The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that the notional rental value of unsold flat cannot be taxable under house property head.
The assessee, Ambuja Neotia Hotel Ventures, had appealed against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year (AY) 2014-15.
The ITAT observed that the ground No. 1 raised by the assessee was a general one that required no adjudication.
The grounds 4 to 7, which were raised by the assessee, were related to the addition of Rs. 64.4 lakhs made by the assessing officer (AO) on notional/hypothetical income being the annual letting value of unsold units under the head profit and gains of the business.
When the assessee appealed before the CIT(A), this addition was upheld.
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When looking into the facts of this present issue, the assessee had unsold stocks that were lying unsold and were held as stock-in-trade in the assessee’s business.
The AO assessed the notional annual letting value of unsold inventory of flats under Section 22 and Section 23 of the Income Tax Act, 1961, under the head of house property.
The bench noted that the CIT(A) held that the said amount is assessable under the head profits and gains of business or profession.
The bench observed that before the insertion of sub-section 5 to section 23 of the Act by the Finance Act, 2017, in which the notional annual letting value of the property held as stock-in-trade has been brought to tax subject to the conditions specified in the newly inserted subsection.
The bench observed that the insertion sub- section 5 to section 23 of the Income Tax Act would act prospectively only as its nature is substantive in nature.
It was contended by the assessee’s counsel that sub-section 5 to section 23 of the Income Tax Act would have no applicability in the assessment year under dispute.
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The Kolkata ITAT further observed that “the case of the assessee is squarely covered by the decision of the co-ordinate bench in the case of, wherein the case, under similar facts and circumstances, has been decided in favour of the assessee.”
The bench ordered the AO to delete the addition of Rs. 64.4 lakhs.
The ITAT, comprising Pradip Kumar Choubey (Judicial Member) and Rajesh Kumar (Accountant Member), allowed the assessee’s appeal for statistical purposes.
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