TaxTMI 
TaxTMI 
2023 (4) TMI 1286
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....course of the assessment, Assessing Officer observed that assessee is involved in buying and selling of immovable property without actually undertaking any construction activity. During the current Assessment Year assessee has not generated any income either from sale or renting of premises. He observed that the inventories as on 31.03.2013 stand at Rs..9,14,17,477/-. During the assessment proceedings, assessee submitted that it has started renting out some of the premises from the Financial Year 2014-15. Assessing Officer observed that during the current Assessment Year it was observed that assessee has received possession of certain property/bungalow plot and had neither used nor offered to earn any income under the head "income from other sources". Accordingly, the above said property was treated as deemed to be let out and he determined the actual value of the property for the purpose of section 23(1) of the Act and determined the rent at 10% of the value in respect of the property and accordingly additions made. In this regard, assessee filed an objection letters dated 02.09.2016 and 21.10.2016 in which assessee submitted that till the occupation certificate is obtained, hence....
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....annot claim other expenditure. Accordingly, he disallowed the business expenditure and proceeded to make the interest income earned from FDR as income chargeable to tax under the head "income from other sources". 10. Aggrieved, assessee preferred an appeal before the Ld.CIT(A) and raised grounds of appeal and filed the detailed submissions through ITBA portal. After considering the submissions of the assessee, Ld.CIT(A) partly allowed the claim of the assessee on deemed rental income calculated by the Assessing Officer @10% and Ld.CIT(A) by relying on the decision of the ITO v. Chem Mech Pvt. Ltd., [(2002) 83 ITD 428 (Mumbai)] wherein it is held that the standard rent under Bombay Rental Act has to be calculated @8.5% of the total investment in the said property. Accordingly, he directed the Assessing Officer adopt the rate of 8.5% instead of 10%. 11. Aggrieved with the above order assessee is in appeal before us raising following grounds in its appeal: - I. No Deemed or Notional Rental Income for the properties held as Stock in Trade 1. On the facts and circumstances of the case, Property No. 1 & Property No. 2 of the Appellant was held as Stock in trade as....
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.... craves leave to add, amend, alter or delete the said ground of appeal." 12. At the time of hearing, Ld. AR brought to our notice relevant facts relating to the case, and filed its written submissions. For the sake of clarity, it is reproduced below: - "1. The assessee company is engaged in the business of buying and selling of properties since the year 2009. The main object of the company is to purchase property develop them if required via builders/contractors, and sell at a good rate by making profits. 2. During the year the assessee company has not been able to make any sale of the properties. The Assessee Company filed its Return of Income declaring business loss at Rs.12,65,200/- the Assessee filed NIL return of income. 3. The Assessing officer has treated Property No. 1 at Palghar Wada, Property No. 2 at Thane Atlas tower Flat No.1, and Property No. 3. Kamla Space unit no. 209 at Santacruz as Deemed Rental Property and assessed income from House property at Rs.20,61,170/- (AO Page NO. 4, para 4.7) 4. The CIT(A) directed to the AO to assessed income of Property No. 1 at Rs.60,000/ and rest of two properties at 8.5% of the Property Value,....
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....9. Without prejudice to the above, when the Assessee held unsold property as business, then income arises from the same cannot be assessable u/s 23(1) of the Act. 10. Therefore, direction given to estimate income at Rs.60,000/- may be directed to be deleted. Property No. 2 at Atlas Tower, Thane 5. The said property shown as inventories in the balance sheet due to unsold. 6. The Assessee has tried to sale or rent the said property but it is unable to get any client due to various reasons. 7. When property shown as inventories, then there is no ground to direct the AO to assessed rental income by taking 8.5% of property value. 8. No Addition can be made as Income from Housing Property, as the properties shown under head Inventories in Balance sheet. 9. In the case of Pegasus Properties (P.) Ltd. vs. Dy. CIT (2022] 193 ITD 514 (Mum)(Trib.) held that no addition on account of deemed rental income could be. made in respect of unsold stock of flats held as 'stock-in-trade' up to A.Y. 2017-18. 10. In the case of Osho Developers, ITA No.2372 & 1860/Mum/2019, dt. 03/11/2020 (Mum) (Trib.) held in para no. 10 & 11....
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....C)(Para 8)  CIT vs. Ansal Housing Finance & Leasing Co. Ltd. (2013)354 ITR 180 (Del.)(HC)  C.R. Developers Pvt. Ltd. vs. JCIT, ITA No.4277/Mum/2012 dtd.13/05/2015 Runwal Constructions v. ACIT in ITA. No. 5408 & 5409/Mum/2016 dated 22.02.2018 (Para 10)  Shree Balaji Ventures vs. ITO, ITA No.1914/PUN/2018, de 19/02/2019 (Pune)(Trib.)  ITO vs. Arihant Estates Pvt. Ltd. ITA No. 6037/Mum/2016 dt.27/06/2018 (Mum)(Trib.) (Para 10) 19. The CIT (A) relied on the case of ITO vs. Chem Mech Pvt. Ltd. (2003) 83 ITD 273 (Mum) (Trib.) is not applicable to the facts of the case. In that case, the assessee was engaged in the business of sale & purchases of cotton & chemicals, and the Assessee owned a house property, and same was rent out to its MD for interest free deposits at monthly rent of Rs.1,300/- The AO estimated ALV by applying interest rate @ 12% on total investment value. Whereas as Tribunal has directed to adopt fair rental value of the property. 20. Whereas in the present case the Assessee is trader engaged in the business of buying and selling of properties. Further, the intention of the Assesse was n....
