Income Tax Appellate Tribunal - Amritsar
M/S. Jammu Development Authority,, ... vs The Deputy Commissioner Of Income Tax, ... on 22 March, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR
Before Sh. N. S. Saini, Accountant Member
And
Sh. N. K. Choudhry, Judicial Member
ITA No. 498/Asr./2013 : Asstt. Year : 2005-06
Jammu Development Authority, Vs Dy. Commissioner of Income
Vikas Bhawan, Rail Head Tax, Circle-I,
Complex, Jammu, J & K Jammu
(APPELLANT) (RESPONDENT)
PAN No. AADFJ7335A
ITA No. 494/Asr./2013 : Asstt. Year : 2005-06
Dy. Commissioner of Income Vs Jammu Development Authority,
Tax, Circle-I, Vikas Bhawan, Rail Head
Jammu Complex, Jammu, J & K
(APPELLANT) (RESPONDENT)
PAN No. AABCP1720E
Assessee by : Shri. R. K. Gupta, CA &
Shri. Vasu Gupta, CA
Revenue by : Shri. M. P. Singh, CIT DR
Date of Hearing :21.02.2019 Date of Pronouncement : 22.03.2019
ORDER
Per N. S. Saini, Accountant Member:
These are the cross appeal s filed by the assessee an d Revenue agai nst the order of C ommi ssi oner of Income Tax (Appeal s) dated 06.05.2013, Jammu.
2. The assessee has fi l ed modi fi ed grounds of appe al and submi tted that the same may be adjudi cated by the Tri bunal i n pl ace of the ori gi nal grounds of appeal filed wi th the appeal memo.
2 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority
3. The l d. Departmental Representati ve had no objecti on in adjudi cati ng the modi fi ed grounds of appe al filed by the assessee. Hence, the same are a dmi tted and the parti es were all owed to make thei r submi ssi ons thereon.
4. Ground Nos. 1, 23 & 24 of the appeal reads as under:
"1. That the assessee denies its liability to be assessed under Income Tax Act.
23. This ground is general in nature and hence n ot to be adjudicate d independently.
24. That the appellant craves leaves to add or amend the grounds of appeal be fore the appeal is final heard or disposed off."
5. The Authori zed Representati ve of the assessee submi tted that they are general i n nature and hence may be treated as wi thdrawn. Therefore, these groun ds of appeal of the assessee are di smi ssed as wi thdrawn.
6. Ground Nos. 3, 4, 5 & 6: Al l these grounds a re on on e i ssue and summari zed as one:
"That Commissioner of Income Tax (Appeals) has erred in confirming agency commission of 9.50% on all works executed by JDA whereas no agency commission is re ceived on works of State Government Deposits w orks & sta te plan works. The Ld. CIT( A) has erred in confirmi ng the additi on of Rs.4616069/- on account of a gency commission even though relief was allowed in the earlier year on grant of aid from State and Central Gov ernment."
7. The Assessi ng Offi cer has hel d as under:
"In the P&L account the assessee has shown income from agency charges accrued on Division No.l amounting to Rs. 14,13,539/- at the rate of 9.5% . As per schedule of work expenditure of other 3 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority departments filed in schedule 3, it has been observed that the assessee ha s not shown income from agency charges in respe ct of the all the works/schemes executed during the financial year relevant to the a ssessment year 2005-06. As pe r schedule -3 assessee has received amount of Rs.6,34,69,560/- from other departments for execution of their works. The assessee was asked vide order sheet entry dated 21.06.2007 as to why income @ 9.5 /o of the amount received from other departments may not be added back to the income. In response t o this the assessees vide reply date d 24.12.2007 has stated:-
"That development charges are being received on central deposits works which is 9.5% of amount incurred, which have alrea dy be en accounted for J.DA is an authority cre ated by J&K Govt., for development works. It carries out work under 3 categorie s, de posit w orks, state plans and centra l grant works. The amount of deve lopment charges has already been reflected at Rs.14,13,539/- under the agency charges, which has been earned during the year. These a re no ot her development charges received/receivable by Authority. No income is received on state."
The plea taken by the assessee is not acceptable. The assessee is an independent statutory authority which has to earn the income by development of the area under its jurisdicti on, execution of the works on commission basi s for other de partments, letting out/leasing out of its properties and earning interest income etc. The assessee is not a Govt., department which has to function without a y commission . It is set practice in the execution of construction w ork that elements of agency commission his al ready included in the estimate prepa re d for the proposed work. Such commissi on is charged even by the Govt., de partment like CPWD. Accordingly the plea of the assessee that it has not charged any agency commission is n ot acce ptable. Accordingly the agency commission on the amount Rs.6,34,69,560/- @ 9.5% works out t o Rs.60,29 ,60 8/- and an additi on 4 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority of Rs.46,16,069/- (Rs.60 ,29,608/- minus Rs.14,13,539/-) is t reated as in come from agency commission."
8. Before the Commi ssi oner of Income Tax (Appeal s), the assessee submi tted as under:
"3A.2.2.1 . The Appellant, being a City Development Agency, othe r De partments wan ting to underta ke development or constructi on works, assign the w ork to the Authority on Deposit Work basis. The Appellant is entitled to a stipulated percentage between 7.5 to 9 .5% as supervisi on charges on the work carried out.
3A.2.2.2. Agency charges is rece ived based on the value of work done on the respective works. During the year under appeal , the Appellant had earned Rs.14.13,539/ a gainst different Deposit Works carrie d out during the year as per Annexure 'G'.
3A.2.2.3 The Assessing Officer, however, made an addition of Rs.46,16 ,069/- by arbitrarily calculating
9.5% on the total receipts on a ccount of Deposit Works as well as State and Cen tral Plan Receipts aggregating to Rs.6 ,34,69,560/- t he Agency Charges and added the difference bet ween the Agency Charges thus determined i.e. Rs.60,29,608/- minus Rs.14,13,539/- equal to Rs.46 16 069 on account of Agency Charges. The details of the Receipt of Rs.6,34,69,560/- on which the AO has calculated the agency charges is enclosed as 'An nexure 'H'.
3A.2.2.4 It may be submitted that Deposit Works are works of one Depa rtment, the Contractee Department, ca rried out by another Depa rtment viz., the Contractor Depa rtment. For supervising the work done, the Contractee De partment pays a stipulated percentage of the work done as supervision charge s to the Cont ractor Depa rtment. The Contractee Department is the owner of the asset cre ated and pays the actual cost of constructi on and the agreed supervision charge s.
5 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority Whereas, releases from State Pla n and Central Plan are grants-in-aid from the Govern ment i.e. donations from the Government. The recipient of the grant undertakes the work for himself. It w ould be appreci ated that there can the refore, be n o question of seeking payment of agency charges ove r and above the grant from the Government. No one can seek charges or utilizing the grant.
3A.2.2.5 It w ould also be appre ciated that Agency Charges is earned on the basis of work done and not on the basis of release of deposit. Since all Government Department work on the basis of approved budgets, the Contractee Department releases the funds a s 'Deposit' to the Contra ctor Department out of the budgeted funds. The Contract or unde rtakes the work only out of the deposits thus given by the Cont ractee Department and in case, there is no balance of deposit available, the Contractor is not even bound to continue work unless further funds are released. Thus, the addition based on the receipt s on account of Deposit Works is not correct. The basis is the actual work done.
3A.2.2.6 The addition of Rs.46,16,069 made has been calculated on grants on which no agency charges is receivable and even in cases of Deposit Works, the calculation has been made on the funds released as 'De posits' by the Cont ractee Depa rtment instead of the actual expenditure.
3A.2.2.7 The addition made by the AO is a notional income which not been earned by the Appellant. The AO has not discharge d his onus of proving that the Appellant has earned the said income.
3A.2.2.8 The additi on of Rs.46,16,069 may, therefore, be deleted."
