ITAT directs Readjudication for determining  Municipal Rateable Value of Flats held as Stock in Trade [Read Order]

The Two member bench of  Mumbai Income Tax Appellate Tribunal ( ITAT ) directs readjudication for determining the municipal rateable value of the flats held as stock in trade

The Assessee, La Kozy Builders LLP is engaged in the business of development of land & construction of a building. The assessee derives income from business and profession .They  filed its original return of income on 17.10.2016 declaring a total income of ₹.87,30,170/-.Thereafter the case was selected for scrutiny.

During the proceedings the  Assessing Officer observed that on verification of the submissions of the assessee that assessee has vacant flats at the end of the relevant assessment year.

Accordingly, assessee was shown cause with a letter dated 17.12.2018 as why the annual value of the vacant flats shown in the closing stock for the projects for which the occupancy certificate is received be not included in the head “income from house property.

After verifying the submission of the assessee the Assessing Officer determined the gross annual value of 34 flats held as stock in trade with the assessee at the end of the year and after giving standard deduction of 30% on gross annual value, Assessing Officer determined the total net annual value of the 34 flats was at ₹.17,13,600/- and added to the income of the assessee under the head “income from house property”

The assessee has claimed an expenditure at Rs.75,61,772/- under the head “freight charges”. Out of this, an amount of Rs.26,26,008/- computed towards local freight charges. The AO has disallowed 25% of the same worked out at Rs.6,56,508/- on reason of self-vouchers

Aggrieved by the order the assessee filed an appeal before the CIT(A) who confirmed the addition. Hence the assessee filed another appeal before the tribunal.

During the adjudication Nitesh Joshi , the counsel for assessee   submitted that the units on which assessee has received any advance during this year or in the earlier years but assessee has not delivered or given possession of the said flat to the buyer, then no notional rent can be charged as it tantamount to sale.

Hence the ALV should be determined based on the municipal rateable value for computing notional rent. Accordingly the assessee filed additional evidence  which was accepted by the tribunal.

As per the additional evidence the assessee  has classified the status of the 34 flats which is shown as closing stock at the end of the year.Assesee has received advance for  10 flats. Therefore, the ownership of the above said flats are already passed on to the new buyers. Third batch of 23 flats, which assessee has kept as stock in trade for that purpose, assessee has submitted municipal rateable value for the 23 flats which comes to ₹.98,965/- and assessee has grossed up the rateable value to arrive at the gross rateable value at ₹.1,09,964/-. H

Manoj Kumar Sinha, Counsel for Revenue  supported the decision of lower authorities  and argued that this issue was not raised before the lower authorities. However, as per the facts on record the assessee’s case is similar to the facts in the case of DCIT v. M/s. Inorbit Malls Pvt., (supra), therefore, he accepted that the issue may be remitted back to the file of the Assessing Officer for proper verification.

After reviewing the facts the ITAT bench of Aby T Varkey, ( Judicial Member ) and S. Rifaur Rahman,(Accountant Member)  allowed the claim made by the assessee by filing the additional evidences before us wherein the assessee has submitted the status of the closing stock of flats held by the assessee as stock-in-trade.

Further  observed that With regard to 23 flats which assessee has accepted that these flats are held as stock-in trade for which the municipal rateable value has to be adopted for the purpose of determining the income under the head “income from house property”. Accordingly, the  bench directs the Assessing Officer to determine the income under the head “income from house property”.

To Read the full text of the Order CLICK HERE

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