Tribunal overturns CIT's tax order on notional rent, deduction disallowance, rental income, and interest deduction

The Tribunal set aside the CIT's order in a tax case involving issues such as notional rent on property in stock-in-trade, deduction disallowance under section 80IB(10) for selling two flats to one person, classification of rental income, and interest deduction for a non-80IB(10) unit. The Tribunal ruled in favor of the assessee on all points, finding the CIT's order unjustified and allowing the appeal.

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Issues Involved:
1. Notional rent not charged on property lying in stock-in-trade.
2. Sale of two flats to one person - Deduction u/s 80IB(10) of the Act to be disallowed in entirety.
3. Rental income in respect of stock-in-trade ought to have been offered to tax as 'Income from other sources' instead of 'Business income'.
4. Interest wrongly claimed as deduction in respect of non-80IB(10) unit.

Detailed Analysis:

1. Notional Rent on Property Lying in Stock-in-Trade:
The CIT held that the assessment order was erroneous for not including the notional rent on unsold units under the head 'Income from house property'. The CIT deemed the unsold properties as let out and computed income based on an 8% rate applied to the value of stock-in-trade, resulting in an income of Rs. 44,57,996. However, the Tribunal noted that the unsold units were occupied by the assessee for business purposes, satisfying all conditions under Section 22 of the Act for exclusion from 'Income from house property'. The Tribunal referred to conflicting judgments from the Delhi High Court and Gujarat High Court but followed the view favoring the assessee, supported by Tribunal decisions in similar cases. Consequently, the Tribunal vacated the CIT's order on this issue.

2. Sale of Two Flats to One Person - Deduction u/s 80IB(10):
The CIT disallowed the deduction u/s 80IB(10) for the entire project because two flats were sold to one person, violating Section 80IB(10)(f). The assessee had already agreed to a proportionate disallowance for this violation in the assessment year 2012-13. The Tribunal found that the proportionate disallowance was already made in the earlier year, and there was no basis for disallowing the deduction again in the assessment year 2014-15. The Tribunal also cited the Bombay High Court's approval of proportionate disallowance, concluding that the CIT's direction for full disallowance was unjustified.

3. Rental Income from Stock-in-Trade:
The CIT opined that the rental income of Rs. 1,52,000 should be taxed under 'Income from house property' instead of 'Profits and gains of business or profession'. The Tribunal reiterated that income related to stock-in-trade is chargeable under 'Profits and gains of business or profession' unless explicitly stated otherwise. Thus, the Tribunal did not sustain the CIT's viewpoint.

4. Interest Deduction in Non-80IB(10) Unit:
The CIT found the assessment order erroneous for allowing an interest deduction of Rs. 13,99,944 related to the Atharwa Vatika project, which was not eligible for deduction u/s 80IB(10). The assessee demonstrated that the interest was correctly debited to the non-eligible project's Profit & Loss account, and no deduction was claimed in the eligible unit. The Tribunal found no fault in the assessee's allocation of interest expenses and held that the CIT's revision on this ground was unwarranted.

Conclusion:
The Tribunal concluded that the CIT's order was not justified on any of the four points and set aside the impugned order, allowing the appeal. The assessment order was neither erroneous nor prejudicial to the interest of the Revenue.

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