TaxTMI 
TaxTMI 
2026 (7) TMI 2021
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Non-Applicability of Section 22 of the Income Tax Act, 1961 : The Learned. CIT(A) has erred in upholding the action of the Learned AO in assessing notional income under the head "Income from House Property" u/s 22, ignoring that the Assessee is engaged in the business of builders and developers and that the properties constructed and held by it constitute stock-in-trade intended for sale. Therefore, the provisions of Section 22 are not applicable. The Learned CIT(A) failed to interpret the section 22 of Income Tax Act, 1961 which clearly mentions that if any property, consisting of any building or land appurtenant thereto, is used for the purpose of business, then the same property is classified as business asset and any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the business of building and development. The assessee filed its return of income for the Assessment Year 2017-18 declaring a total income of Rs.2,83,01,760/-. During the course of assessment proceedings, the Assessing Officer observed that the assessee had shown unsold finished flats as closing stock amounting to Rs.8,91,97,582/- and the Occupancy Certificate for the project had been received on 28.10.2016. Since the project had been completed and the flats remained unsold, the Assessing Officer asked the assessee to explain why deemed rental income should not be brought to tax in respect of such unsold flats. In response, the assessee contended that the flats constituted stock-in-trade and were being used for business purposes and, theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of the property for the assessee's own business for the purposes of section 22 of the Act. The CIT(Appeals) held that the Assessing Officer had correctly computed the Annual Letting Value of the unsold flats and assessed the same under the head "Income from House Property". In the absence of any supporting evidence to show use of flats for business purposes, the CIT(A) found no reason to interfere with the action of the Assessing Officer and confirmed the addition of Rs.13,00,798/-.On the issue relating to section 23(5) of the Act, the CIT(A) held that the legislative intent was clear that section 23(5) of the Act was applicable only from Assessment Year 2018-19 onwards. Since the appeal was for Assessment Year 2017-18, the benefi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utory provision enabling the Revenue to bring to tax the notional Annual Letting Value of completed but unsold flats held by a builder as its stock-in-trade. 7. For ready reference, section 23(5), as inserted by the Finance Act, 2017 with effect from 01.04.2018, reads as under: "5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is the principle that a charging provision must receive strict interpretation and no tax can be levied unless the charging section clearly authorises such levy. 10. An identical issue came up for consideration before the Coordinate Bench of the Ahmedabad Tribunal in Vandemataram Projects Pvt. Ltd. v. DCIT in ITA No.1080/Ahd/2024, order dated 25.02.2025. In that case also, the assessee was a builder and developer holding completed but unsold flats as stock-in-trade and the Assessing Officer sought to assess their notional Annual Letting Value under the head "Income from House Property". After examining the statutory provisions, the Tribunal held that prior to insertion of section 23(5), there existed no specific charging provision enablin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessment years prior to the amendment effective from assessment year 2018-19, the addition made by the Assessing Officer does not survive. However, it is worth mentioning that the position would be different for years when the amendment to section 23(5) became effective from assessment year 2018-19 when legislature in its wisdom brought the income to be taxed under the head 'Income from House Property'." 13. The above observations leave no manner of doubt that the Legislature consciously altered the legal position only with effect from Assessment Year 2018-19 by inserting section 23(5) of the Act. The Tribunal in the above decisions noted that the amendment was prospective and the statutory authority to tax notional Annual Letting V....