Unsold Flats Income will be Considered as Developer’s Business Income: ITAT Pune

The Income Tax Appellate Tribunal (ITAT) in Pune has ruled that the developer’s income from unsold flats is taxable as business income rather than rental income.

The assessee is a company that works as a developer and promoter. The AO discovered that the assessee had 12 unsold flats/shops as closing stock, which were regarded as stock-in-trade, after looking into the specifics. The assessee, according to the AO, owns more than two home properties and is entitled to pay Income Tax on deemed rent. In light of this, the AO requested that the assessee explain why the considered rent for 12 unsold flats should not be imposed.

The assessee relied on the decision in the case of M/s. Mangal Murti Developers Ganesham and argued that the issue therein is similar to the issue raised in the present case, and the Tribunal, relying on the case of Cosmopolis construction in ITA Nos. 230 & 231/PUN/2018 and also considering the amendment made to Subsection (5) of Section 23 of the Act w.e.f. 01-04-2018, held that the income from unsold flats

The Tribunal bench of Judicial Member Mr. S S Viswanethra Ravi and Accountant Member Dr. Dipak Pandurang observed that the ld. DR did not contest the assessee’s treatment of 12 unsold flats as stock-in-trade and subsequent offering of the same as business revenue.

“In Kumar Construction and Properties Private Limited (above), the ITAT upheld the decision of this Tribunal in M/s. Mangal Murti Developers Ganesham (supra), holding that no addition for presumed rent on unsold flats could be made.” As a result, we hold that the change made by Finance Act, 2017 w.e.f. 01-04-2018 is not relevant and that no addition is maintainable on account of deemed rent on 12 unsold units that the assessee treats as stock-in-trade. As a result, the CIT(A) order is unjustified and is overturned,” the Tribunal stated.

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