IN INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE S/SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER I.T.A. No.5416/Mum/2015 (Assessment Year: 2011-12) Nam Develoeprs Pvt. Ltd. Income Tax Officer 9(2)(3) 43, Ramdas Nayak Marg, Vs. Aayakar Bhavan. M.K.Road, Hill Road, Opp. Elco Market, Mumbai - 400020 Bandra (West) Mumbai - 400050 PAN/GIR No. : AAACN9198F (Appellant) .. ( Respondent) Assessee by: Shri Ajay C. Gosalia Department by: Dr. Suman Ratnam Darsi Date of Hearing: 03.08.2016 Date of Pronouncement: 28.09.2016 O R D E R PER AMARJIT SINGH, JM: assessee has filed present appeal against order dated 16.09.2015 passed by Commissioner of Income Tax (Appeals)-21, Mumbai [hereinafter referred to as CIT(A) ] relevant to A.Y.2011-12. 2. appellant has raised following grounds:- 1. Re: Ground 1: Reduction of Project in Progress Rs.59,87,714/- ITA No.5416/Mum/2015 Assessment Year: 2011-12 a) ld. CIT(A) erred in upholding reduction of Project in Progress of Rs.59,87,714/- u/s.40(a)(ia) on ground of non deduction of tax at source from interest. b) He erred in holding that interest debited to Project in Progress A/c. Is current year s expenditure which is bound to increase WIP. c) He failed to appreciate that as appellant had not started construction activities, it did not prepare any Profit and Loss A/c. And hence had not claimed said interest of Rs.59,87,714/- as business expense for year. d) Without prejudice to foregoing, he failed to appreciate that payees had offered interest from appellant as their income chargeable to tax in their individual returns of income. e) He therefore ought to have held that reduction of Project in Progress by interest of 59,87,714/- or any other amount was not justified. 2. Re: Ground 1: Charging income under head Income from House Property 29,826/- a) ld. CIT(A) erred in holding that rent of 29,826/- was chargeable under head Income from House Property on ground that appellant was not in business of letting of property. b) He failed to appreciate that rents were received by appellant incidentally in course of its construction activity. c) He therefore ought to have held that rent of 29,826/- received by appellant should be reduced from cost of Project in Progress. 3. Each of above grounds is without prejudice to one another. 3. brief facts of case are that assessee filed return of income declaring total income to tune of Rs.NIL on 26.12.2011. return was processed u/s.143(1) of Income Tax Act, 1961( in short Act ). Thereafter, case was selected for scrutiny and accordingly notice u/s.143(2) of Act dated 27.09.2012 was issued 2 ITA No.5416/Mum/2015 Assessment Year: 2011-12 and served upon assessee. Thereafter, notice u/s.142(1) of Act dated 17.10.2012 was issued and served upon assessee. assessee company is engaged in business of real estate developers and its one construction project was in process. At time of assessment Assessing Officer noticed that assessee was paying interest to parties from whom loan has been taken but TDS was not deducted, therefore, interest to tune of Rs.59,87,714/- was disallowed u/s.40(a)(ia) of Act and was reduced from WIP and added to income of assessee. Assessing Officer also added income from house property to tune of Rs.75,050/-. Since assessee was not satisfied, therefore assessee filed appeal before CIT(A) who dismissed appeal of assessee, therefore assessee has filed present appeal before us. ISSUE NO.1:- 4. Under this issue assessee has raised reduction of project in progress to tune of Rs.59,87,714/-. assessee paid interest to tune of Rs.59,87,714/- on account which he had taken loan. Assessing Officer found that assessee failed to deduct TDS on interest to tune of Rs.59,87,714/- u/s.194A of Act. Therefore, said amount was reduced from WIP. contention of assessee is that no doubt assessee did not deduct TDS on interest which was paid to creditors but creditors have shown these interest in their income and their income was assessed in view of provision u/s.40(a)(ia) of Act. Therefore, in said circumstances interest to tune of Rs.59,87,714/- is not liable to 3 ITA No.5416/Mum/2015 Assessment Year: 2011-12 be deduct from WIP in view of law settled in ITAT Agra Bench in case of Rajeev Kumar Agarwal Vs. Additional Commissioner of Income-tax, Range-3, Mathura [2014] 149 ITD 363/45 taxmann.com 555 (Agra Trib.). 5. In view of said law we deem it proper to remit file before Assessing Officer for fresh adjudication to carry out necessary verification whether recipients of interest has shown interest income in their I.T. returns or not. Assessing Officer is also hereby directed to give reasonable and fair opportunity of being heard to assessee in accordance with law. Accordingly, we decide this issue in favour of assessee against revenue for statistical purpose. ISSUE NO.2:- 6. Under this issue assessee has challenged income to tune of Rs.29,826/- under head Income From House Property. contention of assessee is that assessee purchased development rights in furtherance of its building construction project for which it was following project completion method of accounting and assessee was receiving rent merely incidental to its said business of building construction project. It is also argued that in accordance with Accounting Standard 2, valuation of inventories, prescribed by Institute of Chartered Accountants of India, cost of inventory can never exceed total of costs incurred in bringing inventory to its present location and condition and thus expenses incurred on construction project are to be accumulated whereas receipts received 4 ITA No.5416/Mum/2015 Assessment Year: 2011-12 during course of construction project are required to be reduced from Project in Progress. 7. However, on other hand learned representative of department has strongly relied upon order passed by CIT(A) in question. Before discussing further it is necessary to advert finding of CIT(A) on record. 5. Ground No.2 is in respect of Assessing Officer computing income from house property at Rs.75,050/-. appellant has reduced amount of rent received from project WIP instead of showing same as income from house property. Leasing out of property is not appellant s business. It is developing project. rent received has to be assessed as income from house property. However, there is merit in claim of appellant that rent received during year is only Rs.29,826/- and not Rs.1,07,215/- and to that extent amount considered by Assessing Officer is incorrect. Assessing Officer is directed to consider Rs.29,826/- as annual rent and compute income from house property at Rs.20,878/- after allowing deduction u/s.24(a) of Act. As corollary, WIP will increase by same amount of Rs.29,826/- since WIP in audited accounts is shown lower by extent of rent received in current year. This ground of appeal is partly allowed. 5 ITA No.5416/Mum/2015 Assessment Year: 2011-12 8. appellant is engaged in developing project. appellant is not in business of leasing property. He received rent to tune of Rs.29,826/-. However rent to tune of Rs.1,07,215/- was not relevant for assessment year in question. 9. In said circumstances how income is required to be assessed has been held in East India Housing and Land Development Trust Ltd. Vs. Commissioner of Income Tax, West Bengal, Supreme Court of India [1961] 42 ITR 49 SC. In view of said circumstances we are of view that CIT(A) has decided matter of controversy judiciously and correctly which does not required to be interfere with at this appellate stage. 10. In result, appeal of Assessee is hereby partly allowed for statistical purpose. Order pronounced in open court on 28th September 2016 Sd/- Sd/- (SANJAY ARORA) (AMARJIT SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated : 28 September, 2016 th MP 6 ITA No.5416/Mum/2015 Assessment Year: 2011-12 Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai 7 Nam Develoeprs Pvt. Ltd. v. Income Tax Officer 9(2)(3), Mumbai