C.R. Developments Pvt. Ltd. vs. JCIT ITAT `C’ Bench, Mumbai Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No. 4277/Mum/2012 A. Y.: 2009-10. Dateof Order: 13th May, 2015. Counsel for assessee / revenue : S. M. Bandi / Asghar Zain

Facts
The assessee company, engaged in the business of construction and development, held 3 unsold shops as stock-in-trade. In the return of income, the assessee had not offered any notional income in respect of these shops on the ground that three shops held at the end of the year were its trading assets and therefore their annual value is not chargeable under the head `income from house property’ as profit on sale thereof shall be chargeable to tax under the head of income from business. The AO did not agree with the assessee’s contention and brought the notional rental income in assessee’s hands u/s.23.

Aggrieved, the assessee preferred an appeal to CIT(A) who restored the matter back to the file of the AO with the direction to make an enquiry as to what would be the possible rent that the property might fetch.

Aggrieved, the assessee preferred an appeal to the Tribunal where, on behalf of the assessee reliance was placed on the decision of the Mumbai Bench of ITAT in the case of M/s Perfect Scale Company Pvt. Ltd., [ITA Nos.3228 to 3234/Mum/2013, order dated 6-9-2013], wherein it was held that in respect of assets held as business, income from the same is not assessable u/s.23(1) of the Act whereas on behalf of the Revenue, reliance was placed on the order of Hon’ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd., 354 ITR 180 (Delhi) in support of the proposition that even in respect of unsold flats by the developer is liable to be taxed as income from house property.

Held
The Tribunal noted that the Hon’ble Supreme Court in the case of M/s Chennai Properties & Investments Ltd. vs. CIT, reported in (2015) 56 taxmann.com 456 (SC), vide judgment dated 9-4-2015 has held that the action of the AO in charging rental income received by an assessee engaged in the activity of letting out properties under the head Income from House Property was not justified. The Hon’ble Supreme Court held that since the assessee company’s main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business.

On the very same analogy in the instant case, the assessee is engaged in business of construction and development, which is main object of the assessee company. The three flats which could not be sold at the end of the year were shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by letting out the flats. The flats not sold were its stock-intrade and income arising on its sale is liable to be taxed as business income. The Tribunal held that it did not find any justification in the order of AO for estimating rental income from these vacant flats u/s.23 which is assessee’s stock in trade as at the end of the year. Accordingly, the Tribunal directed the AO to delete the addition made by estimating letting value of the flats u/s.23 of the Act.