In the present case, the rents are received on a property purchased for setting up of the project and is inextricably linked to the completion of the project. Considering the fact that the assessee had taken steps to evict tenants and also paid compensation to them while getting vacant possession for completing the project, the rental receipts received during the period have to be set off to the cost of project. Accordingly, I am of the opinion that the said amounts cannot be brought to tax as ‘income from house property’, and as assessee has rightly treated them as ‘capital receipts’ and set off to work-in-progress, the stand of the assessee is consistent with the principles governing such receipts. Accordingly, the orders of the Ld. CIT(A) and A.O. are set aside and assessee’s grounds on the issue are treated as allowed. The receipts are to be considered as capital receipts only.
Full Text of the ITAT Order is as follows:-
These four appeals are filed by the assessee against the order of CIT (A)-5, Hyderabad, dated 28.12.2016. Since common issue is involved in all these appeals and as a common order was passed by Ld. CIT(A), the appeals are heard and disposed of by this common order.
2. The only issue for adjudication in all the appeals is whether the rentals received during the period of project completion is taxable or not and if so, under what head.
3. Briefly stated, assessee is a company incorporated for the purpose of development and construction of a commercial complex. It filed return of income for the A.Y. 2008-2009, declaring a total income of Rs. 1,66,630/- inter alia admitting rent from one M/s. Mithra Agencies. In subsequent years, assessee, as the project has not completed, has not offered any income. During the assessment proceedings for A.Y. 2012-2013, Assessing Officer noticed that assessee has credited the work-in-progress account as on 31.03.2012 with various amounts totaling to Rs. 24,99,733/-. When asked, assessee admitted for inclusion of interest received on the refund at Rs. 7,710/- whereas, it objected to bringing to tax the rental income received in various years. The year-wise receipt of rentals in the impugned assessment years are as under:-
