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Facts
The assessee, a real estate developer, had unsold inventories. The Assessing Officer treated these as 'income from house property' by imputing notional rental income, considering them ready for possession. The CIT(A) dismissed the appeal due to non-appearance.
Held
The Tribunal held that for the assessment year in question, there was no specific charging section to tax the notional annual value of unsold stock-in-trade as income from house property. A relevant amendment to Section 23 was introduced later.
Key Issues
Whether notional rental income from unsold inventories held as stock-in-trade can be taxed as 'income from house property' in the absence of a specific charging section.
Sections Cited
250, 14A, 144, 22, 23
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT (A)-2, Lucknow vide order dated 21.03.2024 passed for A.Y. 2014-15. 2. The assessee has taken the following grounds of appeal:-
1.1 The order passed u/s. 250 on 21.03.2024 for A.Y.2014-15 by Addl/JCIT(A)-2, Lucknow upholding the additions/ disallowances of Rs.14,06,878 is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the eccentric facts and evidence available with regard to the impugned additions. 1.3 The Ld. CIT(A) has grievously erred in law and on facts in not carrying out any inquiry with regard to the applicability of the provisions of Income tax Act and thereby violated the principle of natural justice. Therefore, the appellant shall be granted opportunity to produce additional evidences. Vandemataram Projects Pvt. Ltd. vs. DCIT Asst.Year –2014-15 - 2– 2.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding the disallowance of Rs.24,106 under section 14A. 2.2 That the Ld. CIT(A) ought not to have upheld disallowance of Rs.24,106 under section 14A. 2.3 The Ld. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs.13,82,772 being rental income under House property. 2.4 That the Ld. CIT(A) ought not to have upheld addition of Rs.13,82,772 being rental income under House property. 3.1 Without prejudice to the above and in the alternative, the appellant begs to submit that the ALV estimated at 8% is very high which ought to have been reduced by the Ld. CIT(A).
The brief facts of the case are that the assessee company is engaged in the business of real estate i.e. sale/purchase and construction of property. During the course of assessment proceedings, the Assessing Officer observed that the assessee had shown unsold inventories in it’s balance sheet for a sum of Rs. 3,70,38,525/- in respect of which, BU permission / certificate was received by the assessee on 03.08.2013. The Assessing Officer was of the view that since the BU permission was received by the assessee in respect of these unsold inventories on 03.08.2013, then the said building/units were ready for possession and could have been let out by the assessee. Accordingly, the Assessing Officer issued a show-cause notice to the assessee to explain why rent should not be computed on such unsold units which were ready for possession and why the same should not be added as the income of the assessee under the head “income from house property”.
In response, the assessee submitted that the company is engaged in construction of residential units and development activities, since the date of it’s incorporation. The unsold inventories/units of the assessee company are Vandemataram Projects Pvt. Ltd. vs. DCIT Asst.Year –2014-15 - 3– carried forward as stock-in-trade of the assessee and the assessee has not shown unsold flats as “fixed assets” in the balance sheet. The assessee submitted that property which was held as stock-in-trade by the assessee, being a real estate developer for the purpose of it’s business is not liable to be assessed as the “rental income” on notional basis under the head “income from house property”. If the property is shown as stock-in-trade, then the said property would partake the charcter of “stock” of the assessee and income derived from stock would be income from “business” and not “income from house property”. Further, the assessee submitted that the unsold units have also not been ever let out by the assessee and therefore, notional income cannot be computed in the hands of the assessee.
However, the Assessing Officer rejected the arguments of the assessee and held that as per Section 22 of the Act, the only condition required to tax the property consisting of building is that the person/entity should be “owner” of the property and the only exemption from this is available when the premises has been occupied by the assessee, for his own business purposes. Further, the Assessing Officer held that the argument of the assessee that unsold flats have not been given on rent is also devoid of any merits for the reason that Sections 22 & 23 of the Act are deeming provisions, and if the property is not let out, notional value of the property has to be offered to tax as “rental income”. The tax incidence under Section 23 of the Act does not depend on whether the assessee actually rented out the property or not. Accordingly, the Assessing Officer computed the ALV @ 8% of the completed unsold units i.e. 8% of Rs. 3,70,38,525/- and after allowing deduction of 30% under Section 23 of the Act, added the sum of Rs. Vandemataram Projects Pvt. Ltd. vs. DCIT Asst.Year –2014-15 - 4– 13,82,772/- as income of the assessee under the head “income from house property”.
