Income From Unsold Flats Shall be Treated as Business Income
FCS DEEPAK P. SINGH | Mar 10, 2022 |
Income From Unsold Flats Shall be Treated as Business Income
Unique Estates Development Co. Ltd Vs. DCIT
(Income Tax Appellate Tribunal, Mumbai)
ITA No. 4598/Mum/2019 | 22-03-2021
SUB: INCOME FROM UNSOLD FLATS SHALL BE TREATED AS BUSINESS INCOME OF THE DEVELOPER AND NO INCOME FROM HOUSE PROPERTY ON THE BASIS OF ANNUAL LETTING VALUE OR NOTIONAL VALUE OF RENT.
APPEAL BEFORE CIT(APPEAL)
12. Aggrieved by the order of AO, the assessee has filed the appeal before the CIT(A). The CIT(A) dealt on the disputed issue of addition of ALV of unsold flats, the submissions of the assessee and judicial decisions and observed at page 10 para-.5.9 of the order as under:
“5.9. In view of the discussion in the foregoing paragraphs, I hold that the AO has rightly assessed deemed income from the unsold units in the hands of the appellant as per the provisions of Sec.22 and 23 of the Act by adopting a rate of 7% of the investments made, ‘in accordance with the decision of Radha Devi Dalmia (4 Taxman 183)(ALL HC). Accordingly, the addition of Rs. 1,20,19,841/- made by the AO after adopting the deemed rental income to be of Rs. 1,71,71,201/- is upheld and the ground of appeal taken by the appellant is rejected. Accordingly, this ground of appeal of the assessee is dismissed.”
APPEAL BEFORE HON’BLE TRIBUNAL
(a) On the facts and in the circumstances of the case as well as in law, learned CIT(A) erred in confirming the disallowance amounting to Rs.1,20,19,841/- considering the Annual Letting Value of unsold flats which is closing stock of the appellant, treated as “Income from House Property”.
(b) On the facts and in the circumstances of the case as well as in law, learned CIT(A) erred in not following jurisdictional ITAT decisions which squarely apply to the facts of the appellant’s case. The ITAT has decided same subject matter in its earlier decisions in the same assessee case.
“5. We have considered rival contentions and perused the record. The issue under consideration has been restored by the CIT(A) to the file of AO to compute the annual value. Recently the Hon’ble Supreme Court in the case of M/s Chennai Properties & Investments Ltd. Vs. CIT, reported in (2015) 42 SCD 651, vide judgment dated 9-4-2015 has held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of AO treating the rental income as income from house property in place of income from business shown by the assessee was held to be not justified.
The Hon’ble Supreme Court held that since the assessee company’s main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business.
On the very same analogy in the instant case, assessee is engaged in business of construction and development, which is main object of the assessee company. The three flats which could not be sold at the end of the year was shown as stock-intrade. 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 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.”
We fallow the judicial precedence and apply the ratio of the decision to the facts of the present case. Accordingly We set-aside the order of CIT(A) and direct the AO to delete the addition and allow the grounds of appeal of the assessee.
CONCLUSION: From above decisions ,it is clear that income from unsold flats/shops/units of a developer or builder ,shown as stock-in trade in books of account of the builder/developer should be assessed as income from Business and Professional and should not be considered as income from house property. In case of vacant flats/ shops /units , AO could not assess the same on the basis of their Annual Letting Value as income from house property.
DISCLAIMER: The above case law is for information and knowledge of readers. The views expressed are the personal views of the author and same should not be taken a professional advice. In case of necessity do consult with tax professionals.
In case of any Doubt regarding Membership you can mail us at [email protected]
Join Studycafe's WhatsApp Group or Telegram Channel for Latest Updates on Government Job, Sarkari Naukri, Private Jobs, Income Tax, GST, Companies Act, Judgements and CA, CS, ICWA, and MUCH MORE!"