2023 (9) TMI 426 - AT - Income Tax

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

Dimple Enterprises Versus DCIT, Central Circle 4 (2), Mumbai

The Tribunal dismissed the assessee's appeal, affirming the assessment of notional rent on unsold stock-in-trade under 'Income from house property.' The ... Income from house property - notional income u/s 22 - income arising from the stock-in-trade of the Appellant - ALV determination - why the deemed rent on unsold stock of completed units as shown in the balance-sheet should not be taxed under the head “Income from house property”? - HELD THAT:- We hold that the assessing officer has correctly charged notional rent on the unsold flats held as stock in Trade. We also notice that case of Inorbit Malls Pvt Ltd [2022 (10) TMI 1150 - ITAT MUMBAI] while upholding the decision of the assessing officer to levy notional rent, has given certain riders and directions and one such direction is to hold that the assessing officer is not justified in estimating the income at the rate of 8.5% of investment as ALV and that the AO should ascertain the municipal valuation for computing notional rent. In assessee's case also, we notice that the assessing officer has computed the ALV by applying the rate of 8.5% on the cost of construction i.e. investment. We direct the AO to recompute the notional rent by ascertaining the Municipal rentable value. Appeal of the assessee is dismissed. 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 IncomeThe 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 AssessmentThe 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 ALVThe 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 PrecedentsThe 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.