M/s Global Entropolis (Vizag) Pvt Ltd , Bangalore V. Assistant Commissioner of Income Tax Circle-3(1)(2), Bangalore

ITA 2927/BANG/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8071 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-06-2019
• Assessment Year: 2015-2016
• Appeal Filed On: 25-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAGE NDRA PRASAD
• Keywords: Business income; Set aside
• Section: 56; 10; 43B; 10B; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NOS.2927 & 2928/BANG/2018 ASSESSMENT YEAR : 2014-15 & 2015-16 GLOBAL ENTROPOLIS (VIZAG) PVT. LTD., NO.40/43, NAGASHREE CHAMBERS, 8 TH MAIN, 4 TH CROSS, RMV EXTENSION, SADASHIVANAGAR, BENGALURU-560 080. PAN AADCG 1109J. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-3(1)(2), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI ANANTHAN, C.A RESPONDENT BY : SHRI NAGENDRA PRASAD, CIT DATE OF HEARING : 17.06.2019 DATE OF PRONOUNCEMENT : 12.07.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAIN ST THE ORDERS PASSED BY LD CIT(A)-3, BENGALURU AND THEY RE LATE TO THE ASSESSMENT YEARS 2014-15 AND 2015-16. BOTH THE APP EALS WERE HEARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF D EVELOPING RESIDENTIAL TOWNSHIPS AND ALSO PROVIDES INFRASTRUCT URE SERVICES. DURING THE YEARS UNDER CONSIDERATION, THE ASSESSEE WAS DEVELOPING ITA NO.2927 & 2928/BANG/2018 PAGE 2 OF 16 RESIDENTIAL PROJECTS AND THEY WERE UNDER CONSTRUCTI ON. THE SAID PROJECT CONSISTED OF APARTMENT BLOCK IV, APARTMENT BLOCK II AND VILLAS. THE ASSESSEE HAS OFFERED INCOME UNDER PERC ENTAGE COMPLETION METHOD. 3. WE SHALL FIRST TAKE UP THE APPEAL FILED FOR A SSESSMENT YEAR 2014-15. THE FIRST ISSUE CONTESTED THEREIN RELATES TO THE TREATMENT OF INTEREST INCOME RECEIVED BY THE ASSESSEE. THE A O NOTICED THAT THE ASSESSEE HAS RECEIVED INTEREST INCOME OF RS.69, 78,859/- AND IT HAD SET IT OFF THE SAME AGAINST THE INTEREST EXPEND ITURE AND ACCORDINGLY THE NET INTEREST EXPENDITURE WAS INCLUD ED IN THE WORK IN PROGRESS. THE AO TOOK THE VIEW THAT THE INTERES T 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 A SSESSEE. 4. THE LD CIT(A) NOTICED THAT THE ASSESSEE HAS RECEIVED INTEREST FROM BANKS TO THE TUNE OF RS.3,86,678/- ONLY. IT H AS RECEIVED MAJOR AMOUNT OF RS.53,23,206/- FROM A RELATED PARTY NAMED M/S SPL PROPERTIES (BNE) PRIVATE LIMITED AND BALANCE AMOUNT S WERE RECEIVED FROM SOME OTHER PERSONS. THE LD CIT(A) NO TICED THAT THE ASSESSEE HAS NOT EXPLAINED THE NATURE OF DEPOSITS/L OANS GIVEN TO RELATED PARTY AND OTHER PERSONS. THE LD CIT(A) ALSO NOTICED THAT THE ASSESSEE HAS FAILED TO SHOW THE LOANS SO GIVEN OR D EPOSITS SO MADE ARE INTERCONNECTED WITH THE BORROWINGS AND INEXTRIC ABLY CONNECTED WITH THE CARRYING