Income from Unsold Flats shall be treated as Business Income of the Developer: ITAT [Read Order]

The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that the income from the unsold flats shall be taxable as the business income of the developer and not as rental income.

The assessee is a firm engaged in the business of developer and promoter. On an examination of details, the AO observed that the assessee held 12 unsold flats/shops as closing stock and the same were treated as stock-in-trade. According to the AO, the assessee is the owner of more than two house properties and liable to pay Income Tax on deemed rent. In view of the same, the AO asked the assessee to explain as to why the deemed rent in respect of 12 unsold flats should not be levied.

The assessee relied on the decision in the case of M/s. Mangal Murti Developers Ganesham and submitted that the issue therein is similar to the issue raised in the present case and the Tribunal by placing reliance in the case of Cosmospolis construction in ITA Nos. 230 & 231/PUN/2018 and also considering the amendment brought in w.e.f. 01-04-2018 to Subsection (5) of Section 23 of the Act held that the income from unsold flats could be considered only under the head “Profits and Gains from business or profession” and not “Income from House Property”.

The Tribunal bench comprising Judicial Member Mr. S S Viswanethra Ravi and Accountant Member Dr, Dipak Pandurang observed that the ld. DR did not dispute the treatment of 12 unsold flats as stock-in-trade by the assessee and also offering as same as business income in the subsequent years.

“The ITAT in the case of Kumar Construction and Properties Private Limited (supra) followed the order of this Tribunal in the case of M/s. Mangal Murti Developers Ganesham (supra) and held no addition on account of deemed rent on unsold flats could be made. Therefore, following the same the assessment year being 2012-13, we, by holding the amendment brought in by Finance Act, 2017 w.e.f. 01-04-2018 is not applicable and no addition is maintainable on account of deemed rent on 12 unsold flats which is treated as stock-intrade by the assessee. Thus, the order of CIT(A) is not justified and it is set aside,” the Tribunal observed.

To Read the full text of the Order CLICK HERE

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