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Facts
The assessee, engaged in the business of constructing residential flats, declared a loss for AY 2013-14. The Assessing Officer (AO) made an addition for notional rental income on unsold flats treated as stock-in-trade. The Commissioner (Appeals) confirmed the AO's action.
Held
The Tribunal held that flats held as stock-in-trade, even if unsold, cannot be taxed under the head 'income from house property'. Income derived from such stock is to be treated as 'business income'.
Key Issues
Whether notional rental income from unsold flats, which are stock-in-trade, can be taxed under the head 'income from house property' or 'business income'.
Sections Cited
22, 24(a), 23(5)
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PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessing is directed against the order of National Faceless Appeal Centre- New Delhi/ learned Commissioner (Appeals) dated 07th July 2023 for the assessment year (AY) 2013-14. The assessee has raised four grounds of appeal.
(1) On the facts and in the circumstances of the case and the law, the Commissioner of Income tax (Appeals) was not justified in confirming the action of Assessing Officer in making an addition of Rs. 11,02,060/-under the head income from property for the assessment year under appeal . (2) On the facts and in the circumstances of the case and the law, the Commissioner of Income tax (Appeals) was not justified in confirming the action of Assessing Officer in making an addition of notional income in respect of six flats held by the appellant as stock in trade holding that the appellant was liable to notional income on the same under the provisions of section 22 of the Income tax Act 1961. (3) On the facts and in the circumstances of the case and the law, the Commissioner of Income tax (Appeals) has grossly erred in applying the decision of the Delhi High Court in case of Ansal Housing Finance Leasing & Co Ltd. (4) On the facts and in the circumstances of the case and in law, the Commissioner of Income tax (Appeals) was not justified in confirming the action of the Assessing Officer in estimating ALV of the flats on the basis of rent received in respect of flight No.-1. (5) Without prejudice-on the facts and in the circumstances of the case and in law the Commissioner of Income tax (Appeals) was not justified in confirming the action of Assessing Officer in making an addition by rejecting the adoption of Municipal rateable value as the basis of estimating notional income in respect of six flats (6) On the facts and in the circumstances of the case and the law the Commissioner of Income tax (Appeals) has grossly erred in not granting deduction allowance workers allowance for the period during which the six flats were reckoned in the financial year.
Rival submissions of both the parties have been heard and record perused. The learned authorised representative (ld. AR) of the assessee submits that assessee is engaged in the business of construction of residential flats and most of the unsold units are a stock in trade of the business. While filing return of income on 27th September 2013, for assessment year 2013–14, the assessee declared loss of ₹ 1,65,455/-. The assessing officer made an addition under section 22 of Income Tax Act by applying average rate of notional rental income of ₹ 35,839/- in respect of six flats with which were remained unsold during the year. On appeal before learned Commissioner of Income tax (Appeals), the action of Assessing Officer was confirmed, thus, present appeals filed before this Tribunal. The ld.
AR of the assessee submits that grounds of appeal raised by assessee are in fact covered in favour of assessee in assessee’s own case for earlier and subsequent assessment years; copy of such decision is filed. In earlier and subsequent years, the Assessing Officer made similar addition, which were confirmed by Commissioner of Income tax (Appeals) and on further appeal before Tribunal the additions were deleted. The ld AR of the assessee submits that there is no variations in the facts in the years under consideration. The AR of the assessee submits that unsold units which are stock in trade and income thereof if any is accessible only under the head ‘business income’. To support such submission the ld. AR of the assessee relied upon the decision of honourable Bombay High Court in case of PCIT Versus Classique Associates Ltd. It was further submitted that as per the decision of honourable was Gujarat High Court in CIT Versus Neha Builders Private Limited reported in 296 ITR 661 (Guj) any income derived from stock cannot be taken to be income from ‘house property’. The Gujarat High Court also held that it is true that income from the property would always to be deemed as income from property, but if the property is used as stock in trade, then 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 from ‘house property’. It was further submitted that Pune Tribunal in a recent decision in case of Kumar Properties & Real Estate Private Limited Versus DCIT in dated 28th April 2 021 held that in case the taxpayer has been engaged in the business of development of properties and add certain unsold ‘flats and Bungalows’ is for ready possession at the year end. The department contended that assessee ought to have offered deemed notional rental income on such vacant flats/bungalows. The taxpayer submitted that flats bungalows were its stock in trade, from which no income could be taxed under the head income from ‘house property’. The Tribunal after considering the decision of Delhi High Court in Ansal Housing Finance (supra) and Gujarat High Court in Neha Builder (supra) has taken a view in favour of the assessee. It was also held by Tribunal that section 23(5) cannot be applied for the year under consideration as its application is applicable from AY 2017-18. The ld AR of the assessee has also filed details of rent received during AY 2013-14 vide page No. 12 of paper book.
On the other hand, the learned Senior departmental representative (Sr DR) for the revenue supported the order of lower authorities.
We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by ld AR of the assessee. We find that during assessment the Assessing Office made addition of Rs. The assessing officer by applying average rate of notional rental income of ₹ 35,839/- per flat computed average letting value of six unsold flat at Rs. 16,09,209/- and after allowing statutory deduction and deduction under section 24(a) at the rate of 30% made an addition of Rs.11,02060/- under section 22 of Income Tax Act. On appeal before learned Commissioner of Income tax (Appeals).We find that on similar set of fact, the assessing officer made addition in assessment year 2012-13 and in 2014-15 and on appeal before Commissioner of Income tax (Appeals) the action of assessing officer was upheld. However, on further appeal before Tribunal, the assessee succeeded in both the assessment years vide common order dated 22nd and ITA No. 2777/Mum/2023. Thus, respectfully following the decision of coordinate bench, the action of assessing officer is set aside. Resultantly the addition made on account of notional rental value in respect of six unsold unit are deleted. No contrary facts or law is brought to our notice to take other view. In the result, the grounds of appeal raised by assessee are allowed.
In the result appeal of the assessee is allowed.
Order pronounced in the open Court on 08th May, 2025.