ON OF ITS BUSINESS. THE LD CIT(A ) TOOK SUPPORT OF FOLLOWING CASE LAWS AND UPHELD THE VIEW TAKEN BY TH E AO:- ITA NO.2927 & 2928/BANG/2018 PAGE 3 OF 16 (A) REPCO HOME FINANCE LTD VS. ACIT (2018)((92 TAXMANN.COM 230)(CHENNAI ITAT) (B) CIT VS. BHAWAL SYNTHETICS (INDIA) UDAIPUR (81 TAXMANN.COM 478)(RAJ) (C) SOUTH INDIA SHIPPING CORPN. VS. CIT (105 TAXM AN 660)(MAD) (D) TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD ( 227 ITR 172)(SC) 5. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS MA DE DEPOSITS INTO THE BANK AND ADVANCED LOANS TO OTHER PERSONS OUT OF BUSINESS FUNDS AND HENCE THE INTEREST INCOME CONSTITUTES BUS INESS INCOME OF THE ASSESSEE. HE FURTHER PLACED HIS RELIANCE ON TH E DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. HEWLETT PACKARD GLOBAL SOFT LTD (2018)(403 ITR 453) (KAR-FB) AND SUBMITTED THAT THE INTEREST INCOME EARNED BY THE AS SESSEE FROM DEPOSITS KEPT WITH BANKS FOR TEMPORARY PERIOD AND T HE INTEREST EARNED ON STAFF LOANS WERE HELD TO BE BUSINESS INCO ME OF THE ASSESSEE IN THE ABOVE SAID CASE. ACCORDINGLY HE SU BMITTED THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN THE INSTANT CA SE IN ASSESSING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT TH E ASSESSEE HAS NOT SHOWN THAT THE DEPOSITS/LOANS ARE INEXTRICABLY CONNECTED WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE. HE FURTHE R SUBMITTED THAT THE ISSUE BEFORE HONBLE KARNATAKA HIGH COURT WAS W HETHER THE INTEREST INCOME CAN BE SAID TO HAVE BEEN DERIVED FR OM THE EXPORT BUSINESS IN THE CONTEXT OF DEDUCTION ALLOWED U/S 10 A OF THE ACT. ITA NO.2927 & 2928/BANG/2018 PAGE 4 OF 16 THE HONBLE KARNATAKA HIGH COURT HELD THAT THE INCI DENTAL ACTIVITY OF PARKING OF SURPLUS FUNDS WITH THE BANKS OR ADVAN CING OF STAFF LOANS BY SUCH SPECIAL CATEGORY OF ASSESSEES COVERED U/S 10A OR 10B OF THE ACT IS THE INTEGRAL PART OF THEIR EXPORT BUS INESS ACTIVITY AND BUSINESS DECISION TAKEN IN VIEW OF THE COMMERCIAL E XPEDIENCY. ACCORDINGLY IT WAS HELD THAT THE INTEREST INCOME CA NNOT BE DE-LINKED FROM ITS PROFITS AND GAINS DERIVED BY THE UNDERTAKI NG ENGAGED IN THE EXPORT OF ARTICLES AND HENCE CANNOT BE TAXED SEPARA TELY U/S 56 OF THE ACT. 7. WE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE EARLIER NOTICED THAT THE ASSESSEE HAS EARNED INTERE ST INCOME OF RS.3,86,678/- ONLY FROM BANKS AND THE BALANCE AMOUN T OF INTEREST INCOME WAS EARNED ON LOANS GIVEN TO RELATED PARTY A ND OTHERS. IT IS WELL SETTLED PROPOSITION OF LAW THAT THE ASSESSEE S HOULD DEMONSTRATE THAT THERE WAS BUSINESS COMPULSION TO MAKE THE DEPO SITS OR ADVANCE LOANS TO SUPPORT ITS CLAIM THAT THE INTERES T INCOME FORMS PART OF ITS BUSINESS PROFITS. ADMITTEDLY, THE ASSE SSEE HEREIN HAS NOT