Tribunal directs re-assessment of unsold flats as 'Income from business', not 'Income from house property'.

The Tribunal allowed the appeals for both A.Y. 2013-14 and A.Y. 2014-15, directing the deletion of additions made by the AO for estimating the Annual Letting Value (ALV) of unsold flats as 'Income from house property'. The Tribunal held that the unsold flats, treated as stock-in-trade, should be assessed under 'Income from business', overturning the AO's assessment under 'Income from house property'.

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Issues Involved:
1. Disallowance of Rs. 6,52,243/- by estimating the Annual Letting Value (ALV) of unsold flats as 'Income from house property' for A.Y. 2013-14.
2. Identical issue of disallowance for A.Y. 2014-15.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 6,52,243/- by estimating the Annual Letting Value (ALV) of unsold flats as 'Income from house property' for A.Y. 2013-14:

During the assessment proceedings, the Assessing Officer (AO) observed that the assessee held unsold flats as stock-in-trade in various projects. The AO considered these flats as property liable to be assessed under 'Income from house property' and estimated the ALV at Rs. 9,31,776/-. After allowing a statutory deduction of 30% (Rs. 2,79,533/-), the AO added Rs. 6,52,243/- to the net taxable income under 'Income from house property'.

The assessee's representative (AR) argued that the issue was covered in favor of the assessee by a decision of the co-ordinate Bench in the case of the assessee's sister concern, Makewaves Sea Resort Pvt. Ltd., where a similar addition was deleted by the Tribunal. The AR requested the deletion of the addition by following the aforementioned Tribunal order.

The Department's representative (DR) countered that the AO rightly treated the unsold flats as property assessable under 'Income from house property', relying on the Bombay High Court decision in CIT vs. Gundecha Builders, where rental income from unsold property was assessed as 'Income from house property'.

Upon reviewing the submissions and the material on record, the Tribunal noted that the issue had been decided in favor of the assessee in the case of Makewaves Sea Resort Pvt. Ltd. The Tribunal cited several precedents, including the Gujarat High Court's decision in Neha Builders Pvt. Ltd., which held that income from property treated as stock-in-trade should be assessed as business income, not as 'Income from house property'. The Tribunal also referenced the Supreme Court's decision in Chennai Properties & Investments Ltd. vs. CIT, which supported treating rental income from properties let out as business income if it aligns with the company's main objective.

The Tribunal concluded that the AO's estimation of notional rent and assessment under 'Income from house property' was incorrect. The unsold flats, treated as stock-in-trade, should be assessed under 'Income from business'. The Tribunal directed the AO to delete the addition of Rs. 6,52,243/- for A.Y. 2013-14.

2. Identical issue of disallowance for A.Y. 2014-15:

The issue for A.Y. 2014-15 was identical to that of A.Y. 2013-14. Following the same reasoning and findings, the Tribunal set aside the order of the CIT(A) for A.Y. 2014-15 and directed the AO to delete the addition made on the same grounds.

Conclusion:

The appeals for both A.Y. 2013-14 and A.Y. 2014-15 were allowed. The Tribunal directed the deletion of the additions made by the AO on account of estimating the ALV of unsold flats as 'Income from house property'. The Tribunal's order was pronounced in the open court on 22nd August 2019.

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