Asst.Commissioner of Income tax Circle-6, Nagpur V. The Nirmal Ujjwal Credit Co-Oerative Society LTD, Nagpur

ITA 362/NAG/2012

• Counselvise Citation: 36223914 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 17-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRITI JAIN DAS
• Assessee Lawyers: M MANI
• Keywords: Depreciation; Source of fund; Revised return
• Section: 2

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL-E -BENCH, NAGPUR ( ! ! ' ! /THROUGH VIDEO CONFERENCE AT MUMBAI) # # # # $ $$ $ % %% % . . , '& '& '& '& $ $$ $ '!() '!() '!() '!() , ! !! ! . . BEFORE S/SH.H.L.KARWA,PRESIDENT AND RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.362/NAG/2012 # # # # *# *# *# *# / ASSESSMENT YEAR 2009-10 ACIT CIR-6, ROOM NO. 302, AAYAKAR BHAWAN, NAGPUR-440001 VS. THE NIRMAL UJJWAL CREDIT CO- OPERATIVE SOCIETY LTD. 193 MAIN ROAD, NANDANWAN, NAGPUR-440009 PAN: AAAAT6554H ( +, / APPELLANT ) ( -.+, / RESPONDENT ) REVENUE BY : PRITI JAIN DAS ASSESSEE BY : M. MANI / 0 / DATE OF HEARING : 21- 01 -201 4 1* / 0 /DATE OF PRONOUNCEMENT : 10 2-201 4 , 1961 254 (1) ! !! ! (/#/ (/#/ (/#/ (/#/ 2!3 2!3 2!3 2!3 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM - ! ! ! ! 24 24 24 24 , '!() '!() '!() '!() ! !! ! : CHALLENGING THE ORDER DT.25.08.2012 OF THE CIT(A)-I I,NAGPUR, ASSESSING OFFICER (AO)HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E & IN LAW,THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE ASSESSEE HAS MODIFIED ITS SYS TEM OF ACCOUNTING IN AS MUCH AS CREDIT TO THE P & L A/C ON ACCOUNT OF NIRMAL NAGRI DEVELOPMENT PROJ ECT IN THE PRECEEDING YEAR HAS BEEN OMITTED IN THE CURRENT YEAR AND THE TAX AUDIT REPORT DOES N OT SPECIFY SUCH MODIFICATION. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE INTEREST PAID /ACCRUED ON FUNDS UTILIZED BY THE SOCIETY FOR THE PURPOSE OF ITS CONSTRUCTION PROJECT WAS INCLUDABLE IN THE WORK IN PROGRESS OF THE PROJECT IN ACCORDANCE WITH THE DECISION OF HONBLE SPECIAL BENCH OF ITAT, MUMBAI I N THE CASE OF WALL STREET CONSTRUCTION LTD (101ITD156) AND SHOULD HAVE BEEN REFLECTED ON THE C REDIT SIDE OF THE P & L A/C FOR THE YEAR UNDER CONSIDERATION. 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (APPEALS) FAILED TO APPRECIATE THE ISSUE RAISED IN THE ASSESSMENT ORDER WITH REGARD TO THE ADDITION OF INTEREST ON STICKY LOAN. DURING ASSESSMENT PROCEEDINGS AO ASK FOR THE SUBMISSION ON DETAIL OF STICKY LOAN DISBURSEMENT AND ITS RECOVERY TO VERIFY WHETHER IT IS OFFER FOR TAXATION OR NOT. NO SUBMISSION IS MADE DURING THE ASSESSMENT PROCEEDINGS NOT DURING T HE APPELLATE PROCEEDINGS. 