Palm Grove Beach Hotels Pvt Ltd Vs DCIT (ITAT Mumbai)
Conclusion: Assessee was in the business of construction and in developing housing complexes i.e to construct the property and sell it therefore, unsold flats held as stock-in-trade should be treated as business stock, not income from house property.
Held: Assessee was engaged in developing housing complexes, and industrial parks, and operating five-star hotels. It e-filed its income tax return declaring a total income at a loss of Rs. 1,22,20,66,420. AO made a disallowance of Rs. 22,59,926 under section 14A, determining a deemed annual letting value of unsold flats held in stock as “income from house property.” Assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who reduced the annual letting value to 2.5% from 8.5% but still treated it as “income from house property.” Aggrieved by the CIT(A) order, assessee appealed before the Mumbai Bench, ITAT arguing that the unsold flats were held as stock-in-trade. Thus, it should be treated as business assets and not as “income from house property.” Assessee’s counsel relied on the Bombay High Court’s ruling in Classique Associates Ltd., which held that unsold flats treated as stock-in-trade could not be classified as “income from house property” but as business income. It was held that undisputedly, assessee was a builder & developer and was in the business of construction and in developing housing complexes i.e to construct the property and sell it. During the year under consideration, assessee treated three unsold flats as stock in trade. This would be treated as a business stock. The flats held by the assessee as stock in trade could not therefore be termed as income from house property. The issue was also covered by the aforesaid order of this Tribunal in assessee’s own case.
