2018 (12) TMI 1963 - AT - Income Tax

Addition on deemed income from house property lying in stock in trade - unsold flats and shops in stock in trade - HELD THAT - It is an undisputed fact the assessee has shown the properties as stock in trade in the books of accounts. The shops and flats sold by the assessee were assessed under head income from business. There were certain unsold flats and shops in stock in trade which the AO treated the property assessable under the head Income from House Property and computed notional annual netting value on such unsold flats placing reliance in the case of Ansal Housing Finance Leasing Co. Ltd. 2012 (11) TMI 323 - DELHI HIGH COURT The Hon ble Gujarat High Court in the case of Neha Builders Pvt. Ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT considered the question whether the rental income received from any property in the construction business can be claimed under the head income from property even though the said property was included in the closing stock. The Hon ble Gujarat High Court held that if the business of the assessee is to construct the property and sell it or to construct and let out the same then that would be the business and the business stocks which may include movable and immovable would be taken to be stock in trade and any income derived from such stocks cannot be termed as income from house property. As in the case of Runwal Builders Pvt. Ltd. 2018 (2) TMI 1707 - ITAT MUMBAI has considered similar issue as to whether the unsold property which is held as stock in trade by the assessee can be assessed under the head income from house property by notionally computing the annual letting value from such property and the Coordinate Bench considering the decision of Ansal Housing Finance Leasing Co. Ltd. (supra) which the AO relied upon and the decision of the Hon ble Supreme Court in the case of Chennai Properties Investments Ltd. 2015 (5) TMI 46 - SUPREME COURT held that unsold flats which are in stock in trade should be assessed under the head business income and there is no justification in estimating rental income from those flats are notionally computing annual letting value under Section 23. We are of the considered opinion that provisions of section 23 of the Act are not applicable in the case of the assessee. Accordingly the AO is directed to delete the addition made by estimating letting value of the flats u/s.23. Disallowance of interest payment - AO found that the assessee could not furnish any details regarding the interest expenses - HELD THAT - We find that the assessee has sufficient capitals to invest in non-business investment therefore disallowance of interest expenditure made by the AO is without any basis in the light of decision of Jurisdiction High Court of Gujarat in the case of Nirma Credit and Capital Pvt. Ltd. 2017 (9) TMI 485 - GUJARAT HIGH COURT accordingly disallowance of interest is deleted. Appeal of the assessee is allowed.

Summary

Issues:
1. Addition of deemed income from house property lying in stock-in-trade.
2. Disallowance of interest payment.

Issue 1: Addition of deemed income from house property lying in stock-in-trade:
The appeal was against the confirmation of the addition of Rs.15,75,840 as deemed income from house property lying in stock-in-trade. The Assessee contended that the properties were part of the stock-in-trade and therefore no rental income should be taxed. The Tribunal considered various judgments, including those of the Hon'ble Gujarat High Court and Hon'ble Delhi High Court, to determine the taxability of income from properties held as stock-in-trade. It was established that income derived from stock-in-trade should be assessed as business income and not income from house property. The Tribunal directed the AO to delete the addition made under Section 23 of the Act as income from house property, thereby allowing the appeal.

Issue 2: Disallowance of interest payment:
The AO disallowed interest expenses of Rs.4,82,785 claimed by the Assessee due to lack of supporting evidence. The Assessee argued that the interest was paid on excess withdrawals from a firm and had nexus with business income and expenditure. The Tribunal noted that the Assessee had sufficient capital for non-business investments, and therefore, the disallowance of interest expenditure was unjustified. Citing a judgment of the Jurisdictional High Court of Gujarat, the Tribunal deleted the disallowance of interest payment. Consequently, the appeal of the Assessee was allowed.

In conclusion, the Tribunal ruled in favor of the Assessee on both issues, directing the AO to delete the additions made. The judgment provided clarity on the tax treatment of income from properties held as stock-in-trade and emphasized the importance of supporting evidence for interest payments in business transactions.