TMI Blog2019 (9) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... , which was the authority constituted by the State Government to regulate the development of City and large scale construction projects. It should be according its approval to the construction plans on the basis of parameters, rules and regulations prescribed by the State Government. Without the said approval, the assessee cannot carry out construction activities, meaning thereby, it is in the nature of statutory permission. By according approval for construction, in our view, no service is provided by VUDA. Accordingly we are of the view that the VUDA is performing a Statutory function only and hence the approval fee payable to it would fall under the category of fees stated in sec.43B of the Act. Accordingly we are of the view that the provision made for Approval fee payable to VUDA would fall under the ambit of sec. 43B of the Act. Accordingly, we are of the view that the Ld CIT(A) was justified in confirming the disallowance made u/s 43B of the Act. Since the assessee cannot carryout construction without plan approval, the approval fee cannot be considered as unascertained liability, since in the instant case, the assessee has provided for the amount computed as per the rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of developing residential townships and also provides infrastructure services. During the years under consideration, the assessee was developing residential projects and they were under construction. The said project consisted of Apartment Block IV, Apartment Block II and Villas. The assessee has offered income under percentage completion method. 3. We shall first take up the appeal filed for assessment year 2014-15. The first issue contested therein relates to the treatment of interest income received by the assessee. The AO noticed that the assessee has received interest income of ₹ 69,78,859/- and it had set it off the same against the interest expenditure and accordingly the net interest expenditure was included in the Work in Progress. The AO took the view that the interest income is earned on parking of funds with banks and hence the same is taxable as income from other sources u/s 56 of the Act. Accordingly he assessed the same as income of the assessee. 4. The Ld CIT(A) noticed that the assessee has received interest from banks to the tune of ₹ 3,86,678/- only. It has received major amount of ₹ 53,23,206/- from a relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken in view of the commercial expediency. Accordingly it was held that the interest income cannot be de-linked from its profits and gains derived by the undertaking engaged in the export of articles and hence cannot be taxed separately u/s 56 of the Act. 7. We heard rival contentions and perused the record. We earlier noticed that the assessee has earned interest income of ₹ 3,86,678/- only from banks and the balance amount of interest income was earned on loans given to related party and others. It is well settled proposition of law that the assessee should demonstrate that there was business compulsion to make the deposits or advance loans to support its claim that the interest income forms part of its business profits. Admittedly, the assessee herein has not demonstrated that such kinds of business compulsions did exist. As rightly pointed out by Ld D.R, the decision in the case of Hewlett Packard Global Soft Ltd (supra) has been rendered by Hon ble Karnataka High Court on the basis of facts prevailing in that case and since the Hon ble High Court found that the parking of funds in banks and advancing of staff loans are integral part of carrying on of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in the context of sec.43B of the Act in the case of M/s Tamilnadu Minerals Limited vs. JCIT (2019(5) TMI 1207). The Hon ble Madras High Court examined the difference between a fee and tax. It took support of certain decisions and observed that the element of tax is based on the principle of compulsory exaction, while the concept of fee relates to the principle of quid pro quo. He submitted that, in the case before Hon ble Madras High Court, the assessee therein was engaged in the business of mining, manufacture and sale of granites, quarrying granite blocks from the mines leased out to it by State Government. It paid nomination charges @ 10% of the turnover of granite blocks, which was a special levy imposed by the Government for allotment of land for quarrying granite on nomination basis. The outstanding nomination charges was disallowed u/s 43B of the Act. The Hon ble Madras High Court held that the nomination charges cannot be disallowed u/s 43B of the Act. The Ld A.R further placed his reliance on the decision rendered by Hon ble Supreme Court in the case of CIT vs. Mcdowell and Co. (2009)(10 SCC 755), wherein the Hon ble Supreme Court has observed that the expressions t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. 12. In the rejoinder, the Ld A.R submitted that there is no estoppel against the operation of Law and hence the assessee could contest this legal position, even if it has agreed to the addition before the AO. In the alternative, the Ld A.R further submitted that the impugned disallowance would go to reduce the value of work in progress and hence the tax authorities are not justified in adding the same to the total income of the assessee. 13. We heard the parties and perused the record. We notice that the decision in the case of Tamilnadu Minerals Ltd (supra) was related to a fee collected as nomination charges . The Hon ble Madras High Court noticed that it was simply a contractual payment of least rental specified by the State Government being the Lessor for which both the Lessor and Lessee had agreed at a prior point of time to fix and pay the said prescription of nomination charges. The said lease deed was held to be non-statutory contract between the parties. Further the quantum of nomination charges depended upon the quantum of land and the commercial exploitation of the minerals by the Assessee and hence the same was in the nature of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by Ld CIT(A) on this issue and restore the same to the file of AO to examine the alternative claim of the assessee. 16. The next issue relates to the disallowance of de-recognised sales. The facts relating thereto are discussed in brief. We have earlier noticed that the assessee is following percentage completion method. While computing the percentage of completion, the Assessee takes into consideration the flats booked by its customers. During the year under consideration, the AO noticed that the assessee has reduced certain amounts from the Sales on each of the projects and also corresponding cost. It was explained that the assessee has de-recognised certain sales, as the buyers have not met the conditions, i.e., the buyer would have defaulted in paying instalments. The AO took the view that the assessee cannot so derecognize the sales, as the assessee, in any way, will sell the flats to some other person. Accordingly, the AO held that the assessee was not right in derecognizing sales and cost. The net amount so derecognized worked out to ₹ 2,11,79,659/-. The AO added the same to the total income of the assessee. The Ld CIT(A) also confirmed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t results in change in the method of accounting. We notice that the assessee has chosen to follow the revised Guidance note issued by ICAI for accounting for real estate transactions. Though the revised Guidance note applies to projects commenced on or after 01-04-2012, the guidance note allows the same to be applied for the projects commenced prior to 01-04-2012 also. The Ld A.R submitted that the revised Guidance Note provides for de-recognising income, when there is default on the part of customers. Thus, we notice that the change in method of account is on account of proper reasons. In that case, we are of the view that the tax authorities are not justified in rejecting the same, without finding fault with the change. 21. The Ld A.R also submitted that, in the case of defaulting customers, the income cannot be said to have been accrued, since the Hon ble Supreme Court has held in the case of Excel Industries Ltd (supra) that the probability of realization by the assessee should be seen from practical point of view. 22. Hence we are of the view that the assessee was justified in following revised guidance note. However we notice that the AO did no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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