Income from Flats and Shops held as Stock-in-Trade is Business Income: ITAT [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal (ITAT) in Haware Engineers & Builders Private Limited versus Deputy Commissioner of Income Tax Central Circle, held that the income received from flats or shops held as stock-in-trade is business income for the purpose of Income Tax Act, 1961.

The sole issue in instant appeal regarding the addition made because of notional rental income against unsold properties which happens to be held as stock-in-trade by the assessee. In instant case, the assessee is a corporate entity engaged in the business of real estate developer.

During the proceedings, assessing officer found that certain unsold units like flats and shops were held in stock in trade, and the cost of construction would amount to 14 crores. After providing the statutory deduction of 30% as per Section 24(b), the net addition thus worked out was added to the income of the assessee.

The stand of CIT(A) was against assessee which made them approach this tribunal and drawn the attention of recent decision in sister concern which was settled in assessee’s favor.

The ITAT bench including Judicial Member Ravish Sood and Accountant Member Manoj Kumar Aggarwal heard the rival contention and noted that the assessee is engaged as Real Estate Builder and carries out the project at various places. The year-end inventory is shown in the Balance Sheet comprises-off of certain unsold completed units in the shape of Flats/shops valued at Rs.14.39 Crores. The notional rental value of these units, in the opinion of Ld. AO, was to be taxed under the head Income from House Property.

Finally, the bench observed that “Keeping in view the consistent stand of this Tribunal and respectfully following the same, we hold that if an immovable property in the shape of flats/shops is held as stock-in-trade, then it becomes part of trading operations for the assessee and as a natural corollary, any income derived therefrom would be Business Income and not Income from House Property.”

Accordingly, the bench allowed the appeal of the assessee and treated the same as business income of the assessee.