ITAT Mumbai: No House Property Tax on Unsold Flats Held as Stock-in-Trade — DCIT Vs Haware Construction Private Limited

Overview of the Case

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) adjudicated Revenue appeals challenging the orders of CIT(A)-24, Mumbai, pertaining to Assessment Years 2012-13 and 2013-14, in the matter of DCIT Vs Haware Construction Private Limited. Since both appeals raised a common question of law, they were disposed of through a consolidated order.

The central controversy revolved around whether the Annual Lettable Value (ALV) of completed but unsold flats and shops — held by a real estate development company as part of its closing stock — could be subjected to taxation under the head "Income from house property" under the Income Tax Act, 1961.

Background: Assessee's Business and Return Filing

Haware Construction Private Limited is engaged in the business of building, developing, and civil construction. For Assessment Year 2012-13, the assessee e-filed its return of income on 28.09.2012, declaring a loss of Rs. 4,13,31,436/-. Since the assessee also reported a book loss of Rs. 4,14,26,615/-, no liability arose under Section 115JB of the Income Tax Act, 1961. The return was initially processed under Section 143(1) before being subsequently selected for scrutiny under Section 143(2).

Assessment Proceedings — AY 2012-13

Assessing Officer's Findings

During scrutiny, the Assessing Officer (AO) observed that the assessee's closing stock comprised completed but unsold units of flats and shops valued at Rs. 31,75,24,853/-. Placing reliance on the Delhi High Court's ruling in CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Del), the AO took the position that the ALV of these unsold units was chargeable to tax under the head "Income from house property".

The AO proceeded to:

  1. Estimate the ALV at 8% of the book value of the unsold units
  2. Compute ALV at Rs. 2,54,01,988/- (i.e., 8% of Rs. 31,75,24,853/-)
  3. Allow a statutory deduction of Rs. 76,20,596/- under Section 24(b) (@ 30% of ALV)
  4. Make a net addition of Rs. 1,77,81,892/- to the assessee's income under the head "Income from house property"

Assessee's Objection

The assessee contended that since these units were held as stock-in-trade of its real estate development business, the ALV thereof could not be brought to tax under the head "Income from house property." This argument was rejected by the AO.

CIT(A)'s Order

On appeal, CIT(A)-24, Mumbai deleted the addition. The CIT(A) noted that identical additions made for preceding Assessment Years 2009-10, 2010-11, and 2011-12 had already been deleted by predecessor CIT(A)s in those respective years. Adopting consistent reasoning, the CIT(A) vacated the addition for AY 2012-13 as well.

Proceedings Before ITAT — AY 2012-13

Submissions by the Parties

The Authorised Representative (AR) for the assessee submitted at the outset that the issue stood squarely covered by the ITAT's own earlier order in the assessee's case for AY 2010-11, viz. DCT-15(2)(1), Mumbai Vs. M/s Haware Construction Pvt. Ltd. [ITA No. 4539/Mum/2017, dated 09.04.2019].

The Departmental Representative (DR), on the other hand, placed reliance solely on the AO's order.