DEMONSTRATED THAT SUCH KINDS OF BUSINESS COMPULSION S DID EXIST. AS RIGHTLY POINTED OUT BY LD D.R, THE DECISION IN T HE CASE OF HEWLETT PACKARD GLOBAL SOFT LTD (SUPRA) HAS BEEN RENDERED B Y HONBLE KARNATAKA HIGH COURT ON THE BASIS OF FACTS PREVAILI NG IN THAT CASE AND SINCE THE HONBLE HIGH COURT FOUND THAT THE PAR KING OF FUNDS IN BANKS AND ADVANCING OF STAFF LOANS ARE INTEGRAL PAR T OF CARRYING ON OF EXPORT ACTIVITIES, IT WAS HELD THAT THE INTEREST INCOME CANNOT BE DE-LINKED FROM PROFITS AND GAINS DERIVED FROM EXPOR T OF ARTICLES. NO SUCH FACTS PREVAIL IN THE INSTANT CASE. ACCORDINGL Y WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT TAKE SUPPORT FROM THE ABOVE SAID ITA NO.2927 & 2928/BANG/2018 PAGE 5 OF 16 DECISION. IN THE INSTANT CASE, THE ASSESSEE IS ENG AGED IN THE BUSINESS OF CONSTRUCTING RESIDENTIAL COMPLEXES AND THE ASSESSEE HAS FAILED TO DEMONSTRATE ANY BUSINESS COMPULSION N OR DID IT SHOW THAT THE ADVANCING OF LOANS OR DEPOSITING OF MONEY IN FIXED DEPOSITS ARE INTEGRAL PART OF ITS BUSINESS ACTIVITIES. HENC E 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 INCO ME FROM OTHER SOURCES. 8. THE NEXT ISSUE RELATES TO THE DISALLOWANCE U/S 43B OF THE ACT. WE HAVE NOTICED EARLIER THAT THE ASSESSEE WAS OFFER ING INCOME UNDER PERCENTAGE COMPLETION METHOD. FROM THE DETAILS OF EXPENDITURE CLAIMED BY THE ASSESSEE, THE AO NOTICED THAT THE AS SESSEE 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. THE AO HELD THAT THE PROVISION FO R APPROVAL FEES IS LIABLE TO BE DISALLOWED IN TERMS OF SEC.43B OF THE ACT. BEFORE THE AO, THE ASSESSEE ACCEPTED FOR DISALLOWANCE. ACCORD INGLY, THE AO DISALLOWED A SUM OF RS.950.02, BEING THE PROPORTION ATE AMOUNT OF APPROVAL FEE INCLUDED IN THE EXPENDITURE IN TERMS O F SEC.43B OF THE ACT. THE LD CIT(A) CONFIRMED THE SAME BY FOLLOWING THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF CI T VS. TRAVANCORE SUGAR & CHEMICALS LTD (2015)(58 TAXMANN. COM 86). IN ADDITION, THE LD CIT(A) ALSO OBSERVED THAT THE APPR OVAL FEES IS AN UNASCERTAINED LIABILITY, SINCE THE QUANTUM OF FEE W AS REVISED BY THE ASSESSEE. ITA NO.2927 & 2928/BANG/2018 PAGE 6 OF 16 9. THE LD A.R SUBMITTED THAT THE PROVISIONS OF SEC.43B SHALL BE ATTRACTED TO ANY SUM PAYABLE BY WAY OF TAX, DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BE ING IN FORCE, IF IT IS NOT PAID BEFORE THE DUE DATE FOR FILING RETURN O F INCOME. HE SUBMITTED THAT THE APPROVAL FEES PAID FOR RENEWAL O F CONSTRUCTION PLAN AND ELECTRICITY LICENSE SHALL NOT FALL UNDER T HE CATEGORY OF TAX, DUTY OR CESS. THE AO HAS APPARENTLY CONSIDERED T HE ABOVE SAID ITEM AS FEES. HE SUBMITTED THAT THE HONBLE MADR AS HIGH COURT EXAMINED THE MEANING OF THE TERM FEE IN THE CONTE XT OF