13 August 2014
my company engaged in real estate activity during AY 2012-13. my company have a building which is shown as a stock in trade in final accounts for AY 2012-13 and rental income received from the said building is shown as income from house property in ITR for AY 2012-13.Proceeding of company for AY 2012-13 is in process u/s 142(1). income tax department raise the same issue by serving another notice u/s 142(1). Please provide me suggestion
04 August 2024
In your case, it appears that the Income Tax Department has raised a query about the classification of income from a building that your company holds as stock-in-trade but has shown rental income from it under "Income from House Property" in the ITR for AY 2012-13. Here’s how you can address this issue:
### **Understanding the Issue:**
1. **Income Classification:** - **Stock-in-Trade:** If the building is held as stock-in-trade, then rental income should generally be classified as "Business Income" rather than "Income from House Property." - **Income from House Property:** This classification typically applies to properties held as investments, where rental income is derived from letting out the property.
2. **Nature of Notices:** - **First Notice:** The first notice under Section 142(1) likely seeks information or clarification regarding this discrepancy. - **Second Notice:** If the department has issued a second notice on the same issue, it may be due to the need for further clarification or the initial response being inadequate.
### **Steps to Address the Query:**
1. **Review Both Notices:** - **Details:** Carefully review the content of both notices to understand the specific queries raised and the additional information requested.
2. **Prepare Your Response:** - **Correct Classification:** Explain why the rental income is shown as "Income from House Property" despite the property being classified as stock-in-trade. Provide a clear rationale supported by documentation and accounting practices. - **Documentation:** Submit any relevant documents that substantiate your classification. This may include: - Financial statements and schedules showing the property as stock-in-trade. - Details of rental income receipts. - Explanation of how the income was classified and why.
3. **Respond Promptly:** - **Timely Response:** Ensure that you respond to the notices within the stipulated time frame. Address each point raised in the notices comprehensively.
4. **Consult a Tax Professional:** - **Seek Expert Advice:** Given the complexity of the issue, consider consulting a tax advisor or legal professional who specializes in real estate and taxation. They can help ensure that your response is accurate and complies with tax regulations.
### **Additional Considerations:**
1. **Consistency in Accounting:** - **Review Accounting Policies:** Ensure that your accounting policies are consistent with the classification of income and that they align with the applicable tax laws and accounting standards.
2. **Clarification from the Department:** - **Seek Clarification:** If the notices are unclear or if you need more guidance on how to respond, consider reaching out to the assessing officer or the tax department for clarification.
### **Summary:**
To address the issue raised in the notices under Section 142(1): - Provide a clear explanation of the classification of rental income and the nature of the property as stock-in-trade. - Submit relevant documents and ensure your response is timely. - Consult with a tax professional for detailed guidance and to ensure compliance.
Handling these notices promptly and accurately is crucial to avoid any potential issues with your assessment.
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