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Income Tax Appellate Tribunal, I Bench, Mumbai
Before: Shri Saktijit Dey & ShriN.K. Pradhan
This appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-40, Mumbai dated 01.06.2016 for Assessment Year 2012-13.
The assessee has filed the present appeal being aggrieved by the addition of `14,63,389/- as deemed income from house property.
The brief facts of the case are that the assessee is an Association of Persons (AOP) and is engaged in the activity of development of buildings comprising of shops and residential premises. For the assessment year under dispute assessee filed its return of income on 30.09.2012 declaring total income of `3,65,97,660/-. During the assessment proceedings the Assessing Officer (AO) on verifying the facts and material on record found that in the relevant previous year assessee has sold flats for an amount of `8,72,56,000/-, whereas, it has shown unsold flats as closing stock in respect of ‘Shivram Project’ of the value of `2,09,05,550/-. The AO was of M/s. Shivshankar Singh & Others the view that in respect of closing stock of unsold flat/shops the deemed annual letting value has to be determined for computing income from house property. Accordingly, he called upon the assessee to show cause as to why the income from house property should not be computed on the unsold stock of flats/shops. Though, the assessee objected to the proposed addition, however, the AO rejected the objections of the assessee and determined the notional lettable value of the unsold stock of flats/shops @10% of the value of such unsold stock shown at `2,09,05,550/-. Accordingly, the annual letting value of unsold flats was determined at `20,90,555/- and after allowing statutory deduction under Section 24(a) of the Income Tax Act (hereinafter “the Act”) AO made an addition of `14,63,389/- as income from house property. Though the assessee challenged the addition in an appeal filed before the learned CIT(A), however, learned CIT(A) upheld the addition made by the AO. Aggrieved, assessee is in appeal before us.
The learned A.R. submitted, prior to 01.04.2018 there was no provision under the Act empowering the AO to compute deemed annual letting value of unsold stock. He submitted, only after insertion of sub- clause (v) to Section 23 of Finance Act, 2017 w.e.f. 01.04.2018 the annual value of unsold stock in trade of property can be determined. However, he submitted, the said provision will apply prospectively. In support of such submission the learned A.R. relied upon the following decisions: -
(i) M/s. C.R. Developers P. Ltd. vs. JCIT dated 13.04.2015 (ii) Runwal Constructions vs. ACIT ITA No. 5408/Mum/2016 dated 22.02.2018 5. The learned Departmental Representative relied upon the observations of the departmental authorities.
We have considered rival submissions and perused the material on record. It is accepted by the department that assessee is a builder and constructs buildings comprising of shops and residential premises. It is evident, in course of such business activities some flats and shops remain
M/s. Shivshankar Singh & Others unsold and are shown as stock in trade. There is no dispute that the profit derived by the assessee from sale of flats/shops in the building project has been assessed as business income. However, the AO has proceeded to determine notional house property income on the unsold stock of flats and shops by determining the annual letting value. As could be seen, prior to 01.04.2018 there was no provision under Section 23 of the Act to determine the annual value of unsold flat/shop held as stock in trade. In the Finance Act, 2017 an amendment was made to section 23 of the Act by inserting sub-clause (v), which provides for determination of annual value of any building or land appurtenant thereto held as stock in trade and which has not been let out. However, the aforesaid provision has been made effective from 01.04.2018. The Coordinate Bench in the case of M/s. Runwal Constructions (supra), following the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd. 296 ITR 661 and the decision of the ITAT Mumbai Benches in the case of C.R. Developers P. Ltd (supra) has held that unsold flats held as stock in trade in the books of account when sold, the profit derived therefrom will be assessable under the head ‘income from business’. That being the case, notional house property income on such unsold stock in trade cannot be brought to tax. In view of the aforesaid decision of the Coordinate Bench we hold that the departmental authorities were not justified in determining the deemed annual letting value of the unsold stock and bringing it to tax as notional house property income. Accordingly, we delete the addition made by the AO and sustained by the CIT(A).
In the result, the appeal filed by the assessee is allowed.