9. The C ommi ssi oner of Income Tax (Appeal s) after consi deri ng the above submi ssi ons di smi ssed the appeal of the assessee by obse rvi ng as under:
6 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority "4.2. Ground of Appeal No 2.3 to 2.7 relates to addition of Rs 4616069/- on account of agency commission. The appellant stated that it is a city development agency and is responsible for development of Jammu City. It i s also responsible for planning development of land and infrastructure construction etc. The appellant also undert akes development constructions and re pair work for other government department, autonomous body, boards corporation, t rust institution, pri vate individual as deposit w ork after levying agency charges as per the government rules. Du ring the year under a ppeal the appellant has shown agency charges for Rs.14,13,539/-, which was duly a ccounted for in its account. The AO has extended the levy of agency charges on total re ceipt of gross deposit of Rs.6,34,69,560/-. The appellant argued that the agency charges accrued only on t he work done and not on mere receipts of deposits from va rious agencies. In the submission ma de before me the appellant has stated that no agency charges we re levied on state pl an and Cent ral pl an grants to it and no question of seeking a gency charges from government arises. Further it was added that agency charges a re earned on the basis of work done and not on the basis of receipt of deposits.
The appellant submission is requi red to be analyses in view of the followings.
1. The appellant has de clared agency charges for whole year at Rs.14 ,13,539/- an d if one goes by its own version of ea rning agency [email protected]% to 9.5%, taking average at 8.5% i t can be inferred that the appellant has executed and supervised the work for Rs. 1,20,15 ,081/- only m whole year. During cou rse of assessment proceedings the appellant has given the details of deposits f rom other departments for works as on 31.03.2005 and this shows opening balance of Rs.57.87 crores and received during year Rs. 6.34 crore making closing balance of Rs. 62.14 crores. Now this becomes irreconcilable that the appellant h aving deposits of Rs. 62.14 crores has executed an d supervised the 7 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority work of Rs.1,20 ,15,081/-only an d earned agency commission of 14.13. lacs a pprox.
2. It is evident from deposit account that in some cases the appellant is receiving a mount of deposit during the year in additi on to the opening balance but there can be no inference dra wn from the sai d account to show the value of work executed. On what basis the calculation of agency charges by the appellant is made is not understandable.
3. In preceding years on the same issue, I foun d that there were certain grants in aid from the Central Government and State G overnment which have come to Jammu development Authority for social sector on which the appellant did not earn agency commission an d I allowed relief accordingly. In this year release, State plan and Central plan grants in aid have not been specifically pointed out so as to excluded them. From the list it is not kn own whe ther it relates to the said fund or some other rece ipt. The AO has taken a figure of receipt of Rs. 6.34 crore s as the basis for arriving at the age ncy commission. Though the amount of w ork executed and supervised is n ot disce rnible but in my opinion it appears reasona ble keeping in vi ew that the total deposits availa ble with the appellant was Rs. 62.10 crores and the appellant is expe cted to execute work of at least 10% of de posit of Rs. 62.10 crore . It is logical also that the appe llant must have carrie d out work equivalent to 1 0% of the total deposit, otherwise without an y progress the respective pa rties could n ot kee p depositing the money with the appellant endlessly.
4. Appellant has not given the terms and conditions which stipulate that in deposit w ork when the amount of deposit is du e after initiation of work or what percentage of deposit is to be placed at the disposal of appell ant for start of work. The procedu re for arriving at the deposit is not brought to the notice of the u ndersigned. This 8 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority formulation is very essential in order to arrive at the quantum of agency commission.
5. In absence of any re asona ble basis the AO has rightly invoked the provisions of section 145(3)and estimated the agency commission.
In view of this, even though a re lief was allowed in the earlier year on certain grants in aid from state and central govt., in this year in absence of such detail the appellant is not entitled for any relief under this head and the addition of Rs. 46,16,069/- is confirmed."
10. We have heard the ri val submi ssi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. In the i nstance case, the assessee i s a Devel opment Authori ty responsi bl e for pl anni ng and devel opment of Jammu ci ty. In the course of i ts acti vi ti es inter alia i t al so undertakes devel opment and repai r w ork s for other Government department, auton omous body, boa rds corporati on, trust i nsti tuti on, pri vate i ndi vi dual after l evyi ng agency charges a s per the government rul es. For carryi ng out the work, the assessee recei ved funds from them and kept the funds unde r the head deposi t account. The Authori zed Representati ve of the assessee expl ained that as and when expendi ture is i ncurred on the constru cti on and repai rs etc. the am ount i s deposi ted under the head deposi t account. It was expl ained that all work undertaken on behal f of Central Government and State Government through i t does not recei ve any supervi si on charges but for othe rs supe rvi si on charges rangi ng from 7.5% to 9.5% i s received whi ch i s reflected in the i ncome account under the head agency commi ssi on.
9 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority
11. The Authori zed Representati ve al so submi tted that the supervi si on charge accrues t o i t as and when the rel ated expendi ture i s i ncurred by the assessee. However, the copy of rel evant agreements were not produced before us.
12. In the i nstance case, the assessee has di scl osed income under the head agency commi ssi on of Rs.14,13,539/-. Accordi ng to the Assessing Offi cer, the assessee recei ved fresh deposi t of Rs.6.34 crores du ri ng the year and agency commi ssi on i .e. supervi si on charges there from at the average rate of 9.5% w orks out to Rs.60,2 9,608/-. Therefore, he a dde d Rs.46,16,069/- as ope rati onal commi ssi on i ncome.
13. On appeal , the Commi ssi oner of Income Tax (Appeal s) though accepted the contention of the assessee that commi ssi on i ncome accrues to the assessee n ot wi th reference to the amount of de posi t recei ved but on the expendi ture i ncurred duri ng the year, however, i n absence of detail s of expendi ture i ncurred duri ng the year, the C ommi ssi oner of Income Tax (Appeal s) estimated that @ 10% of aggregate deposi t must have been i ncurred as expense du ri ng the year. He, therefore, esti mated the amount of expendi ture i ncurred duri ng the year at Rs.6.10 crores and therefore, accordi ng to him no reli ef i s requi red to be gi ven to the assessee on thi s i ssue.
14. The l d. Departmental Representative supported the orders of the l ower authori ti es but coul d not cont rovert the submi ssi on of the Authori zed Representative of the assessee.
10 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority
15. We fi nd that the Authori zed Representati ve of the assessee coul d not state what wa s the actual quantum of the expendi ture i ncurred by the assessee duri ng the year and how the commi ssi on i ncome of Rs.14,13,539/- was arri ved at by the assessee.
16. However, keepi ng in vi ew the submi ssi on of the Authori zed Representati ve of the assessee that whatever, deposi t or advance i s recei ved for work i s credi ted i n the deposi t account and whatever, expenses i ncurred i s deposi ted i n the sai d account when i t i s expended, the cl osing bal ance of deposi t account was R s.62.10 crores and the openi ng bal ance was Rs.57.87 crores whi ch reveal s that deposi t account was i ncreased by Rs.4.27 crore s duri ng the year. The Assessi ng Offi cer has observed that fresh deposi t recei ved duri ng the year was of Rs.6.34 crores. From the above fi gure, it appa rentl y shows that expendi ture of Rs.4.27 crore s was i ncurred duri ng the year. In the ci rcumstances, the esti mati on of Commi ssi oner of Income Tax (Appeal s) of i ncurri ng of expendi ture by the assessee of Rs.6.10 crores cannot al so be accepted.
17. However, i t i s observed that the assessee has not fil ed before us the l edger account of deposi ts. Therefore, the same coul d not be veri fied by us. In these ci rcumstances, in our consi dered opi ni on, i t shall be in the i nterest of justi ce to restore the i ssue back to the fil e of the Assessi ng Offi cer for proper ve rificat ion and t hereafter re-adjudicate the issue afresh as per law. We o rder acco rding ly. The assessee is also directed to prod uce all the relevant material s before the Assessi ng Offi cer 11 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority as and when cal l ed for by the Assessi ng Offi cer. Thus, thi s ground of appeal i s all owed for sta ti sti cal purposes.
18. Ground Nos. 7 , 8, 9, 10, 11, 12 , 13, 14, 15, 16, 17 18, & 19: All these grounds are on one i ssue and summari zed as one:
"That CIT(A) is not justified in confirming the addition made by the Ld. A.O. of Rs.4,33,54,756/- on account of premium recei ved by appellant authority against plots, flats & shops and there after enhancing this addition t o Rs.5 ,38 ,08,000/- ignoring the facts that:
i) Appellant authority was not the owner of these assets.
ii) That cost of these assets in any case has to be reduced.
iii) That the premium so received is not for the year under consi derati on but to be spread over the lease of 40 years."
