TaxTMI 
TaxTMI 
2020 (11) TMI 218
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....red in confirming the addition of Rs. 43,15,097/- made by the AO in respect of unsold f lats which were held as stock in trade as income from house property on notional basis as deemed rental income applying 8% of value of the unsold flats as income from house property. 2. The learned CIT(A) failed to appreciate that the flats are held as stock in trade and not as investment, hence addition made by the AO on notional basis as deemed rental income and the same is confirmed by the CIT(A) may be directed 3. The learned CIT(A) failed to appreciate the appellant could not have let out the properties as the f lats were meant for sale as soon as the prospective buyers approach and inspect the f lats, hence it was not possible to let out. Therefore, addition only on notional basis may be directed to be deleted. 4. Without prejudice to above, amendment to S.23(5) is inserted w.e. f . 01/04/2018, hence there cannot be any addition on notional basis in respect of flats held as stock in trade for the year under consideration. 5. Without prejudice to above, even on rental basis the assessee cannot get more than 2% return on investment , hence the estimate of ....
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....e tax incidence did not depend upon whether the assessee had actually rented out the property with an intention of carrying on business but on the factum of ownership, the A.O held a conviction that the ALV of the aforesaid flats was liable to be assessed under the head income from house property. In the absence of any reasonable ALV having been provided by the assessee the A.O computed the same @ 8% of the cost of the property. In the backdrop of his aforesaid deliberations the A.O worked out the ALV of the flats forming part of the assessee's 'closing stock' for the year under consideration, as under: (i) Ashwin CHS Ltd. Projects: Sr. No. Name of the unsold flats Value of each flat as on 31.03.2014 Whether occupation certificate received or not 1. 1001 9576415 Occupation certificate received on 22.08.2013 2. 1002 9576415 Occupation certificate received on 22.08.2013 3. 1201 9576415 Occupation certificate received on 22.08.2013 4. 1202 9576415 Occupation certificate received on 22.08.2013 5. 1301 9576415 Occupation certificate received on 22.08.2013 6. 1302 9576415 Occupation certificate r....
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....house property'. However, the CIT(A) did not find favour with the aforesaid claim of the assessee. Relying on the judgement of the Hon'ble High Court of Bombay in the case of CIT Vs. Gundecha Builders (2019) 102 taxman.com 27 (Bom), the CIT(A) observed, that as held by the Hon'ble High Court even in a case of a real estate developer who was not engaged in the business of letting out its property, the rental income derived from the property held as stock-in-trade was taxable under the head 'house property'. In the backdrop of his aforesaid deliberations the CIT(A) was of the view that no infirmity could be related to the action of the A.O in assessing the ALV of the unsold flats held by the assessee as stock-in-trade under the head 'house property'. Accordingly, the CIT(A) finding no merit in the appeal of the assessee dismissed the same. 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short 'A.R') for the assessee Dr. K. Shivram, Senior Advocate took us through the facts of the case. The ld. A.R assailed the assessing of the ALV of the flats that were held by the assessee firm, a real....
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....um). On the basis of his aforesaid submissions, it was the claim of the ld. A.R that the addition made/sustained by the A.O/CIT(A) towards ALV of the flats held by the assessee firm as stock-in-trade of its business of a builder and developer could not be sustained and was liable to be vacated. Adverting to the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Gundecha Builders (2019) 102 taxman.com 27(Bom) as was relied upon by the CIT(A), it was submitted by the ld. A.R that the facts involved in the said case were distinguishable as against those involved in the case of the present assessee. The ld. A.R took us through the aforesaid judgment of the Hon'ble jurisdictional High Court and submitted, that the issue before the Hon'ble High Court was as to under which head the rental income received from the unsold property held by the assessee, a real estate developer, was liable to be assessed. It was submitted by the ld. A.R that the Hon'ble High Court in the backdrop of the facts that were involved in the case before them had observed, that the rental receipts were liable to be assessed under the head income from house property. The ld. A.R in his attempt to dist....
