Deemed Rent from Unsold Flats not Taxable as they are Stock-in-Trade of Assessee-Builder: ITAT [Read Order]

In the case between M/s. Runwal Constructions vs. Assistant Commissioner of Income Tax, Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently ruled that the Assessing Officer cannot take notional annual letting value in respect of unsold flats for the purpose of determining house property income as the same are stock-in-trade of Assessee’s Business.

In the recent case the Assessee Company engaged in the business of builders and developers has duly filed its return of income for the assessment year and the assessment was completed under section 143(3) of the Income Tax Act 1961.

While completing the assessment proceedings the Assessing Officer (AO) has computed the annual letting value in respect of unsold flat by considering the same under the head income from house property.

Before the AO counsel for the Assessee advocate Rishabh Shah submitted that the Assessee engaged in the business of builder, developer and construction and the property they purchased is stock in trade and the income from sale of such developed property into flats is assessable as business income. Therefore the unsold flats which are in the stock in trade cannot be brought to tax under the head income from house property simply because the flats remain unsold at the end of the year.

However the AO refused to accept the contention of the Assessee and accordingly computed the notional annual letting value on the unsold flats and the same brought to tax under section 23 of the Income Tax Act 1961 under the head income from house property.

On appeal, the CIT(A) sustained the action of the AO in bringing to tax the notional annual letting value under the head ‘income from house property’ in respect of the unsold flats. Aggrieved by the order of the authority the Assessee approached the Tribunal on further appeal.

While observing the facts and perusing the available materials on record, the Tribunal bench comprising of Judicial Member C.N. Prasad and Accountant Member A.L. Saini objected the action of the AO and observed that “the Assessee has treated the unsold flats as stock in trade in the books of account and the flats sold by them were assessed under the head ‘income from business”.

The division bench further held that “the unsold flats which are stock in trade when they were sold and they are assessable under the head income from business when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect to those unsold flats under the head income from house property”. Thus the bench directed the AO to delete the addition made under section 23 of the Act while allowing the appeal filed by the Assessee.