9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (9) TMI 37 - AT - Income TaxInterest Income - taxable as income from other sources u/s 56 or business income - interest income earned on parking of funds with banks - balance amount of interest income was earned on loans given to related party and others - HELD THAT - In the instant case, the assessee is engaged in the business of constructing residential complexes and the assessee has failed to demonstrate any business compulsion nor did it show that the advancing of loans or depositing of money in fixed deposits are integral part of its business activities. Hence we are of the view that the Ld CIT(A) was justified in confirming the assessment of interest income as income of the assessee from income from other sources. Disallowance u/s 43B - assessee has made provision for approval fees payable for renewal of construction plan and electricity license, i.e., the approval fee was not actually paid during the year. - HELD THAT - In the instant case, the assessee has made provision in the books of accounts for the Approval fee payable to the VUDA, 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 of VUDA. Revision of the amount cannot lead to the conclusion that the same is an unascertained liability. Accordingly, this observation of CIT(A) is set aside. Rightly pointed out by A.R, there is no estoppel against operation of law. Hence the assessee can contend legal issues even if had agreed for the addition before the AO. Before us, the assessee has raised an alternative claim that the amount disallowed u/s 43B should be reduced from the cost of work in progress. We have noticed that the assessee is under the stage of construction and it is offering income under percentage completion method. Hence the expenses incurred by the assessee are accumulated as work in progress. Since the alternative claim of the assessee requires examination, we modify the 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. Disallowance of de-recognised sales - HELD THAT - AO did not have occasion to examine the quantum of de-recognised income, since he had rejected the same. We have noticed that the Ld CIT(A) has observed that the AO has mentioned in the assessment order of succeeding year that the claim of the assessee that it was not receiving payments in relation to the derecognized income was found to be incorrect. Hence, we are of the view that the quantum of de-recognised income claimed by the assessee requires verification at the end of the AO. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore this issue to the file of the AO for the limited purpose of verifying the quantum of deduction claimed by the assessee towards de-recognising of sales and cost.
Issues Involved:
1. Treatment of interest income. 2. Disallowance under Section 43B of the Income Tax Act. 3. Disallowance of de-recognised sales. Detailed Analysis: 1. Treatment of Interest Income: The primary issue contested for the assessment years 2014-15 and 2015-16 is the treatment of interest income received by the assessee. The assessee had set off the interest income against interest expenditure and included the net interest expenditure in the Work in Progress. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] took the view that the interest income earned on parking of funds with banks should be taxable as "income from other sources" under Section 56 of the Income Tax Act. The CIT(A) noticed that the majority of the interest income was received from a related party and other persons, and the assessee failed to demonstrate that the deposits/loans were inextricably connected with its business activities. The assessee's reliance on the Karnataka High Court's decision in CIT vs. Hewlett Packard Global Soft Ltd was rejected, as the facts of that case were different. The Tribunal upheld the CIT(A)'s decision, stating that the assessee did not demonstrate any business compulsion for making the deposits or loans, and therefore, the interest income should be assessed as "income from other sources." 2. Disallowance under Section 43B of the Income Tax Act: The next issue relates to the disallowance under Section 43B of the Act. The AO disallowed a provision for approval fees payable for the renewal of construction plans and electricity licenses, as it was not actually paid during the year. The CIT(A) confirmed the disallowance, citing the Supreme Court's decision in CIT vs. Travancore Sugar & Chemicals Ltd. The assessee argued that the approval fees should not fall under the category of "tax, duty, cess, or fee" under Section 43B. The Tribunal, after considering various case laws and the nature of the approval fees, concluded that the approval fees payable to VUDA (a statutory authority) would fall under the category of "fees" specified in Section 43B. However, the Tribunal accepted the assessee's alternative claim that the disallowed amount should reduce the Work in Progress and restored this issue to the AO for examination. 3. Disallowance of De-recognised Sales: The final issue pertains to the disallowance of de-recognised sales. The assessee, following the percentage completion method, de-recognised sales and corresponding costs when customers defaulted on payment terms. The AO and CIT(A) rejected this, adding the net amount of de-recognised sales to the total income. The Tribunal noted that the assessee followed the revised Guidance Note on Accounting for Real Estate Transactions issued by the ICAI, which allows de-recognition of income when customers default. The Tribunal held that the change in the method of accounting was justified and should not be rejected without proper reasons. However, the Tribunal restored the issue to the AO for verifying the quantum of de-recognised income. Separate Judgments: There were no separate judgments delivered by the judges; the judgment was delivered collectively. Conclusion: Both appeals for the assessment years 2014-15 and 2015-16 were partly allowed for statistical purposes, with specific directions to the AO for further examination on certain issues.
|