4.ANY OTHER GROUND THAT MAY BE RAISED AT THE TIME O F HEARING. 2. ASSESSEE,A CREDIT COOPERATIVE SOCIETY,FILED ITS RET URN OF INCOME ON 30.09.2009 SHOWING TOTAL INCOME AT RS.NIL.AS PER THE RETURN OF INCOME THE AS SESSEE HAD EARNED GROSS TOTAL INCOME (GTI) OF RS.1,35,05,272/- DURING THE YEAR.ASSESSING OFFI CER FOUND THAT IT HAD CLAIMED A DEDUCTION U/S. 2 ITA NO. 362/NAG/2012 THE NIRMAL UJJWAL CREDIT CO-OPE RATIVE SOCIETY LTD. 80P OF THE ACT OF RS. 1.35 CRORES I.E. WHOLE OF GTI .SUBSEQUENTLY,IT FILED A REVISED RETURN.THE REASON FOR FILING REVISED RETURN WAS THAT THE BROUG HT FORWARD BUSINESS LOSS AND DEPRECIATION LOSS WAS NOT CONSIDERED IN ORIGINAL RETURN.AS A RESULT,B USINESS LOSSES TO THE TUNE OF TOTAL GTI WAS SET OFF AND THE ASSESSEE WITHDREW THE CLAIM MADE U/S.80 P IN THE ORIGINAL RETURN.THE CLAIM MADE U/S. 80P WAS SUBSTITUTED WITH SET OFF OF BROUGHT FORWAR D BUSINESS LOSSAND REMAINING BUSINESS LOSS (RS.32,50,714/-) AND DEPRECIATION (RS.64,26,188/-)W ERE CARRIED FORWARD TO THE SUCCEEDING YEAR. 2.1. FIRST GROUND OF APPEAL IS ABOUT INTEREST PAID/ACCR UED,AMOUNTING TO RS.2.10 CRORES,ON FUNDS UTILISED BY THE ASSESSEE-SOCIETY FOR THE PURPOSE OF ITS CONSTRUCTION PROJECT.DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE WAS PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS,THAT IT WAS CLAIMED BY THE ASSESSEE THAT IT WAS ALSO ENGAGED IN CONSTRUCTION OF RESIDENTIAL FLATS FOR ITS MEMBERS AND THAT THE CONSTRUCTION ACTIVITY WAS NOT A COMMERCIAL ACTIVITY.FROM THE P & L A/C AND BALANCE SHEET SUBMITTED ALONGWITH RETURN OF INCOME, AO OBSERVED THAT THE ASSESSEE WAS CARRYING OUT ACTIVITIES I.E.FINANCIAL ACTIVITIES AND CONSTRU CTION ACTIVITIES.THE ASSESSEE WAS ASKED TO PREPARE SEPARATE P & L A/C FOR THESE TWO ACTIVITIES.AO ALSO ASKED THE ASSESSEE TO FURNISH INFORMATION AND SUBMISSIONS ESPECIALLY WITH REGARDS TO THE NIRMAL N AGRI DEVELOPMENT PROJECT , AN ACTIVITY PERTAIN - ING TO THE CONSTRUCTION OF RESIDENTIAL FLATS AND HO USES FOR ITS MEMBERS.HE ALSO ASKED THE ASSESSEE TO MAKE SUBMISSIONS AND EXPLAIN THE REASON FOR NOT RECOGNISING INCOME FROM THE SAID PROJECT. ASSESSEE,VIDE ITS LETTER DATED 09.12.2011,SUBMITTED THAT THERE WAS ONLY ONE ACTIVITY CARRIED THROUGHOUT THE YEAR WHICH PERTAINED TO PROVIDING CR EDIT FACILITIES TO ITS MEMBERS,THAT IT WAS CONSTRUCTING RESIDENTIAL FLAT AND HOUSING FOR THE B ENEFIT OF ITS MEMBERS,THAT THE CONSTRUCTION ACTIVITY WAS NOT ON A COMMERCIAL BASIS,THAT IT WAS PURELY FOR THE MEMBERS OF THE SOCIETY,THAT THE NET PROFIT REFLECTED IN THE P & L. A/C OF RS.1.50 C ROES WAS FROM ITS ALL THE ACTIVITIES CONDUCTED DURING THE YEAR. