TaxTMI 
TaxTMI 
2023 (4) TMI 1286
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....erved 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, assessee has not received the possession of t....
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....he 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 "Inventories" for the year, hence no deemed or notional rental income can be....
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....elating 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, which come to 27,83,834/ (CIT(A) Page No. 4, para 4.5) Propositions: I. No Deemed or Notional Rental Income for the properties shown under the head Stock in Trade. 1. Sin....
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.... 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 that unsold flats which were in stock in trade cannot be taxed as deemed rental income. 11. In the case of M/s. Sheth Developers Private Limited, ITA No.1953 & 1954 /Mum/2020, dt. 27/06/2022 (Mum) (Trib.) held in para no. 3.3 & 3.4 that addition made towards deemed notional rental income in respect of unsold flat....
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....t. 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 not to let out any unsold portion of property and to earn income from same. Flats were meant for sale as soon as the prospective buyers approach; hence it was not possible to let out. 21 Hence, the direction given to assessed income from House property by taking ALV at 8.5% of the Book Value of the property u/s. 23(1) may be deleted. 22. Without prejudice to above, even on rental basis the assessee cannot get more than 2% return on inve....
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....en 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 the Act to tax the deemed rental income on unsold stock of properties lying as 'stock in trade' under the head 'income from house property'. The provisions of Section 23(4) of the Act are meant only for properties that are held as investments and not as stock in trade. We find that decision rendered by the Hon'ble Jurisdictional High Court in the case of Mangla Homes Pvt. Ltd., reported in 325 ITR 281 would not be applicable in the instant case as the main object of that company was to make investment in p....
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.... 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 assessee has approached the Tribunal. 3. We have heard the rival submissions through Virtual Court and gone through the relevant material on record. Indisputably, the assessee has been engaged in the business of development of properties. Certain flats/bungalows out of the two buildings were unsold as at the year end. The authorities below have canvassed a view that annual letting value of such unsold flats/bungalows lying as stock-in-trade at the end of the year is income chargeable to tax under the head `Income from house pr....
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....nary 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 assessee having physical possession and control over such flats, thereby making the assessee solely in their `occupation'. Thus the first condition is fulfilled as the flats etc. were occupied by the assessee-owner. 7. The second condition is that any business or profession should be carried on by the assessee-owner. Obviously, the assessee is engaged in the business of property development and has returned income from such business. 8. The third condition is that the occupation of the property should be for the purpose of business or profession. Crucial words used in the provision lin....
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....ompany 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 including Cosmopolis Construction, Pune vs. ITO dated 18.06.2018 (ITA NO. 230 & 231/PUN/2018), wherein, after taking note of both the above judgments and finding none of them from the jurisdictional High Court, a view has been canvassed in favour of the assessee by holding that no income from house property can result in respect of unsold flats held by a builder at the year end. Similar view has been reiterated by the Pune Bench of the Tribunal in Mahanagar Constructions VS. ITO (ITA NO.632/PUN/2018) vide its order dated 5.9.2019. 12. At this juncture, it is relevant to mention that the Finance Act, 2017 has inserted sub-....