Chamber Construction Pvt. Ltd Vs DCIT (ITAT Mumbai)
In a significant ruling offering relief to real estate developers, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has held that no deemed rental income can be computed under Section 22 of the Income Tax Act, 1961, for unsold flats held as stock-in-trade in completed projects. This decision, delivered in the appeals of Chamber Construction Pvt. Ltd. Vs DCIT for Assessment Years 2013-14 and 2014-15, reinforces the principle that properties treated as business stock should generate business income, not income from house property.
The case arose from assessments framed by the Deputy Commissioner of Income Tax (DCIT) for both assessment years. Chamber Construction Pvt. Ltd., a builder and property developer, had unsold completed flats measuring 52,385 sq. ft. in AY 2013-14 and 29,760 sq. ft. in AY 2014-15, which were classified as closing stock-in-trade. The Assessing Officer (AO) proceeded to estimate the Annual Lettable Value (ALV) of these unsold flats, applying a notional rent of 50 per square foot per month. This resulted in a deemed rental income of Rs. 3,14,31,000 for AY 2013-14 and Rs. 1,78,56,000 for AY 2014-15, which was then brought to tax under the head “Income from House Property” after allowing statutory deductions.