19. The Assessi ng Offi cer has adjudi cated the i ssue as under:
"The assessee vide this office letter dated
20.12.2007 was asked- "as per the balance sheet you have shown premium/earnest money deposits at Rs. 11,78,36,327/-. The deposit s under the same head for the assessment year 2004-05 was Rs.7,44,81,571/-. Thus the premium/earnest money received by you amounting to Rs. 4,33,54,756/- has not been reflected by you as your income. Due t o the defects mentioned above, I am not satisfied about the correctness or com pleteness of your accounts as provided unde r sect ion 145(3) of the Income tax Act, 1961. You a re, requested to please explain as to why the assessment under section 144 read with section 145(3) may not be made." In response to this query the assessee has filed reply on 24.12.2007 which is reproduced as under:
"As the authority is not indulgi ng purcha se and sale of l and, the details cannot be furnished an d 12 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority no land is in the name of Jam mu Development Authority. It is an agency of Govt., created for development and not for pu rchase & sale of property. It is further brought to your kind notice that the authority s created have been capitalized and no depreciation is being claim ed on amount of Rs.1053,124611/- and as such premium received during the year cannot be treated as income of the authority. Premium received can only be adjusted against capital assets and works in progress undertake by the authority and cannot be treated as income. The practice is regularly being followe d and has been accepted by depart ment in previous years, which have been assessed of premium is t o be treated an income. We must be allowed depreciati on of assets/adjustment of ca pital assets and W. I progress of authority."
The above answer of the a ssessee is not accepta ble. The main business of the assessee is to develop the new residential colonies, markets, Malls, flats an d their ancillary supports. While carrying out all those activities, JDA cha rges premium on all of them. In addition t o this it also charges re nt, leased rent and other maintenance charges. While fixing the premium of plot s, flats, Shops e tc. the element of profit is always included a s JDA i s not carrying out any charity by allotting them at a loss or at the cost price. Majority of lands under the occupati on of JDA have been transferred by the State Govt., without charging any premium. Thus the contention of the assessee that - "It is an agency of Govt., created for development and not for purchase & sale of property. It is further brought t o your kind notice that the authority s create d have been capitalize d and no depre ciation is being clai med on am ount of Rs. 1053,124611/- and as such premium received during the year cannot be t reate d as income of the authority. Premium received can only be adjusted against capital assets and works in progress undertake by the authority and ca nnot be treated as income." is factually incorre ct. Since the lands acquired by JDA is only through the transfer of the Govt., land as such its cost to the agency is nil. Thus 13 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority assets create d by JDA have either been sold out or have been leased out. As such the question of providing the depreciation on those does not arise. Further the non-inclusion of the premium received on sale/leased out properties does not conform t o the accounting standard 7 (AS-7). AS-7 re cognize s two types of accounting for determining the profits derived out of the construction works/re al estate development. The first method is percentage of completion method and secon d one is completed contract method. Howeve r, the international standards committee has revised the International Accounting standa rds (IAS 11) and scra pped the completed contract method. Thus the assessee w as required t o adopt the percenta ge of completion method as provided in AS-7. How ever, the assessee has not done so.
In view of the discussions held in the foregoing paras it is clea r that the accounts prepare d and submitted along with the return of income do n ot reflect true and exact picture of the business conducted by the assessee. Due to the foregoing reasons I am not satisfied about the correctness or completeness of the accounts of the assessee. I, therefore, invoke the provisions of section 145(3) of the I.T Act and compute the income of the assessee as provided in section 144 of the Act under this head premium received as under:-
Tot al prem iu m recei v ed u pt o 3 1 .03 .2 0 05 Rs.1 1 ,7 8 ,3 6 ,32 7 /- Tot al prem iu m recei v ed u pt o 3 1 .03 .2 0 04 Rs.7 ,4 4 ,8 1 ,5 71 /- Prem i u m recei v ed du rin g th e y ear Rs.4 ,3 3 ,5 4 ,75 6 /-
In view of the discussions held above whole of this amount of Rs.4,33,54,756/- is treated as income of the assessee for the year under considerati on which has not been returned as income."
20. Before the Commi ssi oner of Income Tax (Appe al s), the assessee submi tted as under:
"3A.2.3.1 .As has been explained in the background in para 1 a bove, the Appellant is entrusted with nazul lands f or development purposes. These lands, 14 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority after development, are dispose d off as per the Government notifications for vari ous purpose s like residential, commercial, institu tional, etc. and utilized for roa ds, greens, etc. as per the Maste r Plan. The ownership of the nazul lands rests with the State Government and hence, the expenditure on the development of the nazul lands is chargeable to the Nazul Account an d the recei pts from disposal of the nazul lands is also requi red to be credited t o the Nazul Account which is the account of the transactions underta ken on the State Government's behalf.
3A.2.3.2.The Appellant is al so entitled to appropriate the developed nazul lands towards construction schemes, in respect of which t he land premia is required t o be transfe rred t o Na zul Account. Such schemes undertaken by the Appellant and othe r activities carried out on its own a ccount are required to be accounted for under Ge neral Development Account.
3A.2.3.3. However, the Appellan t was maintaining only one account, since inception in 1970, for both nazul and n on-nazul activities, as it did n ot have any corpus of its own an d was meeting all its expenses out of the na zul funds. Howeve r, all the receipts of premia as well as all the expenditure on development of lands and construction schemes were being carried f orwa rd in the Balance Sheet a s 'liability' and 'asset ', re spectively since the major porti on of the receipt on account of premia and expenditure schemes pertained to Nazul and hence, were neither income nor expenditure of the appellant. In the assessment, how ever, while the AO included all the premia receipts as income of the appellant, he did not consider any deduction on account of expenditure on the schemes.
3A.2.3.4.The total premia receipts of the year under appeal was R s.11,57,35 ,243 of wh ich Rs.9,58,09,089 pertained to Nazul Account i.e. State Government's Account and Rs.1,99 ,26,154 pe rtained to General Development Account i.e. the Appellant 's own 15 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority account. The appellant had also incurre d an expenditure of Rs.12,06,64,979 /- on works and development schemes, of which Rs.4,92,83,178 pertained to nazul schemes and Rs.7,13,81,801 pertained t o GDA schemes. T he AO h owever, considere d only the income si de and ign ored the expenditure totally.
3A.2.3.5.As submitted ea rlier, the appellant ha d duly engaged experts for segregating t he nazul and non- nazul accounts and the revised accounts for the year under appeal a re submitted herewith as per Annexure 'I' com prising of the following accounts -
a. General Development Account- i. Balance Sheet ii. Income & Expenditure Account iii. Receipts & Payment Account
b. Na zul Account - Receipts & Pay ment Account.
3A.2.3.6.It is prayed t o your kind honour t o kindly take the revised accounts as a bove on record to correctly determine the income taxable in the hands of the appellant after including t he income that is accruing to the appellant and duly allowing the expenditure deductible in its hands as reflected in the Revised Accounts.
3A.2.3.7 In this connection , we beg to rely upon the judgment rendere d by the Hon 'ble Supreme C ourt in the case of National Thermal Powe r Company Limited vs. Commissioner of Income Tax (1997) 7 SCC 489 (1998) 229 ITR 383, copy enclosed as Annexure 'J' wherein the Hon'ble Apex C ourt has upheld the power of the appellate authority to consi der fre sh claims made in the appellate proceedings. The Hon'ble C ourt ha d held thus in vi ew of the fact that the purpose of asse ssment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordan ce with law.16 ITA Nos. 494 & 498/Asr./2013
Jammu Development Authority In the case of Ahmadabad Electricity Limited vs. CIT (1993) 199 ITR 351 also, the Hon'ble Bombay High Court has held that the Appellate Assistant Commissioner has very wide powers while considering an a ppeal which ma y be filed by the assessee. He may confirm, reduce , enhance or annul the assessment or remand the case to the Asse ssing officer. This is because, unlike a n ordinary appeal, the basic purpose of a t ax appe al is to a scertain the correct tax liability of an assessee in accordance with law. Hence, the Appellate Assistant Commissioner also has the powe r to enhance the tax liability of the assessee although the Department does not have a right of appeal before the Appellate Assistant Commissioner. The Explanation to sub- section (2), however makes it clear that for the purpose of enhancement, the Appellate Assistant Commissioner cannot travel beyond the proceedings which were originally before the Income Tax Officer or refer to new sources of income which were not before the Income-tax Officer at all. For this purpose, there are other se parate remedies provide d under the Income T ax Act." Copy of this judgment is also annexed as Annexure 'K'.
