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TMI Blog2020 (11) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO in respect of unsold f lats which were held as stock in trade as income from house property on notional basis as deemed rental income applying 8% of value of the unsold flats as income from house property. 2. The learned CIT(A) failed to appreciate that the flats are held as stock in trade and not as investment, hence addition made by the AO on notional basis as deemed rental income and the same is confirmed by the CIT(A) may be directed 3. The learned CIT(A) failed to appreciate the appellant could not have let out the properties as the f lats were meant for sale as soon as the prospective buyers approach and inspect the f lats, hence it was not possible to let out. Therefore, addition only on notional basis may be directed to be deleted. 4. Without prejudice to above, amendment to S.23(5) is inserted w.e. f . 01/04/2018, hence there cannot be any addition on notional basis in respect of flats held as stock in trade for the year under consideration. 5. Without prejudice to above, even on rental basis the assessee cannot get more than 2% return on investment , hence the estimate of notional rent @ 8% of investment being illogical, may be directed to be delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith an intention of carrying on business but on the factum of ownership, the A.O held a conviction that the ALV of the aforesaid flats was liable to be assessed under the head income from house property. In the absence of any reasonable ALV having been provided by the assessee the A.O computed the same @ 8% of the cost of the property. In the backdrop of his aforesaid deliberations the A.O worked out the ALV of the flats forming part of the assessee's 'closing stock' for the year under consideration, as under: (i) Ashwin CHS Ltd. Projects: Sr. No. Name of the unsold flats Value of each flat as on 31.03.2014 Whether occupation certificate received or not 1. 1001 9576415 Occupation certificate received on 22.08.2013 2. 1002 9576415 Occupation certificate received on 22.08.2013 3. 1201 9576415 Occupation certificate received on 22.08.2013 4. 1202 9576415 Occupation certificate received on 22.08.2013 5. 1301 9576415 Occupation certificate received on 22.08.2013 6. 1302 9576415 Occupation certificate received on 22.08.2013 7. 1401 9576415 Occupation certificate received on 22.08.2013 Total 67034905 Occupation certificate received on 22.08.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estate developer who was not engaged in the business of letting out its property, the rental income derived from the property held as stock-in-trade was taxable under the head 'house property'. In the backdrop of his aforesaid deliberations the CIT(A) was of the view that no infirmity could be related to the action of the A.O in assessing the ALV of the unsold flats held by the assessee as stock-in-trade under the head 'house property'. Accordingly, the CIT(A) finding no merit in the appeal of the assessee dismissed the same. 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short 'A.R') for the assessee Dr. K. Shivram, Senior Advocate took us through the facts of the case. The ld. A.R assailed the assessing of the ALV of the flats that were held by the assessee firm, a real estate developer, as its stock-intrade for the year under consideration. It was the claim of the ld. A.R that as the flats in question were held by the assessee firm as stock-in-trade and not as an investment, therefore, the ALV of the same could not have been determined and brought to tax in its hands. It was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble High Court of Bombay in the case of CIT Vs. Gundecha Builders (2019) 102 taxman.com 27(Bom) as was relied upon by the CIT(A), it was submitted by the ld. A.R that the facts involved in the said case were distinguishable as against those involved in the case of the present assessee. The ld. A.R took us through the aforesaid judgment of the Hon'ble jurisdictional High Court and submitted, that the issue before the Hon'ble High Court was as to under which head the rental income received from the unsold property held by the assessee, a real estate developer, was liable to be assessed. It was submitted by the ld. A.R that the Hon'ble High Court in the backdrop of the facts that were involved in the case before them had observed, that the rental receipts were liable to be assessed under the head income from house property. The ld. A.R in his attempt to distinguish the facts involved in the present case submitted, that unlike the facts involved in the case before the Hon'ble High Court, the issue involved in the present case was as to whether or not the ALV of the property held by the assessee, a real estate developer, as stock-in-trade, was to be determined and therein br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decha Builders (2019) 102 CCH 426 (Bom). 