Income from stock-held real estate would be considered company income

Fact and issue of the case

This appeal is filed by the Revenue against the order dated 21st May, 2019 passed by the CIT(A)-11, Ahmedabad for the Assessment Year 2016-17. 2. The Revenue has raised the following grounds of appeal

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,57,78,644/- on account of income from house property.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the AO be restored to the above extent.”

The assessee company is engaged in the business of real estate development/construction and has developed a Commercial Complex namely “Amrapali lake View Tower” at Vastrapur, Ahmedabad. During the year the assessee has shown income from house property and from business & profession. The assessee filed return of income on 17.10.2016 declaring total income of Rs.2,09,18,270/-. During the course of assessment proceedings, the Assessing Officer observed that the assessee has shown closing stock of Rs.24,55,10,895/-. The Assessing Officer further noticed that the unit in the project was completed as the BU permission letter had been received by the assessee. Therefore, the assessee should have treated these units as deemed let out and charged rent on Annual Lettable Value. The Assessing Officer held that the assessee did not declare/shown house property income under Section 22/23 of the Income Tax Act, 1961. The Assessing Officer made addition of Rs.2,57,78,644/- as income from house property.

Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

Observation by the tribunal

The tribunal has heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has shown closing stock of Rs.24,55,10,895/- and received building use permission in respect of the same. It is undisputed fact that the assessee is engaged in the business of construction and only profit on sale of constructed unit are shown as business income whereas unsold units which are shown as stock in trade forms the part of business of the assessee. The CIT(A) has rightly held that since the assessee was a developer and held the unit in questions income from such unit can be taxed as only business income and not as income from house property. It is pertinent to note there is no concept of deemed rent while computing business income and the CIT(A) has rightly deleted the addition. The decision of Hon’ble Delhi High Court in the case of Ansal Housing Finance and Leasing Co. Ltd. (supra) will not be applicable in the present case as the assessee has already treated the said unsold unit as stock in trade. The decision of Hon’ble Gujarat High Court in the case of CIT vs. Neha Builders – 296 ITR 661 (Guj) in fact is applicable in the present case as the issues herein are identical to the present case. If property is used as stock in trade then such property would become or partake the character of stock and any income from stock would be income from business and not income from property. Thus, the CIT(A) was right in deleting the addition.

Read the full order from here

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