A very latest judgment of the Bombay High Court rendered in the case of CIT v. Pruthvi Brokers & Shareholde rs Pvt. Lt d. IT A No.39 08 of 2010 dated 2T! June, 2012 is also enclosed as Annexure 'L' wherein many judgments with regard to consideration of fre sh claim in appellate proceedings has been discussed. In the present case, however, the appellant had, du ring the assessment proceedings, also claimed that the nazul revenue is not includible in its hands, but was maintaining one account of na zul and non nazul transactions, non- nazul account being a loss since inception.
3A.2.3.8 lt may not be out of pla ce to submit herein that the issue regarding the ownership of Nazul lands has also been elaborately dealt with by the Hon'ble J&K High C ourt in the case of Jammu Development Authority vs. Bhag Din (2004) 1 JKJ 1.
17 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority The relevant finding of the Hon'bl e J&K High C ourt i s reproduced hereunde r:
"It may be mentioned here th at all State lan d situated in and around the twin cities of Jammu and Srinaga r constitutes Nazul land. It is thus seen that in terms of the provision contained in Section 18 of the Act, the Government could place at the disposal of the Authority all or any developed and undeveloped Nazul land for purpose of development in accordance with the provisi ons of the Act . Certain things are axiomatic from a reading of this provisi on of the Act: first and the foremost, that the words used are " place at the disposal of the Authority". The phra se "place a t the disposal of does n ot mean or connote transfer in ownership. It means to keep "availa ble for one's use" or "subject to one's orders and decisi ons" (T he concise Oxford Dictionary Ninth Edition). The second meaning assigned to the w ord, as men tioned above, i s eliminated by the latter part of Sub-section (1) when it says "for the purpose of development in accordance with the provisions of this Act". That means the power of disposal of immovable property vested in the Authority under Sub-section (2) of Section 3 rea d with Section 17 of the Act cannot be exercised by the Authority in rela tion to the Nazul land placed at its disposal. This land is transferred to the Development Authorities only for purposes of development. In other words, Section 18 of the Act does n ot envisage transfe r of Nazul land to the Development Authority in ownership rights. This is further fortified by Sub-secti on (4) of Section 18 of the Act which says that if any Nazul land placed at the disposal of the Authority under Sub-section (1) is require d at any time th ereafter by the Government, the Authority shall, by notification in Government Gazette, place it at the disposal of the Government upon such te rms and conditions as may be agree d upon between the Government and the Authority. Learned counsel for the appellants has made reference to G overnment order No. Rev (NDI) 46 of 1973 dated 28th January, 1973 to canvass that all Nazul land in and around the Jammu City 18 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority Stands transferred to the Jam mu Development Authority and that the intention of the Government was to transfe r the ownership rights in the land to the Development Authority. The aforesaid Government order is qu oted hereunder:
"Government of Jammu and Kashmir, Revenue Department.
Sub: Transfer of Nazool lands to the Development Authorities.
Cabinet Decision No. 39 dated 28.1.1973.
Govt. Orde r No. Rev.(ND!) 46 of 1973, dated 28.1.1973.
It is ordere d that:
1. All vacant and lease free Nazool l ands situated in and around the Cities of Jammu and Kashmir (should be Srinagar) shall be transferred to the respective Development Authority immediately.
2. Government order No. 649 of 1972 dated 28.10.72, issued in pursuance of Cabinet Decision No. 446 of 19th Oct., 1972 shall be modified to the extent that patches of Nazool land measuring 10 Marias and above within and around two cities of Jammu and Srinagar, which are encroached upon, shall be han ded over t o the respective Development Authorities after the encroachment are removed by the Revenue Department.
3. Survey of all Nazool lands re spectively within the two Cities of Srina gar and Jam mu which have been encroached upon shall be completed as early as possi ble.
4. The work of identification of Nazool lands encroached upon by private individuals but required for any public purpose regardless of the sizes, shall be com pleted by the Chief Executive Officer of the respective Development Authority 19 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority on the nishandehi of Assistant Commissione r Nazool or his nominee within a peri od of one month after the completion of survey work.
5. Patches of Nazool land bel ow ten marlas but encroached by private individuals and require d for any public pu rpose shall be tra nsferred by the Revenue Department to the respective Development Authorities after removal of encroachments therefrom .
6. Patches of Nazool land below 10 marlas but not required for any; public pu rposes shall be sold off in proprietary rights t o the e n-croache rs on payment of pri ce at ma rket rate prevailing in the locality to be fixed by the Revenue Minister on the recommendations of the concerned Dy. Commissioner except in case where market rate of a tertian piece of land of either ke es or more than that falling in the locality. In such a case market rates shall be fixed with concurrence of Finance Department.
7. Sale procee ds of all lands menti oned at pa ra 6 above shall be cre dited to t he Account of respective Development Authoritie s.
8. Deputy Commissioner concerned shall be competent to execute necessary documents of transfer.
By orde r of the Government of Jammu and Kashmir."
There is no dispute and, in fact , nobody's case that the land in question w as not transferre d t o the Development Authority. It is rather the admitted case of the parties that the land in question stands transferre d to the Jammu Development Authority for the pu rpose envisaged by Section 18(1) of the Developm ent Act. But the transfer has n ot been t o the extent of transfer of ownership there of to the Development Authorities. Transfer of ownership in respect of immovable 20 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority ownership there of to the Development Authorities. Transfer of ownership in respect of immovable property, in law , has necessarily t o be foll owed by registered documents. Lea rned counsel for the appellants has not sh own us or produced bef ore the Court any such document having been executed by Deputy C ommission er, Jammu, n or has any such document been pl aced on record. What is, at best, gathered f rom the aforesaid Government orde r dated 28th J anuary, 1973 is that all Na zul land in and arou nd the cities of Jammu and Srinaga r has been placed at the disposal of the respective Development Authorities as envisaged and contemplated by Sub-section (1) of Section 18 of the Development Act for use by the Development Authorities to achieve the object of the Jammu and Kashmir Development Act, 1970."
Copy of the judgment is enclosed as Annexure 'M'.
3A.2.3.9 The addition on account of premia amounting to Rs.4,33,54,756 may kindly be deleted and the appellant may kindly be assessed as pe r the Income & Expenditure Account submitted as per Annexure 'I' as above."
21. After consi deri ng the submi ssi ons of the assessee, the Commi ssi oner of Income Tax (Appeal s) enhanced the addi ti on to Rs.5,38,08,000/- from Rs.4 ,33,54,756/-.
22. The l d. Departmental Representati ve reli ed on the orders of the Commi ssi oner of Income Tax (Appeal s).
23. We have heard the ri val submi ssi ons and perused the orde rs of the l ower authori ti es and the materi al s on record. In the i nstant case, accordi ng to the Assessi ng Offi cer, the assessee has recei ved Rs.4,33,54 ,976/- as premi um on sal e of nazul l and. The assessee has cl aimed i t as a li abili ty payabl e to the State Government and therefore, not i ts i ncome. The 21 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority Assessi ng Offi cer has not accepted the above contenti on of the assessee an d treate d the sai d amount as i ncome of th e assessee.
24. On appeal , the Commi ssi oner of Income Tax (Appeal s) referri ng Jammu and Kashmi r Devel opment Act, 1970, Rul e 18 of Jammu and Kashmi r Devel opment Authori ti es Rul es, 1976 and Cabi net deci si on no. 38 of 1973 dated 28.01.1973 hel d that there i s no materi al to show that the assessee was unde r a l egal obli gati on to refund thi s amount to the State Government. Therefore, he confi rmed the acti on of the Assessi ng Offi cer and further fi nding that the actual recei pt of the premi um during the year wa s Rs.5,38 ,08,000/- enhanced the assessee's i ncome to that amount in respect of thi s i ssue. The order of the CIT(A) i s reprodu ced as under:
"4.4. Ground of Appe al No 2 .9 to 2.19 relates addition on account of Premium received amounting to Rs 4,33,54,756/-.
