Kumar Properties and Real Estate Private Limited Vs DCIT (ITAT Pune)
Income Tax Appellate Tribunal (ITAT), Pune Bench, has provided significant relief to Kumar Properties and Real Estate Private Limited for the assessment year 2013-14. In a recent order, the Tribunal overturned the confirmation of a substantial addition made by tax authorities on account of “deemed rental income” from unsold flats and bungalows held as stock-in-trade. Additionally, the ITAT deleted a disallowance made under Section 14A of the Income-tax Act, 1961, relating to expenses incurred for earning exempt income. The Tribunal, however, sent back an issue concerning a Section 41(1) addition for re-examination.
The appeal by Kumar Properties challenged an order passed by the CIT(A)-7, Pune, dated September 1, 2017.
Deemed Rental Income on Unsold Stock-in-Trade
The primary dispute centered on an addition of Rs. 1,47,65,688/- towards deemed notional rental income on unsold flats and bungalows in the assessee’s “Kumar Infinia” and “Kumar Picasso” projects. The Assessing Officer (AO) had contended that since these properties were ready for possession, the assessee should have offered deemed rental income. Relying on the Delhi High Court’s judgment in CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del), the AO computed the annual letting value (ALV) under Section 23 of the Income-tax Act, 1961, and made the addition. The CIT(A) had upheld this addition.