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,A O HELD THAT PERUSAL OF P & L A/C.SHOWED THAT NO PROFIT WAS EARNED DURING THE YEAR ON ACCOUNT OF NIRMAL NAGRI DEVELOPMENT PROJECT AS AGAINST RS.3,62,83,929/- SHOWN LAST YEAR,THAT THE SAID AMOU NT OF RS.3,62,83,929/- WAS STATED TO HAVE BEEN EARNED ON ACCOUNT OF INTEREST ON DEPOSIT EARNED BY THE SOCIETY.ASSESSEE WAS FURTHER ASKED TO PREPARE SEPARATE P & L A/C AS WELL AS BALANCE SHEET FOR ITS CONSTRUCTION ACTIVITIES.FROM THE BALANCE SHEET OF THE CONSTRUCTION PROJECT SUBMITTED BY THE ASSESSEE VIDE ITS LETTER DATED 15.12. 2011,AO FOUND THAT THERE WERE TOTAL BOOKING RECEIPTS OF RS. 1,32,891,102/- AS ON 31.03.2009,THAT IN THE CAPITAL ACCOUNT THE ASSESSEE HAD SHOWN TOTAL AMOUNT OF RS. 33,96,79,438/-AS AMOUNT RECEIVED FROM HEAD OFFICE,THAT ON THE ASSET SIDE THE ASSESSE E HAD SHOWN TOTAL AMOUNT OF RS.47, 82,88,293/- WHICH WAS REPRESENTED BY CLOSING WIP OF THE PROJECT .AO DIRECTED THE ASSESSEE TO EXPLAIN THE SOURCE OF THIS AMOUNT OF RS. 33,9679,438/- STATED T O HAVE BEEN TRANSFERRED FROM HEAD OFFICE.VIDE LETTER DATED 26.12.2011, THE ASSESSEE SUBMITTED THA T IT WAS IMPRACTICABLE TO WORK OUT THE TOTAL AMOUNT OF DEPOSIT UTILIZED TOWARDS THE CONSTRUCTION ACTIVITY AND THAT ALL BORROWINGS WERE POOLED TOGETHER AND FORMED COMMON FUNDS.HE FURTHER ASKED T HE ASSESSEE TO WORK OUT THE AVERAGE COST OF SOURCE OF FUNDS WHICH SHOULD HAVE BEEN OTHERWISE AV AILABLE AND UTILIZED FOR CONSTRUCTION ACTIVITY AND THE AO HELD,AFTER MAKING VARIOUS CALCULATIOS,TH AT THE TOTAL INTEREST ON FUNDS UTILISED FOR CONSTRUCTION ACTIVITY FROM TIME TO TIME, OUT OF THE TOTAL AVERAGE FUNDS AVAILABLE WITH ASSESSEE FOR ITS COMMERCIAL ACTIVITY WAS RS. 2,10,77,577/-@ 6% B EING AVERAGE INTEREST CHARGEABLE ON FUNDS COLLECTED FROM ITS MEMBERS UNDER VARIOUS DEPOSIT SC HEMES.FINALLY,HE MADE A DISALLOWANCE OF RS.2,10,77,577/-. AO FURTHER HELD THAT THE DISALLOWED AMOUNT WAS TO B E CAPITALISED AS PART OF WORK-IN-PROGRESS OF THE PROJECT AND ALSO THE SAME WOULD NOT QUALIFY FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT,THAT THE SAME WAS IN THE NATURE OF HOUSING LOAN AND DID NOT FALL IN THE CATEGORY OF PRIMARY BUSINESS ACTIVITY OF PROVIDING CREDIT FACILITY TO ITS MEMBER S. 2.2. