2019 (3) TMI 1871 - AT - Income Tax

Tribunal rules notional rental income from unsold flat not taxable as 'Income from House Property'

Makewaves Sea Resort Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Central Circle – 4 (1), Mumbai.

The Tribunal held that notional rental income from an unsold flat, treated as closing stock by a builder-developer engaged in business activities, should ... Income from House Property - CIT-A confirming the action of AO in charging notional income considering Annual Letting Value of one unsold flat which is closing stock of the appellant treated as “ Income from House Property” and made addition - HELD THAT:- The facts and the issue involved in the present case are similar to the facts of the case and the issue involved in the case of Ferani Hotels Pvt. Ltd. [2014 (11) TMI 985 - ITAT MUMBAI] wherein as deleted the addition confirmed by the CIT (A) on account of notional rent determined by the AO by holding that the ALV of the unsold unit of assessee project is assessable under the head ‘income from house property’. Since, the findings of the Ld.CIT (A) is not in accordance with the decision of the coordinate Bench rendered in the case of Ferani Hotels Pvt. Ltd. (supra), we respectfully following the decision of the coordinate Bench set aside the order of the Ld. CIT (A) and allow the appeal of the assessee and direct the AO to delete the addition made under the head ‘income from house property’. Issues Involved:1. Whether the notional income from the unsold flat, treated as closing stock, should be assessed under the head 'Income from House Property.'Issue-Wise Detailed Analysis:Issue 1: Notional Income from Unsold Flat as 'Income from House Property'The assessee, a builder and developer also engaged in the hotel business, filed returns declaring nil income for the assessment years 2013-14 and 2014-15. The case was selected for scrutiny, and notices were issued under sections 143(2) and 142(1) of the Income Tax Act, 1961. The Assessing Officer (AO) noticed that the assessee held finished goods/closing stock, including an unsold flat valued at Rs. 21,97,058/-. The AO, relying on the Delhi High Court decision in Ansal Housing Finance & Leasing Co. Ltd. (2013) 354 ITR 180, held that the Annual Letting Value (ALV) of the unsold unit is assessable as income from house property. Since the assessee did not provide the ALV, the AO determined it at 7% of the investment, resulting in an ALV of Rs. 1,53,795/-. After allowing a standard deduction of 30%, an addition of Rs. 1,07,657/- was made to the income of the assessee. The CIT (A) confirmed the AO's action, leading to the present appeal.The assessee challenged the CIT (A)'s order, arguing that the issue is covered by the ITAT Mumbai decision in C R Developments Pvt. Ltd. vs. JCIT-8(1)(OSD), Mumbai ITA No. 4277/Mum/2012 dated 13.05.2015, which ruled in favor of the assessee. The department's representative relied on the CIT (A)'s order.Upon hearing both parties and reviewing the material on record, including the decision in Ferani Hotels Ltd. vs. ACIT, the Tribunal noted that the coordinate Bench had decided a similar issue in favor of the assessee. The Tribunal referenced the Gujarat High Court decision in Neha Builders Pvt. Ltd., which held that if a property is used as stock-in-trade, any income derived from it should be treated as business income, not income from house property. The Tribunal also cited the Supreme Court decision in Chennai Properties & Investments Ltd. vs. CIT, which supported treating rental income from properties held as stock-in-trade as business income.The Tribunal concluded that since the assessee treated the unsold flat as stock-in-trade and derived income from its business activities, the notional rental income should not be assessed under the head 'Income from House Property.' The Tribunal directed the AO to delete the addition made under this head.For the assessment year 2014-15, the facts and issues were identical to those of 2013-14. Consistent with its findings for 2013-14, the Tribunal set aside the CIT (A)'s order and directed the AO to delete the addition made under the head 'Income from House Property.'In conclusion, both appeals filed by the assessee for the assessment years 2013-14 and 2014-15 were allowed. The Tribunal pronounced the order in the open court on 20th March 2019.