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TMI Blog2017 (5) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... o be set off against the interest paid of Rs. 86,04,016/- and balance amount should be included in work-inprogress for A.Y. 2008-09 and (b) the claim of the assessee that interest received of Rs. 64,05,656/- should be allowed to be set off against interest paid of Rs. 1,03,10,013/- and the balance amount of Rs. 36,04,357/- only should be considered work-in-progress for A.Y. 2009-10. The other ground for the A.Y. 2009-10 is that the learned CIT(A) erred in confirming the addition of Rs. 3,68,325/- being calculated @ 10% on increased work-in-progress by 57.50% of interest paid amounting to Rs. 64,05,656/-. 3. Briefly stated the facts of the case are that the nature of business of the assessee-firm is that of a builder and developer. The Assessing Officer (A.O.) found during the course of assessment proceedings that the assessee has netted off (i) interest income of Rs. 56,23,221/- against interest expenditure of Rs. 86,04,016/- for A.Y. 2008-09 and (ii) interest income of Rs. 64,05,656/- against interest expenditure of Rs. 1,03,10,013/- for A.Y. 2009-10. The assessee submits before the A.O. that while valuing work-inprogress, it has allocated all the direct expenses related to each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the temporary investment of those borrowings." The A.O. observed that the loans advanced for more than three/four years to M/s. Vijay Parikh & Associates; Arpit Samani; Parikh Granito, M/s. Nisha Enterprise cannot be treated as temporary investment of borrowed funds. Even the loan provided to M/s. Shri Shankar Sanitation, Shub Hotel P Ltd. and Shri Shub Buiders P. Ltd. have crossed the limit of more than two years. In view of the above, the A.O. brought to tax Rs. 56,23,221/- in A.Y. 2008-09 and Rs. 64,05,656/- in A.Y. 2009-10 as income from other sources. 4. Aggrieved by the order of the A.O., the assessee filed an appeal before the learned CIT(A). For the A.Y. 2009-10, the learned CIT(A) held as under: "After considering the rival submissions, it is seen that the appellant has substantial surplus funds which have primarily come out of the advance booking of the flats, but such surplus funds were not used for the business activities, rather in a systematic manner, such funds have been advanced mainly to the two sister concerns i.e. M/s. Shub Hotels Pvt. Ltd. and Shree Shubh Builders Pvt. Ltd. In both these cases, it is noted that even during the year under consideration, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (1991) 190 ITR 259 (Bom.) and Chhaganlal Khimji & Co. Pvt. Ltd. vs. ACIT (2015) 45 CCH 0082 Mum Trib. 6. Per contra, the learned DR relies on the order of the Hon'ble Supreme Court in the case of M/s. The Totgar's Co-op Sale vs. ITO (Civil Appeal No. 1622 of 2010) dated 08.02.2010. 7. We have heard the rival submissions and perused the relevant material on record. We begin with the decision relied on by the learned counsel of the assessee. In the case of Lok Holdings (supra), the assesseefirm was involved in the business of development of properties. In the course of its business, the assessee-firm received monies in advance from customers intending to purchase flats in the properties as developed by the assessee. These monies were of the nature of booking / advances. Since these monies received could not be immediately utilised for the business of the firm, the surplus amounts from such money received came to be temporarily invested with banks and other concerns. Such deposits with accrued interest thereon which was received by the assessee-firm was deducted from the work-in-progress till the conclusion of the project. For the A.Y. 1992-93, the income from such interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real estate and it required fund for making investment and to carry on the construction activity. Funds borrowed from MNRPL was in turn invested in PPL which was engaged in construction of a commercial complex by name Marathone Future X. Appellant being one of the JV partner the borrowal was utilized only in the construction activity and there was no room for any doubt. Alternatively it could be treated as part of activity in construction business. The A.O., did not controvert this claim of the appellant. The appellant did not receive any interest from PPL for the investment made. Mere non-receipt of interest income during the year cannot lead to the conclusion that the appellant is not into finance activity. The CIT(A) held that the assessee company was engaged in the business of construction as well as lending of money, both constituted its main business activity. Both these objects were clear from the 'Memorandum and Articles of Association' of assessee-company. As per clause 55 of 'Memorandum and Articles of Association', assessee was authorized to carry business of money lending. Both construction as well as lending constituted the business activity hence, the claim of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on method of accounting, (iii) the assessee has earned interest income of Rs. 56,23,221/- for giving loan or advance during the normal course of business to associates or other concerns; the assessee has netted off the interest earned Rs. 56,23,221/- from the value of interest paid Rs. 86,04,016/- and the net amount of Rs. 29,80,795/- has been charged to the work-in-progress for the A.Y. 2008-09 and this method of valuation has been followed in A.Y. 2009-10 also. 7.3 The learned AR of the assessee has submitted before the learned CIT(A) that the assessee is a partnership firm and the business clause as per the partnership deed of the firm is as under: "That the partnership shall carry on the business of Builders and Contractors, Construction Contractors, Developers of Land and Estates and Construction of Residential Flat, Colonies, Office Building, Commercial and Multi-storied Complexes, Prefabricated and Pre-cast Houses, and to acquire by purchases, lease, exchange or otherwise land, building and hereditments of any tenure or description and any estate or interest therein and any rights over or connected with land, and in turn the same to account as may seem expedient and in par ..... 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