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.
