TMI Blog2015 (12) TMI 1649X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Chargeability of interest income AO called upon the assessee to show cause as to why the interest income earned on bank F.Ds should not be treated as "Income from Other Sources" - Held that:- The decision of Hon'ble Bombay High Court in the case of “CIT vs. Lok Holdings” (2008 (1) TMI 365 - BOMBAY HIGH COURT) is squarely applicable. In that case the assessee was engaged in development of properties. Advance from customers intending to purchase flats was deposited with the banks in the course of business. The interest income was held to be assessable as business income and not as income from other sources. Following the decision of Hon'ble Bombay High Court in the case of “Lok Holdings” (Supra) the interest income earned from temporary deposits pending their utilization out of customer advances on the booking of flats related to the project of the assessee is assessable as business income. The A.O. is accordingly directed to assess the same as business income. This ground of appeal is also allowed. - ITA No.4579/M/2013 - - - Dated:- 30-12-2015 - SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER For Assessee : Shri Chetan Karia, A.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Sources' as against 'Business Income'. The Appellant prays that it be held to characterize the interest income as Business income and not as Income from other sources. Ground 5 5. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in levying interest of ₹ 917,020 under Section 234B of the Income-tax Act, 1961 ( the Act ). The Appellant prays that it be held to delete the levy of interest under Section 234B of the Act. The Appellant craves leave to add to, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. Grounds No. 1 to 3 3. The brief facts relating the issue under consideration are that the assessee company has been engaged in the business of Real Estate Development for Residential Township and Commercial Premises. The assessee company has undertaken development of multipurpose residential township at Thriveni Academy, Thriveni Nagar, Vadapattu Village, Distt. Chennai. During the course of assessment proceedings, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred for office and administration purposes further that the selling and marketing expenses had been incurred for selling and marketing of flats and the above stated expenses were not having any nexus with the project under construction; hence, the same had been claimed as deductible revenue expenditure for the year. The AO, however, rejected the assessee s claim and held that that as per the clause 19 of AS: 7, the costs that cannot be attributed to contract activity or cannot be allocated to a contract had to be excluded from the costs of a construction contract. However, in the case of the assessee, the entire costs incurred were attributable and relatable to one single project and as such none of the costs could be excludable from it and therefore, all expenses were required to be capitalised to work-in-progress and should have been claimed as deduction in subsequent year in proportion of income offered. He accordingly disallowed the above stated entire business expenditure claimed of ₹ 4320.80 Lacs by capitalizing it, treating it as work-in- progress of the project being constructed by the assessee. Similarly miscellaneous revenue receipts received during the year, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision), wherein the Tribunal after deliberating upon the various clauses of Accounting Standard AS-2 and AS- 7 and the provisions of section 145A of the act has held that as per the accounting method consistently followed by the assessee and thereby excluding the indirect expenses such as office employees salary, administrative expenses and marketing selling expenses was as per the recognized principles of accountings and as such the claim of the assessee deserved to be allowed. The relevant findings of the Tribunal for the sake of completeness are reproduced as under: 6. We have heard the rival contentions and gone through the records. The Ld. counsel for the assessee has relied upon the Expert Advisory Committees Report (EAC) on applicability of revised AS 7 to enterprises undertaking the construction activities on their own account as a venture of commercial nature (copy placed at page 49 50 of paper book) wherein it has been stated that revised AS -7 shall not be applicable to the builders undertaking the commercial activity on their own and it was also stated that the work in progress shall constitute inventory for the builders and shall be valued as per AS-2 issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. 145A. Notwithstanding anything to the contrary contained in section 145,- (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be- (i) in accordance with the method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. 9. The Ld. Counsel, therefore, has contended that the assessee has been regularly following the method of accounting recognized by the accounting principles to value the inventory. The assessee had followed the same method of valuing the inventory in preceding year as well as in succeeding years. Even in the assessment year 2010-11, it has debited and claimed the identical nature of expenses which had been accepted as deductible expenses in assessment order passed u/s 143(3) of the I.T. Act. The assessee being regularly following the accounting method duly recognized by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well in succeeding assessment years and which is in accordance with the recognized principles of accounting by ICAI, is being rejected. In our view, the action of the Revenue Authorities in rejecting the assessee's accounting method, without assigning any reason is not justified. The accounting method followed by the assessee and thereby excluding the indirect expenses such as office employees salary, administrative expenses and marketing selling expenses is as per the recognized principles of accountings and as such the claim of the assessee deserves to be allowed. We hold accordingly. The additions made by the lower authorities on this issue are hereby ordered to be deleted. 6. Both the Ld. representatives of the parties have submitted that the issue is squarely covered by the above decision of the Tribunal. We find that rather the case of the assessee is on better footing as the assessee was carrying out different projects though at the same location, hence it was not a case of single project. Even otherwise the resultant income from the project is a loss even after capitalisation of expenditure by the AO to work in progress. Hence, there is no tax implication, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He therefore assessed the interest income as Income from other sources . Being aggrieved, the assessee preferred appeal before the Ld. CIT(A) but remained unsuccessful on this issue also. 9. We have heard the rival contentions of the Ld. Representatives of the parties. The Ld. AR of the assessee has brought our attention to page 13 of the paper book which is the copy of schedule to financial statement to show that the assessee during the year had received advances from the customers to the tune of ₹ 658,839,563/- and further explained that that given the initial years of its operation, the available surplus fund of ₹ 1,70,72,127/- only was temporarily deposited in FDRs pending its utilization so as to make best use of it and to reduce the cost of the project. It was therefore offered as 'Business Income'. The Ld. AR in this respect has relied upon the various case laws including the decision of Hon'ble Karnataka High Court in the case of Swish Chandra Co. vs. CIT 234 ITR 70 (KAR) and decision of Hon'ble Bombay High Court in the case of CIT Vs. Lok Holdings 308 ITR 356 (Bom.) and has contended that the said decisions are fully applicable on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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