Haware Engineers and Builders Pvt. Ltd. Vs ACIT (ITAT Mumbai)
In this case , the ITAT Mumbai dealt with the taxability of notional rental income (ALV) on unsold flats/shops held as stock-in-trade by a builder.
The assessee, a real estate developer, argued that unsold units are business stock, and hence no notional rent should be taxed. Reliance was placed on Neha Builders (Guj HC) and earlier favorable orders in its own case.
However, the Tribunal held:
- The issue concerns vacant unsold stock, not actual rental income.
- The Gujarat HC ruling applies where actual rent is earned, not where property remains vacant.
- Following Delhi HC in Ansal Housing, ownership itself triggers taxability of ALV, even without actual rent.
- The later coordinate bench ruling (Inorbit Malls) clarified that notional rent is taxable for pre-AY 2018-19.
- Section 23(5) (providing relief for a limited period) is prospective from AY 2018-19 and cannot apply retrospectively.
Accordingly, the Tribunal upheld that:
- Notional rent must be computed and taxed under “Income from House Property” for unsold vacant units.
- However, ALV should be computed based on municipal ratable value (not arbitrary % estimation).
Other findings:
- Ad-hoc disallowance (10%) of expenses upheld due to lack of supporting evidence.
- Addition u/s 43CA confirmed where sale consideration was below stamp duty value.
Key takeaway:
For pre-2018 years, builders cannot escape tax on vacant unsold stock-ALV applies even without actual income.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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