2023 (4) TMI 312 - AT - Income Tax

Tribunal rules unsold flats as stock-in-trade, excludes deemed rent.

The Tribunal held that the CIT(A) erred in confirming the AO's decision to levy deemed rent under section 23(4) of the Act. The Tribunal found that the ... Deemed rent under section 23(4) of the Income-tax Act - classification of income as business income versus income from house property - exclusion from house property income where unsold flats are stock-in-trade occupied for the purposes of businessDeemed rent under section 23(4) of the Income-tax Act - exclusion from house property income where unsold flats are stock-in-trade occupied for the purposes of business - classification of income as business income versus income from house property - Whether deemed rent under section 23(4) is leviable on unsold flats held as stock-in-trade and not let out - HELD THAT: - The Tribunal found that the assessee, engaged in property development, treated 15 unsold flats as closing stock and there was no letting or receipt of rental income. The AO invoked deemed rent under section 23(4), which the CIT(A) confirmed. The Tribunal distinguished the Bombay High Court decision in Gundecha Builders on facts, observing that in that case rental income was actually received and letting was not the assessee's business; therefore that authority was not applicable. The Bench relied on the coordinate decision in Sai Spacecon India Pvt. Ltd., which applied the exclusion from house property in cases where the property is occupied by the assessee as owner for the purposes of business and profits of that business are chargeable to tax. Applying that reasoning, the Tribunal held that where unsold flats are stock-in-trade, occupied for the purposes of the developer's business and profits from that business are chargeable to tax, the flats fall within the exclusion from income from house property and no deemed rent under section 23(4) can be levied. On this basis the additions made by the AO and confirmed by the CIT(A) were held not justified. [Paras 8, 9]Deemed rent under section 23(4) not leviable on the unsold flats held as stock-in-trade and occupied for the purposes of the assessee's business; grounds allowed.Final Conclusion: The appeal is allowed: the addition of deemed rent under section 23(4) on unsold flats treated as stock-in-trade is set aside. Issues:Questioning the action of CIT(A) in confirming the order of AO on account of deemed rent u/s. 23(4) of the Act.Analysis:The appellant, a company engaged in property development, contested the levy of deemed rent on unsold units under the head 'Income from house property.' The AO and CIT(A) held that the appellant, having passive possession of unsold flats, should be charged deemed rent under section 23(4) of the Act. The appellant argued that no rent was derived from the unsold flats as they were not let out and treated them as closing stock. The appellant cited case laws supporting their stance. The DR, however, referenced judgments holding that deemed rent on unsold flats is chargeable. The Tribunal examined the facts, distinguishing them from previous cases, and concluded that no addition on account of deemed rent could be made in the appellant's case, as the flats were treated as stock-in-trade and not let out. The Tribunal highlighted the conditions for exclusion under section 22 of the Act, which were satisfied in the appellant's case, leading to the allowance of the appeal.In light of the above analysis, the Tribunal held that the CIT(A) erred in confirming the AO's decision to levy deemed rent under section 23(4) of the Act. Consequently, the grounds raised by the appellant were allowed, and the appeal was allowed in favor of the appellant.