Mahanagar Constructions Vs ITO (ITAT Pune)
Income Tax Appellate Tribunal (ITAT), Pune Bench, has set aside an addition of Rs. 11,59,200/- to the income of Mahanagar Constructions, a partnership firm engaged in real estate development, in a ruling for Assessment Year 2014-15. The tribunal held that notional rental income from unsold flats, held as stock-in-trade and never let out, could not be taxed under the head “Income from House Property.”
The dispute arose after the Assessing Officer (AO) computed an Annual Letting Value (ALV) for six unsold flats owned by Mahanagar Constructions, which were never rented out, and added this amount to the firm’s income under “Income from House Property.” The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, prompting Mahanagar Constructions to appeal before the ITAT.
Assessee’s Stance: Stock-in-Trade, Not Investment
Mahanagar Constructions argued that the unsold flats constituted “stock-in-trade” for its real estate business, not “investments.” Therefore, any notional income derived from them should not be subjected to tax under the “Income from House Property” head, as these units had generated no actual rental income. The firm cited various Tribunal decisions to support its position that hypothetical income on un-let properties held as stock-in-trade could not be taxed.
