IN INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, AM AND SHRI SANDEEP GOSAIN, JM I.T.A. No. 7345/Mum/2011 (Assessment Year: 2006-07) M/s. Bombay Isle Developers Pvt. Ltd. Income Tax Officer 9(1)(2), Narang Manor, Ground Floor, 2nd Floor, Aayakar Bhavan, Plot No 96-B, 15th Road, M.K. Road, Bandra (West), Vs. Mumbai-400 020. Mumbai-400 050. PAN/GIR No. AABCB 5317P (Appellant) : (Respondent) Appellant by : Shri K. Gopal Respondent by : Shri Randhir Gupta : 25/07/2016 Date of Hearing : 28/09/2016 Date of Pronouncement ORDER Per Sandeep Gosain, Judicial Member: Present Appeal has been filed by assessee against order of Commissioner of Income Tax (Appeals)- 19, dated 11.08. 2011 on grounds of appeal mentioned herein below. 2 ITA No. 7345/Mum/2011(A.Y. 2006-07) Bombay Isle Developers P. Ltd. Vs . ITO 1. learned Commissioner of Income Tax (Appeals) erred in confiming addition of Rs.15,45,880/- being interest cost by not appreciating fact that matter is debatable and cannot become subject matter of rectification under section 154 of Act. 2. learned Commissioner of Income Tax (Appeals) further erred in upholding view of Assessing Officer that value of closing work in progress be enhanced by amount of interest cost of Rs.15,45,880/-. 2. brief facts of case are that assessment in this case was completed u/s 143(3) of I.T. Act, 1961 on 29.12.2008 thereby assessing total income at Rs.19,58,40/-. However it was noticed that disallowance of net interest on account of enhanced WIP amounting to Rs.15,45,880/- was not added to business income. Therefore after serving notices, ITO passed order u/s 154 of Act thereby revised total income of assessee. 3. Aggrieved by order of ITO, assessee filed appeal before CIT(A) and CIT(A) after considering case of assessee dismissed appeal of assessee vide order dated 29.12.2008 thereby upholding order of ITO passed u/s 154 of Act. 4. Aggrieved by order of CIT(A), assessee filed present appeal before us on grounds mentioned herein above. 5. Both grounds raised by assessee are inter-connected and inter-related therefore we thought it fit to dispose off same through present common order. At very outset, ld. AR appearing on behalf of assessee submitted that 3 ITA No. 7345/Mum/2011(A.Y. 2006-07) Bombay Isle Developers P. Ltd. Vs . ITO CIT(A) erred in confirming addition of Rs.15,45,880/- being interest cost by not appreciating fact that matter is debatable and cannot become subsequent matter of rectification u/s 154 of Act. Ld. AR further submitted that assessee is builder and developer and had two project under construction during year called Lata Soni C.H.S. and Kamal Vishranti Kutir at Bandra and during year under consideration both projects were under construction and assessee had received interest income of Rs.15,45,880/-. assessee has debited, under head Financial Expenses amount of Rs.31,13,778/- on account of interest and fianc brokerage. It was further submitted that closing stock of W.I.P. is valued at cost and cost includes all expenses including administrative and net interest cost incurred to finance project as per clause 12(a) regarding method of valuation of closing stock of Tax Audit Report. This is just matter of accounting policy which is consistently followed by company. So assessee has correctly charged net interest cost to closing W.I.P. It was further submitted that during normal course of business any surplus fund utilized by company as advances to director and interest earned on that advances is liable to set off against interest cost incurred by company to extent interest earned by company and that is what assessee has done by capitalizing net interest cost to project by reducing interest cost to extent interest received by company on advances made out of surplus fund. 4 ITA No. 7345/Mum/2011(A.Y. 2006-07) Bombay Isle Developers P. Ltd. Vs . ITO 6. On other hand, ld. DR relied upon orders passed by Revenue Authorities. 7. We have heard counsels for both parties on this ground and we have also perused material placed on record as well as orders passed by revenue authorities. After considering entire facts as well as circumstances of present case, we are of considered view that issue of taxability of receipt under head business income or income from other sources is debatable issue and hence same is not mistake apparent to be rectified u/s 154. Even revenue authorities have failed to appreciate that interest receipt are business receipt of assessee and because of that WIP is reduced as per consistent method of accounting followed by assessee. Therefore, on that account additions of Rs.15,45,880/- had not at all justified to be added by virtue of order passed u/s 154 of Act as same cannot be held as mistake apparent to be rectified u/s 154 of Act more particularly when assessment in this case was completed u/s 143(3) on 29.12.08. Ld. AR also drawn out attention to page no. 1 to 39 of paper book which consist of Audited Financial Statements for financial year 2005-06, Report of Auditor in form 3CA containing particulars in Form 3CD with Annexure for AY 2006-07. 5 ITA No. 7345/Mum/2011(A.Y. 2006-07) Bombay Isle Developers P. Ltd. Vs . ITO 8. Therefore under these circumstances we set aside order of CIT(A) and delete additions of Rs.15,45,880/- made by AO while passing order u/s 154 of IT Act. Hence these grounds of appeal filed by assessee are allowed. 9. In result, assessee s appeal is allowed. Order pronounced in open court on 28th September, 2016 Sd/- Sd/- (R.C. Sharma) (Sandeep Gosain) Accountant Member Judicial Member Mumbai; Dated :28.09.2016 Ps. Ashwini Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai M/s. Bombay Isle Developers Pvt. Ltd. v. Income Tax Officer 9(1)(2), Mumbai