ITAT Upholds CIT(A)'s Decision on Income Addition & Interest Disallowance for Developer

The ITAT Ahmedabad upheld the Ld. CIT(A)'s decision regarding the addition of income and interest disallowance for the assessment year 2005-06. The Revenue's appeal was dismissed as the assessee, a developer, was not required to recognize income based on percentage of completion method and the interest disallowance was reversed as it was related to delayed payments, not borrowings.

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Issues involved: Appeal against the order of Ld. Commissioner of Inc-tax (Appeals)-III, Baroda for the assessment year 2005-06 regarding addition of income and interest disallowance.

Issue 1 - Addition of Income:
The Revenue contended that the assessee, engaged in construction and trading of transfer of development rights, should have recognized income based on percentage of completion method u/s AS-7. However, the Ld. CIT(A) held that the assessee, a developer, not a contractor, should follow AS-9. As no construction activity occurred during the year, no revenue could be recognized. The Ld. CIT(A) deleted the addition made by the AO, which was upheld by ITAT Ahmedabad.

Issue 2 - Interest Disallowance:
The AO disallowed interest payable to Municipal Corporation of Grater Mumbai (MCGM) due to alleged diversion of funds. However, the Ld. CIT(A) noted that the interest was paid on delayed payments, not borrowings, and reversed the AO's order. ITAT Ahmedabad concurred, dismissing the Revenue's appeal.

In conclusion, the ITAT Ahmedabad upheld the Ld. CIT(A)'s decision on both issues, dismissing the Revenue's appeal.

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