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.

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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.

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