- whereas the entire area of 184294.33 Sq. Ft. could have been let out for Rs. 9,91,11,118/-. After considering the details of the assessee, the AO completed the assessment proceedings u/s 143(3) r.w.s 144B the Act on 23.04.2021 with the addition of Rs. 4,39,49,118/- on account of notional rent & determined total assessed income of Rs. 3,39,36,490/-.

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ITA No. 6019/DEL/2025 [A.Y 2018-19] ACIT vs. Aakarshan Estate Pvt. Ltd. 4. Aggrieved, assessee was in appeal before the learned CIT(A)/NFAC who allowed the appeal. The Revenue is now aggrieved, and is now in appeal before us with the following grounds: “1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition/disallowance of ₹4,39,49,118/- on the account of notional rent without properly appreciating the facts of the case. 2. On the facts and the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition/ disallowance of ₹4,39,49,118/- on account of notional rent without properly appreciating the provisions of section 22 & 23 of the IT Act 1961. 3. The Ld. CIT(A) has failed to consider that the assessee had in fact leased out part of the premises and earned rental income therefrom, which proves that the unsold portion was also capable of generating rental income. 4. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.” 5. The ld AR relied on the orders of the CIT(A) and relied upon the following judgments: A. Premsudha Exports (P.) Ltd. vs. ACIT, ITAT Mumbai Bench ‘C’ B. Smt. Shakuntala Devi vs. DDIT, ITAT, Bangalore Bench C. Smt. Indu Chandra vs. Dy. CIT, ITAT Lucknow Bench D. DLF Office Developers vs. ACIT, ITAT, Delhi Bench ‘I’ E. Kamal Mishra vs. ITO, ITAT, Delhi Bench ‘I’ 6. Per contra, the ld DR relied on the order of the AO and the provisions of section 23(1)(c) provides for taxation of notional rent. 7. We have heard the rival submissions and perused the material available on record. We find that the learned CIT(A)/NFAC partly decided the issue in favour of the assessee by observing as under:

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ITA No. 6019/DEL/2025 [A.Y 2018-19] ACIT vs. Aakarshan Estate Pvt. Ltd. “After examining the submission as well as evidence filed by the appellant during the assessment as well as appellate proceedings, it is seen that the appellant is a real estate developer engaged in the construction and development of commercial space. The appellant developed a commercial project named “M2K Corporate Park” located at Sectior-51, Gurgaon & the Occupancy Certificate was received on 21.10.2016. During the year under consideration, the appellant had converted its balance unsold inventory (stock-in-trade) into capital investment on 01.01.2018. On verification of the relevant details/documents, it reveals that the actual vacant areas was only 48,692/- sq. ft., as opposed to the figure of 81,722/-. It is also observed that an area of 1,02,572/- sq. ft. was let out during the financial year and the appellant offered the corresponding rental income of Rs. 5,51,62,000/- in its books of account. Further, 33,031 sq.ft. was actually let out for part of the year and the rental income from this portion was duly accounted for in the Profit & Loss Account. Apart from, it is noticed from the details/document, I find that the total builtup area of the project developed by the appellant amounted to 2,75,444 square feet. Out of this, a portion measuring 91,149.67 square feet was sold to customers in the ordinary course of business and the remaining portion, aggregating to 1,84,294.33 square feet, which was originally held as stock-in-trade (inventory) was subsequently converted into an investment property by the appellant. It is a fact that in the commercial leasing market that there exists a significant difference in the rental valuation between bare shell spaces and fully furnished or well-fitted out commercial premises. In view of the above facts, it is clearly established that the appellant was entitled to the benefit of sub-section (5) of Section 23 of the I.T. Act, which specifically provides that no notional rent is to be charged on properties held as stock-in-trade. Accordingly, for the period ending 31.03.2018, the deeming fiction of notional rent is not applicable. However, the Assessing Officer (AO) failed to appreciate or apply the provision of Section 23(5) in its correct legal context and erroneously proceeded to compute notional rent for the entire year, without apportioning between the periods during which the property was held as stock-in trade and when it was converted into a capital asset.

It is further submitted that the appellant had duly converted the unsold inventory into a capital asset on 01.01.2018. Therefore, even if any deemed rental income were to be computed, it could only be

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ITA No. 6019/DEL/2025 [A.Y 2018-19] ACIT vs. Aakarshan Estate Pvt. Ltd. done for the post-conversion period. The AO’s omission to consider the statutory exemption available under Section 23(5) renders the addition legally untenable and liable to be deleted.

