Appeal allowed: Unsold unit not under "Income from House Property." Deemed rental income deleted, interest recomputed.

The Tribunal allowed the appeal, ruling that the unsold unit held as stock-in-trade should not be assessed under "Income from House Property." The addition of deemed rental income was deleted, and the interest under section 234B was directed to be recomputed in favor of the assessee.

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Issues Involved:
1. Addition of deemed rental income under the head "Income from House Property".
2. Imposition of interest under section 234B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of deemed rental income under the head "Income from House Property":

The primary issue in this case is whether the Annual Letting Value (ALV) of an unsold unit, which is part of the stock-in-trade of a builder, should be treated as "Income from House Property". The assessee, a builder and developer, declared Nil income for the assessment year under consideration. During scrutiny, the Assessing Officer (AO) assessed the ALV of the unsold unit for 8 months at Rs. 64,000 and, after allowing a 30% deduction under section 24, treated the remaining Rs. 44,800 as "Income from House Property". The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, relying on the Delhi High Court's decision in Housing Finance & Leasing (354 ITR 180).

The assessee argued that the property in question was held as stock-in-trade and cited the Gujarat High Court's decision in CIT Vs Neha Builder (2008 ITR 661), which held that income derived from property used as stock-in-trade should be treated as 'business income' and not 'income from house property'. The assessee also referenced several other decisions, including Housing Development and Infrastructure Vs DCIT (ITA 5986/Mum/2017) and Chennai Property & Investment Ltd Vs CIT (2015) 373 ITR 673(SC), supporting the view that unsold units held as stock-in-trade should be assessed under 'business income'.

The Tribunal noted the conflicting views between the Delhi High Court and the Gujarat High Court. It observed that there is no direct decision from the Jurisdictional High Court on this issue. Applying the principle from CIT Vs Vegetable Product Ltd. (88 ITR 192 SC), which favors the construction that benefits the assessee in cases of reasonable doubt, the Tribunal accepted the Gujarat High Court's view in Neha Builders. It also noted that sub-section (5) in section 23, which considers unsold units as income from house property after a one-year vacancy period, was inserted by the Finance Act 2017 and is applicable from 01.04.2018, thus not relevant for the assessment year under consideration.

Consequently, the Tribunal concluded that the AO was not justified in treating the unsold unit's ALV as "Income from House Property" and directed the deletion of the addition. Therefore, ground 1 of the appeal was allowed.

2. Imposition of interest under section 234B of the Income Tax Act, 1961:

The second issue concerned the imposition of interest under section 234B. This ground was consequential in nature. Since the primary addition of deemed rental income was deleted, the AO was directed to recompute the interest under section 234B in accordance with the law. Thus, ground 2 of the appeal was also resolved in favor of the assessee.

Conclusion:

The Tribunal allowed the appeal, holding that the unsold unit held as stock-in-trade should not be assessed under "Income from House Property" and directed the AO to delete the addition and recompute the interest under section 234B. The decision was pronounced in the open court on 06-01-2020.

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