Sabarmati Capital One Limited Vs DCIT (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) Mumbai has issued a significant ruling in the cross-appeals between Sabarmati Capital One Limited and the Deputy Commissioner of Income Tax (DCIT) for Assessment Year 2015-16. The core of the dispute revolved around the taxability of unsold real estate inventory under Section 22 of the Income Tax Act, 1961, and the scope of the Assessing Officer’s (AO) jurisdiction following a revision order under Section 263.
The assessee, Sabarmati Capital One Limited, a real estate company, had filed its return declaring a substantial loss. The initial assessment accepted this return. However, the Principal Commissioner of Income Tax (Pr. CIT) later invoked Section 263, cancelling the assessment and directing a fresh one, specifically to examine the applicability of Section 22 on the company’s finished but unsold inventory valued at over Rs. 189 crore.
Unsold Inventory and Deemed Rental Income
The AO, in the fresh assessment, determined that Section 22 was applicable to the unsold finished inventory. The AO calculated the Annual Letting Value (ALV) at 8% of the inventory’s value, amounting to Rs. 15,13,54,952, and after a 30% deduction under Section 24(a), added Rs. 10,59,48,467 to the assessee’s income as “income from house property.”