SEC.43B OF THE ACT IN THE CASE OF M/S TAMILNADU MINERALS LIMIT ED VS. JCIT (2019(5) TMI 1207). THE HONBLE 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 B ASED 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 HONBLE MADRAS HIGH COURT, THE ASSESSEE THEREIN WAS ENGAGED IN THE BUSINESS OF MINING, MANUFACTURE AND SALE OF GRA NITES, QUARRYING GRANITE BLOCKS FROM THE MINES LEASED OUT TO IT BY S TATE GOVERNMENT. IT PAID NOMINATION CHARGES @ 10% OF THE TURNOVER OF GRANITE BLOCKS, WHICH WAS A SPECIAL LEVY IMPOSED BY THE GOV ERNMENT FOR ALLOTMENT OF LAND FOR QUARRYING GRANITE ON NOMINATI ON BASIS. THE OUTSTANDING NOMINATION CHARGES WAS DISALLOWED U/S 43B OF THE ACT. THE HONBLE MADRAS HIGH COURT HELD THAT THE N OMINATION CHARGES CANNOT BE DISALLOWED U/S 43B OF THE ACT. T HE LD A.R FURTHER PLACED HIS RELIANCE ON THE DECISION RENDERE D BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. MCDOWELL AND C O. (2009)(10 SCC 755), WHEREIN THE HONBLE SUPREME COURT HAS OBS ERVED THAT THE EXPRESSIONS TAX, DUTY, CESS OR FEE CONS TITUTING A CLASS ITA NO.2927 & 2928/BANG/2018 PAGE 7 OF 16 DENOTES TO VARIOUS KINDS OF IMPOSTS BY STATE IN ITS SOVEREIGN POWER OF TAXATION TO RAISE REVENUE FOR THE STATE. IT FUR THER HELD THAT THE TERM TAX UNDER ARTICLE 265 READ WITH ARTICLE 366( 28) INCLUDES IMPOSTS OF EVERY KIND VIZ., TAX, DUTY, CESS OR FEES . HE SUBMITTED THAT THE HONBLE SUPREME COURT ALSO OBSERVED THAT, AS PER ARTICLE 265 WHICH USES EXPRESSION TAX, STATES THAT NO TAX SHALL BE LEVIED AND COLLECTED EXCEPT AUTHORIZED BY LAW. THE HONBL E SUPREME COURT HAS ALSO OBSERVED THAT LAW IN THE CONTEXT O F ARTICLE 265 MEANS AN ACT OF LEGISLATURE AND CANNOT COMPRISE AN EXECUTIVE ORDER OR RULE WITHOUT EXPRESS STATUTORY AUTHORITY. HE S UBMITTED THAT THE SOURCE OF POWER TO ENACT LAWS SHOULD BE TRACEABLE T O A PROVISION IN THE CONSTITUTION ESPECIALLY WHERE THE LEGISLATIVE P OWERS ARE SHARED BY THE CENTRE AND THE STATES. HE SUBMITTED THAT TH E DECISION RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE O F TAMILNADU MINERALS LTD (SUPRA) HAS BEEN CONSIDERED BY HONBLE SUPREME COURT IN THE CASE OF JINDAL STAINLESS STEELS LTD (2 018)(5 GSTR OL 164)(SC). 10. HE SUBMITTED THAT FEE FOR APPROVAL OF CONST RUCTION PLANS IS COLLECTED BY A STATUTORY AUTHORITY NAMED VUDA AND HENCE THE SAME CONSTITUTES A CONTRACTUAL LEVY FOR RENDERING S ERVICES AND HENCE IT MAY NOT FALL UNDER THE CATEGORY OF TAX, SO AS TO ATTRACT THE PROVISIONS OF SEC.43B OF THE ACT. HE FURTHER SUBMI TTED THAT THE ASSESSEE COULD NOT CARRY OUT CONSTRUCTION WITHOUT P LAN APPROVAL AND HENCE THE FEE PAYABLE BY THE ASSESSEE CANNOT BE CONSIDERED AS UNASCERTAINED LIABILITY. ITA NO.2927 & 2928/BANG/2018 PAGE 8 OF 16 11. THE LD D.R