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....head 'income from business'. We find that the assessee being a builder or developer would be interested in selling those flats and earn profits out of the same. No business man would be interested in keeping the properties idle. Hence, the intention of the assessee company being a builder or developer was always to sell the same. 5.12 Since all the unsold flats are lying as 'stock in trade', the resultant income arising out of sale would only from income from business, We find that amendment has been brought in the statute in Section 23(5) of the Act where in respect of unsold stock of properties held as 'stock in trade' for a period of two years from the date of obtaining completion certificate from the competent authority, the annual value of such property would be determined as 'Nil'. In other words, there would be no addition towards deemed rental income in respect of unsold stock of properties held as 'stock in trade' for a period of two years from the date of obtaining the completion certificate from the competent authority. This specific provision has been brought in the statute from A.Y.2018-19 onwards. Hence, prior to A.Y.2018-19, there is no provision provided in....
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....T(A)-7, Pune on 01.09.2017 in relation to the assessment year 2013-14. 2. The assessee has assailed confirmation of addition of Rs.1,47,65,688/- towards deemed rental income on stock-in-trade of unsold flats/bungalows held by the assessee, as a first major issue. Succinctly, the factual panorama of the case is that the assessee has been engaged in the business of development of properties with the projects `Kumar Infinia' and `Kumar Picasso' having certain unsold flats/bungalows for ready possession at the year end. The AO opined that the assessee ought to have offered deemed notional rental income on such vacant flats/bungalows. The assessee submitted that the flats/bungalows were its stock-in-trade, from which no income could be taxed under the head 'Income from house property'. Relying on judgment of the Hon'ble Delhi High Court in CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del), the AO computed the annual letting value of the unsold flats u/s.23 of the Income-tax Act, 1961 (hereinafter also called `the Act') at Rs.1,47,65,688/- and made addition for the same. The ld. CIT(A) echoed the addition, against which the a....
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....ngaged in the business of developing buildings. Admittedly, the assessee is owner of the flats/bungalows lying unsold at the year end. Now the question is whether these flats etc. can be said to be `occupied' by the assessee? The term `occupy' has neither been defined in section 2 (general definitions under the Act) nor section 27 (definitions relating to income from house property). Rather it is defined nowhere in the Act. In such a scenario, we will have to understand its connotation in common parlance. The term `occupation' (in land law) has been defined in the Oxford Dictionary of Law to mean `the physical possession and control of land'. Thus, occupation of a property means having its physical possession coupled with dominion rather than the physical possession coupled with actual use. Once a property is in physical possession and control of a person, it is said to be in his occupation, even if it is not actually used by him. Adverting to the facts of the extant case, we find it not to be a case of the AO or that of the ld. DR that the unsold flats etc. were not in the physical possession and control of the assessee. In fact, there is no one other than the asse....
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.... 10. On a bird's-eye view, we find that that flats/bungalows are occupied by the assessee owner; business of property development is carried on by the assessee; the occupation of the flats etc. is for the purpose of business; and profits of such business are chargeable to income-tax. Ergo, all the four conditions for exclusion from section 22 of the Act are cumulatively satisfied in the present case. 11. The authorities below have canvassed a view that the annual letting value of flats/bungalows is income chargeable to tax as `Income from house property' by relying on Ansal Housing Finance and Leasing Company Ltd. (supra). There is no doubt that the Hon'ble Delhi High Court in the said case has held that Annual letting value of unsold flats at the year end is chargeable to tax under the head 'Income from house property'. At the same time, we find that the Hon'ble Gujarat High Court in CIT Vs. Neha Builders (Pvt.) Ltd. (2008) 296 ITR 661(Guj) has held that income from the properties held as stock in trade can be treated as Income from business and not as `Income from house property. Our attention has been drawn towards certain Tribunal decisions ....
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....applicability of such an amendment, no income can be said to have accrued to the assessee from unsold flats available as stock-in-trade. We, therefore, overturn the impugned order on this score and delete the addition of Rs.1.47 crore sustained in the first appeal." 5.14 In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that no addition on account of deemed rental income could be made in respect of unsold stock of flats held as 'stock in trade' upto A.Y.2017-18. However, the amendment has been brought in the statute in Section 23(5) from A.Y.2018-19 providing a moratorium period of two years. Hence, no addition could be made even for A.Y.2018-19 also. 5.15 Accordingly, the ground raised by the assessee for all the three years in respect of addition made on account of deemed rental income of unsold stock of flats as 'stock in trade' are allowed." 16. Respectfully following the above said decision, we are also of the view that the assessee had kept various flats as stock in trade and they were not sold. No addition on account of deemed rental income can be made in respect of unsold stock of f....