Tribunal rules unsold property as stock-in-trade not subject to notional ALV in tax assessment

The Tribunal allowed the appeal, directing the deletion of the addition of notional Annual Letting Value (ALV) of an unsold flat held as stock-in-trade under 'Income from House Property.' It held that unsold properties held as stock-in-trade should be assessed under 'Income from Business' upon sale, not as 'Income from House Property,' emphasizing that the flat's notional ALV should not be added as it was not let-out and eventually sold. The Tribunal distinguished the case cited by the CIT(A) and highlighted the non-taxability of unsold properties held as stock-in-trade, ultimately ruling in favor of the appellant.

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Issues:
Validity of addition of notional Annual Letting Value (ALV) of unsold flat under 'Income from House Property'.

Analysis:
1. The appeal challenged the addition of Rs. 18,50,176/- by the CIT(A) under 'Income from House Property' for the Assessment Year 2012-13, concerning an unsold flat held as stock-in-trade by the assessee.

2. The appellant, engaged in real estate development, argued that the unsold flat, a part of stock-in-trade, should not be taxed under 'Income from House Property.' Citing precedents, the appellant contended that the flat's notional ALV should not be added as it was not let-out and eventually sold.

3. The Tribunal noted that the flat in question did not generate rental income and was unsold at the year-end, constituting stock-in-trade. Referring to previous judgments, the Tribunal emphasized that unsold properties held as stock-in-trade should not attract ALV tax under 'Income from House Property.'

4. Relying on the decisions of the coordinate Bench and other High Courts, the Tribunal concluded that the unsold flat, treated as stock-in-trade, should be assessed under 'Income from Business' upon sale, not as 'Income from House Property.' The Tribunal directed the Assessing Officer to delete the addition of notional ALV.

5. The Tribunal distinguished the case cited by the CIT(A), emphasizing that the unsold flat did not yield rental income and was held as stock-in-trade, making the notional income assessment invalid. Additionally, the Tribunal highlighted the insertion of Sec. 23(5) by the Finance Act, 2017, which further supported the non-taxability of unsold properties held as stock-in-trade.

6. Consequently, the Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the deletion of the addition. The judgment clarified that assessing notional income of unsold flats held as stock-in-trade under 'Income from House Property' was unwarranted, affirming the appellant's position.

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