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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Before: Ms. SUCHITRA KAMBLE & SHRI WASEEM AHMED
PER SUCHITRA KAMBLE, JUDICIAL MEMBER :
This appeal is filed by the Revenue against the order dated 21st May, 2019 passed by the CIT(A)-11, Ahmedabad for the Assessment Year 2016-17.
The Revenue has raised the following grounds of appeal :-
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,57,78,644/- on account of income from house property.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.
3. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the AO be restored to the above extent.”
The assessee company is engaged in the business of real estate development/construction and has developed a Commercial Complex namely
Page 2 of 4 “Amrapali lake View Tower” at Vastrapur, Ahmedabad. During the year the assessee has shown income from house property and from business & profession. The assessee filed return of income on 17.10.2016 declaring total income of Rs.2,09,18,270/-. During the course of assessment proceedings, the Assessing Officer observed that the assessee has shown closing stock of Rs.24,55,10,895/-. The Assessing Officer further noticed that the unit in the project was completed as the BU permission letter had been received by the assessee. Therefore, the assessee should have treated these units as deemed let out and charged rent on Annual Lettable Value. The Assessing Officer held that the assessee did not declare/shown house property income under Section 22/23 of the Income Tax Act, 1961. The Assessing Officer made addition of Rs.2,57,78,644/- as income from house property.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The Ld. DR submitted that in the case of the assessee, all the conditions were satisfied for changeability of income from house property. The assessee has granted the lease and earns rent income and thus the same cannot be treated as income from business. The Ld. DR further submitted that Section 22 excludes only those property which are occupied for the purpose of business or profession i.e. which are occupied and used as offices etc. for running of day to day business. Therefore, in the case of the assessee the ownership of properties held is with the company only and the annual value of entire ready to use, but unsold property units are liable to be taxed under the head ‘income from house property’. The Ld. DR submitted that the decision of Hon’ble Gujarat High Court in the case of Neha Builders, 164 taxmann 342 will not be applicable in the present case and the decision in the case of CIT vs. Ansal Housing Finance and Leasing Co. Ltd., of 1999, order dated 31.10.2012, passed by the Hon’ble Delhi High Court will be applicable in the present case. The Ld. DR relied upon the Assessment Order.
The Ld. AR submitted that the assessee is engaged in the business of real estate development/construction. The assessee has shown closing stock of Rs.24,55,10,895/- and had received building use permission in respect of the same.
Page 3 of 4 Ld. AR submitted that if the assessee is held as stock in trade then such stock and any income derived from stock shall be taxable as business income. Concept of deeming rent cannot be applied in case where property is held as stock in trade. Ld. AR further submitted that it is undisputed fact that the assessee is engaged in the business of construction of property on sale of constructed unit is shown as business income. Ld. AR further submitted that it is undisputed fact that unsold units were shown as stock in trade. It is settled law that in case of builder income from sale of property shall be taxable under the head income from business or profession and not under the head income from housie property. Accordingly, the concept of deemed rent cannot be applied in assessee’s case. The Ld. AR relied upon the following decisions:-
ACIT vs. Shoppers Buildcon – IT(SS)A No.312/Ahd/2018 Sarovar Developers P. Ltd. vs. ITO – Servashanti Properties Pvt. Ltd. vs. ITO – ITA No.1278/Ahd/2017 Chennai Properties & Investments vs. CIT – 373 ITR 673 (SC) CIT vs. Neha Builders – 296 ITR 661 (Guj)
As regards Section 23(5) of the Act, the Ld. AR submitted that where property is held as “stock in trade” and the same is not let out, then annual value of such property for the period up to one year from the end of financial year in which certificate of completion of construction of the property is obtained shall be taken to be NIL. The Ld. AR further submitted that BU permission in this case was received on 18.05.2015 i.e. during the year under consideration itself. Hence, no addition can be made by taking recourse of Section 23(5) of the Act. Ld. AR relied upon the order for the CIT(A).
We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has shown closing stock of Rs.24,55,10,895/- and received building use permission in respect of the same. It is undisputed fact that the assessee is engaged in the business of construction and only profit on sale of constructed unit are shown as business income whereas unsold units which are shown as stock in trade forms the part of business of the assessee. The Page 4 of 4 CIT(A) has rightly held that since the assessee was a developer and held the unit in questions income from such unit can be taxed as only business income and not as income from house property. It is pertinent to note there is no concept of deemed rent while computing business income and the CIT(A) has rightly deleted the addition. The decision of Hon’ble Delhi High Court in the case of Ansal Housing Finance and Leasing Co. Ltd. (supra) will not be applicable in the present case as the assessee has already treated the said unsold unit as stock in trade. The decision of Hon’ble Gujarat High Court in the case of CIT vs. Neha Builders – 296 ITR 661 (Guj) in fact is applicable in the present case as the issues herein are identical to the present case. If property is used as stock in trade then such property would become or partake the character of stock and any income from stock would be income from business and not income from property. Thus, the CIT(A) was right in deleting the addition.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open Court on this 7th day of December, 2022.