As per the appella nt o ut of t he tot al premium receipts of Rs 11,57,35,243/- of the year under co nside ratio n, Rs 9,58,09,089/- pertains to Nazul Land. The appellant has argued that the Jammu Development Autho rity is not the ow ner of the Nazul lands and they are onl y doing development w ork o n land and transferri ng suc h land on behalf of state gove rnme nt and the amount standing in the Naz ul Acco unt is p ayable to the State government . It is als o a rgued t hat Rule 43 cla use (m) on page 33 stipulate that 'pro vide d that wit ho ut the prio r app ro val of go vernment , no approp riati on sha ll be made from Nazul to non- naz ul o r vice versa.' It is observed that the G overnm ent of Jammu & Kashmi r vide its cab inet decisi on no. 38 of 1973 dated 26.01.1973 has clearly transfer the Nazul lands situated in and around Jammu city to Jammu Development Aut hority and Na zul lands s ituated in and around Srinagar city to Srinagar development 22 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority Authority. The cabinet decision is reproduced hereunder:
'GOVER NMENT OF JAMMU & KASHMIR REVENUE DEPARTMENT Sub:- Transfer of Nazool lands to the Development Authorities.
Ref:- Cabinet Decision No: 38 dated: 28.1.1973.
Government order No; REV(NEJ) 46 of 1973. Dated 26.1.1973 It is ordere d that:-
1. All vacant and lease free nazool l ands situate in and around the cities of Jammu and Srinagar shall be transferre d to t he respective Development Authorities immediately.
2. Government orde r No:649 of 1972 dated:28.12.72 issued in pursua nce of Cabinet Decision No: 446 of 19th Oct,1972 shall be modified to the extent that patches of Na zool land measuring 10 marlas and above within and around the two cities of Jammu and Srinaga r which are encroa ched upon shall be handed over to the respective Development Authorities after the encroachments are removed by the Revenue department.
3. Survey of all nazool lands, especially within the two cities of Srina gar and Jam mu which have been encroached u pon shall be completed as early as possi ble.
4. The work of identification of nazul lands encroached u pon by private individuals but required f or only public purposes, rega rdless of their size, shall be completed by the Chief Executive officer of the respective Development Authority on the Nishbandehi of Assistant Development Authority on the Nishbandehi of 23 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority Assistant Commissioner Nazul or his nominee within a period of one m onth after the completion of survey work.
5. Patches of Nazul lands below ten marlas encroached upon but required for any public purpose shall be t ransferred by the Revenue Deptt. T o the respective Development Authorities after the removal of encroachment there from.
6. Patches of Na zul land below 10 Marla s but encroached upon by private indi viduals and not required for any public purpose shall be sold off in proprieta ry rights to the encroache rs on payment of price at market rates prevailing in the locality to be fixed by the Revenue Minister on the recommendations of the concerned Dy.
Commissioner except in cases wh ere market rate of a certain piece of land is eith er less or more than that prevailing in the locality . In such cases market rates shall be fixed with concu rrence of Finance Deptt.
7. Sale proceeds of all lands mentioned at pa ra 6 above shall be credited to t he account of respective Dev. Authorities.
8. Dy. Commissioner concerned shal l be competent to execute necessary documents of transfer.
By orde r of the Government of Jammu and Kashmir.
Sd/-
(I.D. Gupta ) Spl. Secretary to Govt.
Revenue department.
NO. REV(NDJ)72/27 Dated:02.02.1973 It is clea r from the a bove cabinet decision that all the nazul lands in around Jammu were transferred to the Jammu Development Authority. The decision specifically mentions that even the encroached land 24 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority by private parties below 10 ma rla s shall be sold off and the sale proceeds shall be credited to the accounts of development authority.
With regards to the arguments of the appellant that the balance in the Nazool a ccoun t is payable to the government, it is observed that si nce the creation of the authority in 1970, no amount on account of sale of Nazul Land was ever paid to the government. Further, the audited financial sta tements submitted by the Jammu Development Authority along with the return of income doe s not show an y Nazul Account or any amount payable to the government. The financial statements for the year under conside ration i.e. 2005-06 was redrafted and prepa red on 28.09.2010 i.e. around 3 year after passing the assessment orde r, by transfe rring an amount lying in the capital fund to Nazul Account, which is clearly an after thought and could not be relied upon.
Further, with rega rd t o the requirement of prior approval of government from Nazul to Non Nazul funds, It is obse rved that n o prior approval w as ever taken from the government for using funds received on account of sale of Na zul Land for the purpose of Non Nazul L ands. The appellant has argued that the authority has got its accounts approved by placing the same in budget. The account s produce d bef ore the government did not contain se parate a ccounts on account of nazul and n on nazul lands. Even the financial statements produced before the government did not reflect any amount payable to the government on account of Nazul liability and these accounts were a pproved by the government, which also establishes that there is no liability towards the government on a ccou nt of Nazul lands. It is only the redrafted account s that shows the Nazul Account separately but in the accounts presented before the government which were also submitted along with the return of income, no such liability was reflected. More over, the approval in budget is a post approval and n ot an pri or approval . Even in revised accounts, it has been shown that an amount of Rs 4 crores ha s bee n transferre d from 25 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority Nazul to General development account and that too without prior approval of govern ment in defiance of rule 43(m) of J & K developm ent authority rule 1976. Thus, reference of rules and Act by the appellant is only for the sake of arguments.
The appellant has a rgued that Section 18 of the Jammu Development Act, 1980 and Rule 18 of the Jammu & Kashmir Development Authority Rules, 1976 provides the manner in whi ch the nazul lands are to be dealt with. The section 18 & Rule 18 as mentioned above are reprodu ced below:-
Section 18 of the Jammu Development Act 1980- '18. Na zul lands (1) The Government may, by notification in the Government Gazette and upon such terms and conditions as m ay be agreed upon between the Government and the Authority, place at the disposal of the Authority all or any developed an d undeveloped lands in the zone or the local a rea vested in the Government (known and hereinafter referred to as " Nazul Land") for the purpose of development in accordance with t he provisions of this Act.
(2) No development of any Nazul land shall be undertaken or ca rrie d out except by or under the control and su pervision of the Aut hority after such land has been place d at the disposal of the Authority under sub section (1).
(3) After any such Nazul land has been developed, by or unde r the control and su pervision of the Authority, it shall be dealt with by the Authority in accordance with rules ma de and directi ons given by the Government in this behalf.
(4) If any Nazul land placed at the disposal of the Authority under sub-section (1) is required at any time thereafter by the Government, the Authority shall by notification in Governme nt Gazette, place 26 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority it at the disposal of the Government upon such terms and conditions a s may be agree d upon between the Government and the Authority.' From the perusal of above secti on, it is obse rved that all the nazul land are under the control or supervision of the Authority. If a ny land is required by the government, it shall be placed at the disposal of government on the mutually decided te rms and conditions between the government and authority.
The government is n ot free to t ake back any land by its order, but it is only after a mutual agreement on terms and conditions for such transfer with the authority that the land can be restored back to the government. It clearly est ablish es that the lands placed at the disposal of the authority as per sub section 2 gives the ownership right to the authority.
Rule 18 of Jammu & Kashmir Development Authority Rules, 1976- 'The manner in which nazool lan ds shall be dealt with after development.
(1) The nazul lands transferred by the Govt., to the Authority for development purpose, shall, afte r having been developed by it or under its control and supervisi on be, by a n otification in the Govt. Gazette replace d by the Authorit y at the disposal of the Govt., upon such terms a nd conditions as may be agreed t o by the Gove rnment and the authority. In this deal the total cost of development shall be borne/ paid by the Department of the Govt., requiring the land.
(2) In case, it is not require d by any Deptt. Of the Govt., the authority shall use it for raising residential col onies, public ma rkets, shopping centres; parking pla ces, cinema h alls and theatres and similar other obje cts suitable to yield income and generate resou rces an d also lease it out to private individuals/ group of pe rsons on pe rpetual lease basis. The period of such lease shall be fixed 27 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority by the Authority in due consideration of the locality and the areas.' The perusal of this rule clarifies that in case the nazul land is required by the government as provided in the sub section 4 of the Jammu Development Act, the control of land shall by notification in official gazette be transferre d to the government on the terms an d conditions settled between government and the authority. The government has to pay the cost of development of such land to the authority. All other Nazul lands which are not requi red by the government shall be used by the Authority for raising colonies, malls etc and to yield income an d genera te resources from such land. Thus, the rule itself clarifies that the authority is free to yield income from such lands.
