2019 (12) TMI 486 - AT - Income Tax

Disallowance of travelling expenses - Allowable business expenses - assessee replied that foreign travelling was made by directors along with their relatives for the business purpose and it is the general practice of the company that directors travel for the business purpose - HELD THAT - assessing officer has asked the assessee to justify the claim of foreign travel made with business purpose however the assessee has explained that it is in general practice of the company that directors travel for the business purpose. In this regard it is observed that assessee was in the business of real estate and could not substantiate before the lower authorities with any relevant evidences that foreign travel expenses were incurred for the purpose of business of the assessee therefore we do not find any reason to interfere in the finding of ld. CIT(A) on this issue therefore this ground of appeal of the assessee is rejected. I ncome from House Property - property is used as stock in trade - notional annual letting value made u/s. 23 - HELD THAT - Hon ble Jurisdictional High Court of Gujarat in the case of CIT vs. Neha Builders Pvt. Ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT held that if property is used as stock in trade then said property would become partake character of stock and any income derived from stock would be income from business and not income from house property. We have further noticed that on identical issue on similar fact the Co-ordinate Bench of the Bombay in the case of M/s. Runwal Constructions Runwal Omkar Esquare 2018 (2) TMI 1707 - ITAT MUMBAI to hold that the unsold flats which are stock in trade when they were sold they are assessable under the head income from business when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect of those unsold flats under the head income from house property. we direct the assessing officer to delete the addition on account of notional annual letting value made u/s. 23 of the act as income from house property therefore this ground of appeal of the assessee is allowed. Disallowance of forfeited amount as trade loss - Revenue contended that the assessee has shown advance which cannot be claimed as business loss - HELD THAT - Assessee was of the view that if the assessee company purchases the said property at a price consideration of 13 crores in the subsequent sale the company would not fetch more than 8 crores and there was likely loss to the company as the assessee could not find out buyer of the said property as the real estate market was in a deteriorated condition as well as marketability of the property in the Dev Arc Mall was also of doubtful nature. Therefore the dispute arose between the company and the vendor was referred to the arbitrator as per the direction of the arbitrator the vendor has forfeited the amount of 3.5 crore out of advance amount of 5 crores paid by the assessee company to the vendor. The assessee has treated the aforesaid advance of 3.5 crore as loss incurred in the normal business activity of the company of buying and selling of the property and the same amount has been debited in the profit and loss account for the year ended on 31st March 2014. We find substance in the findings of the ld. CIT(A) that as per the normal course of business the assessee has entered into an agreement and the impugned property was being purchased as stock-in-trade and subsequently expecting loss on selling the property in future the deal was cancelled therefore forfeiture of advance in a transaction which was entered in the normal course of business is in the nature of business loss. Accordingly the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Disallowance of foreign travel expenses.
2. Addition on account of income from house property.
3. Disallowance of forfeited amount as a trade loss.

Issue-wise Detailed Analysis:

1. Disallowance of Foreign Travel Expenses:
The assessee claimed ?1,10,000/- as foreign travel expenses, asserting it was for business purposes. The Assessing Officer (AO) disallowed the claim, stating the assessee failed to justify the expenditure as business-related. The CIT(A) confirmed this disallowance. The tribunal upheld the CIT(A)'s decision, noting the assessee, engaged in real estate, could not substantiate the business purpose of the foreign travel with relevant evidence.

2. Addition on Account of Income from House Property:
The AO observed the assessee had a closing stock/WIP of ?38,16,12,833/- from various real estate projects but did not declare any property under Section 22 of the Act. The AO included notional rental income from unsold units of Vandemataram Prime, calculating an ALV of ?1,12,22,207/- and adding ?31,20,700/- as income from house property. The CIT(A) dismissed the assessee's appeal. However, the tribunal, referencing judicial precedents including CIT vs. Neha Builders Pvt. Ltd. and other ITAT decisions, concluded that properties held as stock-in-trade should be taxed under business income, not house property. Consequently, the tribunal directed the AO to delete the addition.

3. Disallowance of Forfeited Amount as Trade Loss:
The AO disallowed ?3.5 crores claimed as a trade loss due to forfeiture by Shukham Properties, treating it as a capital advance. The CIT(A) allowed the appeal, recognizing the forfeiture as a business loss incurred in the normal course of business. The tribunal upheld the CIT(A)'s decision, noting the assessee's business involved real estate transactions, and the forfeiture was a result of a business decision to avoid potential future losses. The tribunal cited various judicial pronouncements supporting the treatment of such forfeitures as business losses.

Conclusion:
The tribunal dismissed the revenue's appeal and allowed the assessee's appeals in part, specifically directing the deletion of the notional rental income addition and recognizing the forfeited amount as a business loss. The cross-objection by the assessee was dismissed as infructuous. The order was pronounced in open court on 19-11-2019.