Builder not liable to Pay Notional Rent on Residential Assets held as Stock-in-Trade: ITAT deletes Income Tax Addition [Read Order]

The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that the addition of notional rent in respect of residential assets held as stock-in-trade by the Builder is not valid.

M/s.Balkrishna Shanmugham Chettiar, the assessee has constructed and is operating an Industrial Park under the Industrial Park Scheme 2002. The AO disallowed the assessee’s claim for deduction of profits and gains arising from the said park u/s 80IA(4)(iii) of the Income Tax Act,1961 relying upon some technicalities and following the revenue stand in the assessee’s earlier assessments.

The revenue challenged the issue of deemed rental income on the assessee’s vacant flats involving Rs.7,17,360/-; assessed as house property income in which the CIT(A) has decided in the assessee’s favour.

It was claimed that where the concerned units form part of the stock in trade of the assessee, the sale of such stock in trade shall result in income from business or profession. The assesses, a Builder and Developer, was holding two properties as its stock in trade, from which the deemed rental income has been computed u/s 23 of the Income Tax Act and added to its total income. 

A Coram comprising of Shri S S Godara, Judicial Member and Shri Inturi Rama Rao, accountant members viewed that as the assessee admittedly did not earn any rental income from letting out of these two units, M/s. Shree Balaji Ventures the AO, taxing any hypothetical income, which is otherwise not sanctioned by any provision under Chapter IV-D, cannot be permitted.

 It was observed that section 5 of the Act stipulates that a person who is a resident can be subjected to tax in respect of income from whatever source which is received or is deemed to be received in India or accrues or arises or deemed to accrue or arise to him in on outside India during such year.

The Tribunal observed that the instant imaginary income charged to tax by the AO is neither a deemed income under the head ‘Business income’ nor is received or deemed to be received or accruing or arising or deemed to accrue or arise, not falling in any of the categories given in clauses (a) to (c) of section 5(1). While allowing the appeal, the bench directed to delete the addition of Rs.34.35 lakh.

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