Addition of Income on Unsold Flats held as Stock in Trade of Business of a Builder and Developer is not permissible: ITAT [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the percentage completion method of Revenue recognition practised by Builder is acceptable as per Accounting Standards.

The assessee was represented by Shri Suchek Ancheliya and the Department was represented by Shri Hoshang B. Irani.

M/s Gopuram Developers, the assessee is a builder and developer engaged in the construction work. In the case, a survey action u/s 133A of the Income Tax Act, 1961 (the Act) was carried out on 03-10-2022, wherein the Partner of the firm, Shri Kamal U. Jain stated voluntarily offered income of Rs. 5 crores relevant to the year under confidential from the sale of Real Estate project. assessee showed a stock of flats of Rs. 10, 28, 44, 296/- at the year-end as of 31/03/2013.

The  A.O observed that the occupation certificate of those flats, which were treated by the assessee as stock in trade, was received but no income under the head income from house property was declared by the assessee.

The Assessing Officer, treated 7% of the cost of flats as ALV of the flats, which was worked out to Rs. 70,19,910/-and after allowing deduction at the rate of 30% under section 24 of the Act (i.e. Rs. 21,05,973/-), determined income from house property at Rs. 49, 13, 937/-. The Revenue challenged the deletion of the addition on account of income from house property, which was determined by the A.O. on the closing stock of the flats held by the assessee. 

It was observed that the Delhi High Court in the case of Ansal housing finance and leasing (supra) has held that stock is to be treated as house property of the assessee and therefore liable for deemed rental income or ALV and the same has to be computed under the head ‘income from house property’. Whereas, a contrary view has been taken by the High Court of Gujarat in the case of CIT Vs Neha Builders Private Limited (2006) 296 ITR 661 (Guj).

In light of various decisions, the ITAT bench consists of Shri Om Prakash Kant (Accountant Member) & Smt. Kavitha Rajagopal, (Judicial Member) directed the Assessing Officer to delete the addition made towards the ALV of the flats held by the assessee as stock in trade of its business as that of a builder and developer. The appeal by the Revenue was dismissed.

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