Appeal allowed: Unsold flats as stock-in-trade assessed as business income, not house property.

The Tribunal allowed the appeal, setting aside the order of the CIT(A) and held that notional income from unsold flats held as stock-in-trade should be assessed under the head 'business income' and not 'income from house property'. The decision emphasized the significance of judicial precedents and the specific circumstances under which properties are held and utilized by the assessee in determining the appropriate head of income for tax purposes.

---

---

Issues Involved:
1. Assessment of notional income based on deemed Annual Letting Value (ALV) for unsold flats held as stock-in-trade.
2. Applicability of Sections 22 and 23 of the Income Tax Act to such notional income.
3. Consideration of municipal retable value for determining notional income.
4. Judicial precedents and their relevance to the case.

Issue-wise Detailed Analysis:

1. Assessment of Notional Income Based on Deemed ALV:
The primary issue in this appeal is the assessment of notional income calculated based on the deemed ALV for flats held as stock-in-trade by the assessee, a builder, which were not actually let out. The Assessing Officer added Rs. 5,84,136/- to the total income of the assessee as deemed rent under Section 22 read with Section 23(4) of the Income Tax Act, which was confirmed by the CIT(A).

2. Applicability of Sections 22 and 23 of the Income Tax Act:
The assessee argued that since the unsold units were held as stock-in-trade and not let out, they should not be taxed under Section 22 as 'income from house property'. The assessee relied on the judgment of the Hon’ble Gujarat High Court in CIT vs. Neha Builders (P.) Ltd., which held that income from property held as stock-in-trade should be treated as business income, not as income from house property. The Tribunal noted that the provisions of Section 23(5), amended by the Finance Act, 2017, effective from 01.04.2018, do not apply to the assessment year in question (2014-15).

3. Consideration of Municipal Retable Value:
The assessee contended that the net annual retable value adopted by the Assessing Officer was on an ad-hoc basis and should be substituted with the municipal retable value determined by local authorities. However, this contention was not the primary focus of the Tribunal's decision.

4. Judicial Precedents and Their Relevance:
The Tribunal considered various judicial precedents, including:
- CIT vs. Neha Builders (P.) Ltd. (Gujarat High Court): Held that income from property held as stock-in-trade is business income.
- CIT vs. Ansal Housing Finance & Leasing Co. Ltd. (Delhi High Court): Held that annual rental value of unsold flats is assessable as income from house property.
- CIT vs. Sane & Doshi Enterprises (Bombay High Court): Distinguished cases where actual rental income from unsold flats was offered under house property income.
- CIT vs. Vegetable Products Ltd. (Supreme Court): When divergent views exist, the view favorable to the assessee should be adopted.

The Tribunal concluded that in cases where unsold flats are not actually rented out, the notional rental income should be assessed as business income, not as income from house property. The Tribunal followed the Gujarat High Court's ruling in Neha Builders (P.) Ltd., aligning with the principle that the view favorable to the assessee should be adopted in the absence of a jurisdictional High Court decision.

Conclusion:
The Tribunal allowed the appeal, setting aside the order of the CIT(A) and holding that the notional income from unsold flats held as stock-in-trade should be assessed under the head 'business income' and not 'income from house property'. The decision underscores the importance of judicial precedents and the specific circumstances under which properties are held and utilized by the assessee in determining the appropriate head of income for tax purposes.

---