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Issues: (i) Whether notional rent on unsold flats and shops held as stock-in-trade and lying vacant was taxable under the head "income from house property", and if so, how the annual letting value was to be computed; (ii) whether the ad hoc disallowance of business promotion expenses was sustainable; (iii) whether the addition made under section 43CA on account of difference between sale consideration and stamp duty value was sustainable.
Issue (i): Whether notional rent on unsold flats and shops held as stock-in-trade and lying vacant was taxable under the head "income from house property", and if so, how the annual letting value was to be computed.
Analysis: The unsold inventory was held by the assessee as stock-in-trade, but remained vacant in its possession. The decision recognised the distinction between cases where property held as stock-in-trade is actually let out, and cases where no rent is received and only notional annual value is assessed. Relying on the Delhi High Court view on vacant unsold stock and the later Tribunal view distinguishing contrary authorities on rented stock, the conclusion was that such vacant unsold units are assessable on notional basis under the head "income from house property". At the same time, the computation could not be ad hoc and had to follow the accepted principles for determining annual letting value, including municipal ratable value.
Conclusion: The addition on this issue was sustained in principle, but the Assessing Officer was directed to recompute the annual letting value on the proper basis. The issue was decided partly against the assessee and partly in its favour.
Issue (ii): Whether the ad hoc disallowance of business promotion expenses was sustainable.
Analysis: The assessee did not substantiate the expenditure with bills, vouchers, or other supporting evidence before the lower authorities or in appeal. In the absence of documentary support, the disallowance made on an estimated basis was found justified.
Conclusion: The disallowance of business promotion expenses was upheld and the issue was decided against the assessee.
Issue (iii): Whether the addition made under section 43CA on account of difference between sale consideration and stamp duty value was sustainable.
Analysis: The difference between the declared consideration and stamp duty value was found to be within the permissible tolerance range. The later proviso introduced to mitigate hardship in genuine real estate transactions was treated as curative in nature and applied to support the assessee's case. On that basis, the statutory deeming of full value of consideration was held inapplicable on the facts.
Conclusion: The addition under section 43CA was deleted and the issue was decided in favour of the assessee.
Final Conclusion: The appeals were disposed of by granting partial relief: the notional rental issue was sustained subject to recomputation, the business promotion disallowance was maintained, and the section 43CA addition was deleted.
Ratio Decidendi: Unsold units held as stock-in-trade and lying vacant can be subjected to notional annual value under the head "income from house property", but the valuation must be determined on a legally acceptable basis rather than by ad hoc estimation; additionally, the tolerance proviso curbing hardship in stamp-duty based deeming provisions applies to genuine real-estate transactions.
Notional rent on vacant stock-in-trade is taxable, but annual letting value must be computed on a lawful basis.
Unsold flats and shops held as stock-in-trade but lying vacant may be assessed on a notional basis under the head "income from house property", although the annual letting value must be computed on an accepted legal basis such as municipal ratable value and not by ad hoc estimation. Business promotion /expenses lacking supporting bills or vouchers may be disallowed on an estimated basis. Where the difference between declared sale consideration and stamp duty value falls within the permissible tolerance range, the section 43CA deeming provision may not apply, and the later curative proviso is treated as supporting relief in genuine real-estate transactions.
Deemed notional income from house property from unsold inventory held as stock-in-trade - Municipal rateable value for determination of annual letting value - Retrospective tolerance band under section 43CA - Ad hoc disallowance for want of supporting evidence Notional annual letting value on unsold stock-in-trade - Income from house property - Municipal rateable value - Vacant unsold flats and shops held by the assessee as stock-in-trade - HELD THAT: - The Tribunal held that the controversy concerned notional rental income on completed unsold units lying vacant with the assessee, and not the head of income applicable where such units were actually let out. It accepted the distinction drawn in M/s. Inorbit Malls Pvt. Ltd. [2022 (10) TMI 1150 - ITAT MUMBAI] between cases of actual rental receipts and cases of vacant unsold stock, and held that Neha Builders Pvt. Ltd [2006 (8) TMI 105 - GUJARAT HIGH COURT] and M/s. Classique Associates Ltd. [2019 (4) TMI 1312 - BOMBAY HIGH COURT] were rendered in a different factual setting involving leased properties. Following Ansal Housing Finance and Leasing Company Ltd [2012 (11) TMI 323 - DELHI HIGH COURT] it held that annual letting value of such vacant unsold stock had to be brought to tax under the head income from house property. On computation, the Assessing Officer was directed to determine the annual letting value in accordance with Tip Top Typography, and not on an ad hoc percentage of investment. [Paras 22, 23, 40] The addition on account of notional rent was upheld in principle for both assessment years, but the computation was directed to be redone on the basis of the applicable municipal rateable value principles. Ad hoc disallowance of business promotion expenses for want of supporting evidence - assessee failed to substantiate the claim with bills, vouchers or other documentary evidence - HELD THAT: - The Tribunal found that the assessee did not produce the necessary supporting material either before the lower authorities or in appeal to substantiate the claimed business promotion expenditure. In the absence of documentary evidence, it found no infirmity in the disallowance sustained by the lower authorities. [Paras 27, 41] The disallowance of business promotion expenses was upheld for both assessment years. Disallowance made u/s 43CA - difference between the consideration received by the assessee and the value of the property adopted by the Stamp Valuation Authority - scope of tolerance band in section 43CA - HELD THAT: - The Tribunal noted that the proviso introducing a tolerance band in section 43CA was intended to mitigate hardship arising from minor bona fide variations between stated consideration and stamp valuation. Following Maria Fernandes Cheryl [2021 (1) TMI 620 - ITAT MUMBAI] on the analogous interpretation of section 50C, and Karb Associates (P.) Ltd [2021 (8) TMI 1184 - ITAT KOLKATA] extending the same reasoning to section 43CA, it held that the proviso and the subsequent enhancement of the tolerance limit were curative in nature and related back to the date on which section 43CA became effective. Since the variation in the assessee's case was below 5 per cent, section 43CA was held inapplicable. [Paras 34, 35, 36, 37] The addition made under section 43CA for assessment year 2017-18 was deleted. Final Conclusion: Both appeals were partly allowed. The Tribunal upheld taxability of notional annual letting value on vacant unsold stock-in-trade under the head income from house property, subject to recomputation on the proper annual letting value basis, sustained the disallowance of unsupported business promotion expenses, and for assessment year 2017-18 deleted the addition made under section 43CA.