ALV of Vacant Property in Unsold Flats form held as Stock-in-Trade and Remained Vacant during year is NIL: ITAT allows Vacancy allowance [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) has allowed the vacancy allowance holding that the Annual Lettable Value (ALV) of vacant property in unsold flats forms which were held as stock in trade and retained vacant during the year would be NIL.

The assessee, Sugam Realty Limited was a private limited company engaged in the business of construction of properties. Income was declared in the e-return for AY 2017-18 filed on 29.10.2017. Case was selected for scrutiny through CASS followed by serving notices under Section 143(2) & 142(1) of the Income Tax Act. AO noticed that the assessee company owns various units as stock-in-trade and rent received from some of such flats had been offered to tax under the head ‘income from house property’.

AO noticed that there are certain units which remained vacant throughout the year but the assessee failed to declare notional rent on such vacant units.  AO thereafter, mentioned the provisions of Section 23 of the Income Tax Act and by applying Section 23(4) of the Income Tax Act, computed the notional rent of the vacant units.

S.S. Gupta, appeared on behalf of the assessee and B.K. Singh appeared for the revenue vehemently supported the order of CIT(A).

The two-member Bench of Sanjay Garg, (Judicial Member) and Manish Borad, (Accountant Member) observed that that sub-Section 5 of Section 23 of the Income Tax Act had been inserted from 01.04.2018 which was specifically for those properties which were held as stock-in-trade and a moratorium period of two years was given from the end of the financial year in which certificate of completion of construction was obtained from the competent authority and if in these two years the property was vacant the annual value was to be taken at Rs. NIL, but the year under appeal is AY 2017-18 and though the assessee was also having the vacant units/flats as stock-in-trade but Section 23(5) of the Income Tax Act would not be applicable on the assessee.

Section 23(1)(c) of the Income Tax Act provides the mechanism for computing the ALV of the property which were meant to be let out but were vacant during the whole or any part of the previous year then the vacancy allowance was to be given to the assessee. It provided that if the actual rent received or receivable was less than the annual lettable value as might reasonably be accepted to let out as per Section 23(1)(a) of the Income Tax Act then the amount so received or receivable was to be treated as ALV.

In other words, if the property was vacant throughout the year and the assessee had not received any rent or no rent was receivable then the ALV of such vacant property would be computed as Rs. NIL.

The Bench allowed the appeal filed by the revenue holding that the annual lettable value of the vacant property in the form of unsold units/flats held as stock-in-trade by the assessee which were let out in the past but remained vacant during the year should be computed at Rs. NIL.

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