Income Tax Appellate Tribunal - Chandigarh
Greater Ludhiana Area Development ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIG ARH BENCH ' A', CHANDIG ARH
BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND
Ms. SUSHMA CHOWLA, JUDICI AL MEMBER
ITA No. 762/Chd/2007
Assessment Year : 2003-04
A.C.I.T. Circle 6(1) Vs. Punjab Urban Development
Chandigarh Authority, Mohali
Appellant by: S/Shri Satish Bansal/Prikshit Aggarwal
Respondent by: Smt. Jyoti Kumari, CIT
ITA No. 759/Chd/2008
Assessment Year : 2004-05
Punjab Urban Development Vs. A.C.I.T. Circle 6(1),
Authority, Mohali Chandigarh
ITA No. 765/Chd/2008
Assessment Year : 2004-05
D.C.I.T. Circle 6(1), Vs. Punjab Urban Dev
Chandigarh Authority, Mohali
Appellant by: Shri Sudhir Sehgal
Department by: Smt. Jyoti Kumari, CIT
ITA No. 760/Chd/2008
Assessment Year : 2005-06
Punjab Urban Dev Vs. Addl C.I.T. Range 6
Authority, Mohali Chandigarh
Appellant by: Shri Sudhir Sehgal
Department by: Smt. Jyoti Kumari, CIT
ITA No. 769/Chd/2008
Assessment Year : 2005-06
D.C.I.T. Circle 6(1) Vs. Punjab Urban Dev
Chandigarh Authority, Mohali
Appellant by: Shri Prikshit Aggarwal
Department by: Smt. Jyoti Kumari, CIT
ITA No. 744/Chd/2009
Assessment Year : 2006-07
D.C.I.T. Circle 6(1) Vs. Punjab Urban Dev
Chandigarh Authority, Mohali
2
ITA No. 745/Chd/2009
Assessment Year : 2006-07
Punjab Urban Dev Vs. D.C.I.T. Circle 6(1)
Authority, Mohali Chandigarh
Appellant by: Shri Prikshit Aggarwal
Department by: Smt. Jyoti Kumari, CIT
ITA No. 524/Chd/2011
Assessment Year : 2007-08
Punjab Urban Dev Vs. D.C.I.T. Circle 6(1)
Authority, Mohali Chandigarh
ITA No. 545/Chd/2011
Assessment Year : 2007-08
D.C.I.T. Circle 6(1) Vs. Punjab Urban Dev
Chandigarh Authority, Mohali
Appellant by: Shri Satish Bansal
Department by: Smt. Jyoti Kumari, CIT
ITA No. 390/Chd/2012
Assessment Year : 2008-09
Punjab Urban Dev Vs. D.C.I.T. Circle 6(1)
Authority, Mohali Chandigarh
ITA No. 484/Chd/2012
Assessment Year : 2008-09
D.C.I.T. Circle 6(1) Vs. Punjab Urban Dev
Chandigarh Authority, Mohali
Appellant by: Shri Ashwani Kumar
Department by: Smt. Jyoti Kumari, CIT
ITA No. 1220/Chd/2011
Assessment year 2008-09
Greater Ludhiana Area Vs. Addl CIT
Development Authority Range VI
Ludhiana Ludhiana
AAALG 1055F
Appellant by: Shri Sudhir Sehgal
Department by: Smt. Jyoti Kumari, CIT
Date of hearing 20.9.2013
Date of Pronouncement 6.12.2013
3
O R D E R
PER BENCH These are cross appeals filed by the assessee and the revenue against the orders dated 30.5.2007, 21.4.2006, 19.6.2008, 20.6.2008, 4.5.2009, 14.1.2011 and 30.11.2011 of the ld. CIT(A), Chandigarh.
ITA No. 762/Chd/2007 - Revenue appeal2 In this appeal the Revenue has raised following grounds:
" 1 O n t he fac ts a n d c ir c ums t anc es o f t he c as e a nd i n l aw , t h e L d. CIT( A) v i de h is or d er d a te d 30 .0 5 .2 0 07 i n a p pe a l N o. 74 / P/ 0 6- 0 7 h as er r e d in ac c e p ti n g t he ad d i ti o n a l gr ou n ds o f a p pe a l tak e n by t h e as s es s e e w it h r eg ar d to tr a ns fer o f jur is d ic ti o n ov er th e c as e u /s 1 2 7 o f t h e I .T. A c t, 19 6 1 a n d dec i d in g th e s a m e in fav o ur o f t he as s es s e e. W h il e dec i d in g th e is s ue th e Ld . CIT( A) h as fa i l e d t o c ons i d er t h e j ud g me n t of t he j ur is d ic t i on H i g h C o ur t in t he c as e of S m t. J as w in der K aur C o on er Vs . CI T( A) 2 00 7- 2 91 IT R 80 ( P &H) dec i d ed o n 2 3. 1 1. 2 00 6 .
Th e L d. C IT( A) h as f a i le d t o a ppr ec i at e t he fac t t h at as s es s ee it s e lf h as f i le d r ev is e d r e t ur n for th e y e ar u n der c o ns i d er a t io n w i th th e AC I T, C ir c le 6( 1) , Ch a nd i ga r h , b ef or e tr ans f er of or i g in a l r e t ur n by t h e pr ev io us A. O . t o th e pr es e nt A. O . a n d r e t u r n f or t he nex t as s es s me n t y e ar 2 0 04- 0 5 was als o f i l ed wi t h th e pr es en t A .O .
2. O n t he fac ts a nd c ir c u ms t a nc es of t h e c as e an d in la w, th e or d er of t h e l d. C IT( A) is pe r v er s e b e in g b as ed on c on j ec t ur es a n d s ur m is es w i th o ut ap pr ec ia t in g t he f ac ts av a i l ab l e o n r ec or d.
3. O n t h e f ac ts an d c ir c ums t anc es of t h e c as e a n d i n la w, th e ld . CIT( A) has fa i l ed t o ap pr ec ia t e t he f ac t th a t t he as s es s e e h as ad o pt ed c a s h s y s t em of ac c o u nt i ng , a nd as s uc h its inc o me fr o m d if fer e nt s o ur c es is r eq u ir ed t o b e c om p ut e d u nd er c as h s y s te m o f ac c o u nt i n g.
4. O n t h e f ac ts an d c ir c ums t anc es of t h e c as e a n d i n la w, th e ld . CIT( A) has er r e d i n de l et i ng th e ad d it i o n of Rs . 2 , 55 , 15 ,4 0 6/- as i nc r ea s e in inc o me s ho w n fr o m s al es o f h o us es a n d f l ats an d Rs . 1 6, 6 83 /- as i nt er es t o n i ns t a ll m e nts .
5. O n t h e f ac ts an d c ir c ums t anc es of t h e c as e a n d i n la w, th e ld . CIT( A) has er r ed i n de l et i ng th e a d d it i on of Rs . 19 , 78 ,7 0 ,9 2 4/- ( i .e . t he d if fe r e nc e be tw e en t he t ot a l ins ta l l me nts r ec e iv ed at Rs . 2 3, 00 , 77 ,4 6 5/- an d th e to ta l am o un t r ec o gn i ze d as r ev e n u e dur i n g th e y e ar at Rs . 3 ,2 2, 0 6, 5 41 /- )
6. O n t h e f ac ts an d c ir c ums t anc es of t h e c as e a n d i n la w, th e ld . CIT( A) has e r r e d i n d e le t in g t he a d d it i on o f Rs . 51 , 91 , 16 4/- ( a n a mo u nt r ec e iv e d fr o m th e H ir e P ur c h as e De b tor s .) .
