Estimating rental value of unsold flats and notionally computing annual letting value unjustified

ITAT Mumbai held that unsold flats which are in stock in trade should be assessed under the head “business income” and there is no justification in estimating the rental value from those flats and notionally computing annual letting value under section 263 of the Act.

Facts- The assessee company is into the business of purchasing and selling flats, carrying on developing activities as builders and developers, and is following work in progress method for declaring profit from construction projects. The assessee company filed the return of income, declaring a total income of Rs. 1,99,14,700, which was subjected to scrutiny. AO accepted the self-assessed income of the assessee.

However PCIT by invoking the revisionary jurisdiction prima-facie found the assessment order passed by the AO u/s. 143(3) as erroneous in so far as it is prejudicial to the interest of the revenue and thereby set aside the same by way of issuance of notice u/s. 263. PCIT concluded that AO while making the assessment u/s. 143(3) of the Act for the year under consideration has failed to tax the annual value of the property forming part of the closing stock under the head “income from house property”. Being aggrieved, the present appeal is filed.