8. On a perusal of the order of the Hon'ble Jurisdictional High Court in the case of Gundecha Builders (supra), we find, that the issue before the High Court was that where an assessee, a real estate developer, was in receipt of rental income from a property held as stock-in-trade of its business as that of a real estate developer, then, whether the said receipts were to be brought to tax under the head 'house property' (as claimed by the assessee) or as 'business income' (as claimed by the revenue). The High Court after relying on its earlier order passed in the case of CIT Vs. Sane & Doshi Enterprises (2015) 377 ITR 165 (Bom), had observed, that in a case where a real estate developer is in receipt of rental income in respect of a property held by him as stock-in-trade of its business as that of a real estate developer, the said rental receipts was to be assessed under the head house property. Accordingly, the issue before the High Court in the aforesaid case was as to under which head of income the rental receipts were liable to be assessed. Finding favour with the claim of the assessee, it was observed by the High Court that the rental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of a builder and developer was liable to be determined and brought to tax under the head 'house property'. But then, we find, that taking a contrary view the Hon'ble High Court of Gujarat had way back in the case of CIT vs. Neha Builders (2008) 296 ITR 661 (Guj), observed, that rental income derived by an assessee from the property which was treated as stock-in-trade is assessable as business income and cannot be assessed under the head "Income from house property". The High Court while concluding as hereinabove, had observed, that admittedly the income derived from property would always be termed as 'income' from the property, but if the property is used as 'stock-in-trade', then the said property would become or partake the character of the stock, and any income derived from the stock would be 'income' from the business and not income from the property. In the backdrop of the conflict between the decisions of the aforesaid non-jurisdictional High Courts, as observed by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), the view which is in favour of the assessee has to be preferred as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch could not be sold at the end of the year was shown as stock-in-trade. 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 Shri Rajendra Godshalwar 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." 7. In our view, the aforesaid observation of our coordinate Bench squarely applies to the facts of the present case. In the case of M/s. Runwal Constructions (supra) also, similar issue has been dealt with by our coordinate Bench. In the case of M/s. Runwal Constructions (supra), the Bench noted the judgment of the Hon'ble Gujarat High Court in the case of CIT vs Neha Builders Pvt. Ltd., 296 ITR 661 (Guj.) as also the judgment of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i holding to the contrary in CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del); and also following the order of ITAT, Mumbai in Shri. Rajendra Godshalwar Vs. ITO-21(3)(1), Mumbai [ITA No. 7470/Mum/2017, dated 31.01.2019], we herein conclude that the ALV of flats held by the assessee as part of the stock-in-trade of its business as that of a builder and developer could not have been determined and therein brought to tax under the head 'house property'. 10. Before parting, for the sake of clarity, we may herein observe that vide the Finance Act, 2017 w.e.f 01.04.2018 the legislature had inserted Sec. 23(5) of the Act. As per the said statutory provision, 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 a period up to "one year" ["two years" vide the Finance Act, 2019 i.e w.e.f 01.04.2020] from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as stock-in-trade of its business as that of a builder and developer is not merited in the instant case, therefore, the grounds of appeal nos. 5 to 7 having been rendered as merely academic are not being adverted to and therein adjudicated upon. The Grounds of appeal nos. 5 to 7 are dismissed as not pressed in terms of our aforesaid observations. 13. The appeal of the assessee is allowed in terms of our aforesaid observations. A.Y. 2015-16 ITA No. 1860/Mum/2019 14. We shall now take up the appeal of the assessee for A.Y.2015-16. The assessee has assailed the impugned order on the following effective grounds of appeal: "1. The learned CIT(A) erred in confirming the addition of Rs. 49,17,907/- made by the AO in respect of unsold f lats which were held as stock in trade as income from house property on notional basis as deemed rental income by applying 8% of value of the unsold flats as income from house property. 2. The learned CIT(A) failed to appreciate that the flats are held as stock in trade and not as investment , hence addition made by the AO on notional basis as deemed rental income and the same is confirmed by the CIT(A) may be directed to be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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