The Income Tax Appellate Tribunal (ITAT), Mumbai bench, deleted the addition made on account of the notional Annual Letting Value (ALV) on unsold flats held as stock-in-trade. The bench observed that the unsold flats were its stock-in-trade, and income arising on their sale is liable to be taxed as business income.
Runwal Constructions, a partnership firm engaged in the business of builders and developers, was the assessee. During the assessment proceedings, the assessing officer noted in the balance sheet that the assessee held unsold flats. The officer, invoking sections 22 and 23 of the Income Tax Act, treated the assessee as the owner of these flats, determining and taxing their ALV as ‘Income from house property.’
Despite the assessee’s objections, the assessing officer added the computed ALV of the unsold flats to the income. The aggrieved assessee filed an appeal before the tribunal, which initially dismissed the appeal. Subsequently, the assessee filed another appeal.
Gaurav Kabra, the assessee representative, argued that the issue was squarely covered in favor of the assessee by a previous Tribunal decision. Bharat Andhle, Counsel for Revenue, supported the Commissioner (Appeals)’s observations.
The tribunal noted that unsold flats, considered stock-in-trade, are assessable under the head ‘income from business’ when sold. Therefore, the assessing officer was incorrect in taxing the notional annual letting value under the head ‘income from house property.’
Upon reviewing the facts and records, the two-member bench of Rajesh Kumar (Accountant Member) and Saktijit Dey (Judicial Member) deleted the additions made on account of notional ALV on unsold flats held as stock-in-trade. Consequently, the bench allowed the appeal of the assessee.
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