Appeal allowed: Unsold flats as business assets, not property income

The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A). It held that the notional lettable value of unsold flats held as stock-in-trade should not be taxed under "Income from House Property" but treated as business assets, aligning with the Gujarat High Court's precedent. The Tribunal emphasized that such properties should be considered as business income, not property income, supporting its decision with relevant case law and ITAT rulings.

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Issues Involved:
1. Computation of deemed income under the head "Income from House Property" for unsold flats held as stock-in-trade.
2. Applicability of Section 22 of the Income Tax Act, 1961 to unsold flats.
3. Determination of Gross Annual Value (GAV) of unsold flats.
4. Allowance of deduction under Section 24 of the Income Tax Act, 1961.

Detailed Analysis:

1. Computation of Deemed Income under "Income from House Property" for Unsold Flats Held as Stock-in-Trade:
The primary issue was whether the deemed Annual Lettable Value (ALV) of unsold flats held by the assessee as stock-in-trade should be taxed under the head "Income from House Property." The Assessing Officer (A.O) held that the deemed ALV of these unsold flats should be brought to tax under this head, relying on the judgment of the Delhi High Court in CIT Vs. Ansal Housing Finance and Leasing Co. Ltd. The CIT(A) upheld this view, but the assessee contended that these properties, being stock-in-trade, should not be taxed under "Income from House Property" but rather under "Income from Business."

2. Applicability of Section 22 of the Income Tax Act, 1961 to Unsold Flats:
The A.O argued that passive occupation of the property did not amount to "own occupation" in the course of business, thereby not qualifying for exemption under Section 22. However, the assessee relied on the Gujarat High Court judgment in CIT Vs. Neha Builders (Pvt. Ltd.), which stated that if the property is used as stock-in-trade, the income derived should be considered as business income, not property income. The Tribunal favored this view, emphasizing that properties held as stock-in-trade lose their character as mere properties and should be treated as business assets.

3. Determination of Gross Annual Value (GAV) of Unsold Flats:
The A.O determined the GAV of the unsold flats at RNA Mirage, Worli, Mumbai, at Rs. 50 per sq. ft. per month, totaling Rs. 4,51,29,000/-. The CIT(A) confirmed this valuation. However, the Tribunal found that the lower authorities erred in determining the notional ALV of the unsold flats held as stock-in-trade and bringing it to tax under "Income from House Property." The Tribunal supported its decision by referencing multiple judgments, including those of the Gujarat High Court and various ITAT benches, which held that such properties should be treated as business stock.

4. Allowance of Deduction under Section 24 of the Income Tax Act, 1961:
The assessee argued for a deduction under Section 24, which allows for a 30% deduction on the GAV computed. However, since the Tribunal concluded that the unsold flats should not be taxed under "Income from House Property," the question of deduction under Section 24 became moot.

Conclusion:
The Tribunal, following the Gujarat High Court's judgment in CIT Vs. Neha Builders (P) Ltd. and other supportive ITAT decisions, concluded that the lower authorities erred in taxing the notional lettable value of unsold flats held as stock-in-trade under the head "Income from House Property." The appeal of the assessee was allowed, and the order of the CIT(A) was set aside. The Tribunal emphasized that properties held as stock-in-trade should be treated as business assets, and any income derived therefrom should be considered business income.

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