Unsold Flats Which Are In Stock In Trade Should Be Assessed As "Business Income": ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has observed that unsold flats that are in stock in trade should be assessed under the heading "business income".

The bench of Kuldip Singh (Judicial Member) and S. Rifaur Rahman (Accountant Member) has observed that there is no justification for estimating the rental value of unsold flats and notionally computing the annual letting value under Section 263 of the Income Tax Act.

The appellant/assessee is in the business of purchasing and selling flats, carrying on developing activities as builders and developers, and following the work-in-progress method for declaring profit from construction projects. The assessee company filed the return of income, declaring a total income of Rs. 1,99,14,700, which was subjected to scrutiny.

The AO, after examining and verifying the submissions made by the assessee in response to the notice or questionnaire, accepted the self-assessed income of the assessee.

However, the PCIT, by invoking the revisionary jurisdiction prima facie, found the assessment order passed by the AO under Section 143(3) to be erroneous in so far as it was prejudicial to the interest of the revenue. The AO, while making the assessment, has failed to tax the annual value of the property forming part of the closing stock under the heading "income from house property".

The assessee contended that the assessee has submitted a detailed explanation relating to each project undertaken by the assessee, details of inventory held as stock in trade, reconciliation of opening and closing stock in trade along with additions made and sales, and details of the advance receipt against the flat booking.

The tribunal held that invoking the jurisdiction under Section 263 by PCIT is not sustainable in the eyes of the law; hence, the impugned order passed under Section 263 is ordered to be set aside.

Counsel For Appellant: Dharan Gandhi

Counsel For Respondent: Manoj Kumar Sinha

Case Title: M/s. Coronate Constructions Versus PCIT

Case No.: ITA No.1024/M/2022

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