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R HE HELD THAT THE ASSESSEE-CREDIT CO- OPERATIVE SOCIETY DERIVED ITS INCOME FROM LOAN AND ADVANCES GIVEN TO ITS MEMBERS ONLY,THAT IT ACCEPTED DEPOSIT FROM ITS MEMBERS ONLY, THAT THE AM OUNTS WERE UTILISED FOR ADVANCING LOANS TO ITS 3 ITA NO. 362/NAG/2012 THE NIRMAL UJJWAL CREDIT CO-OPE RATIVE SOCIETY LTD. MEMBERS,THAT THE ASSESSEE HAD BEEN CARRYING OUT TWO ACTIVITIES NAMELY FINANCIAL ACTIVITY AND CONSTRUCTION ACTIVITY,THAT THE INCOME OF FINANCIAL ACTIVITY WAS ELIGIBLE FOR DEDUCTION U/S.80P (2)(A)(I) OF THE ACT,THAT THE CONSTRUCTION ACTIVITY UNDER WHICH HOUSING PROJECT WAS BEING CARRIED OUT MEANT FOR THE MEMBERS OF THE SOCIETY ,THAT THE CONSTRUCTION ACTIVITY STARTED WITH THE APPROVAL OF COMMISSIONER OF CO-OPERATIVE SOCIETY,THAT BECAUS E OF THE STAY IMPOSED BY THE HIGH COURT CONSTRUCTION ACTIVITIES WERE ALMOST STAYED,THAT IT HAD NOT RECOGNISED ANY PROFIT FROM CONSTRUCTION ACTIVITY AS IT WAS OF THE VIEW THAT NO INCOME HAD A RISEN FROM THE CONSTRUCTION ACTIVITY.FAA FINALLY HELD THAT CONSIDERING THE GOIMG CONCERNPRINCIPLE AND ASSURANCE STANDARD (AAS) 16 THE INCOME COMPUTED AS PER THE REVISED RETURN WAS THE CORRECT APPROACH AND SAME WAS IN ACCORDANCE WITH THE LEGAL PRINCIPLES. 2.3. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR)SUBMITTED INTEREST INCOME ACCRUED TO THE ASSESSEE WAS NOT SHOWN BY IT IN THE RETURN OF INCOME,THAT IN COME FROM HOUSING ACTIVITY AND FINANCE ACTIVITY HAD TO BE DETERMINED FOR DECIDING THE EXACT TAX LIA BILITY OF THE ASSESSEE,THAT NO PROFIT WAS SHOWN BY IT FROM THE NIRMAL NAGARI PROJECT.AUTHORISED REP RESENTATIVE(AR)SUBMITTED THAT THE ASSESSES CO-OPERATIV WASE SOCIETY REGISTERED UNDER THE MULTI STATE CO-OPERATIVE SOCIETY ACT 2002,THAT THE PRIMARY BUSINESS OF THE SOCIETY WAS ACCEPTING DEPOS ITS FROM MEMBERS AND GIVING LOAN TO MEMBERS,THAT FOR THE PURPOSE OF CONSTRUCTING HOUSES FOR THE MEMBERS AT THE REASONABLE PRICE THE SOCIETY ENTERED IN TO AN VENTURE OF BUILDING APARTM ENTS,THAT FOR THE SAID PROJECT LAND WAS ACQUIRED AND CONSTRUCTION ACTIVITY WAS CARRIED OUT,THAT CONS TRUCTION ACTIVITY UNDERTAKEN BY THE ASSESSEE WAS NOT ON COMMERCIAL BASIS, THAT IT WAS PURELY FOR THE MEMBERS OF THE SOCIETY,THAT FOR THE VENTURE THE PERMISSION FROM THE APPROPRIATE AUTHORITY WAS TAKEN AND ACCORDINGLY OBJECT CLAUSE HAD BEEN AMENDED IN BYE LAW,THAT AS PER THE AMENDED PROVISIO NS CONSTRUCTION ACTIVITY WAS CARRIED OUT FOR MEMBERS ONLY,THAT THE DURING THE PREVIOUS YEAR THE PROJECT HAD BEEN STAYED BY THE HONORABLE HIGH COURT,THAT IT WAS ON HOLD SINCE OCTOBER 2008 T ILL JANUARY 2010,THAT FOR CONSTRUCTING THE PROJECT THE SOCIETY HAD INVESTED AN AMOUNT OF RS.33 ,96, 77,376/-AS ON 31.03. 