7. O n t h e f ac ts an d c ir c ums t anc es of t h e c as e a n d i n la w, th e ld . CIT( A) has er r e d in d e le t in g th e d is a l l ow a nc e m a de a t Rs . 3, 51 , 33 ,5 0 7/- o n a/c of C. P. F & I nt er es t o n C. P. F. c o nt r i b ut i on . T he dis a l lo w anc e w as ma d e fo r th e r eas o n t h at th e c on t r i bu t io ns hav e ne i th e r be e n m a d e t o a p r ov id e nt fu n d ap pr ov ed by t he C h i ef Co mm is s i o ner or C o m mis s i o ner of I nc o me Tax n or t o a 4 pr ov i d en t f u nd es ta b l is h e d u n de r a s c h e me fr am e d u n d er t h e Em p l oy e es Pr ov id e nt Fu n ds Ac t, 19 5 2.
8. O n t h e f ac ts an d c ir c ums t anc es of t h e c as e a n d i n la w, th e ld . CIT( A) has er r ed i n d e le t in g th e a dd i t io n m a de a t Rs . 2, 2 4, 04 , 92 3/- b e in g i n ter es t i nc o m e o n F DRs . "
3. The Revenue vide letter dated 4.1.2013 which was received in our office on 7.1.2013 sought to amend ground no. 1 of the appeal and filed following amended ground:
"On the facts and in the circumstances of the case and law, the ld. CIT(A) vide his order dated 30.5.2007 in appeal No. 74/P/2006-07 has erred in accepting the additional grounds of appeal taken by the assessee with regard to transfer of jurisdiction over the case u/s 127 of the Income Tax Act and deciding the same in favour of the assessee. W hile deciding the issue the ld. CIT(A) has failed to consider the judgment of the Hon'ble Jurisdictional High Court in the case of Smt. Jaswinder Kaur Cooner Vs. CIT(A) (2007) 291 ITR 80 (PH) decided on 23.11.2006 and the judgment of Hon'ble Allahabad High Court in the case of CIT V. British India Corporation Ltd. 337 ITR 64 and the provisions contained in sub-section 3 of Section 124."
4 After pursuing the above ground we find that there is hardly any difference and issue sought to be raise the amended ground, is same as contained in original ground No. 1. During hearing we had asked for objection from the ld. counsel of the assessee and he also had no objection. Therefore, we h a ve substituted the original ground 1 with the amended ground 1.
5 Ground No. 1 - Brief facts of this issue are that the assessee was having its registered office in Sector 17, Chandigarh and was filing return of income in Circle 2(1), Chandigarh. During the relevant Assessment year the office of the assessee was shifted to Mohali and accordingly the assessee filed return for relevant Assessment year 2003-04 on 28.11.2003 with ACIT, Circle 6(1) which was having jurisdiction for Mohali area. The return was transferred to ACIT Circle 2(1) as the case was previously dealt by ACIT Circle 2(1). The case was selected for scrutiny and notice u/s 143(2) and 142(1) was issued by ACIT, Circle 2(1) on 5.1.2004. The assessee further filed revised return for this year on 7.2.2005 again with Circle 6(1) on 7.2.2005. This return was again transferred to ACIT Circle 2(1) on 17.2.2005. In May 2005, ACIT Circle 2(1) transferred the case back to ACIT Circle 6(1). The assessment was finally completed by ACIT Circle 6(1). During the assessment proceedings the assessee never objected to the jurisdiction of ACIT Circle 6(1). However, when the assessee was not satisfied with the assessment order and an appeal was filed against the same an 5 Additional ground was taken before the ld. CIT(A) which reads as under:
"That the Assessing Officer being ACIT, Circle 6(1), Chandigarh has erred in assuming jurisdiction from DCIT, Circle 2(1), Chandigarh on the direction of Jt. CIT, Range 6, Chandigarh. He processed to assessee the appellant without recevingthe order u/s 127 from the Hon'ble CIT- 1/II, Chandigarh. The said order was not communicated to the appellant also. No opportunity of hearing was granted to the appellant before transferring the jurisdiction over the case of the appellant. Hence, the total assessment is bad and the processings thereon are void ab-initio.
6 The ld. CIT(A) examined the issue in detail and was of the opinion that this was a case of transfer and since no valid order has been passed by the concerned Commissioner, the jurisdiction was not properly transferred. In this regard he wrote a letter to the Assessing Officer. Contents of the same are given at page 70 & 71 which read as under:
" Th e as s es s e e f il e d t he in fo r m at i o n as c a l l ed f or v i d e t h e a bov e n ot e d qu es ti o nn a ir es , on d if fer e nt da tes . O n 0 3. 1 2. 2 00 4, th e as s es s e e v i de its l et ter no . 10 1 80 d a te d 03 . 12 .2 0 04 i nf or m ed t he D e pu ty Co m m is s i o n er of Inc o me Tax , Cir c l e- 2( 1) , Ch a nd i ga r h t h at M/s K hur a na V in e et a nd As s oc ia te s , C har t er e d Ac c ou nt a nts h av e be e n ap p o in te d as s ta t ut or y au d it or f or t h e r e v is io n of t h e ba l a nc e s h e et fo r t h e as s es s m en t y e ar 2 00 3- 0 4 a n d hav e b ee n di r ec te d to c om p l et e t he j ob wi t h i n o ne m on t h 's ti m e. O n 1 4. 0 1. 2 00 5, th e as s es s e e v id e its l et ter n o. 25 7 da t ed 1 4. 0 1. 20 0 5 in t im at e d t he D ep uty Co m m is s io ner o f I nc o m e Tax , C ir c l e - 2( 1) , C h a nd i g ar h t ha t t h e pr o f it ab i l ity o n p lo ts h as b e en d et er m in e d an d r ec o gn i t io n o f th e s a me has b e e n i nc or p or at e d i n t he b o ok s of ac c ou nts an d ac c o r d i ng ly pr of i t an d l os s ac c o u nt an d ba l a nc e s h ee t hav e be e n r ev is e d. It was i nt i m at ed t o th e D e pu ty C o m m is s i on er of I nc o m e T ax , Cir c l e- 2( 1) , Ch a nd i ga r h t h at r et ur n fo r th e as s es s m en t y ear 20 0 3- 04 has als o ac c or d i n g ly be e n r ev is ed a n d th e s a id r ev is e d r e tur n h as be e n f il e d w i th R a ng e- VI , Ch a nd i ga r h . "
