Appellate Tribunal reverses interest disallowance, directs AO adjustments for rent and transfer fees

The Appellate Tribunal ruled in favor of the assessee, deleting the disallowance of interest under section 36(1)(iii) and directing the AO to reverse the adjustment. The additions related to rent and transfer fees were reversed, with the AO directed to reduce the work-in-progress by corresponding amounts. The appeal was partly allowed, with the Tribunal's order pronounced on 6th June 2019.

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Issues:
1. Disallowance of interest
2. Taxing rent
3. Taxing rent on a gross basis
4. Taxing transfer fees received as income

Analysis:

Issue 1: Disallowance of interest
The assessee contested the disallowance of interest amounting to Rs. 7,03,401 by the Income Tax Officer, which was confirmed by the Commissioner of Income Tax (Appeals). The Appellate Tribunal noted that the assessee had sufficient non-interest bearing funds to provide the advances. Citing the recent decision of the Supreme Court in CIT Vs. Reliance Industries Ltd., the Tribunal ruled in favor of the assessee, deleting the disallowance under section 36(1)(iii) and directing the AO to reverse the adjustment. Ground No. A was allowed.

Issue 2: Taxing rent
The AO assessed the rent received by the assessee at Rs. 21,150 as income from other sources, which was confirmed by the CIT(A). The assessee argued that the rent and transfer fees were related to a project and should not be taxed individually. The Tribunal examined the agreement for transfer of tenancy rights and found that all activities were in furtherance of the stated project. Therefore, the additions made by the lower authorities were reversed, and the AO was directed to reduce the WIP by the corresponding amounts. Ground Nos. B & D were allowed.

Issue 3: Taxing rent on a gross basis
The Tribunal deemed this issue infructuous as Ground No. C was considered without prejudice and the other grounds had been allowed.

Conclusion
The appeal was partly allowed, with the disallowance of interest being deleted and the additions related to rent and transfer fees being reversed. The Tribunal's order was pronounced on 6th June 2019.

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