Nowhere in the section 18 of the Jammu Development Act 1970, Cabine t decision 38 of 28.01.1973 and Rule 18 of the Jammu & Kashmir Development Authority Rules mentions that the income and resources generate d f rom such land are to be paid to the government. Ra ther, it states that if any land is required by the government, the government has to pay the cost of development of such land to the Authority and agree to other terms and of the Authority bef ore su ch land could be transferre d to the government.
The appellant has argued that th e rule 18 ha s been created in 1973 after the cabinet decision 38 of 28.01.1973. However, it is obse rved that there is no contradicti on in the Rule 18 and cabinet decision as mentioned above.
The appellant has argued that in the case of JDA Vs Bhag Din & Ors, the Hon'ble High Court of Jammu & Kashmir has held that since no transfer dee d is registered in the court of law, t he land cannot be considere d to be t ransferred to th e authority by way of cabinet decision.
28 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority With regard to the said ju dgment, it is obse rved that the said judgment has been decided on the basis of provisi ons of the The Land and Acquisition Act, 1984 under which the registry of docu ment is essential to treat the transfer as complete. However, the position under the Income Tax Act is different. Various judicial pronouncements and provi sions of the Act on various sections of income Tax Act suggests that ownership is to be seen from the facts, who enjoys the rights of the property and n ot from whether the title is registered or not.
Further, in the said case, the a ppellant themselves has pleaded the following legal facts-
'it was further the case of the Jammu Development Authority that in terms of section 18 of the development act, the government could not allot any land in favour of any pe rson unless it was re- vested in gove rnment by t he development authority by notification to be published in government gazette, on the mutually agreed terms and conditi ons by and between the development authority and the government.' Hon'ble High C ourt of Jammu & Kashmir while discussing the provisions under the income tax Act Tax has held in the case of Commissioner of Income Tax Vs Jammu & Kashmir Tourism Depa rtment Development Corporation (2001) 166 CTR (J & K) 554 has held that the a ssesse e corporation was entitled to depreciation in re spect of the immovable properties taken over by it from the state government on payment of consideration, even though registered deed of conveyance was not executed in its favour. In this case also the State government had transfe rred all the assets including buildings and esta blishment to J KTDC by orde r in accordance with the cabinet decision no. 58 dated 11th March 1969. The Hon'ble High Court has followed the deci sion of H on'ble Supreme C ourt in the case of Mysore Minerals Ltd Vs CIT (1999) 239 ITR 775 (SC) in which it was concluded that anyone in possession of property in his own title exercising 29 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority such dominion over the property as w ould enable others being excluded theref rom and having right t o use and occupy the prope rty in his own right would be the owner of building for the purpose of s. 32(1) though a formal deed of title may not have been executed and re gistered, and he w ould be entitled to depreciati on thereon.
The Hon'ble Supreme Court in the case of CIT Vs Poda r Cement (P) Ltd has while interpreting the section 22 of the Act has obse rved that 'owner' for the purpose of sec 22, is pe rson who is entitled to receive income from the property in his own right. The requirement of registration of sale deed in the context of sec 22 is not warranted.
Hon'ble Supreme Court in the case of R.B. Jodha Mai Kuthalia Vs CIT (1971) 82 ITR 570 had taken the view that irrespective of the title to the property, the person who is entitled to enjoy the income from the property was liable to income tax.
The appellant has also a rgued some facts rega rding the Delhi Development Authority, I am of the view that the case of Jammu Development Authority depends on the Act, Rules, Cabinet decisions of the J & K Governments, accounting procedures and records of JDA. The ca se of JDA cannot be de cided on the basi s of accounts, audit reports and la ws governing DDA.
The appellant has taken a ground of Appeal that premium received i s a capital receipts and not revenue receipt. During the course of appellate proceedings, the appellant has not given any submission or a rguments to justify its claim that premium is capital receipt and n ot revenue receipt. It is observed that the authority is engaged in the business of development of colonies and malls etc and earning income by way of let out and making perpetual lease out of these prope rties for m ore than 20 years to the public. The authority receives income by way of rental and premiums w hich is the regular income of the authority and i s clearly a revenue 30 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority receipt. Further, in Jammu & Kashmir Development Authority Rules, 1976 , F orm No: DAB 11 is provided as a format of Income and Expen diture Account for arriving at the gross profits of the authority. The said form clearly sh ows revenue by way of Premia and sale money of land etc. as re venue income. It is also observed that the lease pre miums are received in the case of long period leases which are further renewable after such l ong pe riod on payment of meager amount which is far less than market value. In fact these transacti ons a re in the nature of transfer as the said lease t ransactions are in effect results in conveyance of property. In case of colonies, the plot s are transferre d to the public and public constructs building worth crores of rupees, the public is free to transfer such plots/buildings on payments of a minor transfer fee. These transactions are in the nature of sale and the consideration received in the form of premium/rentals. Thus, the plea of the appellant that premium received is capital recei pt is not justified and is, theref ore, rejected.
The appellant has taken a ground of appe al that the premium is received for 40 yea rs cannot be t axed in one year, however du ring the course of a ppellate proceedings appellant has not given any submission or arguments to justify its claim. As already discussed in fore going para, the lease for 40 years which can further be renewed on payment of a meager amount which is far less than market value is in the nature of sale and the sale consideration is to be taxed in the year of sale. Th us, this plea of the appellant is not acceptable.
The appellant has taken a ground of appe al the AO has wrongly invoked the provision s of secti on 145(3) of the Act, h owever du ring the course of appellate proceedings appellant has not given any submission or arguments to justify its claim. It is observed that during the course of appellate proceedings, the appellant has submitted re drafted financial statements which are different from the financial statements submitted along wi th the return of 31 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority income and which were availabl e at the time of assessment. When the authority itself does not treat the financial statements provided during assessment as reliable and has re draft ed the financial statements, then the rejection of accounts by the AO cannot be objected upon. The recasted account has been placed du ring the appellat e proceedings and this is not admitted as additional evidence in view of the fact that sufficient and reason able cause wa s not brought on record for not placing them before the AO and also the re drafted account is an afterthought. Further the appella nt has shown the revenue receipts on account of premium received as capital re ceipt both in original as well as revised accounts, as such the results reflected in the books cannot be relied upon. Therefore , the AO has rightly rejected the books of accounts by invoking the provisi ons of section 145(3) of the Act.
The appellant has taken a ground of Appeal that the value as on 01.04.81/date of transfer be adopted and indexed and allowed as deduction, however during the course of appellate proceedings appellant has not given any submission or a rguments to justify its claim. It is obse rved that the authority is engaged in the business of development/ construction of land/buildings malls and as such the income is to be t reated a s busine ss income an d not capital gains and as such the plea of the appellant is irrelevant. More over, the appell ant in ground of appeal no 17 admitted that either there is no cost of asset or the cost cannot be determined of the assets leased out.
Keeping in view, the above di scussed legal and factual position, the plea of the a ppellant cannot be accepted and a ccordingly the addition on this account is upheld. Here it is to mention that the addition on this account is enhanced to Rs. 5,38,08,000/- instead of Rs. 4,33,54,756/- as discussed in the beginning of pa ra-4 of this order. This ground of appeal of the appellant is rejected and addition is enhanced to Rs. 5,38,08,000/-."
32 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority
25. Before us, the fi rst contenti on of the l d. Authori zed Representati ve i s that the premium recei ved by the assessee i s for and on behal f of the State Government and the same i s returnabl e by i t to the State Gov ernment and hence i t i s not the i ncome of the assessee. In support of thi s contenti on, he pl aced reli ance on the revi sed audi ted account wherei n the premi um amount i nstead of bei ng credi ted i n the i ncome and expendi ture account was shown as l i abili ty under the hea d nazul account.
26. We do not fi nd any force i n the above a rgument of the assessee. It is an establ i shed posi ti on of l aw that the accounti ng made by the a ssessee i n i ts books of account or i ts presentati on i n the Fi nanci al statement are not determi nati ve of the true nature and character of the transacti on. The true nature has to be ascertai ned on the basi s of appli cabl e l aws and taxabili ty of the transacti on will depend upon the true nature and cha racter of the tra nsacti on. We fi nd that the assessee coul d not bri ng any materi al before us t o sh ow that the assessee was under a l egal obli gati on to pay the premium whi ch it received from other persons to the State Government or t o utili ze the same onl y i n accordance wi th the di recti ons of the State Government. Thus, i t i s obse rved that the premi um amount recei ved by the assessee was on i ts own account.
