Shailendra K. Yadav, J.M.: This appeal has been filed by assessee against order of CIT(A), for asst. yr. 2003-04. first issue is against confirmation of assessed income at Rs. 4,99,260 as against nil income declared in return of income for asst. yr. 2003-04 has been opposed. assessee company is in business of construction. During year, t h e assessee company had entered into understanding with M/s Arora Builders (alias M/s Sukhmani Construction) for development of immovable property situated at Andheri, Mumbai, vide development agreement dt. 28th Nov., 2003. said agreement was registered with office of sub- Registrar, Mumbai. As per development agreement there are two phases of construction one for rehabilitation and second for sale. entire expenses for Phase-I, i.e. rehabilitation, were borne by company on behalf of M/s Sukhmani Construction and for Phase-II, i.e. sale, entire expenses were borne by assessee company. As per development agreement dt. 28th Nov., 2003, it was agreed upon that developer would deposit with owner sum of Rs. 1,28,80,000, which is refundable to owner in manner as stated therein for period of fifteen months as security deposit for development of project. owner would pay to developer with interest on said sum of Rs. 1,28,80,000 at rate of 12 per cent per annum from date of payment of said amount by developer to owner until completion of construction of building. assessee company has granted ten instalments of security deposit of Rs. 99,90,000 till March, 2003. However, no interest income had been offered for taxation accrued to assessee as agreed upon as per development agreement. AO, therefore, added Rs. 4,99,264 to income of assessee on account of interest accrued to assessee in year under consideration. According to AO, assessee was following mercantile system of accounting and, therefore, he found that it was duty bound to disclose interest income on accrual basis on amount deposited with owners for development of said property, which was confirmed by CIT(A). Before me, learned Authorised Representative of assessee has submitted that by virtue of refusal of granting of FSI on said plot of land for which assessee company had entered into development agreement with M/s Arora Builders (Sukhmani Construction), assessee could not develop said property. stand of assessee was that by virtue of terms and conditions as mentioned in cl. (1) of Phase-II, sale building of agreement, assessee company had agreed and confirmed having deposited with owner further sum of Rs. 1,28,80,000 refundable by owner in manner stated for period of fifteen months as security deposit for development of project and owners shall have to pay interest at rate of 12 per cent per annum from date of payment of same amount by developer to owner until completion or construction of said building. However, on subsequent development, Slum Rehabilitation Authority and Urban Land Development Department of Maharashtra refused to grant FSI vide letter dt. 29th Oct., 2003, as project was legally not practicable and due to legal restriction whole amount invested might not have been realised in said project. In this regard, assessee to strengthen its contention had furnished copy of order passed by Urban Land Development Department dt. 4th Oct., 2004. Thus, assessee has contended that it is well settled that Act does not postulate taxability of notional income and, consequently, IT authorities have no jurisdiction to assess assessee on item of income which neither accrued nor arisen or received by it. learned Authorised Representative of assessee has submitted that if income does not result at all, there cannot be tax even though in book keeping entry is made which was not materialized. So addition in question deserves to be deleted. On other hand, learned Authorised Representative of assessee has supported order of authorities below. ??? After going through rival submissions and also after perusing material available on record, I am not inclined to concur with finding of CIT(A), because assessee had entered into development agreement with M/s Arora Builders (Sukhmani Construction). FSI on said plot was revised, but project could not be completed. Therefore, at cost of this hardship no interest was paid by owner to assessee company on its deposit at rate of 12 per cent per annum of same amount. It is undisputed fact that assessee had paid amount of Rs. 99.90 lakhs as on 31st March., 2003, but no interest was paid to assessee because project was legally not feasible and due to legal restriction whole amount invested might not have been realized in said project. Accordingly, owner did not make any payment to assessee. Under facts and circumstances, assessee cannot be subjected to be taxed on notional income. There is nothing o n record, to suggest that any such interest income was materialized. assessee has pointed out that because of non-availability of FSI on said plot of land for which assessee had entered into development agreement with M/s Arora Builders (Sukhmani Construction), assessee company could not develop said property in view of statutory restrictions and, therefore, whole project has become unviable to continue. Hence, no interest had accrued to assessee in year under consideration. Accordingly, addition of Rs. 4,99,260 is directed to be deleted. next issue is regarding interest under s. 234B of IT Act, 1961, which is consequential to issue in ground No. 1 as discussed above. In view of above, issue at hand with regard to interest under s. 234B of Act is also decided in favour of assessee. As result, appeal of assessee is allowed. *** BHAVESH ESTATES (INDIA) (P) LTD. v. INCOME TAX OFFICER