Income from unsold properties held as stock in trade classified as business income by ITAT Ahmedabad

The ITAT Ahmedabad allowed the appeal of the assessee, determining that income derived from unsold properties held as stock in trade should be treated as business income, not income from property. The decision set aside the CIT(A)'s order, citing legal precedents and the appellant's business as a builder and developer. The issue of computing ALV at 6% or 8% for unsold property was not specifically addressed as the primary issue of income classification was determinative of the appeal outcome.

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Issues Involved:
1. Addition of income from house property u/s. 23 of the act.
2. Computation of ALV for unsold property at 6% or 8% rate of investment.

Analysis:
1. Issue 1 - Addition of Income from House Property:
The case involved an appeal against the assessing officer's decision to add Rs. 46,84,206/- as income from house property u/s. 23 of the act. The assessing officer observed that the assessee, a builder and developer, had unsold finished property in the balance sheet, which was not declared as income. The assessing officer calculated the ALV at 8% of the cost of construction, leading to the addition of the aforementioned amount to the total income. The CIT(A) upheld this decision, citing a Delhi High Court case. However, the appellant contended that the unsold properties were held as stock in trade and any income derived should be taxable as business income, supported by legal precedents. The ITAT Ahmedabad, after considering relevant judgments, concluded that income derived from stock should be considered as business income, not income from property. Therefore, the appeal of the assessee was allowed.

2. Issue 2 - Computation of ALV at 6% or 8% Rate:
The second ground of appeal was related to the computation of ALV for unsold property at a 6% rate of investment instead of the 8% adopted by the assessing officer. The appellant argued for the lower rate based on the average rate of investment. However, the assessing officer's decision was based on the 8% rate. The ITAT Ahmedabad, while deciding in favor of the appellant on the first issue, did not specifically address the alternative computation of ALV at 6% or 8%, as the primary issue of income classification was determinative of the appeal outcome.

In conclusion, the ITAT Ahmedabad allowed the appeal of the assessee, setting aside the CIT(A)'s order and determining that income derived from stock should be treated as business income, not income from property. The decision was based on legal precedents and the specific nature of the appellant's business as a builder and developer.

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