Tribunal reclassifies unsold units' income as business income, overturns tax assessment.

The Tribunal allowed both appeals, determining that the notional income from unsold units held as stock-in-trade should be classified as business income rather than taxed under "Income from house property." The Tribunal overturned the A.O's additions for A.Y. 2013-14 and A.Y. 2014-15, setting aside the CIT(A)'s orders. The decision was pronounced on 26.04.2019 for ITA No. 282/Mum/2018 and ITA No. 283/Mum/2018.

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Issues Involved:
1. Whether the notional income from unsold units held as stock-in-trade should be taxed under the head "Income from house property."
2. The correctness of the Annual Lettable Value (ALV) estimation for the unsold units.

Issue-wise Detailed Analysis:

1. Taxation of Notional Income from Unsold Units as "Income from House Property":

The primary issue in both appeals was whether the notional income from unsold units (both residential and commercial) held by the assessee as stock-in-trade should be taxed under the head "Income from house property." The Assessing Officer (A.O) had determined that the Annual Lettable Value (ALV) of these unsold units should be taxed under this head, drawing support from the judgment of the Hon’ble High Court of Delhi in CIT Vs. Ansal Housing Financing & Leasing Company Ltd. (2013) 354 ITR 180 (Del). The A.O estimated the ALV at 8.5% of the construction cost of the unsold units, which was upheld by the CIT(A).

The Tribunal, however, found that this issue was already covered in favor of the assessee by its own decision in the assessee’s case for the preceding year (A.Y. 2012-13) and other judicial pronouncements. The Tribunal referenced the Hon’ble High Court of Gujarat's decision in CIT Vs. Neha Builders Pvt. Ltd. (2008) 296 ITR 661 (Guj), which held that if the business of the assessee is to construct property and sell it or to construct and let it out, any income derived from such properties held as stock-in-trade should be considered business income, not income from house property. The Tribunal also noted that similar views were taken in other cases, including Progressive Homes Vs. ACIT and Runwal Construction Vs. ACIT.

2. Estimation of Annual Lettable Value (ALV):

The second issue was the correctness of the ALV estimation for the unsold units. The A.O had estimated the ALV at 8.5% of the cost of construction for both A.Y. 2013-14 and A.Y. 2014-15. For A.Y. 2013-14, the ALV was estimated at Rs. 3,21,15,588, leading to a taxable income of Rs. 2,24,80,912 after statutory deductions. For A.Y. 2014-15, the ALV was estimated at Rs. 12,30,51,935, resulting in a taxable income of Rs. 8,61,36,354 after deductions.

The Tribunal found that the issue of ALV estimation was also covered by its earlier decisions and judicial precedents. It reiterated that the income from unsold units held as stock-in-trade should be treated as business income. Consequently, the Tribunal vacated the additions made by the A.O and upheld by the CIT(A) for both assessment years.

Conclusion:

The Tribunal allowed both appeals, concluding that the notional income from unsold units held as stock-in-trade should not be taxed under the head "Income from house property." Instead, it should be considered business income. The Tribunal set aside the orders of the CIT(A) and deleted the additions made by the A.O for both A.Y. 2013-14 and A.Y. 2014-15.

Order Pronounced:

The appeals of the assessee for A.Y. 2013-14 (ITA No. 282/Mum/2018) and A.Y. 2014-15 (ITA No. 283/Mum/2018) were allowed. The order was pronounced in the open court on 26.04.2019.

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