Haware Engineers & Builders Pvt. Ltd. Vs ACIT (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has delivered a significant ruling for real estate developers, holding that income from unsold flats and shops held as stock-in-trade should be treated as “business income” rather than “income from house property.” This decision came in a consolidated appeal filed by Haware Engineers & Builders Pvt. Ltd. for Assessment Years (AY) 2013-14 and 2014-15.
The appeals challenged the consolidated order of the CIT(A)-52, Mumbai, which had upheld additions made by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961.
Dispute Over Deemed Rental Income
The central issue in both assessment years was the addition of “notional income” as “income from house properties” in respect of unsold residential and commercial units held by Haware Engineers & Builders Pvt. Ltd. as stock-in-trade.
For AY 2013-14, the assessee, a real estate developer, had unsold flats/shops with an aggregate cost of construction amounting to Rs. 37,78,30,452/-. The AO, relying on the Delhi High Court’s judgment in CIT Vs. Ansal Housing Financing & Leasing Company Ltd. (2013) 354 ITR 180 (Del), determined that the “Annual Lettable Value” (ALV) of these vacant units should be taxed as “Income from house property.” As the assessee did not provide annual rateable value, the AO estimated the ALV at 8.5% of the construction cost (Rs. 3,21,15,588/-). After allowing a statutory deduction of 30% under Section 24(b), the AO added Rs. 2,24,80,912/- to the assessee’s income. The CIT(A) upheld this addition.
