Case Law Details
Cosmopolis Constructions Vs ACIT (ITAT Pune)
ITAT held that no addition is maintainable on account of deemed rent on unsold flats which were treated as stock-in-trade by the assessee.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee against the order dated 04-02-2022 passed by the Commissioner of Income Tax (Appeals)-11, Pune [‘CIT(A)’] for assessment year 2015-16.
2. The assessee raised two grounds of appeal amongst which the only issue emanates for our consideration is as to whether the CIT(A) justified in confirming the addition made by the AO on account of deemed rent from unsold units lying in closing stock.
3. At the outset, the ld. AR and ld. DR fairly conceded that the issue raised in the present appeal is covered by the orders of this Tribunal in assessee’s own case which are on record in ITA Nos.230 & 231/PUN/2018 for A.Ys. 2013-14 and 2014-15 vide order dated 12-09-2018. The relevant portions of the said order are reproduced here-in-below for ready reference:
“8. In the case of Commissioner of Income Tax Vs. Ansal Housing Finance And Leasing Co. Ltd. (supra) the Hon’ble Delhi High Court taking a contrary view has held that annual rental value on unsold flats built by assessee engaged in construction business is assessable as income from house property. It is a well settled law that when two divergent views of non-jurisdictional High Courts are available and there is no decision on the issue from the Jurisdictional High Court, the view in favour of the assessee has to be adopted [Commissioner of Income Tax Vs. Vegetable Products Ltd.(supra)].
9. In so far as the decision of Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. Sane & Doshi Enterprises (supra) is concerned we find that the facts in the said case are at variance. In the said case the assessee was engaged in construction business. The assessee rented out unsold flats and suo-motu offered rental income from the flats under the head ‘Income from House Property’. On the contrary the Revenue wanted to tax rental income under the head ‘Business Income’. The matter travelled to the Tribunal. The Tribunal held that the income earned by the assessee from renting of flats is to be assessed under the head ‘Income from House Property’. The Department carried the matter in appeal before the Hon’ble High Court. The Hon’ble High Court confirmed the findings of Tribunal and held that rental income received from unsold portion of property constructed by the assessee, is assessable as income from house property. The core difference between the case of the assessee and in the case of Commissioner of Income Tax Vs. Sane & Doshi Enterprises (supra) is that in the case of assessee, it is notional annual rental income on flats held as stock which is sought to be taxed, whereas in the case of Commissioner of Income Tax Vs. Sane & Doshi Enterprises (supra) it was the case of actual rental income earned by the assessee from renting of flats constructed by it. Hence, the decision rendered in the case of Commissioner of Income Tax Vs. Sane & Doshi Enterprises (supra) would not apply in the facts of the present case.
10. We further find that Mumbai Bench of the Tribunal in M/s. C.R. Developments Pvt. Ltd. Vs. JCIT (supra), M/s. Runwal Constructions Vs. ACIT (supra) and Shri Girdharilal K. Lulla Vs. DCIT (supra) under similar set of facts have taken a consistent view in holding notional annual rental value on unsold flats held as stock-in-trade by the assessee engaged in construction and development activities as ‘Business Income’.”
4. In the light of the above following the order of this Tribunal no addition is maintainable on account of deemed rent on unsold flats which were treated as stock-in-trade by the assessee. Thus, the grounds raised by the assessee are allowed.
5. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 11th January, 2023.
