Tribunal rules unsold flats as business income, not house property income.

The Tribunal ruled in favor of the assessee, holding that the addition of Rs. 39,75,545 made by the AO under the head "Income from House Property" was incorrect. The Tribunal determined that unsold flats, as part of the business stock, should be assessed under "business income" rather than "house property income." Consequently, the Tribunal allowed the appeal, deleting the AO's addition.

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Issues Involved:
1. Charging notional income considering Annual Letting Value of unsold flats as "Income from House Property".
2. Non-compliance with jurisdictional ITAT decision in the case of M/s. C.R. Developments Pvt. Ltd. V/s. JCIT.

Issue-wise Detailed Analysis:

1. Charging notional income considering Annual Letting Value of unsold flats as "Income from House Property":

The assessee filed its return of income for the A.Y. 2013-14, declaring a total income of Rs. 9,72,43,120/-. During scrutiny, the Assessing Officer (AO) assessed the notional income of unsold flats, which were part of the closing stock, under the head "Income from House Property" and made an addition of Rs. 39,75,545/-. The CIT(A) confirmed this addition. The assessee argued that the unsold units, being part of the business stock, should not be assessed under the head "Income from House Property" but rather as business income. The assessee cited the decision in Ferani Hotels Pvt. Ltd. Vs. ACIT, where it was held that unsold flats held as stock-in-trade should be assessed under the head "business income" and not "house property".

The Tribunal analyzed the facts and relevant case laws, including the decisions in Runwal Construction Vs. ACIT and C.R. Developments Vs. JCIT, which supported the assessee's contention that income from unsold flats held as stock-in-trade should be assessed as business income. The Tribunal noted that in the business of construction and development, unsold flats are part of the stock-in-trade, and any income derived from such stock should be treated as business income. The Tribunal found that the AO's action of assessing notional income under the head "Income from House Property" was incorrect.

2. Non-compliance with jurisdictional ITAT decision in the case of M/s. C.R. Developments Pvt. Ltd. V/s. JCIT:

The assessee contended that the CIT(A) failed to follow the jurisdictional ITAT decision in the case of M/s. C.R. Developments Pvt. Ltd. V/s. JCIT, where it was held that unsold flats held as stock-in-trade should not be assessed under the head "Income from House Property". The Tribunal agreed with the assessee, noting that the facts of the present case were similar to those in the cited decision. The Tribunal emphasized that the CIT(A)'s failure to follow the jurisdictional precedent was a significant error.

Conclusion:

The Tribunal concluded that the addition of Rs. 39,75,545/- made by the AO under the head "Income from House Property" was incorrect. The Tribunal held that the unsold flats, being part of the business stock, should be assessed under the head "business income". The Tribunal deleted the addition and allowed the appeal in favor of the assessee.

Order:

The appeal of the assessee was allowed, and the addition made by the AO was deleted. The order was pronounced in the open court on 13.03.2019.

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