The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT )has held that the income from sale of unsold flats by the builders should be taxable under the head of income from business.
Assessee – Ashrita Construction Pvt. Ltd, was engaged in the business of real estate development/construction and has developed a Commercial Complex. Assessee filed return of income declaring total income of Rs.2,09,18,270/-. And AO found a closing stock of Rs.24,55,10,895/- and noticed that the unit in the project was completed as the building use permission letter had been received by the assessee. The Assessing Officer held that the assessee did not declare house property income under Section 22/23 of the Income Tax Act, 1961 and made an addition of Rs.2,57,78,644/- as income from house property holding the assessee should treat these units as deemed let out.
Section 22 of Income Tax Act, 1961 says that the annual value of property consisting of building or land apparent other than property conducting business or profession to which assessee is the owner shall be calculated under the head of income from house property and section 23 deals with the determination of the annual value of the property.
Satish Solanki, on behalf of the department submitted that the assessee had satisfied all conditions for changeability of income from house property. He also submitted that the Section 22 of the Income Tax Act, 1961 had excluded only those property which were occupied for the purpose of business or profession and the ownership of properties held with the company were ready to use. He further submitted that the unsold property units were liable to be taxed under the head ‘income from house property.
Tushar Hemani on behalf of the assessee submitted that the assessee had shown closing stock of Rs.24,55,10,895/- and had received building use permission and unsold units were also shown as stock in trade. He also submitted that property was held as “stock in trade” and not as the let out, and submitted that the builder income from sale of property should be taxable under the head income from business or profession and not under the head income from house property.
The Income Tax Appellate Bench of Suchitra Kamble (Judicial Member) and Waseem Ahmed (Accountant Member) dismissed the appeal upholding the deletion of addition by the CIT(A) observing that the assessee was a developer and held the unit in questions income from such unit could be taxed only under business income and not under income from house property.
The bench also held that when property used as stock in trade and the income from property used as stock would be treated as income from business and not as income from property.
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