Y our ar e r eq u es t e d t o k i nd ly m ak e i t c le ar a s to w ho w as t h e As s e s s i ng O ff ic er hav i n g j ur is d ic t io n u / s 12 4 ov er t he as s es s e e i. e. w h et h er i t was As s t t. Co m m is s i o ne r o f Inc o me T ax , C ir c le 6( 1) , C ha n d ig ar h or D e p uty Co m m is s i o ne r of I nc o me T ax , C ir c le 2( 1 ) , C h an d i gar h . I n c as e th e jur is d ic t i o n was wi t h t he DC IT, Ci r c l e 2( 1 ) , C h an d i gar h , t he n w h et h er a n or d er w as pas s ed u/s 1 27 by th e C om m is s i on er o f I nc o m e Tax tr a ns f er r i n g th e c as e t o y o u a nd in c as e t he j ur is d ic t i o n was w it h y o u, t he n w hy t h e c as e was tr a ns f er r ed t o DC IT, Cir c l e 2( 1 ) , C h an d ig ar h. S inc e y o u h av e r e f er r ed t o Sec . 1 2 8, it ap p ea r s th a t DC IT C ir c l e2( 1) , C ha nd i g ar h h ad j ur is d ic ti on a nd he c e as e d t o ex er c is e t h e j ur is d ic t i o n. Ho w ev er , DCI T, Ci r c l e 2( 1 ) , Ch an d i gar h c an c e as e to h av e j ur is d ic t i o n o nly if t h er e is a n or der u /s 12 7 tr ans f er r in g t he c as e t o A CI T, Cir c l e 6( 1 ) , Ch a nd i g ar h. T h is or d er c a n o n ly be p as s e d by C CI T o r CIT a nd n ot by Ad d l. C IT/J t. CI T. He nc e y o u ar e r eq u es te d t o i nf or m as t o ho w D CIT , Cir c l e 2( 1 ) , C ha n d ig ar h c e as e to hav e j ur is dic t io n . "
It seems initially no reply was given but later on some reply was given which has been summarized by the ld. CIT(A) at page 84 to 86 which read as under:
" The as s es s i n g o ff ic er has s en t a le tt er me n t i on i ng " Th e as s es s ee PU D A 's w or k r e la tes t o d ev el o p me nt of p lo ts an d c ons t r uc t i on o f b u i ld i ngs i n Pu n ja b . Th e 6 as s es s e e h as i ts r e g is ter e d o ff ic e at s ec t or 62 , Mo h a li . T h us i t is c l ear t ha t t h e ter r i tor i a l j ur is d ic t io n of t he as s es s e e l i es wi t h Cir c l e 6( 1) , C h a nd i g ar h . Th e as s es s e e f i le d its r ev i s ed r et ur n o f i nc om e f or t he A. Y . 2 0 03- 0 4 i n Cir c l e 6( 1) , fi l e d i ts adv a nc e t ax i n t h is c ir c le , f i l ed a ll i ts r ep l i es a t th e s am e t im e of as s es s m e nt a nd ne v er r a is ed a ny o b j ec t i ons r eg ar d in g t h e m at ter o f j ur is d ic t i o n. T h e as s e s s ee a ls o f i l ed i t 's or i gi n a l r e t ur n f or t h e A. Y . 20 0 4- 0 5 wi t h C ir c l e 6 ( 1) . Th is v er y c l e ar ly p oi n ts to th e f ac t t h at t h e as s e s s ee was w e l l aw ar e a bo u t th e jur is d ic t i on t o w h ic h it pe r ta i ne d . Th e as s es s e e w as a l l th e ti m e aw ar e t ha t i t was un d er th e jur is d ic t i on of C ir c l e 6( 1) Re g ar d i n g th e is s u e of jur is d ic t i o n S ec t i o n 12 4( 3 ) ( a) c l ear ly s t a tes t h at " N o per s o n s h a l l b e e nt i t l ed to c a ll i n q ues t io n t he j ur is d ic ti o n o f an As s es s in g O ff ic er w h er e h e h as ma d e a r e tur n , u n der s ubs ec ti o n( 1) o f Sec t i on 1 15 W D o r un d er s ubs ec ti o n ( 1) o f s ec t io n 1 39 , af te r t h e ex p ir y o f on e m on th fr o m th e d at e on w h ic h h e w as s er v ed w it h a no t ic e u n de r s u bs ec t io n ( 1) of s e c ti o n 14 2 or s ubs ec ti o n ( 2) of s e c t i on 1 1 5W E or s ubs ec ti o n( 2 ) of s ec ti o n 1 43 or a ft er th e c om p l et i on of t he as s e s s me n t wh ic h ev er is e ar li er "
Fur th er , th e j ur is d ic t i o na l H i g h Co ur t i .e H o n 'b l e P u nj a b & H ar y a na H i g h C our t i n i t 's dec is i o n d at ed 23 Nov e mb er , 2 00 6 in th e c as e of S mt . J as wi n de r K au r K oo n er V CIT( A) , ( 2 0 0 7) 2 9 1 IT R 8 0 ( P & H) h as a ls o h el d t h at if no c ha l le n ge is ma d e a t th e in i t ia l s t a ge , t he is s ue c an n ot be r a is e d in an ap p ea l a g ai ns t th e as s es s m e nt or d er .
Re g ar d i n g th e is s u e o f d ir ec t io n g iv e n by th e J t. C o mm is s i o ner of Inc o m e Tax , Ra n ge V I I wo u l d l ik e t o c lar i fy t h at as per t he r ec or ds av a i l ab l e no s uc h d ir ec t io n h a d be e n is s ue d t o th e As s es s i ng O ff ic er i n th is p ar tic u l ar c as e. S i nc e th e c as e was i n s c r u t i ny for t h e A. Y . 2 00 3- 0 4 an d w as ge tt i n g ti m e ba r r e d; t h e As s es s i n g O f f ic er h ad to is s u e t h e r e q uis i te no tic e . Th er e w as n o ne e d fo r a ny d ir ec t io n fr o m t he s u p er ior a ut hor i ty c o ns i d er in g t h e t i me bo u nd na t ur e of th e c as e an d als o t h at t e r r i tor i a l ly th e as s es s e e p er t a i ne d t o t h is c i r c l e. I n s uc h c ir c ums t anc es t her e a r e a lw ay s s t a nd i ng i ns tr uc t io ns t ha t t he As s e s s i ng O f f ic er mus t is s u e th e r e q uis i te n ot ic es . Mo r e ov er t her e is no th i n g i n r ec o r d wh ic h m ay po i nt t o t he f ac t th at t he J t . CI T h ad g iv e n d ir ec t io ns t o th e As s e s s i ng O f f ic er r eg ar d in g th e jur is d i c ti o n o f t h e as s es s e e. Y our l et t er s d a te d 1 1. 0 2. 2 00 7 , 14 . 05 .2 0 07 , a nd 1 5. 0 5. 2 00 7 wh ic h ar e als o on t he s a m e is s ue s wh ic h h av e be e n c l ar if i ed in t h e a bov e p ar agr a p hs ab ov e.
It may b e f ur t h er n ot ed th a t a t t he t im e of fr a m in g t h e As s es s m en t o r d er t h e j ur is d ic t i o n of th e c as e w as tr ans fer r e d to Cir c l e 6( 1 ) , Ch a nd i g ar h. It a p pe ar s fr o m t he r ec o r d , t ha t t he P AN w as tr a ns f er r e d th r o u gh A ST w e ll be for e t he da t e of As s es s m e nt or der . A P AN his t or y o f t he c as e is be i ng g en er at e d t o v er i fy t he tr a ns f er o f P AN i n t h is c as e. O ur o ff ic e i n Mo h a li is on a d i a l u p n e tw or k bec a us e o f w h ic h t he P at i al a of f ic e h as be e n as k e d t o pr ov i d e t h e P AN h is t or y at t h e e ar l ies t. I wo u l d r e q ues t y o u t o gr an t me a n ot h er tw o w e ek s ti me i. e t i l l 08 . 06 .2 0 07 , as g e ner a ti o n of P AN h is tor y ma y t ak e s om e t i me .
