Khinvasara Chavan Vs ACIT (ITAT Pune)
ITAT Deletes Notional Rent Addition Because Unsold Flats Were Held as Stock-in-Trade; ITAT Removes Addition on Unsold Flats Holding That Stock-in-Trade Cannot Generate Notional House Property Income; Deemed Rental Income Cannot Be Applied to Unsold Builder Inventory; ITAT Grants Relief on Unsold Flats Because Properties Were Not Let Out.
The appeal before the Pune Bench of the Income Tax Appellate Tribunal (ITAT) concerned Assessment Year 2017-18 and arose from an order passed by the Commissioner of Income Tax (Appeals)/NFAC dated 18.08.2025.
The assessee, a partnership firm engaged in the business of promoters and builders, had filed its return declaring total income of Rs.1,77,94,590/-. During scrutiny assessment proceedings, the Assessing Officer questioned why deemed rental income on unsold flats should not be added to income. The assessee stated that its housing project, Aranesywhar Park Phase-II, had been completed and that 52 unsold units were held as stock-in-trade.
The Assessing Officer was not satisfied with the explanation and estimated deemed rent at 3% of the work-in-progress value of Rs.15,49,59,096/-, resulting in an addition of Rs.46,48,772/- as notional rental income. The Assessing Officer also noted that interest income of Rs.7,33,762/- earned on fixed deposits had not been offered to tax. The assessee argued that the interest arose from one-time maintenance charges collected from flat purchasers and was subject to an overriding title for maintenance expenses. However, the Assessing Officer held that interest on fixed deposits was taxable and made the addition. Consequently, total income was assessed at Rs.2,31,77,120/- instead of the returned income.
