Tribunal ruling on interest income, approval fees, de-recognized sales. Appeals partly allowed for further examination.

The Tribunal upheld the decision that interest income earned on parking funds should be assessed as "income from other sources." Approval fees payable for renewal were disallowed under Section 43B but were directed to reduce Work in Progress. De-recognized sales were allowed following revised accounting guidance, with the issue remanded to verify the quantum. The appeals for the assessment years 2014-15 and 2015-16 were partly allowed for statistical purposes, with directions for further examination by the Assessing Officer on specific issues.

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Issues Involved:
1. Treatment of interest income.
2. Disallowance under Section 43B of the Income Tax Act.
3. Disallowance of de-recognised sales.

Detailed Analysis:

1. Treatment of Interest Income:
The primary issue contested for the assessment years 2014-15 and 2015-16 is the treatment of interest income received by the assessee. The assessee had set off the interest income against interest expenditure and included the net interest expenditure in the Work in Progress. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] took the view that the interest income earned on parking of funds with banks should be taxable as "income from other sources" under Section 56 of the Income Tax Act. The CIT(A) noticed that the majority of the interest income was received from a related party and other persons, and the assessee failed to demonstrate that the deposits/loans were inextricably connected with its business activities. The assessee's reliance on the Karnataka High Court's decision in CIT vs. Hewlett Packard Global Soft Ltd was rejected, as the facts of that case were different. The Tribunal upheld the CIT(A)'s decision, stating that the assessee did not demonstrate any business compulsion for making the deposits or loans, and therefore, the interest income should be assessed as "income from other sources."

2. Disallowance under Section 43B of the Income Tax Act:
The next issue relates to the disallowance under Section 43B of the Act. The AO disallowed a provision for approval fees payable for the renewal of construction plans and electricity licenses, as it was not actually paid during the year. The CIT(A) confirmed the disallowance, citing the Supreme Court's decision in CIT vs. Travancore Sugar & Chemicals Ltd. The assessee argued that the approval fees should not fall under the category of "tax, duty, cess, or fee" under Section 43B. The Tribunal, after considering various case laws and the nature of the approval fees, concluded that the approval fees payable to VUDA (a statutory authority) would fall under the category of "fees" specified in Section 43B. However, the Tribunal accepted the assessee's alternative claim that the disallowed amount should reduce the Work in Progress and restored this issue to the AO for examination.

3. Disallowance of De-recognised Sales:
The final issue pertains to the disallowance of de-recognised sales. The assessee, following the percentage completion method, de-recognised sales and corresponding costs when customers defaulted on payment terms. The AO and CIT(A) rejected this, adding the net amount of de-recognised sales to the total income. The Tribunal noted that the assessee followed the revised Guidance Note on Accounting for Real Estate Transactions issued by the ICAI, which allows de-recognition of income when customers default. The Tribunal held that the change in the method of accounting was justified and should not be rejected without proper reasons. However, the Tribunal restored the issue to the AO for verifying the quantum of de-recognised income.

Separate Judgments:
There were no separate judgments delivered by the judges; the judgment was delivered collectively.

Conclusion:
Both appeals for the assessment years 2014-15 and 2015-16 were partly allowed for statistical purposes, with specific directions to the AO for further examination on certain issues.

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