2009,THAT THE AO WORKED OUT THE INCOME OF THE SOCIETY ON THEORETICAL BASIS,THAT THE AO ADOPTED INCOME @ 6% OF THE AMOUNT DIVERTED BY ASSESSEE FROM THEIR FINANCIA L ACTIVITY TO CONSTRUCTION ACTIVITY,THAT THE AO HELD THAT THE INTEREST RECEIVABLE ON SUCH INVESTMEN T FROM THE HOUSING PROJECT DIVISION WAS RS.2,10,77,577/-,THAT AO FURTHER HELD THAT THE AMOU NT SHOULD BE CREDITED TO THE P&L ACCOUNT AND THE SAME SHOULD BE DEBITED TO THE WIP AS AN ADDITIO N TO THE INVESTMENT ALREADY MADE,THAT THE AO TREATED AND STYLED ALLEGED INCOME AS CONSTRUCTION I NCOME,THAT IT WAS MERE A HYPOTHETICAL PROFIT BY MEANS OF BOOK ENTRY WITHOUT TAKING INTO CONSIDERATI ON THE NET RESULTS OF OPERATION OF HOUSING PROJECT,THAT IN TRUE SENSE IT DID NOT HAVE ANY IMPA CT ON THE TOTAL INCOME OF THE ASSESSEE,THAT AS A WHOLE INTEREST INCOME ACCRUED TO THE ASSESSEE THEOR ETICALLY IN THE BOOKS OF FINANCIAL ACTIVITY WOULD BE OFFSET BY INTEREST EXPENSES IN THE BOOKS O F CONSTRUCTION ACTIVITY,THAT THE ASSESSEES STATUS AS PER THE ACT WAS ASSOCIATION OF PERSONS,THAT ANY BUSINESS COULD BE DIVIDED IN TO SEVERAL FOLDS IF IT CARRIED OUT DIFFERENT ACTIVITIES,THAT BOTH THE A CTIVITIES BELONGED TO THE SAME ASSESSEE,THAT THE AO TOOK A HYPOTHETICAL INTEREST OF RS.2,10,77, 577/-AS INCOME WHICH NEITHER ACCRUED TO THE ASSESSES NOR RECEIVED BECAUSE INCOME COULD NOT ACCRUE BY TRA DING WITH ONE SELF,THAT THE COMPUTATION OF INCOME BY AO WAS TOTALLY AGAINST THE PRINCIPLES OF ACCOUNTANCY AS WELL AS THE PRINCIPLES OF INCOME TAX LAW,THAT THE CREDIT MADE BY THE ASSESSEE IN PROFIT AND LOSS AS THE INCOME RECEIVED FROM THE HOUSING SECTOR WAS ITSELF A WRONG ENTRY AS THERE COULD BE NO PROFIT BY THE FINANCIAL SECTOR OF THE ASSESSEE BY DEBITING THE AMOUNT IN THE HOUSI NG SECTOR WITHOUT WORKING OUT THE PROFIT/LOSS IN HOUSING SECTOR,THAT A PROFIT DERIVED BY TRADING WIT H ONESELF WHICH IS AN IMPOSSIBLE PROPOSITION.HE RELIED UPON THE CASES OF ROYAL WESTERN INDIA TURB C LUB LTD.(24ITR551)KIKABHAJ PREMCHAND (24ITR506)SHROOJI VALABHDAS & CO.(46 ITR 144),MARVI INDUSTRIES LTD.(82 ITR 835),BIRLA GWAHIOR P. LTD.(89 ITR 266)SUTHAJ COTTON MILLS LTD. (116ITR1),GODHRA ELECTRICITY CO.LTD.(225 ITR746),FEROZPUR FINANCE P.LTD. (124 ITR 619)AND MO TOR CREDIT CO.P.LTD.(127 ITR 572). 