The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the annual letting value of unsold flats cannot be added under section 22 of Income Tax Act, 1961. The Tribunal directed the assessing officer to delete the addition of the annual let-out value ( ALV ) of the unsold flats.
M/s Shamdarshan Properties Pvt Ltd, the assessee company is engaged in the business of construction works. The assessee has filed the return of income for A.Y.2012-13 electronically on 21.09.2012 disclosing a total loss of Rs.6,24,226/- and the return of income was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS and notices under section 143(2) and section 142(1) of the Act were issued.
The Assessing Officer ( A.O ) found that the assessee has constructed 20 flats in a building known as “Sham Sharan” at TPS Sangamwadi, Pune and the assessee disclosed 6 flats as transferred to fixed assets and the remaining 14 flats are treated as stock in trade and are disclosed in the balance sheet. It was found that the assessee company has disclosed the inventory value of 14 flats at a cost of Rs.45,91,986/-. The remaining 6 flats are disclosed under the fixed Assets, and the assessee has offered the rental income after claiming vacancy allowance under income from house property as per the computation of income Rs.2,16,348/-. The A.O. has issued a letter dated 16.01.2015 to submit detailed reasons for the conversion of stock in trade into fixed assets and why flats shown should not be considered as deemed to be let out and the notional rent to be taxed under the head income from house property.
The assessing officer was not satisfied with the explanations and dealt with the provisions under section 22 and section 23(1) of the Act and computed the Annual out value ( ALV ) of flats disclosed under stock in trade of Rs. 47,78,400/- and allowed deduction under section 24(a) @ 30% and the balance amount was taxed under income from house property of Rs.32,92,135/- and assessed the total income of Rs. 26,67,910/- and passed the order under section 143(3) of the Act dated 31.03.2015.
It was argued that the CIT(A) has erred in confirming the action of the assessing officer in computing the Annual let out value ( ALV ) of the flats disclosed under the stock in trade and the assessee made sincere efforts to sell the flats in the financial year but due to market conditions, the stock in trade consisting the flats could not be sold.
The ALV determined without considering the factual aspects and actual rental value for other flats. Further the amendment in Finance Act 2017, in respect of provisions under section 23 (5) of the Act applies to unsold inventory of flats disclosed under stock in trade and is effective from A.Y.2018-19 and not to the present A.Y.2012-13.
A two-member bench comprising Shri Prashant Maharishi, Accountant Member & Shri Pavan Kumar Gadale, Judicial Member observed that the annual value of unsold flats held as stock in trade has to be considered as per the amendment in the Finance Act 2017 under section 23(5) of the Act is applicable from A.Y 2018-19. The Tribunal directed the assessing officer to delete the addition of the annual let-out value ( ALV ) of the unsold flats and allowed the grounds of appeal in favour of the assessee.
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