GIRDHARILAL KALYANDAS LULLA,ULHASNAGAR vs. DCIT CIR 2, KALYAN

The only issue involved in the ground taken by the assessee relates to estimation of income in the case of the assessee from the unsold vacant units as income on notional basis.

We noted that the assessee is engaged in the business of construction of residential-cum-commercial complex under the proprietary concern, M/s. Shri Ganesh Builders. The assessee’s building project consists of residential as well as commercial units. The said project is situated at Plot No, 2, 3 & 4, Sector-1, Khanda Colony, New Panvel (W), District Thane. The AO noted that during the course of assessment that the assessee had closing stock of 13 flats and 8 shops and one hall. The AO therefore took the view that the assessee is the owner of two or more house properties and accordingly applied the provisions of Section 23(4) and estimated the annual letting value Shri Girdharilal K. Lulla of these flats at `16,80,000/- and computed the income under the head “Income from House Property” by reducing therefrom deduction under Section 24 of the Income Tax Act @30% amounting to `5,04,000/-) at `10,17,450/- and added the same in the income of the assessee under the head income from house property. Assessee went in appeal before the CIT(A). The CIT(A) confirmed the order of the AO.

Before us the learned A.R. relied on the order of the “C” Bench of this Tribunal in in the case of C.R. Developments Pvt. Ltd. Vs. JCIT in which the Tribunal vide order dated 13.05.2015 under para 5 took the view that estimating rental income of by the AO for the three flats shown as stock in trade as income from house property was not justified in so far as these flats were neither given on rent nor assessee has intention to earn rental income by letting out the flats. The flats not sold are stock in trade and income arising on its sale is liable to be taxed as business income.

On the contrary the learned D.R. relied on the decision of the Hon'ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. In ITA No. 18 of 1999.

We have gone through the decision as relied on by the learned D.R. We noted that in the decision the Hon'ble Delhi High Court, along with other questions, considered the following question No. 4; “whether the assessee was liable to pay income tax on the annual letting value of the unsold flat owned by it under the head Income from House property”. The Hon'ble Delhi High Court dealing with same issue decided the question in favour of Revenue. We noted that the decision of the Hon'ble High Court has been considered by the “C” Bench of this Tribunal in ITA No. 4277/ Mum/2012 in the case of M/s. C.R. Developments Pvt. Ltd. (supra) and ultimately decided the issue in favour of the assessee on the basis of the decision given by the Hon'ble Supreme Court in the case of M/s. Chennai Properties & Investments Ltd. vs. CIT 42 SCD 651 by holding as under: - “5. We have considered rival contentions and perused the record. The issue under consideration has been restored by the CIT(A) to the file of Shri Girdharilal K. Lulla 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 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 assessee 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.” Since the Tribunal has taken a view in favour of the assessee on the basis of the decision of the Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. (supra) therefore the decision of the Hon'ble Delhi High Court, in our view, will not help the Revenue. We accordingly set aside the order of the CIT(A) and respectfully following the decision of the “C” Bench in in the case of C.R. Developments Pvt. Ltd. set aside the order of the CIT(A) and delete the addition made by estimating the letting out value of the flats shown by the assessee as stock in trade.