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT FOR THE CONSTRUCTION ACTIVITY ASSESSEE HAD UTILISED PART OF ITS OWN FUND AND HAD NOT MADE ANY SEPARATE 4 ITA NO. 362/NAG/2012 THE NIRMAL UJJWAL CREDIT CO-OPE RATIVE SOCIETY LTD. EXTERNAL BORROWINGS FOR THAT PURPOSE,THAT THE AO HA D ALSO NOT DENIED THIS FACT.IT IS NOT IN DISPUTE THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD AND AS PER THE SAID METHOD INCOME HAS TO BE OFFERED ON COMPLETION OF THE PROJECT.WE NOTIC E THAT BECAUSE OF THE ORDERS OF THE HONBLE HIGH COURT,ASSESSEE COULD NOT COMPLETE THE WORK IN THE YEAR UNDER APPEAL.THUS,IT CAN SAFELY HELD THAT NO INCOME HAD ACCRUED TO THE ASSESSEE IN THE Y EAR BEFORE US. BUT,BASIC QUESTION TO BE DECIDED IS CAN CONSTRUCTIO N OF A HOUSING PROJECT BY A SOCIETY FOR ITS MEMBERS AND RESULTANT PROFIT,IF ANY,BE TREATED INCO ME OF THE ASSESSEE ?AS STATED EARLIER ASSESSEE HAD STARTED A HOUSING PROJECT FOR ITS MEMBERS ONLY AND NOT FOR OUTSIDERS.IF INTEREST CHARGED IS SHOWN AS INCOME FROM HOUSING ACTIVITY OF THE ASSESS EE AND IT HAS TO TAKEN AS A PART OF THE TOTAL INTEREST EARNED THEN SAME HAS TO BE OFFSET WITH INT EREST DEBITED TO HOUSING SECTOR.IF INCOME FROM A PARTICULAR SOURCE HAS TO BE CONSIDERED FOR DETERMIN ING THE INCOME OF THE ASSESSEE,EXPENSES RELATED TO THAT SOURCE WILL ALSO HAVE TO BE CONSIDERED.FOR COMPUTING TOTAL INCOME OF THE ASSESSEEAO CANNOT TAKE ONLY INTEREST ACCRUED AND IGNORE THE I NTEREST PAID.AS PER THE SETTLED PRINCIPLES OF JURISPRUDENCE OF TAXATION ONE CANNOT EARN INCOME BY TRADING WITH ONESELF OR MAKING A SIMPLE ENTRY IN THE BOOKS OF ACCOUNT WOULD NOT GIVE RISE T O INCOME.CASES RELIED UPON BY THE ASSESSEE ALSO SUPPORT THE VIEW TAKEN BY THE FAA AND BEING UPHELD BY US.IN OUR OPINION ENTRY MADE BY THE ASSESSEE ABOUT INTEREST INCOME WAS AN ADJUSTMENT EN TRY AND THAT WAS THE ONE OF THE REASONS FOR FILING REVISED RETRUN.AS A REPRESENTATIVE OF STATE IT IS DUTY OF THE AO TO COLLECT DUE TAXES ONLY AND NOT ONLY TAXES.IF THE ASSESSEE HAD SHOWN INCOME UND ER THE HEAD INTEREST EARNED AO HAD TO CONSIDER THE PAYMENT OF INTEREST THAT WAS DUE TO BE PAID.IF BOTH ARE CONSIDERED NET EFFECT WILL BE ZERO TAX LIABILITY.IN OTHER WORDS EVEN IF WE AGREE WITH THE AO THAT THE THE ASSESSEE-SOCIETY WAS CARRYING ON TWO ACTIVITIES I.E.FINANCING AND CONST RUCTION,THEN ALSO INCOME FROM BOTH THE SOURCES WILL HAVE TO CONSIDERED FOR DETERMINING THE TAXABLE INCOME.IF INCOME UNDER THE HEAD INTEREST ACCRUEDHAS TO BE RECOGNISED FOR FINANCE SECTOR,THE N INTEREST PAYMENT BY HOUSING SECTOR HAS TO BE TAKEN IN TO CONSIDERATION. WE HAVE CONSIDERED THE FACTS OF THE CASE OF WALL ST REET CONSTRUCTION LTD.