On-money receipts may be estimated on reliable material, while unsold builder stock-in-trade was not taxable as notional rent.

Unaccounted on-money receipts from flat sales may be assessed on a reasonable estimate where the material shows the declared price is not the true commercial consideration; the Tribunal accepted the director's statement as the more reliable basis and sustained the addition only partly, not at the full rate adopted by the Assessing Officer. Unsold flats held by a builder as stock-in-trade were not chargeable to deemed rental income for the relevant period; following binding precedent, such units were taxable as business assets and the later insertion of section 23(5) did not apply. The Revenue succeeded only on the on-money issue, while the notional rent addition was deleted.

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Issues: (i) Whether the addition on account of on-money receipts from sale of flats was to be sustained in full or could be estimated on a percentage basis. (ii) Whether deemed rental income could be brought to tax in respect of unsold flats held as stock-in-trade by a builder.

Issue (i): Whether the addition on account of on-money receipts from sale of flats was to be sustained in full or could be estimated on a percentage basis.

Analysis: The rate reflected in the email and the rate mentioned in the agreement with the creditor were not accepted as the true sale price because they did not represent normal commercial dealings or actual realization. The director's statement under section 132(4) that the actual rate was about Rs. 52,000 per square yard was treated as the more reliable basis. On the further question whether the whole of the on-money should be taxed as income, the Tribunal held that although no unaccounted expenses were shown, the facts justified an estimate rather than full addition at the rate adopted by the Assessing Officer.

Conclusion: The addition on account of on-money receipts was sustained only partly and was enhanced over the Commissioner (Appeals)'s estimate, but not to the full extent made by the Assessing Officer; the issue was decided partly in favour of Revenue.

Issue (ii): Whether deemed rental income could be brought to tax in respect of unsold flats held as stock-in-trade by a builder.

Analysis: The assessee was engaged in construction and sale of residential flats, and the unsold units were held as stock-in-trade. The Tribunal followed the binding jurisdictional precedent holding that income from such stock-in-trade is taxable as business income and not as house property income for the relevant period. The later insertion of section 23(5) did not apply to the assessment year in question.

Conclusion: The addition on account of deemed rental income on unsold flats was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The Revenue succeeded only on the on-money issue, while the disallowance of notional rental income on unsold flats was not sustained; the appeals were disposed of with only partial relief to the Revenue.

Ratio Decidendi: Unaccounted business receipts may be estimated on the basis of reliable material, but unsold flats held as stock-in-trade by a builder are not chargeable to notional house-property income for periods prior to the applicability of section 23(5) of the Income-tax Act, 1961.

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