ITAT Restricts Disallowance of Business Expenses for BSM Developers

The Income Tax Appellate Tribunal (ITAT) in Delhi has allowed the appeal of BSM Developers Pvt Ltd in part, restricting the disallowance of business expenses to a fixed amount of ₹1,00,000. BSM Developers, a real estate company, had shown income from house property and a small income of ₹76,223 from trading activities in building materials.

The Assessing Officer had disallowed a number of expenses amounting to ₹22.41 lakh, citing the lack of substantial business activity during the year. The Commissioner of Income Tax (Appeals) (CIT(A)) had upheld the disallowance of ₹20.71 lakh.

The assessee claimed that it was engaged in the business of real estate and trading building materials. They argued that the absence of substantial business activity was due to adverse conditions. The assessee further contended that there was business activity, and therefore, the expenses incurred were allowable. On the other hand, the Revenue contended that there was no substantiation of business activity by the assessee and no direct nexus between the expenses and business income.

The Tribunal, comprising Satbeer Singh Godara (Judicial Member) and Naveen Chandra (Accountant Member), acknowledged that there was some business income earned by the assessee. Therefore, it could not be held that there was no business activity during the relevant assessment year. However, the Tribunal also noted that the business activity was minimal and not sufficient to claim the entire expense.

Accordingly, the Tribunal ruled that instead of delving into the details of each expense, a reasonable approach would be to restrict the disallowance to a lump sum of ₹1,00,000. This decision provided a substantial relief of ₹19.71 lakh to the assessee.

The case, BSM Developers Pvt Ltd. vs ACIT, was decided on 24 March 2026, with Sh. Arun Kishore representing the appellant and Ms. Harpreet Kaur Hansra representing the Revenue. The ITAT's decision strikes a balance between the need to ensure that expenses are genuinely related to business activities and the recognition that some business activity did occur, even if minimal.