(SUPRA).TRIBUNAL HAS DECIDED THE ISSUE BEFORE IT AS UNDER : IN THE PRESENT CASES, THE ASSESSEES HAVE IDENTIFIE D INTEREST COST AND HAVE ALLOCATED SUCH COST TO DIFFERENT PROJECTS IN THE BOOKS OF ACCOUNT, BUT DED UCTION IN RESPECT OF INTEREST IS CLAIMED UNDER SECTION 36(1)(III) AGAINST THE INCOME OF SOME OTHER PROJECTS WHICH ARE COMPLETED DURING THE RELEVANT YEARS. IN OUR VIEW, THIS PROCEDURE RESULTS INTO DISTORTION OF THE CORRECT PROFITS WHICH MUST BE DETERMINED AS PER THE PROJECT-COMPLETION METHOD FOLLOWED BY THE ASSESSEES. 31. FOR THE REASONS DISCUSSED ABOVE, WE HOLD THAT W HERE AN ASSESSEE IS FOLLOWING PROJECT- COMPLETION METHOD OF ACCOUNTING, THE INTEREST IDENT IFIABLE WITH THAT PROJECT SHOULD BE ALLOWED ONLY IN THE YEAR WHEN THE PROJECT IS COMPLETED AND THE I NCOME FROM THAT PROJECT IS OFFERED FOR TAXATION. CLEARLY,FACTS OF THE PRESENT CASE HAVE NO SIMILARIT Y WITH THE MATTER OF WALL STREET CONSTRUCTION LTD.(SUPRA).IN THESE CIRCUMSTANCES,WE ARE OF THE OP INION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.THEREFORE,CONFIRMING THE S AME,WE DECIDE GROUNDS NO.1&2 AGAINST THE AO. 3. NEXT GROUND OF APPEAL IS ABOUT ADDITION OF INTEREST ON STICKY LOAN.DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS CLAIM THAT THE INTEREST INCOME WERE IN FACT OFFERED FOR TAX IN EARLIER YEAR S THOUGH IT PERTAIN TO EARLIER YEARS IN NPA ACCOUNTS.HE HELD THAT AMOUNT IN QUESTION (RS.4,36,0 7,458/-)WAS TO BE CONSIDERED AS INCOME FOR YEAR UNDER APPEAL AND SAME HAD TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER C ONSIDERING THE MATERIAL BEFORE HIM,HE HELD THAT DURING THE YEAR THE SOCIETY HAD BEEN CONV ERTED INTO MULTI STATE CO-OPERATIVE SOCIETY AND WAS GOVERNED BY MULTI STATE CO-OPERATIVE SOCIET Y ACT,THAT ACCORDING TO THE PROVISIONS OF SAID ACT NPA WERE NOT APPLICABLE TO IT,THAT IT HAD RECOGNISED SUCH INTEREST INCOME; AMOUNTING TO RS.4,36,07,458/-;PERTAINING TO EARLIER YEARS BY TRA NSFERRING FROM OVERDUE INTEREST RESERVE TO THE INCOME SIDE OF P&L ACCOUNT,THAT SAID FACTS WERE NOT CONSIDERED BY THE AO WHILE PASSING THE ORDER,THAT THE AO HAD ADDED TWICE AN AMOUNT OF RS. 4,36,07,458/- AS INCOME.HE FURTHER HELD THAT AMOUNT PERTAINING TO NPA WAS ADDED BACK BY THE ASS ESSEE IN ITS ACCOUNTS AND AO ADDED IT 5 ITA NO. 362/NAG/2012 THE NIRMAL UJJWAL CREDIT CO-OPE RATIVE SOCIETY LTD. AGAIN,THAT THOUGH THE EXERCISE WAS TAX NEUTRAL YET THE DOUBLE ADDITION WAS TO BE CORRECTED. 