Tribunal allows appeals, deletes rental income additions, treats interest income as capital receipt

The Tribunal allowed all appeals, condoning the delay in filing appeals due to valid reasons, directing the deletion of additions towards deemed rental income on unsold property held as stock in trade, and treating interest income on fixed deposits as a capital receipt linked to business operations. The Tribunal applied the same rationale to similar cases and pronounced the order on 15/07/2022.

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Issues Involved:
1. Condonation of delay in filing appeals.
2. Taxability of notional rent on unsold stock of property.
3. Treatment of interest income on fixed deposits.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The assessee filed appeals with a delay of 743 days. The delay was attributed to the illness of the partner in charge of income tax affairs, who was hospitalized multiple times, and the subsequent COVID-19 lockdown. The Tribunal accepted the explanation provided in the affidavit, noting that the delay was due to reasons beyond the control of the assessee and none of the contents of the affidavit were found to be false by the revenue. Consequently, the delay was condoned, and the appeals were admitted for adjudication.

2. Taxability of Notional Rent on Unsold Stock of Property:
The assessee, engaged in construction and redevelopment, had unsold property held as stock in trade. The Assessing Officer (AO) taxed the deemed rental income on this unsold stock based on the Annual Lettable Value (ALV), citing the Delhi High Court decision in CIT vs Ansal Housing Finance & Leasing Company Ltd. The Tribunal, however, referred to several precedents, including the Mumbai Bench decision in Shri Rajendra Godshalwar vs ITO and Pune Bench decision in Shree Balaji Ventures vs ITO, which held that deemed rental income cannot be assessed on unsold stock of flats. The Tribunal concluded that the unsold flats, being stock in trade, should not be subject to notional rent taxation. Thus, the addition made by the AO was directed to be deleted.

3. Treatment of Interest Income on Fixed Deposits:
The AO treated the interest income on fixed deposits as 'Income from Other Sources.' The assessee contended that the fixed deposits were made as margin money for securing bank guarantees necessary for business operations, and hence the interest should be treated as a capital receipt and credited to work in progress. The Tribunal agreed with the assessee, citing the Supreme Court decision in CIT vs Karnal Cooperative Sugar Mills Ltd, which held that interest earned on deposits directly linked to the acquisition of assets for setting up a plant should be treated as incidental to the acquisition and not as income from other sources. The Tribunal directed that the interest income be treated as a capital receipt and reduced from the project cost.

Application to Other Cases:
The Tribunal applied the same rationale to other cases with similar facts and issues:
- Sai Siddhi Developers (ITA No. 2190/Mum/2021 for A.Y. 2014-15): Similar to Ground No. 1 in Shree Sai Sagar Consultants.
- Shree Sai Consultants (ITA No. 2187/Mum/2021 for A.Y. 2014-15): Similar to Ground No. 2 in Shree Sai Sagar Consultants.
- Shree Sai Consultants (ITA No. 2188/Mum/2021 for A.Y. 2015-16): Similar to Ground No. 2 in Shree Sai Sagar Consultants.
- Sai Siddhant Developers (ITA No. 2192/Mum/2021 for A.Y. 2014-15): Similar to Ground No. 2 in Shree Sai Sagar Consultants.
- Sai Siddhant Developers (ITA No. 2193/Mum/2021 for A.Y. 2012-13): Similar to Ground No. 2 in Shree Sai Sagar Consultants.

Conclusion:
All appeals were allowed, with the Tribunal directing the deletion of additions made towards deemed rental income and treating the interest income on fixed deposits as a capital receipt. The order was pronounced on 15/07/2022.

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