27. The next argument of the assessee was that no regi stered sal e deed was ever executed by the State Government in respect of nazul l and in its favour and therefore, the assessee had nev er became the owne r of the 33 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority nazul l and and consequentl y the sal e proceeds w as recei ved by i t on account of the State Government.
28. We fi nd that i t i s not i n di spute that the premi um amount was actual ly recei ved by the assessee for whi ch necessary deed or document were executed by the assessee i tsel f and not i n the capaci ty of power of Attorney Hol der or Trustee of the State Government.
29. In our consi dered vi ew, regi stered deed of sal e i s not onl y the sol e manner i n whi ch ti tl e of l and gets transferred or vested i n a person. For exampl e, on a conversi on of form i nto a Chapter IX C ompany under the Erstwhil e Compani es Act, 1956, all the assets i ncl udi ng l and of the pa rtnershi p fi rm gets vested and becomes the prope rty of the company by the process of l aw and for that separate regi stered deed i s not requi red.
30. In the i nstant case, by vi rtue of J ammu and Kashmi r Act, 1970, the assessee became the ow ner of the nazul l and even i n absence of any speci fi c regi stered sal e deed executed i n i ts favour by the State Government because of the above l aw.
31. The next argument of the assessee was that the recei pt of the premi um was on account of t ransfer of na zul l and whi ch i s a capi tal asset and theref ore, the premi um amount was ca pi tal recei pt i n i ts hand.
32. We fi nd force i n thi s argument of the assessee . The Commi ssi oner of Income Tax (Appeal s) has hel d the premium as revenue recei pt i n the hands of the assessee because i n hi s 34 ITA Nos. 494 & 498/Asr./2013 Jammu Development Authority opi ni on, the nazul l and were trading assets i n the hands of the assessee as the assessee was engaged i n the busi ness of devel opment of col oni es and malls etc. and e arni ng i ncome by way of l et out and maki ng perpetual l ease out of these property for more than 20 years to the publi c.
33. We fi nd that Secti on 6 of the Jammu and Kashmi r Act, 1970 provi des the object for whi ch the assessee was consti tuted and the same reads as under:
"6. The objects of the Authority shall be to prom ote and secure the development of the local area for which it is constituted, according t o plan and dispose of land an d othe r property, carry out building, engineering and other operations, to execute works in connection with supply of wat er and electricity, disposal of sewera ge and ot her services and amenities and generally to do anything necessary or expedient for purposes of such de velopment and for purposes incidental thereto:
Provided that save as otherwise provided in this Act, nothing contained in this Act shall be construed a s authorizing the disrega rd by the Authority of any law for the time being in force."
34. Further, i t i s observed that the assessee was not engage d i n the acti vi ty of acqui ri ng l and for the purpose of ea rni ng i ncome by selli ng l and. Thus, i n our consi dered vi ew, the nazul l and whi ch was recei ved by i t from the State Government under a Speci al Act of the Legi slati ve Assembl y of the State Government cannot be hel d as a tradi ng asset of the assessee. Thus, the nazul l and consti tuted capi tal asset in the hands of the assessee and consequentl y premi um recei ved on transfer thereon was capi tal recei pt i n the hands of the assessee.
35 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority
35. The above fi ndi ng posses next questi on before us as to how the ca pi tal gai ns ari sing out of transfer of capi tal asset i s to be computed i n the hands of the assessee when no cost of acqui si ti on was i ncurred by i t or by i ts predecessor i .e. the State Government from whi ch it recei ved wi thout any consi derati on.
36. We find that for computi ng capi tal gai ns u/s 45 of the Act two amounts a re necessa ry. T hose are amount of sal e consi derati on and amount of cost.
37. In the i nstant case, the cost to t he assessee of the sai d nazul l and was Nil and the cost to i ts predecessor whi ch i s State Government is not ascertai nabl e. Therefore, the computati on provi si on fail s i n the instant case.
38. We fi nd that the Hon'bl e Supreme Court i n the case of CIT Vs B. C . Sri ni vasa Setty (1981) 128 ITR 294 (SC) has hel d that chargi ng secti on and the computati on provi si ons together consti tute an i ntegrated code . When there i s a case to whi ch the computati on provi si on cannot appl y at all , i ts evi dent that such a ca se wa s not i ntended to fall wi thin the chargi ng secti on.
39. In view of the above, the capi tal recei pt in the form of premi um received by the assessee i s not chargeabl e to tax. We, therefore, del ete the additi on of Rs.5,38,08,000/- made by the CIT(A) and all ow the rel ated grounds of appeal of the assessee.
36 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority
40. Ground No. 20 of the appe al of the assessee re ads a s under:
"Non deducti on of tax at source on Rs.81789/- and Rs.83051/- is not applicable to th e assessee since it is not or the advertisement but for the recruitment and allotment of plots, etc. to which provision of section 194C are not applica ble. Hence addition is errone ous and is prayed to be dele ted."
41. At the ti me of heari ng, the Authori zed Representati ve of the assessee su bmi tted that he has wi thdrawi ng thi s ground of appeal , hence, the same i s di smi ssed as wi thdrawn.
42. Ground No. 21 of the appeal of the assessee reads a s under:
"That the rent received has to be assessed as income from house prope rty and de duction @ 30% of the gross amount is allowable under section 24 of the Income Tax Act, which is prayed to be allowed."
43. The Commi ssi oner of Income Tax (Appeal s) has observe d as under:
"4.9 Ground of Appe al No. 2.31 relates to treatment of rental income u/s 24 of the Act and allowance of 30% deduction. The re is no addition on this a ccount the appellant has not given any submission or arguments to justify its claim. It is obse rved that the authority is engaged in the busin ess of development of malls/building and letting out t he same on rental. Since there is no a ddition on a ccount of treating rental income instead of business income the ground is infructuous and does not require to be adjudicated."
44. Before us al so, no arguments were advanced on thi s ground of appeal by the Authori zed Representati ve of the assessee. The refore , thi s ground of appeal of the assessee i s di smi ssed.
37 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority
45. Ground No. 22 of the appeal of the assessee reads a s under:
"22. That Ld. CIT(A) has erred i n l aw not all owi ng depreci ati on under Income Tax Act."
46. The Commi ssi oner of Income Tax (Appeal s) has hel d as under:
"4.10 Ground of Appeal No. 2.32 relates to claim of depreciati on. Du ring the cou rse of assessment proceedings, the appellant did not furnish details of fixed assets and additions therein and no claim was made. At the appellate stage also the appellant did not furnish any details or submission in support of such claim. More over, the depreci ation claimed is as per recaste d financial statement of which no cognizance has been ta ken in this orde r. This ground of appeal is thus rejected."
47. In absence of any detai l furni shed before us, duri ng the course of heari ng by the assessee and i n absence of any submi ssi on of the assessee i n respect of thi s i ssue, we do not find any good rea son to i nterfere wi th the order of the l d. CIT(A). It i s confi rmed. The grou nd of appeal of the assesse e i s di smi ssed.
48. Ground No. 1 of the appeal of the department rea ds a s under:
"1. On the facts and circumstances whether the Ld. CIT(A) was right in deleting the addition of Rs.91,62,576/- on account of interest accrued on FDRs when the assessee has only shown accrued interest for 179 days & 75 days on different FDRs whereas these FDRs were investe d for the whole of the year and addition was made for the balance period on which no accrue d interest was sh own by the assessee."
49. The Assessi ng Offi cer has hel d as under:
38 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority "The assessee vide this office letter dated 20.12.2007, wa s asked as t o w hy the interest on accrual basis has not been reflected correctly as it has been grossly understated in the following accounts:-
i. Pledged FDRs
ii. Unpledged FDRs
The assessee vide his letter dated 24.12.2007 has stated which is reproduced as under:-
"The authority has folly accounte d for interest on FDR both pledged or otherwise As the FDR has matured during the years, the income has directly been credited to interest income and these FDR being renewed for one year or so. The a ccrue d interest for remaining pe riod ha s been prope rly calculated as per details enclosed. Kindly refer to schedule attached."