SUBMITTED THAT THELD CIT(A) HAS ALSO FOLLOWED THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE C ASE OF TRAVANCORE SUGAR & CHEMICALS LTD (SUPRA). HE FURTH ER SUBMITTED THAT THERE IS NO QUID PRO QUO IN COLLECTION OF APPR OVAL FEE, SINCE THE VUDA DOES NOT PROVIDE ANY SERVICE IN GIVING ITS APP ROVAL. HE SUBMITTED THAT THE VUDA WAS THE AUTHORITY CONSTITUT ED BY THE STATE GOVERNMENT TO REGULATE CONSTRUCTION OF BUILDINGS AN D IT HAS COLLECTED THE APPROVAL FEES AS AUTHORIZED BY THE ST ATE GOVERNMENT. ACCORDINGLY HE SUBMITTED THAT THE APPROVAL FEE CANN OT BE CONSIDERED AS PAYMENT MADE FOR SERVICES RENDERED. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS AGREED FOR THE ADDI TION U/S 43B OF THE ACT BEFORE THE AO AND HENCE THE ASSESSEE SHOULD NOT BE ALLOWED TO CONTEST THE 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 FURT HER SUBMITTED THAT THE IMPUGNED DISALLOWANCE WOULD GO TO REDUCE THE VA LUE OF WORK IN PROGRESS AND HENCE THE TAX AUTHORITIES ARE NOT JUST IFIED IN ADDING THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 13. WE HEARD THE PARTIES AND PERUSED THE RECO RD. WE NOTICE THAT THE DECISION IN THE CASE OF TAMILNADU MINERALS LTD (SUPRA) WAS RELATED TO A FEE COLLECTED AS NOMINATION CHARGES. THE HONBLE MADRAS HIGH COURT NOTICED THAT IT WAS SIMPLY A CONT RACTUAL PAYMENT OF LEAST RENTAL SPECIFIED BY THE STATE GOVE RNMENT BEING THE LESSOR FOR WHICH BOTH THE LESSOR AND LESSEE HAD AGR EED AT A PRIOR ITA NO.2927 & 2928/BANG/2018 PAGE 9 OF 16 POINT OF TIME TO FIX AND PAY THE SAID PRESCRIPTION OF NOMINATION CHARGES. THE SAID LEASE DEED WAS HELD TO BE NON-STA TUTORY CONTRACT BETWEEN THE PARTIES. FURTHER THE QUANTUM OF NOMINA TION CHARGES DEPENDED UPON THE QUANTUM OF LAND AND THE COMMERCIA L EXPLOITATION OF THE MINERALS BY THE ASSESSEE AND HE NCE THE SAME WAS IN THE NATURE OF NON-STATUTORY CONTRACTUAL PAYM ENT. ACCORDINGLY IT WAS HELD THAT THE NOMINATION CHARGE S WOULD NOT FALL UNDER THE CATEGORY OF FEES SPECIFIED IN SEC.43B O F THE ACT. THE OTHER DECISIONS RELIED UPON BY THE LD A.R, IN OUR V IEW, HAVE BEEN RENDERED IN DIFFERENT CONTEXT. 14. IN THE INSTANT CASE, THE ASSESSEE HAS MADE PR OVISION IN THE BOOKS OF ACCOUNTS FOR THE APPROVAL FEE PAYABLE TO T HE VUDA, WHICH WAS THE AUTHORITY CONSTITUTED BY THE STATE GOVERNME NT TO REGULATE THE DEVELOPMENT OF CITY AND LARGE SCALE CONSTRUCTIO N PROJECTS. IT SHOULD BE ACCORDING ITS APPROVAL TO THE CONSTRUCTIO N PLANS ON THE BASIS OF PARAMETERS, RULES AND REGULATIONS PRESCRIB ED BY THE STATE GOVERNMENT. WITHOUT THE SAID APPROVAL, THE ASSESSE E CANNOT CARRY OUT CONSTRUCTION ACTIVITIES, MEANING THEREBY, IT IS IN THE NATURE OF STATUTORY PERMISSION. BY ACCORDING APPROVAL FOR CO NSTRUCTION, IN OUR VIEW, NO