RAMANI BROTHERS,AHMEDABAD vs. THE DY.C.I.T. CIRCLE-3(1)(1), AHMEDABAD

ITA 2444/AHD/2026Status: DisposedITAT Ahmedabad14 October 2026AY 2017-1811 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that notional rental income in respect of unsold flats held as stock-in-trade by a real estate developer cannot be brought to tax under the head 'Income from House Property' for AY 2017-18. The Tribunal noted that Section 23(5) of the Act, which specifically addresses such situations by deeming the annual value to be nil for a period of two years from the end of the financial year of completion of construction, was inserted with effect from AY 2018-19. The Tribunal relied on the decisions of the Coordinate Bench in Galaxy Developers vs. ACIT and the Third Member decision in Moraj Finanz Corporation vs. DCIT, which held that notional annual letting value of unsold units held as stock-in-trade cannot be taxed under Section 22 for assessment years prior to the applicability of Section 23(5). The Tribunal further observed that a decision of the Hon'ble Jurisdictional High Court in CIT vs Classique Associate (Supra) also supports the view that income from unsold flats/units held as stock in trade cannot be assessed under the head 'Income from House Property'. Therefore, the addition of Rs. 5,79,697/- made on account of notional rental income and sustained by the CIT(A) was deleted. The appeal was allowed.

What were the facts?

The assessee, Ramani Brothers, a real estate developer, filed its return for AY 2017-18. The Assessing Officer (AO) noted eight unsold residential flats in the 'Sarita Galaxy' project, for which building-use permission was obtained in FY 2013-14. The AO proposed to tax notional rental income on these unsold units under 'Income from House Property', as the assessee had not offered any such income. The assessee contended that these were stock-in-trade and Section 23(5) of the Income Tax Act, 1961, which deals with such situations, was applicable only from AY 2018-19. The AO made an addition of Rs. 5,79,697/-. The CIT(A) upheld this addition, relying on the decision in CIT v. Ansal Housing Finance & Leasing Co. Ltd. The assessee appealed to the ITAT.

What were the issues?

1. Whether, on the facts and in law, the addition of Rs. 5,79,697/- towards notional rent in respect of unsold stock-in-trade of residential flats is sustainable under Section 23(5) of the Income Tax Act, 1961 for AY 2017-18? Assessee's Contention: The assessee argued that the unsold flats were stock-in-trade and not held for rental income. For AY 2017-18, there was no specific provision to tax notional rental income on unsold inventory. Section 23(5) was inserted only from AY 2018-19 and cannot be applied retrospectively. The AO's estimation of annual letting value (ALV) at 7% of closing stock was purely notional and lacked specific evidence. The assessee relied on the ITAT Ahmedabad Bench decision in Galaxy Developers vs. ACIT and a Third Member decision in Moraj Finanz Corporation vs. DCIT, which held that notional income from stock-in-trade cannot be taxed under 'Income from House Property' for AYs prior to the applicability of Section 23(5). Revenue's Contention: The revenue, through the AO and CIT(A), contended that the provisions of Section 22 of the Income Tax Act, 1961, were attracted based on ownership, irrespective of the classification as stock-in-trade. The CIT(A) relied on CIT v. Ansal Housing Finance & Leasing Co. Ltd. and found no sufficient documentary evidence to disprove the AO's estimation of ALV.

Which sections of the Income-tax Act were involved?

Section 23(5),Section 22,Section 143(3),Section 270A,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD

Before: SHRI RAHUL CHAUDHARY, JUDICIALMEMBER &SHRI GANGADHAR PANDA

For Appellant: Shri Mehul K Patel, AR
For Respondent: Shri Amit Pratap Singh, Sr. DR
Hearing: 06.10.2026Pronounced: 14.10.2026

PER GANGADHAR PANDA - ACCOUNTANTMEMBER:

The captioned appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “Ld. CIT(A)”), ADDL/JCIT(A), Panaji dated 25.02.2026 under Section 250 of the Income Tax Act, 1961 arising out of the Assessment Order, dated 21.12.2019 completed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2017-18. 2. The assessee has raised the following grounds of appeal: “(1) That on facts, and in law, the learned NFAC has grievously erred in confirming t

The order continues below.

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