I wo u l d a ls o r e qu es t y ou t h at i f a ny v i e w, w h ic h is a g ai ns t r ev e nu e , is c ons i d er e d on t he gr ou n d o f jur is d ic t i o n, it m us t b e c o ns id er e d o n ly af ter v er ify i ng t h e P AN h is tor y o f th e c as e, as t he c as e i nv olv es a s ubs t an t ia l t ax ef fec t. "
The ld. CIT(A) adjudicated the issue vide following paras:
" As f ar as t h e as s es s ee is c o nc er n e d, t er r i tor i a l j ur is d ic t io n ov er its c as e li es wi t h A CI T, C ir c l e 6( 1) , Ch an d i gar h . H ow ev er , th e AC IT , C ir c le 6( 1) , Ch a n di g ar h ha d h i ms el f tr a ns f er r e d th e o r i g i na l a n d r ev i s ed r et ur n f il e d by t h e as s es s ee t o DC IT C ir c l e 2( 1) , C ha n d ig ar h wh o h ad be e n as s es s i n g th e as s es s e e for Inc o me- t ax i n th e pas t a n d h a d a ls o is s ue d th e no t ic e u /s 1 4 3( 2) i n r es p ec t of A. Y . 20 0 3- 04 w h ic h is un d er c ons i d er a t io n . F ur t h er m or e, h e h ad a l s o c on d uc t e d he ar i ng i n t h e as s es s ee 's c as e. Dur i n g t he per i o d o f o n e mo nt h u pt o t h e ex p ir y of o n e mo nt h fr o th e d at e of s er v ic e of n o ti c e u/s 1 4 2( 1) a n d 14 3( 2) , i t was t h e DC IT, C ir c l e 2( 1) C h an d i gar h w ho w as ex c ur s in g t he j ur is d ic t i o n as he h a d be e n d oi n g i n th e p as t . T h e tr a ns fer o f t he c as e fr o m D C I T C ir c l e2( 1) , Ch a nd i ga r h t o AC IT, Cir c l e 6( 1) , Ch a nd i g a r h t ook p l ac e af t er th e t im e p er i od pr es c r i b ed u/s 1 2 4( 3) as s uc h t h e as s es s ee ha d n o r i g ht t o c ha l l en g e t he j ur is d ic t i o n of AC IT Cir c l e 6( 1) . Ch a nd i g a r h a nd in any c as e th e as s es s e e 7 wo u ld n o t hav e o b jec te d to t h e ex er c is e o f jur is d ic t i o n by AC IT C ir c le 6( 1) , Ch a nd i ga r h bec a us e as p er S ec . 12 0 , h e d id hav e t he t er r i tor i a l j ur is d ic ti o n ov er its c as e. Bu t t o mak e s uc h a tr a ns fer , i t w as n ec es s ar y o n t he p ar t of t he CIT c o nc er n ed t o p as s an or de r u /s 1 2 7 tr a n s fer r i n g t he c as e fr o m DCI T, C ir c l e 2( 1 ) , C ha n d ig ar h to AC IT C ir c l e 6( 1 ) , C h an d i gar h w h ic h w as no t p as s e d . Th er e f or e , AC IT Cir c l e 6( 1) , C h an d i gar h d i d n o t ac q ui r e j ur is d ic ti o n ov er th e as s es s e e. T ho u gh it has be e n c l a im e d by th e As s es s i ng O f f ic er in h is le tt er da t ed 2 8/ 0 5/ 20 0 7 t h at no d ir ec t i o n h a d be e n is s u e d by t h e J o i nt Co m m is s i o ne r of I nc o m e T ax , it is s ee n fr om t h e as s es s m en t or der its e lf t ha t s uc h d ir ec t i o ns wer e is s u e d a n d t he r e a p pe ar s t o be n o r eas o n f or t h e As s es s i ng O ff ic er t o mak e s uc h a fa ls e c l a im / s ta t em e nt in th e as s es s me nt or der . In c as e it is ac c e p te d t ha t AC IT C i r c l e 6( 1) , Ch a nd i ga r h ha d jur is d ic t i on ov e r t he as s es s e e an d DC IT , Ci r c l e 2( 1 ) , C h a nd i ga r h h a d no j ur is dic t io n , t h en t h e as s es s me nt or d er is l i ab l e t o b e c anc e l le d o n t h e gr ou n d th a t n ot ic e u/s 14 3( 2) f or th e f ir s t ti m e w i th i n li m i ta t io n da t ed pr es c r ib e d u n d er t h e pr ov is o t o Sec . 1 43 ( 2) w as is s ue d by D CIT C ir c l e 2( 1) , C ha n d ig ar h an d no t by A CI T, Cir c l e 6( 1) , Ch a nd i ga r h . Th er ef or e , i t w il l s er v e n o p ur p os e to ar g u e t ha t A CI T Cir c l e 6( 1) , Ch a nd i ga r h h ad a l l al on g j ur is d ic ti o n ov er t he as s es s e e . T he As s es s in g O ff ic er ha d m en t i on e d t h at at t he t i me o f fr am i ng o f th e as s es s me nt or d er , t he j ur is d ic t i o n of t he c a s e was tr ans f er r e d t o AC IT C ir c le 6( 1) , Ch a nd i ga r h . It ap p ea r s fr om th e s ta te m en t o f As s es s i n g O ff ic er t h at t h er e w a s no n ee d t o tr a ns f er th e jur is d ic t i o n b ut h e h as no t m e nt i on e d u n der w hic h pr o v is io ns of th e Ac t t he c as e was tr a ns f er r ed t o hi m . T he as s es s i n g O ff ic er h a s r ef er r e d t o s om e s t an d in g i ns tr u c ti o ns w h ic h I m ay me n ti o n ar e n o t b i n d i ng o n CIT( A) un d er s ec t io n 11 9. Th e ar g um e nts r e la t i ng to s o c a l l ed P A N h is t or y ar e ir r e lev a nt as t he o nus was no n th e As s es s i ng O ff ic er t o pr od uc e th e o r d er u/s 12 7 w h ic h h e h ad n ot do n e s o f ar . I n f ac t t h er e was n o or de r u/s 1 27 on r ec or ds as i t was n o t s er v ed o n th e as s es s ee . Ac c or d in g ly , t h e A CIT C ir c l e 6( 1) d id no t hav e j ur is d ic t i on ov er th e as s es s e e .
Th e as s es s m e nt or d e r is c a nc e l l ed as A CI T, C ir c le 6( 1) Ch a n di gar h d i d n o t hav e j ur is d ic t io n ov er th e as s es s e e i n a b s enc e of o r d er u nd er s ec t i o n 12 7 tr a ns f er r i n g t h e c as e t o h im f r o m DC IT , C ir c l e, 2( 1) C h an d ig ar h. "
7 Before us, the ld. DR for the revenue mainly submitted that the ld. CIT(A) should not have admitted this ground for adjudication. She referred to the decision of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (S.C) in which it was clearly held that only legal issues can be admitted by the appellate authority for adjudication and if the facts were not on record then such issues can not be entertained by the appellate authority. Since issue of jurisdiction also involve some factual matrix this issue could not have been entertained by him. She also relied on the decision of Hon'ble Punjab & Haryana High Court in case of Aravali Engineers P. Ltd. Vs. CIT, 335 ITR 508 (PH) where it was held that question of law should not be entertained by appellate authority if the facts regarding that issue are not available on record.
8 She further submitted that in view of the provisions of section 246A of the Income Tax Act, 1961 which clearly provides the issues against which an appeal can be filed before the ld. CIT(A). Since the orders passed u/s 120 to 127 are clearly not appearing in Section 246A and therefore, same are not appealable. In this 8 regard she placed reliance on the decision of Hon'ble Allahabad High Court in case of CIT Vs. British India Corporation Ltd. 337 ITR 64 (All). She also referred to Section 124(3)(a) and pointed out that this provision clearly provides that no person can challenge the jurisdiction after one month from the date of service of notice u/s 143(2) and 142(1). In this regard she strongly relied on the decision of Hon'ble Punjab & Haryana High Court in case of Smt. Jaswinder Kaur Cooner Vs. CIT, 291 ITR 80 (PH). Since in this case notices u/s 143(2) and 142(1) were issued by the ACIT Circle 2(1) and case was transferred to Circle 6(1) because PAN of the assessee was transferred u/s 127 of Income Tax Act. In this regard she filed copies of the order passed u/s 127 of Income Tax Act. In this regard she also submitted that transfer of the cases within various Commissionerate takes place by consolidated transfer order in computers and ultimately transfer issues are passed through Assessee Information System (in short AIS). Updation and transfer of PAN number has been mandatorily required to be processed through computer software and no separate orders are required to be passed. The transfer orders are passed under the code of Commissioner only. In this regard she filed copies of the necessary instructions issued by Addl Director of Income Tax systems. Moreover notices were also issued u/s 143(2) and 142(1) by ACIT Circle 6(1) within the limitation from the date of filing of revised return and therefore, if the assessee had any objections, same should have been made before the ACIT Circle 6(1).
