Pegasus Properties Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT) Mumbai has, in a significant ruling, provided clarity on the taxation of unsold inventory for real estate developers and the allowability of Section 80G deductions for Corporate Social Responsibility (CSR) expenses. The case involved Pegasus Properties Pvt. Ltd. and its appeal against additions made by the Deputy Commissioner of Income Tax (DCIT) for Assessment Year 2015-16.
The core of the dispute revolved around two primary issues: the notional income from unsold flats treated as “stock-in-trade” and the denial of deduction under Section 80G of the Income-tax Act, 1961, for eligible donations made as part of CSR expenses.
Deemed Rental Income on Unsold Flats
Pegasus Properties Pvt. Ltd., a company engaged in the business of building, maintaining, and operating IT parks, industrial parks, and residential projects, declared a total income of ₹.135,76,37,850 in its original return for A.Y. 2015-16. Following a search and survey action on the ABIL Group, to which Pegasus Properties belongs, assessment proceedings were initiated. The Assessing Officer (AO) subsequently made various additions, including ₹.92,09,165 on account of deemed rental income from unsold flats/units held as stock-in-trade. This addition was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].
