Tribunal rules notional rent on unsold flats not taxable as income from house property

The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer regarding the notional rent under Section 23 of the Income Tax Act, 1961. The Tribunal emphasized that the unsold flats were held as stock-in-trade and not as rental properties, therefore the annual lettable value should not be taxed under "Income from House Property." The Tribunal referred to previous decisions and held that the addition was not justified for the assessment year in question.

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Issues Involved:
1. Deletion of addition on account of notional rent under Section 23 of the Income Tax Act, 1961.
2. Jurisdictional conflict between decisions of different High Courts regarding the taxability of annual lettable value (ALV) of unsold flats held as stock-in-trade.
3. Applicability of judicial precedents and CBDT instructions on the issue.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Notional Rent Under Section 23
The primary issue in this case was whether the addition of Rs. 2,98,51,737/- made by the Assessing Officer (AO) on account of notional rent under Section 23 of the Income Tax Act, 1961, should be deleted. The AO had determined the annual lettable value (ALV) of the unsold flats held by the assessee as stock-in-trade and brought it to tax under the head "Income from House Property." The CIT(A) deleted this addition, relying on the decisions of the ITAT in similar cases.

Issue 2: Jurisdictional Conflict Between High Courts
The CIT(A) observed that there were conflicting decisions from different High Courts on whether the ALV of unsold flats held as stock-in-trade should be taxed. The Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. held that the ALV of such properties should be taxed. However, the Gujarat High Court in CIT vs. Neha Builders (P) Ltd. held that rental income derived from property held as stock-in-trade should be assessed as business income, not under "Income from House Property."

Issue 3: Applicability of Judicial Precedents and CBDT Instructions
The CIT(A) followed the principle of judicial propriety, choosing to follow the decision of the jurisdictional Tribunal, which had considered the conflicting decisions of non-jurisdictional High Courts. The Tribunal had previously ruled in favor of the assessee in similar cases, such as C.R. Developments Pvt. Ltd. and Runwal Constructions, where the ALV of unsold flats held as stock-in-trade was not brought to tax under "Income from House Property."

Tribunal's Decision:
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decision to delete the addition made by the AO. The Tribunal noted that the facts and issues in the present case were identical to those in the previous assessment year (A.Y. 2013-14), where a similar decision was rendered.

The Tribunal emphasized that the property in question was held by the assessee as stock-in-trade of its business of construction and development of real estate properties. It referred to its own previous decisions and those of other coordinate benches, which had consistently held that the ALV of unsold flats held as stock-in-trade could not be assessed under "Income from House Property."

The Tribunal also acknowledged the insertion of Section 23(5) by the Finance Act, 2017, effective from A.Y. 2018-19, which provided that the ALV of property held as stock-in-trade would be taken as nil for a certain period. However, this provision was not applicable to the assessment year under consideration (A.Y. 2014-15).

Conclusion:
The Tribunal concluded that the AO was in error in assessing the notional lettable value of the flats held by the assessee as stock-in-trade of its business. Consequently, the appeal filed by the Revenue was dismissed, and the CIT(A)'s order to delete the addition was upheld.

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