2022 (1) TMI 1361 - AT - Income Tax

Appeal successful: Deemed rent not applicable on unsold flats used for business.

The Tribunal allowed the appeal of the assessee, holding that no addition on account of deemed rent on unsold flats could be made. The decision was based ... Deemed rent from house property - exclusion under section 22 of the Income-tax Act - stock-in-trade - occupation as owner for business purposes - business income chargeable to taxDeemed rent from house property - exclusion under section 22 of the Income-tax Act - stock-in-trade - occupation as owner for business purposes - Whether addition on account of notional income (deemed rent) in respect of 37 unsold flats which are held as stock-in-trade is sustainable - HELD THAT: - The Tribunal accepted the assessee's case that the 37 unsold flats were held as stock-in-trade of the business of construction carried on by the assessee. Applying the exclusion in section 22, the Tribunal examined the four conditions required for exclusion: (i) the property or part thereof is occupied by the assessee as an owner; (ii) a business or profession is carried on by the assessee; (iii) the occupation is for the purposes of that business or profession; and (iv) the profits of such business or profession are chargeable to tax. The Tribunal found no material to show that the assessee did not occupy the flats as owner; the assessee declared income from the business and was engaged in property development; the flats were shown as stock-in-trade and thus occupied for business purposes; and the profits of the construction business are chargeable to income-tax. The Tribunal followed the reasoning in the coordinate-bench decision in Kumar Properties and Real Estate Private Limited , which elaborated the exception under section 22 and the four conditions. On these findings the Tribunal held that the flats fall within the exclusion and that no addition on account of deemed rent can be made. [Paras 3]Addition on account of deemed rent in respect of the 37 unsold flats held as stock-in-trade is not sustainable and is deleted.Final Conclusion: The appeal is allowed; the order of the CIT(A) confirming the addition on account of deemed rent in respect of 37 unsold flats held as stock-in-trade is set aside. Issues:Whether the addition made by the AO on account of notional income from unsold flats is justified.Analysis:The appeal was filed by the assessee against the CIT(A)'s order for the assessment year 2014-15. The main issue was whether the addition made by the AO on account of notional income from unsold flats was justified. The assessee, a Private Limited Company engaged in various businesses, had 37 unsold flats for which completion certificates were issued. The AO calculated deemed rent for these flats as the assessee had not offered any rental income. The assessee claimed the flats were stock-in-trade, and income from them should be considered as business income, not house property income. The CIT(A) confirmed the AO's addition. The assessee argued that the issue was in their favor, citing a Tribunal order in a similar case. The Tribunal discussed the conditions for exclusion under section 22 of the Act, emphasizing that if the property is occupied by the assessee as an owner for business purposes, the income should not be considered for taxation. The Tribunal found that all conditions for exclusion were met in this case, and hence, no addition for deemed rent on unsold flats was justified. The order of the CIT(A) was set aside, and the grounds raised by the assessee were allowed.In conclusion, the Tribunal allowed the appeal of the assessee, holding that no addition on account of deemed rent on unsold flats could be made. The decision was based on the assessee meeting all the conditions for exclusion under section 22 of the Act, as the unsold flats were considered stock-in-trade and used for business purposes.