The AO has incorrectly presumed a vacant area of 81,722 sq. ft. without conducting any independent inquiry, verification, or providing a rationale for such estimation. In contrast, the appellant furnished comprehensive documentary evidence, including lease agreements, profit and loss statements, and tenancy records, to substantiate that out of the total built-up area, 1,02,572 sq. ft. was already let out, generating rental income of Rs. 5,51,62,000/-, which was duly disclosed and offered to tax.

In addition, a further 33,031 sq. ft. was under partial lease arrangements, and the income from this portion was also reported in the return of income. As such, only 48,692 sq. ft. remained vacant during the relevant period.

The AO’s estimation is thus based on a mathematically erroneous and inflated figure, leading to an arbitrary and excessive computation of deemed rent. Moreover, the AO failed to issue any show-cause or seek a rebuttal from the appellant before drawing adverse conclusions, which is a breach of principles of natural justice. This reinforces that the addition is not supported by facts or law and deserves to be set aside.

Upon a careful review of the facts and appellant submissions, it is observed that the conversion of stock-in-trade into investment property occurred on 01.01.2018. Consequently, any notional rent can be computed only for the balance three-month period of the financial year — i.e., January to March 2018. This is consistent with the position that notional rent under section 23(1)(a) is applicable only to investment properties and not to stock-in-trade within the exempt period defined under section 23(5).

To compute the appropriate annual letting value (ALV) for the vacant portion of the property during this three-month post- conversion window, the following parameters are applied:

Vacant Area: 48,692 sq. ft. (as per verified records and tenant schedules)

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ITA No. 6019/DEL/2025 [A.Y 2018-19] ACIT vs. Aakarshan Estate Pvt. Ltd. Estimated Market Rent: 50 per sq. ft. per month (based on actual lease transactions of similar units in the same premises) Accordingly, the computation of notional rent is as follows: Monthly Notional Rent = 48,692 sq. ft. × 50 = 24,34,600 Total Notional Rent for 3 Months (Jan–Mar 2018) = 24,34,600 × 3 = 73,03,800 The above computation of deemed rent is commensurate with the rent received by the appellant during the assessment proceedings as per the available agreements as submitted during the assessment proceeding. The deemed rent is similar to income earned for the 9 months reflects reasonable expected rental potential of bare shell commercial premises, and avoids arbitrary estimation.

Further, the appellant stated that while computing the income from house property standard deduction was not allowed and hence it is entitled to claim the deduction of Section 24(a) of the Income-tax Act which provides for a standard deduction of 30% from the annual value of property assessed under the head "Income from House Property". This deduction is mandatory in nature and is intended to account for repair and maintenance expenses, regardless of whether they are actually incurred.

In the present case, the Assessing Officer failed to apply this statutory deduction while computing the taxable notional rental income. Once a notional annual value is determined, the deduction under Section 24(a) must be applied automatically.

Accordingly, applying the statutory deduction to the notional rent of as stated hereinabove of Rs. 73,03,800 results as follows: A. Net Taxable Notional Rent = Rs. 73,03,800 B. Standard Deduction (30%) = Rs. 21,91,140 C. Taxable House property Income (A-B)= Rs.51,12,660

Thus the assessing officer is directed to restrict the additions so made to the tune of Rs. 73,03,800/- and allow standard deduction as per the provisions Section 24(a) of the Income-tax Act of Rs. 21,91,140/- thus restricting it to Rs. 51,12,660/- under the head Income from House Property. These grounds of appeals are partly allowed.”

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ITA No. 6019/DEL/2025 [A.Y 2018-19] ACIT vs. Aakarshan Estate Pvt. Ltd. 8. We are of the considered view that the CIT(A) has rightly invoked the application of the provisions of section 23(5) for the purpose of determining the ALV of the vacant area post conversion of asset from ‘stock-in-trade’ to ‘capital asset’. The decision of the CIT(A) is reasonable and appreciative of correct facts as far as the area of the built-up area for which notional rent is determined. We therefore, find no reason to interfere with the decision of the CIT(A). The ground is dismissed. 9. In the result, appeal filed by the Revenue in ITA No.6019/Del/2025 is dismissed. Order pronounced in the open court on 05.06.2026

Sd/- Sd/- (SATBEER SINGH GODARA) (NAVEEN CHANDRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 05.06.2026 Priti Yadav, Sr. Ps* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI

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