Bhgawati Abhilasha Conventure Vs ACIT (ITAT Mumbai)
Unsold Flats Cannot Earn Imaginary Rent Before Section 23(5): Mumbai ITAT Deletes ₹31.57 Lakh Addition
In Bhgawati Abhilasha Conventure v. ACIT, the assessee, engaged in real-estate development and construction, held certain completed but unsold flats as stock-in-trade. The Assessing Officer assessed ₹31,56,978 as deemed rental income for AY 2017-18, which was confirmed by the CIT(A).
The Mumbai ITAT held that section 23(5), which specifically provides for taxation of notional rent on property held as stock-in-trade, was introduced with effect from 1 April 2018 and applies only from AY 2018-19 onwards. Consequently, the provision could not be applied retrospectively to AY 2017-18.
The Tribunal relied upon its earlier order in the assessee’s own case and the Gujarat High Court ruling in CIT v. Neha Builders Pvt. Ltd., which held that where flats are held as business stock, notional rental value cannot be assessed under the head “Income from house property.”
Although the Delhi High Court had taken a contrary view in CIT v. Ansal Housing Finance & Leasing Co. Ltd., the Tribunal applied the principle laid down by the Supreme Court in CIT v. Vegetable Products Ltd. that, where two reasonable interpretations exist, the one favourable to the assessee should be adopted.
Accordingly, the Tribunal directed deletion of the entire ₹31.57 lakh addition.
List of Cases Discussed / Relied Upon
- DCIT vs. M/s Bengal Shapoorji Housing Development Pvt. Ltd. in ITA No. 4369/Mum/2019, dated 23.03.2021
- DCIT vs. Neepa Real Estate (P) Ltd. reported in (2024) 116 ITR (Trib) 247 (Mumbai)
- CIT vs. Neha Builders Pvt. Ltd. as reported in 296 ITR 661 (Guj.)
- C.R. Development Pvt. Ltd. vs. JCIT vs. ACIT in ITA No. 5408/Mum/2016
- CIT vs. Ansal Housing Finance & Leasing Company Ltd., (2013) 354 ITR 180 (Del)
- Commissioner of Income-Tax vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the assessee against the order of the learned CIT(A)-NFAC, Delhi, dated 16.10.2025 for the assessment year 2017-18.
2. The assessee has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in dismissing the appeal against the assessment order dated 24.03.2023 for AY2017-18.
2. On the facts & in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the Addition of Rs.31,56,978/- on account of Deemed rental income i.r.o. finished stock in trade as per assessment order for AY2017-18.
3. On the facts & in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in not fully and properly appreciating the facts and submissions.”
2. Ld. Counsel for the assessee, at the outset, submitted that the addition was made on account of deemed rental income on unsold flats, which were shown as stock-in-trade by the assessee, is in the business of real estate/construction. Ld. Counsel for the assessee further submitted that in assessee’s own case for the assessment year 2018-19, the issue came up for consideration pursuant to the proceedings u/s 263 of the Act by the learned CIT, holding that the assessment framed u/s 143(3) for the assessment year 2018-19 is erroneous and prejudicial to the interests of the Revenue for the reason that the Assessing Officer did not bring to tax the notional deemed rental income as per the provisions of section 23(5) of the Act. Ld. Counsel for the assessee submitted that the Tribunal in ITA No.1698/Mum/2023, vide order dated 18.12.2023, considering the submissions of the assessee and various decisions, though be any deemed notional rental value assessable in respect of unsold stock-in-trade for Assessment Year 2017-18. However, by virtue of the amendment to the provisions of section 23(5) of the Act, the unsold stock-in-trade also attracts deemed rental income from 01.04.2018 relevant to assessment year 2018-19 onwards. Ld. Counsel therefore submitted that until the assessment year 2017-18, no deemed rental value can be assessable on the unsold stock-in-trade of the assessee. Reliance was placed on the decisions of the Coordinate Benches in the case of DCIT vs. M/s Bengal Shapoorji Housing Development Pvt. Ltd. in ITA No. 4369/Mum/2019, dated 23.03.2021 and DCIT vs. Neepa Real Estate (P) Ltd. reported in (2024) 116 ITR (Trib) 247 (Mumbai).
3. Heard rival contentions, perused the orders of the authorities below. On perusal of the order of the Tribunal, it is observed that the aforesaid issue as to whether there can be a deemed notional rental value assessable on the unsold stock-in- trade of the assessee u/s 23(5) of the Act was addressed holding that for the assessment year 2017-18 there cannot be any deemed notional rental value on the unsold stock-in-trade of the assessee. The Tribunal held that by virtue of the amendment of from 01.04.2018 for assessing the deemed rental value on unsold stock-in-trade applies only from the assessment year 2018-19 onwards. Therefore, while disposing of the appeal against the order passed by the learned PCIT for the assessment year 2018-19, though the Tribunal held that the Ld. PCIT is right in holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue for the reason that no deemed rental value was assessed by Assessing Officer on the unsold stock-in-trade for Assessment Year 2018-19, the Tribunal observed that since the provisions of section 23(5) of the Act are not applicable for the assessment year 2017-18, deemed rental value on the unsold stock-in-trade of the assessee cannot be assessed for Assessment Year 2017- 18.
4. The view of the Tribunal that there cannot be any notional rental value on the unsold stock-in-trade of the assessee was upheld by the Hon’ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd. as reported in 296 ITR 661 (Guj.), which decision was consistently followed by the Mumbai Bench of the Tribunal in C.R. Development Pvt. Ltd. vs. JCIT vs. ACIT in ITA No. 5408/Mum/2016. We are also aware of the decision of the Hon’ble Delhi High Court in the case of CIT vs. Ansal Housing Finance & Leasing Company Ltd., (2013) 354 ITR 180 (Del), which was held against the assessee. However, in view of the conflicting decisions, the Coordinate Benches, following the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-Tax vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC), the decision in favour of the assessee was adopted.
5. Thus, in view of the above discussion, we direct the Assessing Officer to delete the addition made in respect of deemed rental income on the unsold flats held in stock-in-trade by the assessee for Assessment Year 2017-18. The grounds raised by the assessee are allowed.
6. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 21/08/2026
