2022 (8) TMI 739 - AT - Income Tax

Appeal granted, deductions upheld, notice issue not addressed.

The Tribunal allowed the appeal, vacating the addition under 'Income from House Property' and dismissing the disallowance of deduction under Section 80C ... Annual Lettable Value - Income from House Property - stock-in-trade - notional annual letting value - prospective application of Section 23(5) - conflicting High Court precedentsAnnual Lettable Value - Income from House Property - stock-in-trade - notional annual letting value - conflicting High Court precedents - ALV of unsold flats held as stock-in-trade of a builder/developer is assessable under the head 'Income from House Property' or not. - HELD THAT: - The Tribunal considered rival authorities including decisions of the Delhi and Gujarat High Courts and coordinate Bench precedents of the ITAT, Mumbai. Distinguishing cases that dealt with actual rental receipts, the Tribunal held that where unsold flats are shown as stock-in-trade and are not let out (thus yielding no rental income), estimating a notional Annual Lettable Value and bringing it to tax under the head 'Income from House Property' is not justified. Preferencing the ratio in CIT vs. Neha Builders and subsequent coordinate Bench decisions, the Tribunal concluded that income arising on sale of such flats is business income and the ALV of unsold flats forming part of stock-in-trade could not be determined and assessed under the head 'Income from House Property' for the year under consideration. The Tribunal also noted that the statutory provision inserted as Section 23(5) by the Finance Act, 2017 (effective from A.Y. 2018-19) is prospective and therefore irrelevant to the assessment year before it. [Paras 6]ALV of the seven unsold flats held as stock-in-trade could not be assessed under the head 'Income from House Property'; the addition made by the Assessing Officer is vacated.Chapter VI-A deduction - deduction rendered academic - Whether denial of deduction under Chapter VI-A (section 80C) by reason of assessment under 'Income from House Property' remains contested after vacating the ALV addition. - HELD THAT: - Because the Tribunal set aside the ALV addition and vacated assessment of notional house property income, the issue concerning disallowance of the Chapter VI-A deduction became academic. The Tribunal recorded that, in view of the vacation of the addition, the ground challenging denial of the deduction stands rendered infructuous. [Paras 7]Ground challenging denial of deduction under Chapter VI-A is dismissed as having been rendered academic/infructuous.General grounds of appeal - Disposition of the general reserved ground of appeal. - HELD THAT: - The miscellaneous/general ground reserved by the assessee was considered and dismissed by the Tribunal as not requiring separate relief in light of the substantive decisions rendered. [Paras 8]General ground of appeal dismissed.Final Conclusion: The appeal is allowed to the extent that the addition of notional Annual Lettable Value in respect of seven unsold flats shown as stock-in-trade for A.Y. 2013-14 is vacated and deleted; the challenge to denial of Chapter VI-A deduction is dismissed as academic; the general ground is dismissed; the Assessing Officer is directed to give effect to this order. Issues Involved:1. Non-issuance of notice under Section 143(2) of the Income-tax Act, 1961.2. Addition under the head 'Income from House Property' for notional rent on unsold flats.3. Disallowance of deduction under Chapter VI-A (Section 80C).Issue-wise Detailed Analysis:1. Non-issuance of Notice under Section 143(2):The assessee contended that the assessment order was illegal due to the non-issuance of notice under Section 143(2) of the Income-tax Act, 1961. The CIT(A) did not adjudicate on this ground, which the assessee claimed was a procedural lapse rendering the assessment void ab initio.2. Addition under the Head 'Income from House Property':The core issue was whether the Annual Lettable Value (ALV) of unsold flats held as stock-in-trade by a builder/developer should be assessed under the head 'Income from House Property' under Section 22 of the Act. The Assessing Officer (A.O) determined the ALV of these flats and brought it to tax, which was confirmed by the CIT(A). The Tribunal referred to the case of Osho Developers Vs. ACIT, where it was held that the ALV of flats held as stock-in-trade could not be taxed under 'Income from House Property.' The Tribunal preferred the view of the Gujarat High Court in CIT vs. Neha Builders, which held that rental income from property held as stock-in-trade should be assessed as business income, not as income from house property. Consequently, the Tribunal vacated the addition of Rs. 1,91,406/- made by the A.O.3. Disallowance of Deduction under Chapter VI-A (Section 80C):The A.O disallowed the deduction claimed under Section 80C, reasoning that since the income was assessed under the head 'House Property,' the deduction was not allowable. However, since the Tribunal vacated the addition under 'Income from House Property,' this ground was rendered academic and dismissed as infructuous.Conclusion:The Tribunal allowed the appeal of the assessee, vacating the addition made under the head 'Income from House Property' and dismissing the ground related to the disallowance of deduction under Section 80C as academic. The procedural issue of non-issuance of notice under Section 143(2) was not separately adjudicated upon due to the primary relief being granted on substantive grounds.