2020 (8) TMI 436 - AT - Income Tax

Addition u/s 23(4) - Income from House Property - Property are stock in trade of the appellant firm - deemed rental income of the two unsold flats - HELD THAT - It is an undisputed fact that assessee firm is in construction business and the two flats which are unsold were lying as its stock and were vacant and no rental income has been derived by the assessee firm. We find that identical issue arose in the case of Gajendra Pawar 2019 (2) TMI 1867 - ITAT PUNE wherein the Co-ordinate Bench of the Tribunal decided the issue in favour of the assessee - no addition on account of deemed rent of two unsold flats can be made in the hands of assessee. Disallowance u/s 40A(3) - exception for incurring cash expenditure of ₹ 20,000/- as given in Rule 6DD - HELD THAT - It is an undisputed fact that the amount which has been disallowed by the AO has been made by the assessee through bearer cheque. Before us, assessee has not pointed out the provisions of Rule 6DD under which the payment can be allowed. He has also not pointed out any fallacy in the findings of Ld.CIT(A). We therefore find no reason to interfere with the order of Ld.CIT(A)

Summary

Issues:
1. Addition of deemed rental income from unsold flats under Sec. 23(4) as Income from House Property.
2. Disallowance under Sec. 40A(3) for payment made through bearer cheque.

Issue 1: Addition of deemed rental income from unsold flats under Sec. 23(4) as Income from House Property:

The appeal involved a partnership firm engaged in Builders and Developers business, disputing the addition of deemed rental income from unsold flats under Sec. 23(4) as Income from House Property for the assessment year 2012-13. The AO determined the deemed rental income based on Fair Market Value, which was contested by the assessee. The Co-ordinate Bench of the Tribunal, in a similar case, held that unsold flats held as stock-in-trade are to be assessed under the head 'income from business' upon sale, and not as 'income from house property'. The Tribunal set aside the addition made by the AO, following the precedent, as no contrary binding decision was presented by the Revenue. Consequently, the Tribunal allowed the grounds raised by the assessee, directing the AO to delete the addition.

Issue 2: Disallowance under Sec. 40A(3) for payment made through bearer cheque:

The second issue concerned the disallowance under Sec. 40A(3) for a payment of &8377; 24,010 made through a bearer cheque, exceeding the limit specified. The AO disallowed the amount as it did not comply with the provisions of Sec. 40A(3). The assessee appealed for the disallowance to be restricted to &8377; 4,010 only, which was rejected by the Tribunal. The Tribunal upheld the order of the lower authorities, stating that once the provisions of Sec. 40A(3) are triggered, the disallowance cannot be limited to an arbitrary figure. Therefore, the grounds related to this issue were dismissed by the Tribunal.

In conclusion, the Tribunal partly allowed the appeal of the assessee, setting aside the addition of deemed rental income from unsold flats under Sec. 23(4) as Income from House Property while upholding the disallowance under Sec. 40A(3) for payment made through a bearer cheque. The decision was based on the specific facts and legal interpretations presented during the proceedings.