Runwal Constructions Vs ACIT (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT), Mumbai bench, has allowed appeals filed by entities within the Runwal Constructions group for the Assessment Year 2012-13. The appeals challenged orders from the Commissioner of Income Tax (Appeals) [CIT(A)] that upheld the Assessing Officer’s (AO) decision to levy tax on the notional annual letting value (ALV) of unsold flats held as stock-in-trade.
This verdict addresses a persistent area of dispute between real estate developers and income tax authorities regarding the classification of income from unsold property inventory.
Assessment Background
Runwal Constructions and other assessees in its group, primarily engaged in the business of builders, developers, and construction, filed their income tax returns for the Assessment Year 2012-13. During the assessment proceedings, conducted under Section 143(3) of the Income Tax Act, 1961, the AO observed that the assessees held several completed but unsold flats.
The assessees contended before the AO that their core business involved the construction and sale of developed properties, and therefore, any unsold flats constituted “stock-in-trade.” They argued that income arising from the sale of such properties is properly assessable as “business income,” and thus, the unsold units, merely because they remained unsold at the end of the year, could not be subjected to tax under the head “Income from House Property.”