SERVICE IS PROVIDED BY VUDA. ACCORDIN GLY WE ARE OF THE VIEW THAT THE VUDA IS PERFORMING A STATUTORY FUNCTI ON ONLY AND HENCE THE APPROVAL FEE PAYABLE TO IT WOULD FALL UND ER THE CATEGORY OF FEES STATED IN SEC.43B OF THE ACT. ACCORDINGLY W E 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. ACCORDINGL Y, 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 ITA NO.2927 & 2928/BANG/2018 PAGE 10 OF 16 CONSTRUCTION WITHOUT PLAN APPROVAL, THE APPROVAL FE E CANNOT BE CONSIDERED AS UNASCERTAINED LIABILITY, SINCE IN THE INSTANT CASE, THE ASSESSEE HAS PROVIDED FOR THE AMOUNT COMPUTED AS PE R THE RULES OF VUDA. REVISION OF THE AMOUNT CANNOT LEAD TO THE CO NCLUSION THAT THE SAME IS AN UNASCERTAINED LIABILITY. ACCORDINGL Y, THIS OBSERVATION OF LD CIT(A) IS SET ASIDE. 15. AS RIGHTLY POINTED OUT BY LD A.R, THERE IS NO ESTOPPEL AGAINST OPERATION OF LAW. HENCE THE ASSESSEE CAN CONTEND LE GAL ISSUES EVEN IF HAD AGREED FOR THE ADDITION BEFORE THE AO. BEFO RE US, THE ASSESSEE HAS RAISED AN ALTERNATIVE CLAIM THAT THE A MOUNT DISALLOWED U/S 43B SHOULD BE REDUCED FROM THE COST OF WORK IN PROGRESS. WE HAVE NOTICED THAT THE ASSESSEE IS UND ER THE STAGE OF CONSTRUCTION AND IT IS OFFERING INCOME UNDER PERCEN TAGE COMPLETION METHOD. HENCE THE EXPENSES INCURRED BY THE ASSESSEE ARE ACCUMULATED AS WORK IN PROGRESS. SINCE THE ALTERNA TIVE CLAIM OF THE ASSESSEE REQUIRES EXAMINATION, WE MODIFY THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE 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 PERC ENTAGE COMPLETION METHOD. WHILE COMPUTING THE PERCENTAGE OF COMPLETI ON, 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 E XPLAINED THAT THE ITA NO.2927 & 2928/BANG/2018 PAGE 11 OF 16 ASSESSEE HAS DE-RECOGNISED CERTAIN SALES, AS THE BU YERS HAVE NOT MET THE CONDITIONS, I.E., THE BUYER WOULD HAVE DEFA ULTED IN PAYING INSTALMENTS. THE AO TOOK THE VIEW THAT THE ASSESSE E CANNOT SO DERECOGNIZE THE SALES, AS THE ASSESSEE, IN ANY WAY, WILL SELL THE FLATS TO SOME OTHER PERSON. ACCORDINGLY, THE AO HELD THA T THE ASSESSEE WAS NOT RIGHT IN DERECOGNIZING SALES AND COST. THE NET AMOUNT SO DERECOGNIZED WORKED OUT TO RS.2,11,79,659/-. THE A O ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE LD C IT(A) ALSO CONFIRMED THE SAME. 17. WE HEARD THE PARTIES AND PERUSED THE RECO RD. WE NOTICE THAT THE ASSESSEE HAS PLACED ITS RELIANCE ON THE GU IDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS (REVISED 20 12) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (IC AI) IN SUPPORT OF ITS ACTION FOR DE-RECOGNISING SALES AND COST. T HE LD CIT(A) TOOK THE VIEW THAT THE ABOVE SAID GUIDELINES WOULD APPLY TO THE PROJECTS COMMENCED ON OR AFTER 01-04-2012 ONLY. HE ALSO NOT ICED THAT THE AO HAS OBSERVED IN THE SUCCEEDING YEAR THAT MANY CU STOMERS ARE REGULARLY PAYING THE INSTALMENTS AND THE ASSESSEE H AS NOT RETURNED BACK MONEY TO THE DEFAULTERS. ACCORDINGLY HE HAS H ELD THAT THE AO WAS JUSTIFIED IN MAKING THE ADDITION. 