9 She also contended that first appellate authority did not appreciate the fact that actual territorial jurisdiction of the assessee u/s 120 r.w.s. 124 of Income Tax Act fell under ACIT, Circle 6(1). In this regard she filed copies of the notification issued by the CCIT, North W est Region fixing the jurisdiction in Circle 6(1). Moreover the assessee had also filed return voluntarily with Circle 6(1) as Regd Office of the assessee was transferred to Sector 62, Mohali during the relevant period. She also relied on the decision of Hon'ble Punjab & Haryana High Court in case of Subhash Chander Vs. CIT, 218 CTR 191 (copy of the decision filed in the paper book) where it was clearly held that jurisdiction cannot be called in question into by the assessee after expiry of one month from the date of service of notice. Similar view has been further taken by Hon'ble Allahabad High Court in case of CIT Vs. Sewa Ram Jaggi, 222 CTR 412. She 9 submitted that ACIT Circle 6(1) was having inherent territorial over th e asse ssee because of the o rde r p assed b y the C.C.I.T, N.W . Region, Chandigarh u/s 120 of Income Tax Act. Therefore, ACIT Circle 6(1) has jurisdiction by virtue of the order passed by the CIT- II u/s 120 of the Income Tax Act on 15.10.2001 in pursuance of the order passed u/s 120 on 11.5.2001 by C.C.I.T. In view of this inherent jurisdiction sub-section (5) of Section 124 will come into operation which starts with non-obstante clause. She elaborately dealt with the provision of section 124(5) and also referred to the discussion in the commentary by Sampath Iyengar's in Commentary Law of Income Tax, Volume 5 (Edition 2012) Pg 8901.
10 She also submitted that there is a difference in situation where there is inherent lack of jurisdiction and where jurisdiction is irregularly exercised then in later case the party can said to have waived the objection regarding jurisdiction if such party has participated in the proceedings. In this regard she relied on the decision of Hon'ble Punjab & Haryana High Court in case of CIT Vs. Shri Pal, 293 ITR 273. According to her the ratio of this decision is fully applicable to the case of the assessee.
11 In any case the ld. CIT(A) should have appreciated that after insertion of Section 292B w.e.f. 1.10.1975 in the Act, no assessment can be treated invalid merely because of any mistake, defect or omission. The ld. CIT(A) has also failed to appreciate that the assessee has not suffered any hardship because the jurisdiction was not transferred to a city outside Chandigarh.
12 On the other hand, the ld. counsel of the assessee submitted that originally jurisdiction of the assessee was with Assessing Officer, Circle 2(1), Chandigarh and who has exercised the jurisdiction by issuing notice u/s 143(2) within the limitation period i.e. on 5.1.2004 and that is why the assessee did not raise any objection. The assessee filed even the revised return with Circle 6(1) but the same was again transferred to Circle 2(1) by the assessing authority of Circle 6(1). The Assessing Officer has clearly recorded a finding that DCIT Circle 2(1) took up the matter for transferring the case to Circle 6(1) and the matter was taken with JCIT Range VI who finally directed to transfer the case in Circle 2(1) in May 2005. Firstly this transfer was done without any proper order passed u/s 127 of Income Tax Act. in any case the JCIT has no 10 power to make order of transfer u/s 127. Therefore, Circle 6(1) had no jurisdiction to make the assessment. In this regard he relied on the following case laws:
i Lt. Col. Paramjit Singn Vs. CIT & Another, 220 ITR 446 (PH) ii Inderjit Singh & Co. Vs. State of Punjab & others (Civil W rit Petition No. 3397 of 1973 (copy of judgment filed at page 59 to 61 of paper book).
iii ValvoLine Cummins Ltd. Vs. DCIT, 307 ITR 103 (Del) iv Gangadhar Aggarwal Vs. JCIT, New Delhi in IT(SS)A No. 257/Delhi/2001 (copy enclosed at page 67-73 of paper book).
v P.A. Ahammed Vs. CCIT & another, 282 ITR 334 (Ker) 13 He further submitted that notice u/s 143(2) was issued by ACIT
Circle 2(1) in pursuance to return filed u/s 139(1) by which time the period of 30 days for raising the objection as per Section 124(3)(a) has also expired. In any case Section 124(3)(a) refers to Section 139(1) and since ultimately the assessee filed return u/s 139(5) which was also transferred to circle 2(1), therefore, there was no requirement for raising the objection against the return filed u/s 139(5). Moreover the assessee's territorial jurisdiction lies with Assessing Officer circle 6(1) and return was filed there and the same was transferred to circle 2(1) by the Income-tax authorities themselves. He pointed out that it is a settled position that assessee's belief cannot confer the jurisdiction by acquiescence. The assessee can neither grant nor take away the jurisdiction of Assessing Officer. By participating in the assessment proceedings jurisdiction cannot be conferred on the Assessing Officer. As far as provisions of section 292B are concerned, firstly they were brought on the statute w.e.f 31.3.2008 and secondly since the revenue has not compiled with the scheme of the Act i.e. by passing an order u/s 127 for transfer of the case, jurisdiction was not properly exercised by the Assessing Officer. In this regard he relied on the decision of Delhi Tribunal in case of Impast Pvt Ltd Vs. ITO, 276 ITR 136 (AT).
14 It was further submitted that notice u/s 143(2) by Assessing Officer Circle 6(1) on 12.7.2005 was not in pursuance of the revised return but it was to comply with the provisions of section 129 as it is clearly mentioned in the assessment order itself. This means no proper notice was given by the Assessing Officer Circle 6(1) and the proceedings were continued from where they were left by Assessing Officer Circle 2(1).11
15 It was further submitted that in the enclosure annexed with the written submissions by the Revenue it was stated to be an order passed u/s 127 is merely an order for transfer of PAN and cannot be construed an order u/s 127. This order does not record any reason and the same was also not served to the assessee which means that the order suffers from serious infirmity. In this regard he relied on the decision of Ajantha Inds and others Vs. CBDT and others, 102 ITR 281 S.C).
16 The ld. counsel of the assessee also submitted that normally disputes regarding territorial jurisdiction cannot be appealed before the ld. CIT(A). However, in the present case the dispute is not regarding territorial jurisdiction but the dispute is regarding jurisdiction itself which has been wrongly exercised and once the dispute goes to the root of the matter then the same can be challenged before the appellate authority. In this regard he relied on the decision of Hon'ble Calcutta High Court in case of W est Bengal State Electricity Board Vs. DCIT and another, 278 ITR 218 (Cal). He has also relied on the decision of National Thermal Power Ltd. Vs. CIT (supra) wherein the Hon'ble Supreme Court clearly observed that once the question of law arises which goes to the root of the jurisdiction then the same can be raised for the first time before the Tribunal. He also relied on the decision of Hon'ble Rajasthan High Court in case of CIT V. Gian Parkash Gupta, 54 CTR
69.
