Section 23(5) of the Income Tax Act

Annual Letting Value (ALV) of unsold stock-in-trade flats/shops held by a real estate developer can be assessed under Section 22 of the Income Tax Act, 1961, as income from house property. This approach was followed by the Assessing Officer (AO) based on this decision.

For computing income from house property, the Annual Letting Value (ALV) cannot be arbitrarily estimated by the Assessing Officer, but must be determined based on the Municipal ratable value of the property.

Income from unsold flats held as stock-in-trade by a builder or developer is assessable as business income, not income from house property, for assessment years prior to the insertion of Section 23(5) of the Income-tax Act.

Disallowance under Section 14A for interest expenditure is not justified if an assessee uses its own interest-free funds for investments generating exempt income, and borrowed funds are entirely utilized for business purposes, without evidence of diversion to earn tax-free income.

Property held as stock-in-trade is not assessable under the head 'Income from House Property' (Section 23). An Assessing Officer's decision not to tax such income, when supported by inquiry, typically cannot be considered erroneous and prejudicial under Section 263.

Rental income from unsold property held by a real-estate developer is assessable under the head 'Income from House Property' and not as 'Business Income'. The treatment in books of account as stock-in-trade does not alter the income's character for tax purposes.

Income from unsold flats in the closing stock of a real estate developer is taxable under the head 'Income from house property' based on their annual letting value, even if the developer is engaged in business.

The deemed rental value of unsold flats held as stock-in-trade is covered by Section 23(4)(b), and a subsequent amendment provided relief for unsold flats by making their annual value NIL for two years from the end of the financial year of obtaining the completion certificate.

Exemption under sections 11/12 of the Act should not be denied on the basis of the principle of consistency if the facts in the present case are identical to earlier and subsequent assessment years. This applies even when there are allegations of violation of provisions of section 13 of the Act.

When a builder's business involves constructing and selling property, unsold units are considered stock-in-trade and income derived from them is taxable under the head 'Business Income', not 'Income from House Property'.