In appeal, Ld. CIT(A) dismissed the appeal of the assessee on account of non-appearance, with the following observations:
6.3 This appeal has been filed by the appellant claiming that the action of the Assessing Officer is not supported by facts and laws and that it is unjust. In such a situation, it is for the appellant to furnish submissions with relevant evidence(s), case laws, if any, to support the claim. The burden of proof is always on the person who makes the claim. In this case, it is the appellant who has made the claim by filing the appeal. Thus, in cases where a particular receipt is sought to be taxed as income, the initial onus is on the Assessing Officer to prove that it is taxable. Where, however, the assessee claims exemption, the burden is on the assessee to prove it to be exempt. In his petition assesse has raised 2 different grounds upon which Ground NO-1 and 2 explains about unsold flats on rent and made disallowance under section 14A Amounting Rs. 24,106/-. Share in partnership Firm. Core issue of ground No 1 to 2 is already discussed in this order as in lack of any fallow up made by applicant to discharge his duty to respond against burden of proof his appeal can't be accepted. From the conduct of the appellant as per the facts noted above, it is clear that the appellant does not wish to pursue the appeal. Even otherwise on the merits of it also, I do not see any reason to differ with the findings of the AO since no attempt has been made by the assessee to discharge its onus. Hence, respectfully following the above mentioned judicial pronouncements and in view of the facts of the case, the appeal is hereby dismissed. In my considered view, the findings of the AO in the assessment order are self- speaking and do not require any interference. Hence the appeal is liable to be dismissed. In the end result, the appeal is DISMISSED.
The assessee is in appeal before us against the aforesaid order passed by the Ld. CIT(A).
Before us, the Counsel for the assessee submitted that firstly, the assessee is holding such unsold inventories as it’s stock-in-trade and therefore, notional ALV cannot be computed on such property, and added as Vandemataram Projects Pvt. Ltd. vs. DCIT Asst.Year –2014-15 - 5– income of the assessee under the head “income from other sources” for the impugned year under consideration. It was submitted that in absence of any specific charging section for the impugned year under consideration to tax notional ALV on such unsold inventory, no income is liable to be added in the hands of the assessee on notional basis on such unsold inventory. Secondly, the Counsel for the assessee submitted that obtaining BU permission per se does not mean/imply that the unsold inventory is ready for possession. Even after obtaining BU permission, various proceedings / formalities need to be completed before such units become habitable. Accordingly, the assessee submitted that neither were the units let out by the assessee and nor were the units capable of being let out and hence, notional ALV on such unsold units (which were incapable of being let out), could not be added as income in the hands of the assessee.
In response, Ld. D.R. placed reliance on the observations made by the Assessing Officer and CIT(A) in their respective orders.
On going through the facts of the instant case, we are of the considered view that for the impugned year under consideration there was no spedific charging section which could subject notional value of unsold stock/inventory as income under the head income from other sources. We note that sub-section (5) to Section 23 of the Act was introduced w.e.f. 01.04.2018 to tax income from property held as stock-in-trade. The relevant part of the section is reproduced below for ready reference:
“(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to [two years] from the end of the financial year in Vandemataram Projects Pvt. Ltd. vs. DCIT Asst.Year –2014-15 - 6– which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.” 10.1 Accordingly, for the impugned year under consideration, there was no specific charging section which could subject this income in the hands of the assessee. We also observe that the Ahmedabad Tribunal in the case Takshshila Realties vs. DCIT 156 taxmann.com 175 vide order dated 01.09.2023 has held that where assessee, a builder and developer had unsold flats in various building which were shown as closing stock and no rental income was earned, in view of the amendment to Section 23 effective from A.Y. 2018-19 providing that if an assessee holds house property as stock-in- trade and does not let out for the whole or part of the year, annual value will be considered NIL up to one year from Financial Year in which a completion certificate is obtained any addition made on account of notional ALV is liable to be deleted.
Accordingly, in view of the above discussion, we are of the considered view that the aforesaid amount is not liable to be added as income of the assessee under the head “income from house property”.