Tribunal upholds notional rent assessment on unsold stock; directs AO to recalculate based on Municipal rentable value.

The Tribunal dismissed the assessee's appeal, affirming the assessment of notional rent on unsold stock-in-trade under "Income from house property." The AO was directed to recompute the notional rent based on Municipal rentable value instead of the 8.5% estimation. The amendment to section 23(5) was deemed prospective and not applicable to the assessment year.

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Issues Involved:
1. Assessment of notional income under section 22 of the Income-tax Act, 1961.
2. Head of income assessment for stock-in-trade.
3. Computation of Annual Letting Value (ALV) for unsold stock-in-trade.
4. Consideration of judicial precedents by the CIT(A).

Summary:

Issue 1: Assessment of Notional Income
The primary issue is whether the notional income of Rs. 63,58,756/- on the unsold stock-in-trade should be assessed under the head "Income from house property" as per section 22 of the Income-tax Act, 1961. The assessee argued that the unsold stock should not be taxed as house property income since it was held as inventory. The Assessing Officer (AO) relied on the decision of the Hon'ble Delhi High Court in CIT vs Ansal Housing Finance & Lease Co. Ltd, which supported the assessment of notional rent on unsold stock.

Issue 2: Head of Income Assessment
The assessee contended that any income arising from the stock-in-trade should be assessed under "Profits and Gains of Business or Profession" rather than "Income from house property." The AO, supported by the CIT(A), upheld the assessment under the head "Income from house property," citing relevant judicial precedents.

Issue 3: Computation of ALV
The AO computed the ALV of the unsold stock by applying 8.5% on the cost of construction. The assessee argued that the Municipal Rateable Value should be considered for determining the ALV. The Tribunal, following the decision in the case of Inorbit Malls Pvt Ltd, directed the AO to ascertain the Municipal rentable value for computing the notional rent, rejecting the 8.5% estimation as unsustainable.

Issue 4: Consideration of Judicial Precedents
The assessee claimed that the CIT(A) erred by not considering various judicial decisions favorable to its case. The Tribunal noted that the decision of the Hon'ble Gujarat High Court in CIT vs Neha Builders was not applicable to the facts of the case, as it dealt with actual rental income rather than notional rent. The Tribunal upheld the AO's reliance on the Delhi High Court's decision in Ansal Housing Finance & Leasing Co. Ltd, which supported the levy of notional rent on unsold stock.

Conclusion:
The Tribunal dismissed the assessee's appeal, holding that the AO correctly charged notional rent on the unsold flats held as stock-in-trade. However, it directed the AO to recompute the notional rent based on the Municipal rentable value rather than the 8.5% investment estimation. The amendment to section 23(5), which considers the ALV of unsold stock as nil for two years from the end of the financial year in which the occupation certificate is received, was deemed prospective and not applicable to the assessment year in question.

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