Progressive Homes Vs ACIT (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT), Mumbai bench, has delivered a verdict in the case of Progressive Homes Vs. Assistant Commissioner of Income Tax (ACIT) for the Assessment Year 2012-13. The appeal by Progressive Homes challenged the Commissioner of Income Tax (Appeals)’s [CIT(A)] order, which confirmed significant additions to the assessee’s income, primarily concerning notional income from unsold residential flats and disallowances under Section 14A of the Income Tax Act, 1961.
The case addresses a recurring point of contention between real estate developers and tax authorities: the taxation of unsold inventory as ‘Income from House Property’ and the attribution of expenses to tax-exempt income.
Background of the Assessment
Progressive Homes, engaged in the business of building and development, filed its income tax return for the Assessment Year 2012-13 on September 28, 2012, declaring a total income of Rs. 5,46,61,400. During the scrutiny assessment, the Assessing Officer (AO) observed that the company held an inventory of 47 unsold flats in its ‘Highness Project’ and 4 unsold flats in ‘Sea Loung Project,’ totaling 51 unsold units.
The AO, referencing the Delhi High Court’s decision in CIT v. Ansal Housing Construction Ltd. (241 Taxman 418), sought an explanation from Progressive Homes as to why a “deemed house property income” should not be charged on these completed and unsold flats. The assessee responded by stating its business was solely construction and not leasing or renting. However, the AO proceeded to determine the Annual Letting Value (ALV) for these 51 flats. Based on the assessee’s own submission suggesting an ALV of Rs. 15,000 per month per flat for the financial year 2014-15, the AO computed a total ALV of Rs. 91,50,000, adding this amount to the assessee’s total income.
