TMI Blog2022 (10) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. Accordingly, we hold that Assessing Officer is correct in computing ALV on notional rent on unsold stock, but with following riders and directions to the AO as discussed herein after. Firstly, the flats or units on which assessee has received any advance in this year or in the earlier years but has not delivered or given final possession of the said flat/unit to the buyer, then no notional rent can be charged as it tantamount to sale. Secondly, if unit of flat is shown as work-in-progress in the books then also no notional rent can be computed. And Lastly, Ld. Assessing Officer is not justified in making estimate of 8.5% of investment as ALV which is unsustainable in view of the decision of Hon‟ble Bombay High Court in the case CIT Vs. Tip top Typography [ 2014 (8) TMI 356 - BOMBAY HIGH COURT] wherein, it has been held that rent should be computed at Municipal ratable value. We accordingly direct the AO to ascertain the Municipal rateable value for computing the notional rent. This is also been held by ITAT Mumbai Bench in the case of Dimple Enterprise [ 2021 (6) TMI 132 - ITAT MUMBAI] AO is directed to compute accordingly as per direction given above. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB of the IT Act without realizing the fact, that clause (f) of explanation (1) to section 115JB requires such adjustment to be made. iv) The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be. 2. The facts and briefs with regard to issue raised in ground no.1 are that, Assessee is engaged in the business of Real Estate development, leasing and management of shopping malls etc. During the course of assessment proceeding the Assessing Officer has noted that the appellant has a stock of completed units totaling to Rs. 151,13,53,919/- out of which, it has received advances in respect of properties to the extent of Rs 39,12,96,068/-. The net unsold units with the assessee in closing stock was Rs 112,00,57,852/-. The Assessing Officer relying upon the Hon‟ble Delhi High Court decision in the case of Ansal Housing Finance and Leasing Company, reported in 354 ITR 180, held that the vacant units in the possession of the appellant are liable to be charged of notional rental income under the head Income from house property‟ on the basis of their ALV. Rejecting the submissions made by the Assessee and in light of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot be taken as ALV for computing the income from house property on unsold inventory of flats. 5. Before us, the Ld. DR has referred to the decision of co-ordinate Bench decision of ITAT Mumbai in the case of Dimple Enterprises proceed DCIT, reported in 190 ITD 199, wherein the Tribunal has held that if Assessee is a builder but business of the Assessee is not letting of property, then rent from unsold stock is to be assets has income from house property, after following the decision of Hon‟ble Delhi High Court in the case of CIT vs. Ansal Housing Financial and Leasing Company Ltd (Supra). He pointed out that Tribunal has also considered the decision of Gujarat High Court in the case of CIT Vs. Neha Builders Pvt. (Supra). 6. On the other hand, Learned counsel for the Assessee referred to the decision of K. Raheja Corporate Services Pvt. Ltd vs. ACIT ITA No. 7109/Mum/2018, 3862 4085/Mum/2019 order dated 25.10.2021, where in the Tribunal has referred to other decisions of this Tribunal including M/s. Osho Developers Mumbai vs. ACIT, ITA No. 2372 and 1860/Mum/2019 dated 03.11.2020. 7. We have heard the rival submissions and perused the relevant finding given in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erived from the stock cannot be taken to be income from the property. The Tribunal allowed the appeal observing inter alia, that any dividend received on the shares or any interest received from the bank would be taken to be income from other sources, therefore, any income derived under the head of rent would also become income from the property, it accordingly allowed the appeal and directed reconsideration of the matter. 8.1 The Hon‟ble High Court, then observed and held as under; 9. From the order passed by the learned Commissioner of Income-tax 7 (Appeals), it would clearly appear that the case of the assessee was that the company was incorporated with the main object of purchase, take on lease, or acquire by sale, or let-out the buildings constructed by the assessee. The development of land or property would also be one of the businesses for which the company was incorporated . 10. True it is, that income derived from the property would always be termed as income from the property , but if the property is used as stock-in-trade , then they said property would become or par take the character of the stock, and any income, derived from the stock, would be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was incorporated with the object of dealing in properties and the main object of the company as contained in the memorandum of association was to carry on business of dealing and investment in properties, flats, warehouses, shops, commercial and residential houses. The ancillary object was to carry on business of leasing, hire purchase, renting, selling, re-selling or otherwise dispose of all forms of movable or immovable properties and assets including buildings, godowns, warehouses and real estate of any kind. The Assessee claimed by the assessee that the flat could not be sold because of recession in the market and hence it let out the flats on license basis for temporary period and earned monthly rental income as license fees. The assessee treated the said rental income as income from the business. The authorities below have concurrently found in favor of the revenue that the rental income cannot be treated as income from business and treated it as income from house property under section 22 of the Income-tax Act. The question thus raised was whether the Tribunal is right in so concluding that the rental income is an income from house property. Hon‟ble High Court afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual receiving of rent as was the case before the Hon‟ble Gujarat High Court and Hon‟ble Bombay High Court. Had it been a case were Assessee have fetched rental income from the unsold stock, then following the principle laid down by the Hon‟ble Bombay High Court same would have been assessed under the head income from house property. 15. Now, coming to the decision of Hon‟ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance Leasing Company Ltd (Supra), one of the question of law referred before the Hon‟ble High Court was as under; Whether the assessee was liable to pay income tax on the annual letting value of unsold flats owned by it under the head income from house property ? 15.1 There the facts relevant to the issue raised relate to the addition on account of annual letting value (ALV) of flats, added on notional basis are that the assessee-company engages itself in the business of development of mini-townships, construction of house property, commercial and shop complexes etc. In the assessment completed for the year under consideration, the AO assessed the ALV of flats which the assessee had constructed, but were lying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r presumptive methods, for the purpose of calculation of income and collection of tax. Furthermore, application of ALV to determine the tax is regardless of whether actual income is received; it is premised on what constitutes a reasonable letting value, if the property were to be leased out in the marketplace. If the Assessee's contention were to be accepted, the levy of income tax on unoccupied houses and flats would be impermissible which clearly not the case is . 17. Though, the judgment which has been referred by the Hon‟ble Delhi High Court in the case in East India Housing Land Development Trust (Supra) , Sultan Bros and Karan Pura Development Company Ltd . (Supra) wherein, in all the cases the issue whether the rental income received from the property is to be assessed as business income or income of house property. No where, the Hon‟ble Supreme Court in any of the cases which has been referred by the Hon‟ble Delhi High Court dealt with issue of notional rental income when the property held as stock-in-trade or closing stock which has not been actually let out, is liable to be taxed as income from house property. However, be that as maybe, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be computed as income from house property and up to period of one year/two years income shall be taken to be nil‟. Thus, when specific provision has been brought with the effect from 01.04.2018 which cannot be applied retrospectively, then in our humble opinion it cannot be imputed that ALV of the flats held as stock in trade should be taxed on notional basis prior to AY 2018-19. Without any legislative intent or specific provision under the Act, such notional or deeming income should not be taxed as cardinal principle, because assessee is not aware that any hypothetical income is to be shown when he has not received any real or actual income. In our view of Hon‟ble Delhi High Court is too harsh an interpretation. 20. Since, even prior to the amendment, there is one High Court judgment of Hon‟ble Delhi High Court which is directly on this issue and against the Assessee, therefore same needs to be followed. Accordingly, we hold that Assessing Officer is correct in computing ALV on notional rent on unsold stock, but with following riders and directions to the AO as discussed herein after. 21. Firstly, the flats or units on which assessee has received an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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