3.2. BEFORE US,DR SUBMITTED THAT . AR SUBMITTED THAT DURING THE YEAR UNDER APPEAL ASSE SSEE CONVERTED IN TO MULTI STATE SOCIETY WITHIN THE MEANING OF MULTI STATE ACT,THAT CONSEQUE NT TO SUCH CONVERSION IT WAS REQUIRED TO CHANGE ITS METHOD OF ACCOUNTING,THAT THE NPA PROVI SIONS WERE NOT APPLICABLE UNDER THE MULTI STATE ACT,THAT THE ASSESSEE HAD TRANSFERRED ITS INT EREST PERTAINING TO EARLIER YEARS ON OVERDUE / STICKY LOANS TO INCOME SIDE OF PROFIT AND LOSS ACCO UNT,THAT IT HAD SHOWN GROSS TOTAL INCOME OF RS.1,35,05,272/-IN THE RETURN OF INCOME,THAT SUCH G TI ALREADY INCLUDES AN AMOUNT OF RS.4,36,07, 458/-,THAT SAME AMOUNT HAD BEEN ADDED BY THE AO TO THE GTI OF THE ASSESSEE,THAT IT WAS AN IMPRACTICAL PROPOSITION TO TAX THE SAME INCOME TWIC E,THAT THE DETAILS OF INTEREST INCOME ON LOAN AS REFLECTED IN PROFIT AND LOSS ACCOUNT AMOUNTED TO RS. 12,40,77,328/-,THAT IT INCLUDED INTEREST INCOME ON LOAN DISBURSED AT BRANCH LEVEL(8,04,69,87 0/-)AS WELL AS OVERDUE INTEREST RESERVE PERTAINING TO NPA ACCOUNTS OF RS.4,36,07458/-. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.FROM THE RECORDS IT IS CLEAR THAT THE ASSESSEE HAD SHOWN GTI OF RS.1.35 CR ORES AND IT INCLUDED INTEREST INCOME ON LOAN DISBURSED AS WELL AS INTEREST RESERVE PERTAINING TO NPA ACCOUNT.FAA AFTER CONSIDERING THE BOOKS OF ACCOUNTS HAS ARRIVED AT THE FINDING OF FACT THAT THERE WAS DOUBLE ADDITION OF THE SAME AMOUNT. AO HAS NOT CHALLENGED THE FINDING OF THE FAA,BUT HA S RAISED THE OBJECTION THAT ARGUMENTS TAKEN BY THE ASSESSEE BEFORE THE FAA WAS ADVANCED BEFORE HIM.IN OUR OPINION THAT IT WAS ONLY AFTER THE DOUBLE DEDUCTION MADE BY THE AO,THE ASSESSEE CAME T O KNOW ABOUT THE COURSE OF ACTION TAKEN BY THE HIM.THEREFORE,ASSESSEE EXPLAINED ITS STAND AND FAA FOUND THAT SUBMISSIONS MADE BY THE IT WERE FACTUALLY CORRECT.IN THESE CIRCUMSTANCES,GROUN D NO.3 IS DECIDED AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSE D. 6 /7 #6/ 0 8 2 9 ': ' / ; . ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY,2014. 2!3 1* ! ( 10 <0 , 2014 . SD/- SD/- (H.L.KARWA/ % %% % . . ) ( '!() '!() '!() '!() / RAJENDRA) PRESIDENT/ '& ! ! ! ! 24 24 24 24 /ACCOUNTANT MEMBER / MUMBAI, 2 /DATE: 10.02.2014 SK 2!3 2!3 2!3 2!3 -/ -/ -/ -/ =!*/ =!*/ =!*/ =!*/ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / +, 2. RESPONDENT / -.+, 3. THE CONCERNED CIT(A)/ > ? , 4. THE CONCERNED CIT / > ? 5. DR ITAT,NAGPUR BENCH/ @ -/ , . . ( . - . 6. GUARD FILE/ # < . . / -/ //TRUE COPY// 2!3 / BY ORDER, A / ' DY./ASST. REGISTRAR , /ITAT, MUMBAI.