Tribunal rules unsold properties as stock-in-trade not subject to notional Annual Letting Value

The Tribunal ruled in favor of the appellant, holding that unsold properties held as stock-in-trade should not be subject to notional Annual Letting Value (ALV) under "Income from House Property." The Tribunal relied on precedents and concluded that such properties should be classified as business income. Additionally, the Tribunal determined that the amendment to Section 23(5) of the Income Tax Act, effective from 01.04.2018, should not apply retrospectively to the assessment year 2013-14. As a result, the Tribunal directed the Assessing Officer to delete the addition towards the ALV of unsold properties, allowing the appeal by the assessee.

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Issues Involved:
- Re-computation of notional Annual Letting Value (ALV) for unsold properties held as stock-in-trade.
- Applicability of amendment to Section 23(5) of the Income Tax Act, 1961, effective from 01.04.2018.

Detailed Analysis:

Issue I: Re-computation of Notional ALV for Unsold Properties Held as Stock-in-Trade

The appellant contested the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)]'s directive to the Assessing Officer (AO) to recompute the notional ALV of unsold shops and penthouses held as stock-in-trade as income under the head "Income from House Property."

The appellant cited various Tribunal decisions, arguing that notional ALV on unsold flats held as stock-in-trade should not be assessed under "Income from House Property." The Tribunal reviewed several relevant decisions, including:
- ITO v. M/s. Arihant Estates Pvt. Ltd.
- M/s Runwal Constructions v. ACIT
- CIT v. Neha Builders (P.) Ltd.
- M/s. Saranga Estates Pvt. Ltd. v. DCIT

The Tribunal noted that properties held as stock-in-trade partake the character of stock, and any income derived from such stock should be classified as business income, not as income from house property. This position was supported by the Gujarat High Court in CIT vs. Neha Builders Pvt. Ltd., which held that properties held as stock-in-trade are not subject to notional rental income assessment under house property income.

The Tribunal also referenced the conflicting view from the Delhi High Court in CIT vs. Ansal Housing Finance & Leasing Company Ltd., which favored the revenue. However, in light of the Supreme Court's principle in CIT vs. Vegetable Products, which mandates that in cases of conflicting views, the view favoring the taxpayer should be adopted, the Tribunal sided with the Gujarat High Court's interpretation.

Issue II: Applicability of Amendment to Section 23(5) of the Income Tax Act

The appellant argued that the amendment to Section 23(5) by the Finance Act 2017, effective from 01.04.2018, should not apply retrospectively to the assessment year 2013-14. The Tribunal agreed, stating that the amendment, which allows properties held as stock-in-trade to have a nil annual value for one year from the end of the financial year in which the completion certificate is obtained, applies only from the assessment year 2018-19 onwards and cannot be applied retrospectively.

Conclusion:

The Tribunal concluded that the unsold flats held as stock-in-trade by the assessee cannot be subjected to notional ALV under the head "Income from House Property." Consequently, the Tribunal directed the AO to delete the addition made towards the annual letting value of the unsold properties held as stock-in-trade. The appeal by the assessee was allowed, and the grounds raised were upheld.

Order Pronouncement:

The order was pronounced in the open court on 04th December 2019.

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