NAM DEVELOPERS P.LTD,MUMBAI vs. ITO 9(2)(3), MUMBAI

The brief facts of the case are that the assessee filed the return of income declaring total income to the tune of Rs.NIL on 26.12.2011. The return was processed u/s.143(1) of the Income Tax Act, 1961( in short “the Act”). Thereafter, the case was selected for scrutiny and accordingly notice u/s.143(2) of the Act dated 27.09.2012 was issued 2 Assessment Year: 2011-12 and served upon the assessee. Thereafter, the notice u/s.142(1) of the Act dated 17.10.2012 was issued and served upon the assessee. The assessee company is engaged in the business of real estate developers and its one construction project was in process. At the time of assessment the Assessing Officer noticed that the assessee was paying the interest to the parties from whom the loan has been taken but the TDS was not deducted, therefore, the interest to the tune of Rs.59,87,714/- was disallowed u/s.40(a)(ia) of the Act and was reduced from the WIP and added to the income of the assessee. The Assessing Officer also added income from house property to the tune of Rs.75,050/-. Since the assessee was not satisfied, therefore the assessee filed an appeal before CIT(A) who dismissed the appeal of the assessee, therefore assessee has filed the present appeal before us.

Under this issue the assessee has raised the reduction of project in progress to the tune of Rs.59,87,714/-. The assessee paid the interest to the tune of Rs.59,87,714/- on the account which he had taken the loan. The Assessing Officer found that the assessee failed to deduct the TDS on the interest to the tune of Rs.59,87,714/- u/s.194A of the Act. Therefore, the said amount was reduced from WIP. The contention of the assessee is that no doubt the assessee did not deduct the TDS on the interest which was paid to the creditors but the creditors have shown these interest in their income and their income was assessed in view of the provision u/s.40(a)(ia) of the Act. Therefore, in the said circumstances the interest to the tune of Rs.59,87,714/- is not liable to 3 Assessment Year: 2011-12 be deduct from the WIP in view of the law settled in ITAT Agra Bench in case of Rajeev Kumar Agarwal Vs. Additional Commissioner of Income-tax, Range-3, Mathura [2014] 149 ITD 363/45 taxmann.com 555 (Agra Trib.).

In view of the said law we deem it proper to remit the file before the Assessing Officer for fresh adjudication to carry out the necessary verification whether the recipients of the interest has shown the interest income in their I.T. returns or not. The Assessing Officer is also hereby directed to give a reasonable and fair opportunity of being heard to the assessee in accordance with law. Accordingly, we decide this issue in favour of the assessee against the revenue for statistical purpose.

Under this issue the assessee has challenged the income to the tune of Rs.29,826/- under the head Income From House Property. The contention of the assessee is that the assessee purchased the development rights in furtherance of its building construction project for which it was following project completion method of accounting and the assessee was receiving the rent merely incidental to its said business of building construction project. It is also argued that in accordance with Accounting Standard 2, valuation of inventories, prescribed by the Institute of Chartered Accountants of India, the cost of inventory can never exceed the total of costs incurred in bringing the inventory to its present location and condition and thus the expenses incurred on construction project are to be accumulated whereas receipts received 4 Assessment Year: 2011-12 during the course of construction project are required to be reduced from Project in Progress.

However, on the other hand the learned representative of the department has strongly relied upon the order passed by the CIT(A) in question. Before discussing further it is necessary to advert the finding of the CIT(A) on record.

The appellant is engaged in developing the project. The appellant is not in the business of leasing the property. He received the rent to the tune of Rs.29,826/-. However the rent to the tune of Rs.1,07,215/- was not relevant for the assessment year in question.

In the said circumstances how the income is required to be assessed has been held in East India Housing and Land Development Trust Ltd. Vs. Commissioner of Income Tax, West Bengal, Supreme Court of India [1961] 42 ITR 49 SC. In view of the said circumstances we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which does not required to be interfere with at this appellate stage.

In the result, the appeal of the Assessee is hereby partly allowed for statistical purpose.