M/S. MANGAL MURTI DEVELOPERS GANESHAM,PUNE vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE -8, PUNE

आदेश / ORDER

PER R.S.SYAL, VP : This appeal by the assessee is directed against the order passed by the CIT(A) on 07-05-2019 in relation to the assessment year 2015-16. 2. The only issue raised in this appeal is against the confirmation of addition of Rs.8,52,902/- towards deemed rent on unsold vacant flats and shops held by the assessee as stock-in- trade. 3. Succinctly, the facts of the case are that the assessee is working as Real estate Builder and Developer. During the course

The remaining units were vacant. The AO held that the vacant flats were also liable to be considered for the purposes of charging income under the head ‘Income from House Property”.

Considering the amount of rent received by the assessee from other 7 properties, the AO computed monthly rental income at Rs.3,80,700/- @ Rs.456/- per sq.ft. Total rental income for the year anent to such 7 units was calculated at Rs.12.18 lakh. After allowing the standard deduction towards repairs at Rs.3.65 lakh, the AO added a sum of Rs.8,52,902/- to the assessee’s total income under the head “Income from House Property”. The ld. CIT(A), relying on certain Tribunal orders, held that such income was to be taxed as “Business Income”. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

M/s. Mangal Murti Developers Ganesham introduced sub-section (5) to section 23 providing that where a property held as stock in trade is not let out during the year, its annual value, after a period of one year or as revised to two years, shall be considered for the purposes of inclusion under the head `Income from House property’. This amendment has been brought out w.e.f. 01-04-2018. Thus, this provision manifestly does not apply to the assessment year under consideration. Prior to the amendment, the Tribunal considered this aspect in several cases including the one taken note of by the ld. CIT(A), namely, Cosmospolis Construction vs. ITO (ITA No.230 & 231/PUN/18) and held that no income from house property can result in respect of unsold flats held by a builder as stock in trade at the year-end.

While disposing off the above referred case, the Tribunal observed that income from unsold flats could be considered only under the head “Profits and Gains from business or profession” and not “Income from House Property”. The ld. CIT(A) considered these observations of the Tribunal qua the inclusion of income, if any, under the head “Business Income” and directed to include deemed annual value as business income in the impugned order. He however, did not appreciate that the Tribunal nowhere held for the inclusion of the deemed rental income under the head

M/s. Mangal Murti Developers Ganesham “Profits and Gains from business or profession”. It simply directed that income, if any, from unsold flats held as stock in trade can be considered only as “Business Income”. In the ultimate analysis, the Tribunal eventually deleted the addition. It is but natural that if a particular income is to be taxed under a specific head, the computational mechanism governing that head only can come into play. There is no provision under the head “Profits and Gains from business or profession” which deems the rental income from unsold flats held as stock as ‘Business income’. Considering the above factual and legal position, we are of the considered opinion that the addition of Rs.8,52,902/- made by the AO and as sustained in the first appeal, is not called for.

The same is directed to be deleted.