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....eld by the assessee as part of the stock-in-trade of its business of a builder and developer, and had brought the same to tax under the head 'house property'. On appeal, the CIT(A) had found favour with the view taken by the A.O by drawing support from the order of the Hon'ble High Court of Bombay in the case of CIT Vs. Gundecha Builders (2019) 102 CCH 426 (Bom). 8. On a perusal of the order of the Hon'ble Jurisdictional High Court in the case of Gundecha Builders (supra), we find, that the issue before the High Court was that where an assessee, a real estate developer, was in receipt of rental income from a property held as stock-in-trade of its business as that of a real estate developer, then, whether the said receipts were to be brought to tax under the head 'house property' (as claimed by the assessee) or as 'business income' (as claimed by the revenue). The High Court after relying on its earlier order passed in the case of CIT Vs. Sane & Doshi Enterprises (2015) 377 ITR 165 (Bom), had observed, that in a case where a real estate developer is in receipt of rental income in respect of a property held by him as stock-in-trade of its business as that of a real estate develope....
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....ased on the factum of ownership of property, the High Court was of the view that as the capacity of being an owner was not diminished one whit, because the assessee carried on the business of developing, building and selling flats in housing estates, therefore, the ALV of the flats held as stock-in-trade by the assessee in its business of a builder and developer was liable to be determined and brought to tax under the head 'house property'. But then, we find, that taking a contrary view the Hon'ble High Court of Gujarat had way back in the case of CIT vs. Neha Builders (2008) 296 ITR 661 (Guj), observed, that rental income derived by an assessee from the property which was treated as stock-in-trade is assessable as business income and cannot be assessed under the head "Income from house property". The High Court while concluding as hereinabove, had observed, that admittedly the income derived from property would always be termed as 'income' from the property, but if the property is used as 'stock-in-trade', then the said property would become or partake the character of the stock, and any income derived from the stock would be 'income' from the business and not income f....
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....old on 06.11.2012. We find that our coordinate Bench in the case of C.R. Developments Pvt. Ltd. (supra) dealt with charging of notional income under the head 'Income from House Property' in respect of unsold shops which were shown by assessee therein as part of 'stockin- trade'. As per the Tribunal "The three flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by Shri Rajendra Godshalwar letting out the flats. The flats not sold was its stock-in-trade and income arising on its sale is liable to be taxed as business income. Accordingly, we do not find any justification in the order of AO for estimating rental income from these vacant flats u/s 23 which is assessee's stock in trade as at the end of the year. Accordingly, the AO is directed to delete the addition made by estimating letting value of the flats u/s 23 of the I.T. Act." 7. In our view, the aforesaid observation of our coordinate Bench squarely applies to the f....
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....plicable in the present case." Accordingly, preferring the view taken by the Hon'ble High Court of Gujarat in CIT vs. Neha Builders Pvt. Ltd. (2008) 296 ITR 661 (Guj), as per which the ALV of the unsold property held by an assessee as stock-in-trade could not be determined and brought to tax under the head 'house property', as against that arrived at by the Hon'ble High Court of Delhi holding to the contrary in CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del); and also following the order of ITAT, Mumbai in Shri. Rajendra Godshalwar Vs. ITO-21(3)(1), Mumbai [ITA No. 7470/Mum/2017, dated 31.01.2019], we herein conclude that the ALV of flats held by the assessee as part of the stock-in-trade of its business as that of a builder and developer could not have been determined and therein brought to tax under the head 'house property'. 10. Before parting, for the sake of clarity, we may herein observe that vide the Finance Act, 2017 w.e.f 01.04.2018 the legislature had inserted Sec. 23(5) of the Act. As per the said statutory provision, where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property ....
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....ide the order of the CIT(A) and direct the A.O to delete the addition made by him towards the ALV of the flats held by the assessee as stock-in-trade of its business as that of a builder and developer. The Grounds of appeal Nos. 1 to 4 are allowed in terms of our aforesaid observations. 12. As we have concluded that the assess ability of notional income i.e ALV in respect of unsold flats held by the assessee as stock-in-trade of its business as that of a builder and developer is not merited in the instant case, therefore, the grounds of appeal nos. 5 to 7 having been rendered as merely academic are not being adverted to and therein adjudicated upon. The Grounds of appeal nos. 5 to 7 are dismissed as not pressed in terms of our aforesaid observations. 13. The appeal of the assessee is allowed in terms of our aforesaid observations. A.Y. 2015-16 ITA No. 1860/Mum/2019 14. We shall now take up the appeal of the assessee for A.Y.2015-16. The assessee has assailed the impugned order on the following effective grounds of appeal: "1. The learned CIT(A) erred in confirming the addition of Rs. 49,17,907/- made by the AO in respect of unsold f lats which were held as s....