17 The ld. counsel of the assessee also distinguished the decisions relied on by the revenue. He contended that in case of Smt. Jaswinder Kaur Cooner (supra) an order u/s 127 has been passed which was not challenged whereas in the present case no order u/s 127 was passed. In case of Subhash Chander (supra) the jurisdiction lied with the Assessing Officer who had issued notice u/s 143(2) and has also passed the assessment and the issue of jurisdiction was not challenged with him within the limitation period u/s 124(3)(a). But in the present case only issue raised before the CIT(A) was that the Assessing Officer having territorial jurisdiction did not assume the same by issuing notice u/s 143(2) within the limitation period. In case of British India Corp (supra) Assessing Officer issued notice u/s 143(2) and also and passed an assessment order and no objection was raised u/s 124(3)(a) to the territorial jurisdiction of the said Assessing Officer i.e. why it was held that the 12 ld. CIT(A) was not competent to entertain the ground of jurisdiction. The case of CIT Vs. Shree Pal Oswal (supra) is also distinguishable because in that case the Assessing Officer was not lacking the inherent jurisdiction whereas in the case before us, there was a lack of inherent jurisdiction and that question being a legal question which was challenged before the ld. CIT(A).
18 W e have heard the rival submissions carefully in the light of material on record, case laws cited by parties as well as the written submissions furnished before us, Originally the assessee was filing returns in Circle 2(1) because assessee's Head Office was situated in Sector 17, Chandigarh. Later on the office was shifted to PUDA Bhawan, Mohali, therefore, assessee itself filed the returns for the present years i.e. 2003-04 with Circle 6(1) declaring income of Rs. 21,15,46,295/- on 28.11.2003. It was noticed that since the assessee was regularly assessed by ACIT Circle 2(1), Chandigarh the return was transferred to that office. The case was selected for scrutiny by ACIT Circle 2(1) and a notice u/s 143(2) and 142(1) of Income Tax Act, 1961 (hereinafter referred to as "Act") on 5.1.2004 which was served on the assessee on 8.1.2004. Some questionnaire were also issued on 5.1.2004 and 10.9.2004. Later on the assessee filed revised return on 7.2.2005 again in Circle 6(1). This revised return was also transferred to DCIT Circle 2(1), Chandigarh on 17.2.2005 as the assessee was being regularly assessed by that Circle. Thereafter according to the Assessing Officer, the DCIT Circle 2(1), Chandigarh took the matter of transfer of the case to this circle and the matter was taken up with JCIT Range 6 who finally directed him to transfer the record and same was transferred to Circle 6(1) in May 2005. No doubt the revenue has not handled the matter properly in the sense that first returns filed in Circle 6(1) were transferred to Circle 2(1) and then the issue was taken as a matter of transfer at the level of JCIT. However, at the same time we have to find out the correct legal position and the correct jurisdiction of the assessee. First objection raised by the ld. counsel of the assessee is that no proper transfer order has been passed u/s
127. Relevant portion of various provisions dealing with issue of jurisdiction, reads as under:
" 12 0. ( 1) Inc om e t ax a ut hor it i es s h al l ex er c is e a l l or a n y of th e p o wer s a nd per f or m all or a n y of the f u nc t i o ns c o nf er r ed on , or , as t he c as e m a y be , as s ig n ed to s uc h a ut hor i t ies b y or u n der th is Ac t i n ac c or d anc e wit h s uc h 13 d ir ec t io ns as t h e B oar d m a y is s u e f or the ex er c is e of th e p o wer s a nd per f or m anc e of t h e f u n c ti o ns b y a l l or a n y of th os e au t hor i t ies .
( 2) T he d ir ec t i ons of th e Bo ar d u n de r s u b- s ec t i on( 1) m a y a ut h or i ze a n y o t her i nc om e- t ax au th or i t y t o i s s u e or d er s i n wr it i ng f or t he ex er c is e o f the p o wer s an d pe r f or m anc e of th e f u nc t i ons b y a l l or an y of t he ot h e r i nc om e- t ax au t hor i ti es wh o ar e s u bor d i na t e to it .
( 3) I n is s u i n g t he d ir e c ti o ns or or der s r ef er r ed to i n s u b- s ec t i o ns ( 1) a n d ( 2) , t h e B oar d or o th er inc om e t ax a ut h or it y au t hor i ze d b y i t m a y ha v e r eg ar d t o a n y on e or m or e of th e f o ll o wi ng c r it er i a, n am el y: -
( a) t er r it or ia l ar e a;
( b) p er s o ns or c las s es of p er s o ns ;
( c ) inc om es or c l as s es of i nc om e; a n d ( d) c as es or c l as s es if c as es , ( 4) W itho u t pr ej u d ic e to t h e pr o v is io ns of s ub- s ec ti o ns ( 1) a n d ( 2) , th e Bo ar d m a y, b y ge n er a l o r s p ec ia l or d er , an d s u bj e c t to s uc h c on d it i ons , r es tr ic t io ns or l im ita t io ns as m a y b e s pec if ie d t her e i n,-
( a) au t hor i ze a n y D ir ec t or G e n er a l o r Di r ec tor t o p er f or m s uc h f u nc t i ons of an y o t her i nc om e- t ax au t hor i t y as m a y b e as s i gn e d to h im b y t h e B oar d ; ( b) em po wer t he D ir ec t or G e ne r a l or C hi ef C o m m is s io ner or C om m is s i on er to is s ue or der s i n wr i ti ng th a t t he p o wer s a n d f unc t io ns c onf er r e d on , or as t h e c as e m a y b e, as s ig n e d t o , t h e As s es s i n g O f f ic er b y or un d er th is Ac t i n r es pec t of a n y s pec if i e d ar e a or per s o ns or c las s es of p er s o ns or i nc om es or c l as s es of i nc om e or c as es or c l as s es of c as es , s h a l l b e ex er c is e d or p er f or m ed b y a [J o i nt ] C om m is s io ner [or a [J o in t] D ir ec t o r ], a nd , wh er e an y o r de r is m ad e un d er t h is c l a us e , r ef er e nc es in an y ot h er pr o v is i o n of t his Ac t, or i n an y r u l e m ade t he r e u nd er t o t h e As s es s i ng O f f ic er s ha l l be de em ed to be r ef er enc es t o s uc h [J oi n t ] C om m is s i on er [or [J oi n t] Di r ec t or ] b y wh om th e po we r s an d f unc t i o ns ar e to b e ex er c is e d or per f or m ed un d er s uc h or d er , a nd an y pr o v is io n of t his Ac t r e qu ir i ng a ppr o v a l or s a nc ti o n of th e [J o i nt ] Com m is s io ner s h a l l no t ap p l y.
( 5) T h e d ir ec t i ons a nd or d er s r ef e r r e d t o i n s u b- s ec t io ns ( 1) a n d ( 2) m a y wh er e ver c o ns id er ed nec es s ar y or a pp r o pr i at e f or t h e pr o pe r m ana g em ent of th e wor k , r e qu ir e t wo or m or e As s es s i ng O f f ic er s ( whe t her or n o t of t h e s am e c l as s ) t o ex er c is e a nd p er f or m , c o nc ur r e nt l y, t he p o wer s an d f unc t i o ns i n r es p ec t of a n y ar ea or p er s o ns or c l as s es of p er s o ns or i nc om es o r c l as s es of i nc om e or c as es or c l as s es of c as es ; an d wher e s uc h p o wer s a n d f unc t io ns ar e ex er c is e d an d p er f or m ed c o nc u r r e nt l y b y th e As s es s in g O f f ic er s of d if f er en t c l as s es , a n y a u th or it y lo we r i n r a nk am ong s t th em s ha l l ex er c is e t he po we r s an d per f o r m the f u nc t i ons as a n y h i g her a ut h or i t y am o ngs t t he m m a y d ir ec t, an d , f ur t h er , r ef er e nc es in a n y ot he r pr o v is i on of t h is Ac t or i n a n y r ul e m ad e th er eu n der t o t h e As s es s in g O f f ic er s h a l l b e d eem ed t o b e r ef e r enc es t o s uc h h ig h er a u th or it y a n d a n y pr o v is i on of t h is A c t r e q u ir in g ap pr o v al or s anc t io n of an y s uc h a u th or it y s ha l l n ot a p pl y.