18. THE LD A.R SUBMITTED THAT THOUGH THE GUIDANC E NOTE STATES THAT IT WOULD APPLY TO PROJECTS COMMENCED AFTER 1.4 .2012 IN THE INITIAL LINES OF PREAMBLE, IT HAS ALSO STATED IN TH E SUBSEQUENT LINES THAT THE NEW GUIDELINES CAN BE FOLLOWED IN RESPECT OF EXISTING PROJECTS ALSO. HE INVITED OUR ATTENTION TO THE FOLL OWING PREAMBLE OF THE GUIDANCE NOTE:- ITA NO.2927 & 2928/BANG/2018 PAGE 12 OF 16 .AN ENTERPRISE MAY CHOOSE TO APPLY THIS GUIDANCE NOTE FROM AN EARLIER DATE PROVIDED IT APPLIES THIS GUIDA NCE NOTE TO ALL TRANSACTIONS WHICH COMMENCED OR WERE ENTERED IN TO OR AFTER SUCH EARLIER DATE. THE A.R, ACCORDINGLY, SUBMITTED THAT THE ASSESSEE H AS CHOSEN TO FOLLOW THE REVISED GUIDELINES FOR ALL THE TRANSACTI ONS. ACCORDINGLY, AS PER THE GUIDANCE NOTE, THE ASSESSEE HAS DE-RECOG NISED THE SALES, WHEN THE CUSTOMER DEFAULTS WITH THE TERMS AND CONDI TIONS. THE LD A.R FURTHER SUBMITTED THAT THE INCOME CANNOT BE SAI D TO HAVE ACCRUED TO THE ASSESSEE, WHEN THE RIGHT TO RECEIVE THE SAME HAS NOT OBTAINED BY THE ASSESSEE. IN SUPPORT OF THIS PROPO SITION, THE LD A.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY HON BLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES LTD (2013)(35 8 ITR 295)(SC). THE LD A.R ALSO SUBMITTED THAT THE CHANGE IN THE ME THOD OF ACCOUNTING HAS BEEN MADE ON ACCOUNT OF PROPER REAS ONS, WHICH HAS ALSO BEEN ACCEPTED BY THE AUDITORS OF THE ASSES SEE COMPANY. 19. ON THE CONTRARY, THE LD D.R PLACED HIS RELIA NCE ON THE ORDER PASSED BY LD CIT(A). 20. HAVING HEARD RIVAL CONTENTIONS, WE ARE OF T HE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE. THE D E-RECOGNITION OF SALES AND CORRESPONDING COST RESULTS IN CHANGE IN T HE 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 APP LIES TO PROJECTS COMMENCED ON OR AFTER 01-04-2012, THE GUIDANCE NOTE ALLOWS THE ITA NO.2927 & 2928/BANG/2018 PAGE 13 OF 16 SAME TO BE APPLIED FOR THE PROJECTS COMMENCED PRIOR TO 01-04-2012 ALSO. THE LD A.R SUBMITTED THAT THE REVISED GUIDAN CE NOTE PROVIDES FOR DE-RECOGNISING INCOME, WHEN THERE IS D EFAULT ON THE PART OF CUSTOMERS. THUS, WE NOTICE THAT THE CHANGE IN METHOD OF ACCOUNT IS ON ACCOUNT OF PROPER REASONS. IN THAT C ASE, 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 A CCRUED, SINCE THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF E XCEL 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 W AS JUSTIFIED IN FOLLOWING REVISED GUIDANCE NOTE. HOWEVER WE NOTICE THAT THE AO DID NOT HAVE OCCASION TO