TMI Blog2019 (12) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, for the sake of convenience, these are adjudicated by this common order. First we take two appeals vide ITA Nos. 2120 2505/Ahd/2017 involved common issue on identical facts 3. The fact in brief is that return of income declaring income of ₹ 2,05,84,525/- was filed on 14th August, 2013. The case was subject to scrutiny assessment. Assessment order u/s. 143(3) of the act was passed on 12 Feb, 2016 and total income was determined at ₹ 2,38,21,080/- after making disallowance of ₹ 5,885/- u/s. 2(24) r.w.s. 36(1)(va), disallowance of foreign travel expenses of ₹ 1,10,000/- and addition on account of income from house property of ₹ 31,20,700/-. The assessee has not pressed the ground no. 1 pertaining to disallowance of ₹ 5,885/- on account of delay in making employee s contribution to provident fund and ESIC, therefore, this ground of appeal of the assessee is dismissed as not pressed. Other grounds of appeal pertaining to the aforesaid additions are adjudicated as under:- Ground No. 1 (Disallowance of travelling expenses of ₹ 1,10,000) 4. During the course of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax under the head income from house property . The assessee has contended that the scheme developed by the assessee are not the property of the assessee but in the nature of stock in trade. The assessing officer has not agreed with the assessee and adopted 8% as ALV(Annual Let out Value) of the property of Vendemataram Prima at ₹ 1,12,22,207/- and worked out at pro rata basis income from house property at ₹ 31,20,700/-. 7. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. 8. We have heard the rival contentions. The assessee company is engaged in the business of building and developing commercial and residential complexes. During the course of assessment, the assessing officer has computed notional rental income in respect of unsold units of the scheme Vendematram Prima. The assessee has shown the unsold units in the stock in trade as work in progress as per balance sheet as on 31st March, 2013. The assessee has also submitted that in respect of stock in trade there is no question of addition on account of income from house property and no notional rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax notional annual letting value in respect of those unsold flats under the head 'income from house property. Thus, we direct the addition made under Section 23 of the Act as income from house property. Respectfully following the decision of Hon ble High Court and Coordinate Bench of Mumbai ITAT as cited above, 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. ITA No. 2505/Ahd/2017 filed by assessee 9. The ground no. 1 of the appeal of the assessee pertaining to disallowance of ₹ 28,430/- on account of delay in depositing employees contribution to PF and ESIC is dismissed as not pressed. The second ground of appeal of the assessee is against the addition on account of adopting 8% of the ALV of the properties as income of the assessee. This ground of appeal is based on similar facts on identical issue as adjudicated above in this order vide ITA No. 2120/Ahd/2017. On the similar reasons after applying the findings of the ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was allotted quota on the basis of past performance/projected figures submitted by the exporters and had to give EMD/guarantee for the purpose of execution of allotted quantity of quota to the extent of 90 per cent of the quota allotted. From these facts it is clear that the quota was allotted to the assessee on the basis of past performance in respect of exports made by the assessee. The EMD in the form of DD/fixed deposit/bank guarantee was in respect of execution of export quota allotted to the assessee. Therefore, the quota was allotted on the basis of past performance of the assessee as an exporter and not on the basis of earnest money deposited. The quota was allotted during the course of export activities of the assessee and when the assessee did not execute the full quota allotted, EMD was forfeited by AEPC. Thus the forfeiture of EMD has occurred during the course of business activities carried on by the assessee. Hence, it is a case of business loss. The AO has disallowed the amount on the ground that it was in the nature of penalty. Forfeiture of EMD on account of nonfulfillment of quota allotted to the assessee cannot be treated penal in nature, as held by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madhya Pradesh High Court. Similarly in the case of Narandas Malhuradas Co. case (supra) Hon'ble Bombay High Court has held that making deposit by way of security for carrying out a contract of supply of goods was not for acquiring the business, but incidental to carrying on business. Therefore, forfeiture of deposit was held to be allowable as business loss. Likewise, Tribunal, Cuttack Bench in the case of Dhirajlal Raghavji Co. case (supra) has held the forfeiture of earnest money and security deposit as deductible from the income. The amount was held to have been paid for \ securing right to purchase stock-in-trade and hence was not in the nature of capital expenditure. In the instant case, the quota has been allotted on the basis of past performance in the field of export and payment of earnest money is incidental to fulfillment of the quota so allotted and, therefore, it cannot be said to have been deposited for acquisition of the quota. Therefore, forfeiture of security deposit is in the nature of business loss and has to be allowed as deduction. Accordingly, neither the AO was justified in treating neither the forfeiture of security deposit as penal in nature nor the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s operation and the loss or it is indicated to it, then the loss is deductible, as, without the business operation and doing all that is incidental to it, no profit can be earned. It is in that sense that from a commercial standard such loss is considered to be trading one and becomes deductible from total income . It is clear that the business loss, though they fall outside the purview of any of the section 30 to 43C, are allowable on commercial principles on computing profits provided the loss are of a revenue nature and they are not merely connected with the trade but are really incidental to the trade itself. CIT V. S.N.A.S.A. ArmamalaiChettiar (1972) 86 ITR 607 (SC). Here in course of money lending business of HUF certain properties were taken over in settlement of debts - On partition of HUF, assessee received some of those properties in Malaya and continued to carry on money-lending business. During war, assessee suffered damages to those properties on account of Japanese bombing and, claimed such loss as business loss. Supereme Court held that taking into consideration the facts and circumstances of the case the loss occurred must be held to be a loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. counsel has also referred clause 9 of the agreement which state that the parties shall approach to the arbitrators to resolve the dispute. The ld. counsel has vehemently contended and supported her cross objection in supporting the decision of ld. CIT(A). 13. We have heard both the sides and perused the material on record. The assessee company is in the business of real estate development and dealing in land and building in pursuance of its main object clause as per the memorandum, article of association of the company. The company has decided to enter into an agreement for sale without possession dated 30th March, 2012 with Shukham Properties whereby the company had agreed to purchase the property at shop no. 101, first floor, block 2 of Dev Arc Mall admeasuring about 21791 sq. ft. super built up along with proportionate undividable multiple right title and interest in the land directly unearthed, premises Dev Arc from the vendor for a fixed consideration of ₹ 13 crore and the assessee company had paid ₹ 5 crore to the vendor while executing the agreement for sale without possession dated 30th March, 2012 and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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