Unsold flats categorized as Stock in Trade should be assessed as 'Business Income,' not 'Income from House Property: ITAT quashes Revision Order [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai bench, while quashing the revision order, held that unsold flats categorized as stock in trade should be assessed as business income, not income from house property.

The assessee, Coronate Constructions, conducts the business of purchasing and selling flats, carrying on developing activities as builders and developers, and is following the work in progress method for declaring profit from construction projects.

After filing the return of income, which was subjected to scrutiny, the AO, after examining and verifying the submissions made by the assessee in response to the notice/questionnaire, accepted the self-assessed income. However, the PCIT, by invoking the revisionary jurisdiction, prima facie found the assessment order passed by the AO under section 143(3) of the Act as erroneous insofar as it is prejudicial to the interest of the revenue and thereby set aside the same by way of issuance of notice under section 263 of the Act.

Aggrieved with the impugned order passed by the PCIT under section 263 of the Act, the assessee company has come up before the Tribunal by way of filing the present appeal.

During the proceedings, Dharan Gandhi, Counsel for the assessee, contended that the assessee has submitted detailed explanations relating to each project undertaken by the assessee, details of inventory held as stock in trade as of 31/3/2016 and 31/3/2017, reconciliation of opening and closing stock in trade along with additions made and sales, and details of the advance receipt against flat booking.

Manoj Kumar Sinha, Counsel for Revenue, submitted that the AO has not made any discussion whatsoever in the assessment order nor has he made any discussion as to the deemed rent.

The Tribunal determined that, although no discussion has been made by the AO regarding deemed rent on unsold flats, when legally deemed rent pertaining to unsold flats, which are shown in stock in trade, is not to be assessed under the head "income from house property" by notionally computing annual letting value from such property, non-discussion by the AO in detail does not confer the jurisdiction on the PCIT to invoke the provisions contained under section 263 of the Act.

After reviewing the facts and records, the two-member bench of S Rafiur Rahman (Accountant Member) and Kuldip Singh (Judicial Member) held that unsold flats, which are in stock in trade, should be assessed under the head "business income." Therefore, the bench allowed the appeal of the assessee.

To Read the full text of the Order CLICK HERE

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