Builder's unsold flats held as stock in trade exempt from deemed rent calculation before 2018-19

ITAT Pune held that deemed rent cannot be calculated on unsold flats held as stock in trade prior to assessment year 2018-19. Following precedent in Jayant Avinash Dave case, the tribunal ruled that notional rental income cannot be computed on annual letting value of properties forming part of closing inventory. The tribunal directed the Assessing Officer to delete the addition made on account of deemed rent on property held as stock in trade, allowing the appellant's appeal.

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Issues:
Determining deemed rental income on unsold flats and commercial property held as stock in trade.

Analysis:
The appellant, a private limited company engaged in construction projects, filed an appeal against the order confirming the addition of notional rental income on unsold flats forming part of closing inventory. The Assessing Officer determined taxable deemed rent on unsold flats and commercial property held as stock in trade, citing section 23(4) of the IT Act. The appellant contested this determination, arguing that the notional rent should not apply to stock in trade as it will generate business income upon sale. Additionally, the appellant highlighted the introduction of section 23(5) from the assessment year 2018-19 onwards, suggesting prior legislative intent against calculating notional rent on unsold stock. The appellant also argued that section 23(4) refers to property and does not encompass commercial property or stock in trade. The appellant relied on various tribunal decisions supporting their position.

The tribunal considered the arguments and cited precedents, including CIT vs. Ansal House Finance Ltd., to assess the issue. Notably, the tribunal referenced the decision in Jayant Avinash Dave vs. DCIT, where it was held that no income from house property can result from unsold flats held as stock in trade. The tribunal upheld the decision that deemed rent on flats/shops held as stock in trade cannot be calculated during the relevant period. Consequently, the tribunal directed the Assessing Officer to delete the addition of deemed rent on the property held in closing stock as stock in trade, allowing the appeal filed by the assessee.

In conclusion, the tribunal ruled in favor of the appellant, emphasizing that during the relevant period, deemed rent on unsold flats and commercial property held as stock in trade should not be calculated. The decision was based on established precedents and legislative interpretations, leading to the allowance of the appeal and the deletion of the added deemed rent amount.

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