EXAMINE THE QUANTUM OF DE-RECO GNISED INCOME, SINCE HE HAD REJECTED THE SAME. WE HAVE NO TICED 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 T HE 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. ACCORD INGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RES TORE THIS ISSUE TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIF YING THE QUANTUM OF DEDUCTION CLAIMED BY THE ASSESSEE TOWARDS DE-RECOGN ISING OF SALES AND COST. ITA NO.2927 & 2928/BANG/2018 PAGE 14 OF 16 23. WE SHALL NOW TAKE UP THE APPEAL FILED FOR AY 2015-16. THE FIRST ISSUE RELATES TO THE TREATMENT OF INTEREST IN COME RECEIVED BY THE ASSESSEE. AS IN THE EARLIER YEAR, THE ASSESSEE DIS CLOSED INTEREST INCOME AS PART OF ITS BUSINESS INCOME AND NETTED IT OFF AGAINST INTEREST EXPENDITURE. HOWEVER, THE AO ASSESSED TH E SAME AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND IT WAS ALSO CONFIRMED BY LD CIT(A). 24. WE HAVE CONSIDERED AN IDENTICAL ISSUE IN AY 2014-15 IN THE EARLIER PARAGRAPHS AND CONFIRMED THE ORDER PASSED B Y LD CIT(A) FOR THE REASONS DISCUSSED THEREIN. FOLLOWING THE SAME, WE CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE IN THIS YEA R ALSO. 25. THE NEXT ISSUE RELATES TO DISALLOWANCE OF A PPROVAL FEES PAID TO VUDA U/S 43B OF THE ACT. IDENTICAL ISSUE WAS CONSI DERED BY US IN AY 2014-15 IN THE EARLIER PARAGRAPHS AND WE HAVE HE LD THAT THE APPROVAL FEE WOULD BE COVERED BY THE PROVISIONS OF SEC.43B OF THE ACT. HOWEVER WE HAVE RESTORED THE ALTERNATIVE CONT ENTION OF THE ASSESSEE THAT THE DISALLOWED AMOUNT WOULD GO TO RED UCE THE WORK IN PROGRESS, TO THE FILE OF AO. FOLLOWING THE SAME , WE CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE ALTERNATIVE CONTENTION TO THE FILE OF THE AO FOR HIS EXAMINATIO N. FOLLOWING THE ORDER PASSED BY US IN AY 2014-15, WE SET ASIDE THE OBSERVATION OF THE LD CIT(A) THAT THE APPROVAL FEE WAS UNASCERTAIN ED LIABILITY. 26. THE NEXT ISSUE RELATES TO DISALLOWANCE OF DE -RECOGNISED SALES. WE HAVE CONSIDERED AN IDENTICAL ISSUE IN AY 2014-15 IN THE EARLIER ITA NO.2927 & 2928/BANG/2018 PAGE 15 OF 16 PARAGRAPHS AND WE HAVE HELD THAT THE ASSESSEE IS EN TITLED TO CHANGE ITS METHOD OF ACCOUNTING. HOWEVER, WE HAVE RESTORE D THE ISSUE TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF EXAMI NING THE QUANTUM OF DEDUCTION. FOLLOWING THE SAME, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND RESTORE THE ISSUE TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. 27. IN THE RESULT, BOTH THE APPEALS OF THE ASSESS EE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JULY, 2019. SD/ - (PAVAN KUMAR GADALE) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 12 TH JULY, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE.