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Facts
The assessee, engaged in real estate business, treated unsold flats and shops as stock-in-trade. The Assessing Officer (AO) taxed these unsold properties under 'house property' income based on notional annual letting value. The CIT(A) directed the AO to treat the income as business income.
Held
The Tribunal held that if properties are part of stock-in-trade for a real estate business, any income arising from them, including notional rental income, should be assessed as business income and not as income from house property. The AO's action of taxing unsold stock as house property was not justified.
Key Issues
Whether unsold properties held as stock-in-trade by a real estate developer can be assessed as 'income from house property' by estimating notional rental value.
Sections Cited
23, 254(1)
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Assessee represented by Shri Rajesh C Shah, CA Department represented by Shri Mukesh Jain, Sr.DR Date of Institution of Appeal 30/10/2024 Date of hearing 16/01/2025 Date of pronouncement 16/01/2025 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)/Addl./JCIT(3)-3, Bengaluru (in short, the ld. CIT(A)) dated 03/09/2024 for the Assessment year (AY) 2013-14. Following grounds of appeal have been raised by the assessee: “1. The ld. CIT(A) has erred in not following the order of the jurisdictional tribunal on the same issue for another year.
2. The ld. CIT(A) has erred in dismissing the appeal, but in order she has mentioned to treat business income, however, there is no deeming provision for rest income from the business.
3. The learned Income-tax Officer was not justifying in making the addition of Rs. 15,62,400/- on account of House Property and also the Ld. CIT(A) has erred in confirming the same.
4. The appellant reserves the right to add, alter, amend, or withdraw any grounds of appeal.”
2. Rival submissions of both the parties have been heard and record perused. At the outset of hearing, the learned Authorised Representative (ld. AR) of Jaiprakash Khanchand Aswani Vs ACIT the assessee submits that the grounds of appeal raised by the assessee are covered in favour of assessee by the decision of the Tribunal in assessee’s own case for A.Y. 2010-11 and 2011-12. The ld. AR of the assessee submits that he has already placed on record copy of decision of Tribunal.
3. On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the revenue after going through the order of Tribunal in assessee’s own case for A.Y. 2010-11 and 2011-12 supported the orders of the lower authorities.
4. We have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the Assessing Officer while passing the assessment order noted that the assessee is in the business of real estate and has shown stock in trade of 16 flats and 12 shops during the year. The Assessing Officer by following the decision of Hon’ble Delhi High Court in CIT Vs Ansal Housing Finance & leasing Company Pvt. Ltd. dated 31/03/2012 brought the unsold stock of flats and shops to taxation and taxed the same under income from ‘house property’ on the basis of deeming annual letting value. On appeal before the ld. CIT(A), the ld. CIT(A) directed the Assessing Officer to treat the income from unsold flat and commercial premises as business income.
We find that the grounds of appeal raised by the assessee is squarely covered in favour of assessee by the decision of Tribunal in assessee’s own case for A.Y. 2010-11 and A.Y. 2011-12. In the case of A.Y. 2010-11, this Bench has followed the order passed in A.Y. 2011-12 dated 18/12/2018 in ITA No.
2237/Ahd/2015. Relevant part of subsequent decision dated 21/10/2021 in is extracted below: “6. We have considered the rival submission of the parties and have gone through the orders of Lower Authorities. We find that a similar set of facts in assessee’s own case for the A.Y. 2011-12, the Co-ordinate Bench of Tribunal by considering the decision of Jurisdictional High Court in Neha Builders Pvt. Ltd.(supra) passed the following order:
“7. We have heard the rival submissions and perused the material on record. It is an undisputed fact the assessee has shown the properties as stock in trade in the books of accounts. The shops and flats sold by the assessee were assessed under head income from business. There were certain unsold flats and shops in stock in trade which the AO treated the property assessable under the head Income from House Property and computed notional annual netting value on such unsold flats placing reliance in the case of Ansal Housing Finance & Leasing Co. Ltd. (supra). The action of the AO was upheld by the learned CIT(A).
The Hon'ble Gujarat High Court in the case of Neha Builders Pvt. Ltd. (supra) considered the question whether the rental income received from any property in the construction business can be claimed under the head ‘income from property’ even though the said property was included in the closing stock. The Hon'ble Gujarat High Court held that if the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the business and the business stocks, which may include movable and immovable, would be taken to be stock in trade and any income derived from such stocks cannot be termed as income from house property. While holding so the Hon'ble High Court observed as under :-
“8. True it is, that income derived from the property would always be termed as ‘income’ from the property, but if the property is used as ‘stock-in-trade’, then the 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 income from the property. If the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the ‘business’ and the business stocks, which may include movable and immovable, would be taken to be ‘stock-in- trade’, otherwise, it is to be seen that there was distinction between the ‘income from property.”
From the statement of the assessee, it would clearly appear that it was treating the property as ‘stock-in-trade’. Not only this, it will also be clear from the records that, except for the ground floor, which has been let out by the assessee, all other portions of the property constructed have been sold out. If that be so, the property, right from the beginning was a ‘stock-in-trade.’
Similarly the Coordinate Bench in the case of Runwal Builders Pvt. Ltd. (supra) has considered similar issue as to whether the unsold property which is held as stock in trade by the assessee can be assessed under the head ‘income from house property’ by notionally computing the annual letting value from such property and the Coordinate Bench considering the decision of the Hon'ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. (supra) which the AO relied upon and the decision of the Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. vs. CIT reported in 373 ITR 673, held that unsold flats which are in stock in trade should be assessed under the head ‘business income’ and there is no justification in estimating rental income from those flats are notionally computing annual letting value under Section 23 of the Act. While holding so the Coordinate Bench observed as under :-
“3. The ld. AR placed the order of Bombay Tribunal in the case of M/s Perfect Scale Company Pvt. Ltd., to 3234/Mum/2013, order dated 6-9-2013, wherein it was held that in respect of assets held as business, income from the same is not assessable u/s.23(1) of the IT Act.
On the other hand, ld. DR relied on the order of Hon'ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd., 354 ITR 180 (Delhi) in support of the proposition that even in respect of unsold flats by the developer is liable to be taxed as income from house property.
We have considered rival contentions and perused the record. The issue under consideration has been restored by the CIT(A) to the file of AO to compute the annual value. Recently the Hon'ble Supreme Court in the case of M/s Chennai Properties & Investments Ltd. Vs. CIT, reported in (2015) 42 SCD 651, vide judgment dated 9- 4-2015 has held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of AO treating the rental income as income from house property in place of income from business shown by the assessee was held to be not justified. The Hon'ble Supreme Court held that since the assessee company’s main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business. On the very same analogy in the instant case, assessee is engaged in business of construction and development, which is main object of the asse4ssee company. The three flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by letting out the flats. The flats not sold was its stock-in-trade and income arising on its sale is liable to be taxed as business income. Accordingly, we do not find any justification in the order of AO for estimating rental income from these vacant flats u/s.23 which is assessee’s stock in trade as at the end of the year. Accordingly, the AO is directed to delete the addition made by estimating letting value of the flats u/s.23 of the I.T.Act.
In the case on hand before us it is an undisputed fact that both assessee have treated the unsold flats as stock in trade in the books of account and the flats sold by them were assessed under the head ‘income from business’. Thus, respectfully following the above said decisions we hold that the unsold flats which are stock in trade when they were sold they are assessable under the head ‘income from business’ when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect of those unsold flats under the head ‘income from house property.’ Thus, we direct the AO to delete the addition made under Section 23 of the Act as income from house property.
In the result, the appeals filed by the assessee are allowed.” 10. In the light above judicial pronouncements, we are of the considered opinion that provisions of section 23 of the Act are not applicable in the case of the assessee. Accordingly, the AO is directed to delete the addition made by estimating letting value of the flats u/s.23 of the I.T. Act. This grounds of appeal is therefore, allowed.”
Considering the aforesaid decision of Co-ordinate Bench of Tribunal in assessee’s own case for the A.Y. 2011-12 wherein no contrary fact or law is brought to our notice, therefore, following the principle of consistency, the primary grounds of appeal
raised by the assessee is allowed.
8. During the hearing, the ld.AR for the assessee neither made any submission, nor made any statement, not pressed additional grounds of appeal, therefore, the additional grounds of appeal are treated as not pressed and are dismissed as not pressed.
9. In the result, appeal of the assessee is allowed.”
Jaiprakash Khanchand Aswani Vs ACIT 6. Considering the fact that there is no variation in the facts and following the principle of consistency, we find that the grounds of appeal raised by the assessee for the year under consideration are covered in favour of assessee and allow the same. In the result, grounds of appeal raised by the assessee are allowed.
7. In the result, this appeal of assessee is allowed. Order pronounced in the open court on 16th January, 2025.
Sd/- Sd/- (BIJAYANANDA PRUSETH) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 16/01/2025 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT 4. DR 5. Guard File By order Sr. Private Secretary, ITAT, Surat