As per balance sheet filed for th e assessment year 2005-06, assessee had FDR s amounting to Rs.27,87,90,781/- as on 31.03 .2005. As per balance sheet filed for assessment year 2004-05 assessee had FDRs amounting to Rs.28,86,99,820/-. The two figures confirm that assessee had invested almost equal amount of about Rs.28 crores for whole of the year. However, as per schedule 5 and 6 to the balance sheet the assessee has re flected the interest accrued at Rs.48,17 ,403/- only. Under schedule 5 the assessee has reflected the interest on Rs.13,73,95,468/- at Rs. 33,69,0 12/- for 179 days only. It has further reflected inte rest on nine FDRs amounting to Rs.13 ,20,28,843/- at Rs.14,48 ,391/- for an average peri od of 75 days only. The compa rative figures of F DRs availa ble for the cu rrent year and previous year clea rly indicates that almost equal figure of FDRs remained invested with the bank for wh ole of the year. Assessee has not furnished interest accrued on Rs. 13,73,95,468/- for six months only while the interest for balance pe riod has not been reflected. Therefore the interest accrued on those F DRs amounting to Rs.33,69,012/-
39 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority is treated as interest income accrued on FDRs. Similarly the assessee has reflecte d interest for 1/5 t h of the year on FDRs amounting to Rs.13,20,28,843/- whereas interest accrued on bala nce period of 4/5 t h of the year has not been reflected which is calculated at Rs.57,93,564/-. Thus the total interest which has accrued to the assessee but not reflected in the return of income is asse ssed at Rs.91,62,576/- (33,69,012/- + 57,93,564/-) which is treated as income of the assessee the particulars of which have been concealed by the assessee. Penalty proceedings u/s 271(1)(c) are being initiated separately for furnishing wron g and inaccurate particulars of income.
(Even by adopting the straight line method, the interest accrued on FDRs amounting to Rs.27,87,90,781/- @ 5% (the rat e reflected by the assessee in the return of income) comes to Rs.1,39,39,539/-. If the interest reflected by the assessee in the return of income at Rs.48,17 ,403/- is reduced from this the resulted interest which has not been reflected by the a ssessee comes to Rs.91,22,136/- which is almost e qual to the interest calculated above."
50. The CIT(A) has hel d as under:
"4.5 Ground of Appeal no. 2.20 to 2.27 relates to addition of interest income on FDRs amounting to Rs.91,62,576/-. The appellant has argued that the AO has considere d the figure of Rs.48,17 ,403/- shown as interest a ccrued under current assets and ignored the interest income booke d by the a ppellant amounting to Rs.1 ,53,81,613/- in the profit and l oss account. I have considere d the financial statements of the appellant filed along with the return of income and is of the view that the submission of the appellant is valid. The appellant has already disclosed an interest income on FDR higher than the interest income assesse d by the AO. This ground of appeal of the appellant is thus allowed."40 ITA Nos. 494 & 498/Asr./2013
Jammu Development Authority
51. The l d. Departmental Representati ve coul d not poi nt any speci fi c error i n the order of the C IT(A). Therefore, thi s groun d of appeal of the revenue i s di smi ssed.
52. Ground Nos. 2 & 3 of the appeal of the depa rtment rea ds as under:
"2. On the facts and circumstances whether the Ld. CIT(A) was right in deleting the addition of Rs.25,32,090/- on account of la te deposit of EPF when the assessee has failed to deposit the PF deducted with in statutory period as prescribed u/s 36(1)(va) of the Income Tax Act, 1961.
3. On the facts and circumstances whether the Ld. CIT(A) has failed to appreciate that the assessee has failed to de duct and deposit PF in respect of fou r months viz. May 2004 , November 2004, Janua ry 2005 & March 2005 for which no details have been submitted."
53. The Assessi ng Offi cer has hel d as under:
"As per column 16(b) of form 3 CD, the Chartered Accountant is Required to point out the delay in depositing the empl oyees contribution towards the provident fund and other funds. Against this col. the CA of the assessee has reported "as per attached" . However, no such detail has been attached with the form dated 3CD or the return of the income. Accordingly assessee vide order sheet entry dated 21.06.2007 was requested t o file the details of provident fund payments read With section 2(24)(x). The C.A. of the assessee attended the case from time to time but did not file the said details. Finally, the detail was filed vide letter dated 24.12.2007 with the following comments:-
"The details were not furnished a s per col . 16(b) of 3CD report. However we enclose herewith the deduction & payments made which are credited on the date of payment of salary."41 ITA Nos. 494 & 498/Asr./2013
Jammu Development Authority The above statement of counsel of the assessee speaks volumes about the manner in which the audit report has been prepa red. The statement that the deduction & payments ma de whi ch are credited on the date of payment of sal ary is a confessi on itself that the payments have not been paid in time. The details filed along with the above reply are prepa red in haphazard manner. The details are neither on the letter head of the C.A or the assessee, nor it has been signed by anybody. As such no cognizance of this detail can be t aken. The details filed by the assessee is reproduced asunder:-
Mon t h A m ou nt of E m pl oy ees Du e dat e Dat e of pay m en t sh are 4 /2 0 04 1 ,8 4 ,4 0 4 Not gi v en 5 .4 .2 0 0 4 5 /2 0 04 - - .
6 /2 0 04 3 ,0 1 ,2 0 4 - 9 .6 .2 0 0 4 7 /2 0 04 2 ,6 0 ,4 7 8 - 2 4 .0 7 .2 00 4 8 /2 0 04 1 ,8 7 ,7 5 9 - 2 0 .0 8 .2 00 4 9 /2 0 04 1 ,8 7 ,8 2 3 - 2 0 .0 9 .2 00 4 1 0 /2 00 4 1 ,8 9 ,8 7 0 - 2 8 .1 0 .2 00 4 1 1 /2 00 4 - - -
1 2 /2 00 4 1 ,8 9 ,5 0 3 - 0 6 .1 2 .2 00 4 0 1 /2 00 5 - - -
0 2 /2 00 5 1 ,8 7 ,0 1 9 - 2 1 .0 2 .2 00 5 0 3 /2 00 5 - - -
Tot al 1 6 ,8 8 ,0 60 The above details filed by the assessee is not only incomplete but also misleading and twisted. The detail does not tell as to how the employee's contribution for the months of May, 2004, Nov., 2004, Jan., 2005 and March, 2005 has been taken care of. The only inference that can be drawn from the above statement is that the employee's contribution to EPF has been deposited in the following months which obviously is in violation to the provisions of section 36(1) (va). Further the details have been filed for eight months only, Hence, the apply the average method assessee has deducted Rs.25,32,090/- from the employee share of provident fund which has not been deposited by it within the time prescribed under section 36(1)(va).42 ITA Nos. 494 & 498/Asr./2013
Jammu Development Authority Under the circumstances the whole of the amount of Rs.25,32,090/- is treated as income of the assessee u/s 2(24)(x) of the I.T. Act, 1961."
54. On appeal , the Commi ssi oner of Income Tax (Appeal s) hel d as under:
"Ground of appeal no 2.29 relate s to addition of Rs 2532090/- u/s 36(1)(va) of the Act. The appellant in his submission bef ore me ha s stat ed that" employees contribution t o the fund is credi ted to the le dger account maintained by the Jammu Development Authorities PF section immediately on deduction and there is no statutory peri od a ppli cable in this case. The accounts of the employees of the Authority are not maintained by the Employees Provident Fund Organi zation but by the Authority itself. After going to the provision of Se ction 36(1)(va), I find that the legal requirement is to credit the employees account with the contribution re ceipt. The appellant has discharge this obligation by credit ing the account of the employees though maintained by the authority itself. Thus I am of the view addition on this account is not justified and hence deleted. This ground of appeal is allowed."
55. The Departmental Representative coul d not poi nt out any speci fi c error i n the order of the CIT(A), therefore, thi s ground of appeal of the revenue i s di smi ssed.
56. Ground No. 4 of the appeal of the department reads a s under:
"The appellant craves to amend or add any one or more grounds of appe al."
57. In absence of any pl ea taken by the Departmental Representati ve of the assessee, duri ng the course of hea ri ng thi s ground of appeal of the revenue i s di smi ssed.
43 ITA Nos. 494 & 498/Asr./2013Jammu Development Authority
58. In the resul t, the appeal of the assessee i s partl y all owed for stati sti cal purposes and the appeal of the department is dismissed.
(Orde r Pronounced i n the Open Court on 22/03/2019) Sd/- Sd/-
(N. K. Choudhry) (N. S. Saini)
Judicial Member Accountant Member
Dated: 22/03/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR