Paramjit Singh Mohansingh Obhan Vs ACIT (ITAT Mumbai)
Notional Rent on Unsold Stock Must Follow MRV-ITAT Mumbai Sends Issue Back to AO; Stock-to-Capital Conversion Not Taxable Pre-2019—ITAT Deletes 10% Profit Addition
Tribunal partly allowed the appeal concerning two additions made in scrutiny assessment.
AO had added Rs.7,37,275/- as deemed rent on unsold flats shown as closing stock by applying 8% of investment following Ansal Housing. Assessee argued that unsold units were stock-in-trade of completed projects at Karanjade & Ulwe, no rental income was earned, & Delhi High Court view cannot be applied in jurisdiction of Bombay High Court.
Tribunal examined several Mumbai Bench decisions including Rajendra Godshalwar, Runwal Constructions & the detailed ruling in Inorbit Malls Pvt Ltd, which held that although notional rent may be computed in light of Delhi High Court’s view, AO must strictly adopt Municipal Rateable Value (MRV) as per jurisdictional High Court decision in Tip Top Typography. Tribunal held that AO’s ad-hoc estimate of 8% was not sustainable. The issue was restored to AO to recompute ALV strictly on MRV. Ground was allowed for statistical purposes.
The second issue concerned AO’s addition of Rs.4,07,686/- as notional profit on capitalization of stock, being 10% of the cost of shops converted from stock-in-trade into capital asset. Tribunal noted that s.28(via), providing for taxation on conversion of stock-in-trade to capital asset, applies only from 01.04.2019 & is inapplicable to AY 2017-18. There was no rejection of books or illegality in conversion. Hence, the addition had no legal basis & was deleted. Appeal was thus partly allowed for statistical purposes.