( 6) No t wi ths t an d i ng a n yt h in g c o nt a i ne d i n an y d ir ec ti o n or or der is s u ed u n der th is s ec t i o n, or i n s e c ti o n 12 4 , t h e Bo ar d m a y, b y n ot if ic at i o n i n t h e O f f ic i al G a ze t te , di r ec t th at f o r t he p ur pos e of f ur nis h in g of t he r et ur n of i nc om e or th e do i n g of an y ot h er ac t or th i ng un d er t h is A c t or a n y r u l e m ade t her e u nd er b y an y p er s on or c las s of p er s ons , th e i nc om e- tax a ut h or it y ex er c is i n g an d per f or m in g th e p o wer s a nd f u nc t i ons in r el at i on t o t he s a i d p er s on o r c la s s of per s o ns s h a ll be s uc h au t hor i t y as m a y b e s p ec if i ed in t h e no t if ic at i on .] [ J ur is d ic ti o n of As s es s i ng O f f ic er s .
12 4 . ( 1) W her e b y v ir t ue of a n y d ir ec ti o n or or d er is s ue d un d er s ub- s ec ti o n( 1) or s u b- s ec t i o n( 2) of s ec t i on 1 20 , t h e As s es s i ng O f f ic er has b ee n v es t e d wit h j ur is d ic t i o n o v er a n y ar e a, wi t hi n t h e l i m its of s uc h ar e a, he s ha l l ha v e j ur is d ic t i o n-
( a) i n r es p ec t of a n y per s on c ar r yi n g o n a b u s i nes s or pr of es s io n, if t he p lac e at wh ic h he c a r r i ed o n h is b us in es s or pr of es s io n is s it ua te wit h i n th e ar e a , or wh er e h is b us in es s or pr of es s io n is c ar r i ed on i n m or e p l ac es t h a n on e , if t h e pr i nc ip a l p lac e of his b us in es s or pr of es s i on is s it u at e wi th i n t h e ar e a , an d ( b) i n r es p ec t of a n y o t her p er s on r es i d i ng wi th i n t he ar e a.
( 2) W her e a q u es t i on ar is es un d er t h is s e c ti o n as t o wh e th er an As s es s i ng O f f ic er h as j ur is d ic ti o n t o as s es s a n y p er s o n, th e qu es ti o n s h a l l be d et er m in e d 14 b y th e D ir ec t or G e ne r a l or th e C h ief Com m is s io n er or th e C om m is s io n er , or wh er e t h e q ues t io n is o ne r e l at i n g to ar e as wit h in t h e j u r is d ic t i o n of d if f er e n t Dir ec tor G e n er a ls or Ch i ef Com m is s io n er s or C om m is s i o ner s , b y th e D ir ec t or s G e ner a l or C h i ef Co m m is s io ner s or C om m is s io n er s c o nc er ne d or , if th e y ar e no t i n a gr eem en t, b y t he B oar d or b y s uc h D ir ec t or G e n er a l or Ch i ef Com m is s io ne r or C om m is s io n er as th e B oa r d m a y, b y n ot if ic a ti o n i n t he O f f ic i a l G a ze t te , s p ec if y.
( 3) No p er s o n s ha l l b e en t it l ed t o c a l l i n qu es t i o n t h e j ur is d ic t i on of an As s es s i n g O f f ic er -
( a) wh er e he h as m ad e a r et ur n u nd er s u b- s ec ti o n( 1 ) of s ec t i o n 13 9 , af t er th e ex p ir y of o n e m ont h f r om the da t e o n wh ic h h e was s er v e d wi t h a n o tic e un d er s ub- s ec t io n ( 1) of s ec ti o n 14 2 or s u b- s ec t i on ( 2) of s ec t i o n 1 43 or af t er th e c om pl et i o n of t h e as s es s m e nt, wh ic he v e r is ear l i er ; ( b) wh er e he h as m ad e n o s uc h r e tu r n , af ter t h e ex p ir y of t h e t im e a l lo we d b y th e n o tic e u n d er s ub- s ec ti o n( 1) of s ec t i on 14 2 or un d er s ec t i on 14 8 f or t he m ak in g of t he r et ur n or b y th e n ot ic e u nd e r t he f ir s t pr o v is o t o s ec t i on 1 4 4 to s ho w c aus e wh e y t h e as s es s m e nt s ho u l d n o t b e c om p le t ed to t he bes t 6 of t h e j ud gm en t of t h e As s es s i ng O f f ic er , wh i c h e v e r is ear l i er .
( 4) - - - - - - - - - - - - - - - - - - - - -
( 5) - - - - - - - - - - - - - - - - - - - - -
12 7 . ( 1) T he D ir ec t o r G en er a or C hi ef C o m m is s io ner or C om m is s i on er m a y, af ter g i v in g th e as s es s ee a r eas o na b l e o p por tu n it y of b ei n g h e ar d i n t he m at t er , wh er e ver it is pos s i b l e to d o s o , a nd af t er r ec o r d i ng his r eas o ns f or d oi n g s o, tr a ns f er an y c as e f r o m one or m or e As s e s s i ng O f f ic er s s u bor d i na te to him ( wh et h er wi t h or wi th o ut c o nc u r r e nt j ur is d ic t i on) t o an y o th er As s e s s i ng O f f ic er or As s es s i n g O f f ic er s ( wh et h er wi th or wi t ho u t c o nc ur r e n t j ur is d ic t i on) a ls o s ub or d in a te t o h im .
( 2) W her e t he As s es s i ng O f f ic er or As s es s i n g O f f ic er s f r om wh om th e c as e is t o be a n d th e As s es s i ng O f f ic er or As s es s in g O f f ic er s t o wh om the c as e is t o be tr a ns f er r e d ar e n o t s ub or d in a te t o t h e s am e Dir ec tor G e ne r a l or C h i ef Com m is s io ne r or C om m is s io n er ,-
( a) - - - - - - - - - - - - - - - - - - - - - - - -
( b) - - - - - - - - - - - - - - - - - - - - - - - -
( 3) N o th i ng i n s ub- s ec ti o n( 1 ) or s u b- s ec t i on( 2) s h a l l be d eem ed t o r eq u ir e a n y s uc h o p p or t un i t y to b e g i ve n wh er e t he tr a ns f er is f r om an y A s s es s in g O f f ic er or As s es s in g O f f ic er s ( wh et h er wi t h or wit h ou t c o nc ur r e nt j ur is d i c ti o n) to an y ot h er As s es s in g O f f i c er or As s es s i n g O f f ic er s ( wh e th er wi th or wi th o ut c onc ur r e nt j ur is d ic t i on ) an d t he of f ic es of a l l s uc h of f ic er s ar e s i tu at e d i n t he s am e c i t y, loc a l it y o r p l ac e .
( 4) T h e tr ans f er of a c as e u n d er s ub- s ec ti o n ( 1) or s u b- s ec t i on( 2) m a y be m ade at an y s t a ge of th e pr oc e e d in gs , a nd s ha l l n ot r en d er n ec es s ar y th e r e- is s ue of an y n ot ic e a lr ea d y is s ue d b y th e As s es s in g O f f ic er or As s es s in g O f f ic er s f r om wh om th e c as e is tr a n s f er r e d.
12 9 . W hene v er i n r e s pec t of a n y pr oc e e d i ng u nd er t his Ac t o n inc om e- t ax au t hor i t y c eas es t o ex er c is e j ur is d ic t i on a n d is s uc c e ed e d b y an o t her wh o has an d ex er c is es j ur is d ic t i on , th e i nc om e- t ax au th or it y s o s uc c e e d in g m a y c on t in u e th e pr oc e e d in g f r om t he s t a ge at wh ic h t he pr oc e ed i n g was l ef t b y h is pr e d ec es s or ;
Pr o v id e d t ha t t h e as s es s e e c onc er n ed m a y dem an d th at b ef or e t he pr oc e e d in g is s o c o nt i nu e d t h e pr e v io us pr oc e ed i n g or an y p ar t th er eof be r e op e ne d or t h at bef or e a n y or d er of as s es s m ent is p as s e d a g a ins t h im , h e b e r e he a r d.
19 Section 127(1) provides that a case may be transferred by Director General of Income Tax or Chief Commissioner of Income Tax or the Commissioner of Income Tax from one Assessing Officer to another after providing for the reasonable opportunity to the assessee. However, sub-section (3) of this section carves out an 15 exception which provides that no such opportunity is required to be given where a case is transferred within the same city. Since in case before us, the case has been transferred within the same city, therefore, no opportunity was required to be given to the assessee.
20 The ld. DR for the revenue has furnished an enclosure showing transfer of PAN of the assessee from Circle 2, Chandigarh to Circle 6 of Chandigarh. She has submitted that this has to be construed an order passed u/s 127 because after computerization such orders were required to be passed through the computer software known as AIS. In this regard she had referred to a letter dated 24.5.1999 through which the orders u/s 120, 127 were directed to be passed on system using the Assessee Information System (AIS). The relevant letter reads as under:
" Dat e d: 24 .0 5 .1 9 99 S ir , S ub : T r ans f er of j ur is d ic t i on of c as es u n de r S ec t i ons 1 2 a n d 1 2 7 of th e Inc om e- t ax Ac t - pr oc ed ur e r eg ar d in g .
It h as c om to th e no t ic e of t his D ir ec t or a te th at or d er s r e la t in g t o tr ans f er of j ur is d ic t i o n u n der S ec ti o ns 1 2 0 a nd 1 27 of th e I nc om e- t ax Ac t ar e n ot be i ng pas s e d o n th e s ys t em us in g t he AI S a p pl ic at i on Sof t wa r e .
2. In t his c o nt ex t, I am d ir e c t ed t o s t a te t h at t he As s es s ee I nf o r m ati on S ys t em ( AI S) s of t wa r e p r o v i des f or t r a ns f e r of j ur is dic t i on u nd er S ec t i ons 1 2 0 an d 1 27 of th e Inc om e- t ax Ac t. T h e tex t of th e or d er c an b e a do pt e d f r om th e s ta n dar d or d er tex t a nd f ur th er c us tom is ed . T h e " tr a ns f er m ov e m ents " to b e ef f ec t ed f or an or d er i n c as es i d e nt if i e d b y P AN , s o ur c e A O an d d es t i na t io n AO c an b e e nt er ed an d m aint a i ne d i n th e s ys t em . T he dr af t or d er s c an b e pr i nt e d f r om the s ys t em , wh ic h a ls o pr o v id es f or ge ner a ti o n of i n tim at i o n l et ter s ( to th e c onc er n ed as s es s e s ) as we l l as t r a ns f er m e m os , o nc e t he or d er s ar e c o nf ir m e d on t h e s ys t em b y t h e CIT /C CIT o r D G IT c o n c er n e d. I n c as e of b ul k tr ans f er , a s um m ar i ze d tr a ns f er m em o c an b e pr i nt e d . I n c as e a PC on n et wor k is n ot a va i l ab l e in t h e r o om of the As s es s in g O f f ic er , t h e m ac hi n es pr o v id e d i n t he r es p ec ti v e T er m in al B ank s c an b e u t il i ze d .
3. T he r e qu is i te ins tr uc t i ons / pr oc e d ur e f or tr a ns f er of j ur is d ic t io n i n AI S is g i ve n i n th e A I S Us er M an u a l, a c o p y of wh ic h h as b ee n s e nt t o yo u v i de t h is of f ic e le tt er of e ve n n o . da t ed 2 1 .0 5. 9 9( AI S I ns tr uc t i o n n um ber A I S - 3) .
4. Yo u ar e, th er ef or e, r eq u es t e d t o is s u e s u it ab l e i ns tr uc t i ons to th e c onc er n ed of f ic er s of yo ur r e g io n t o ens u r e t h at t h e tr a ns f er of j ur is d ic ti o n or d er s un d er Sec t io n 12 0 a n d 1 2 7 of t h e Inc om e- t ax Ac t ar e p as s e d on th e s ys tem us in g th e AI S ap p l ic a t io n s of t war e s o t h at th e j ur is d ic t io n wi t h r ef er e nc e to P AN i n t he As s es s e e Inf or m ati o n S ys tem i s k ept up d at ed .
Yo ur s f a it hf u l l y, ( S.W .Kau l) A d d l. D ir ec t or of Inc o m e- tax ( S ys t em s ) "16
Thus above clearly shows that the orders u/s 127 were required to be passed through AIS and accordingly the order has been passed on 15.9.2005. The enclosure 'A' reads as under:
P AN Dat e o f Dat e o f Fr o m To P r o ced u r e Sec tio n
All o t me n t T r ans f er
AA ALP 0 0 4 5 J 0 9 .0 7 .2 0 0 ( 1 ) 2 5 .1 1 .2 0 0 2 W I ( 2 ) C HD Cir cl e O n r eq ue s t U/ s -1 2 7
2 ( 2 ) 1 5 .0 9 .2 0 0 5 2 b y R. C. C.
CH D
AA ALP 0 0 5 6 D 1 1 .0 1 .2 0 0 No t T r a n s fer r ed N. A N. A N. A N. A
3
Above clearly shows that this order was passed u/s 127.
21 In this regard, the ld. counsel of the assessee has objected by citing the decision of Ajantha Industries (supra). Careful perusal of this judgment shows that assessments were being made in the Nellore Distt and files were sought to be transferred to Hyderabad which means the case was transferred from one City to another city and therefore the same would not be covered by the exception provided u/s 127(3). As noted earlier sub-section (3) of Section 127 clearly provides that no opportunity is required to be provided to the assessee if the case is transferred within the city because in such cases the assessee is not inconvenienced and therefore reasons may not be required to be recorded. However, at the same time it is not clear whether this order was served on the assessee or not. Therefore, basically it can be said that an order u/s 127 for transfer of the case has already been passed but even if assuming for the sake of argument that this order was not served on the assessee and this is not proper order. The jurisdiction has still to be exercised properly and legitimately by the Assessing Officer by Circle 6(1) for the following reasons. Firstly if the assessee had problem with the jurisdiction then the assessee should have raised the objection u/s 124(3)(a) which clearly provides that if the objection is not raised during the assessment within a period of one month from the issue of notice u/s 143(2) then the issue of jurisdiction cannot be called in question after completion of assessment. The Hon'ble Punjab & Haryana High Court in case of Subhash Chander Vs. CIT (supra) has clearly held that jurisdiction cannot be called in question by the assessee after expiry of one month from the date of completion of assessment if no objection is raised during that period. The ld. counsel of the assessee tried to 17 distinguish this case by submitting that in this case notice u/s 143(2) was issued by the Assessing Officer who had jurisdiction. In case before us, the assessee has itself filed return in Circle 6(1) and notice has been finally issued by the Assessing Officer of Circle 2 (1) against the revised return filed by the assessee in Circle 6(1) which was having initially jurisdiction to Circle 2(1) but the return was against transferred to Circle 6(1). Another objection was that since the Assessing Officer of Circle 2(1) had already issued notice u/s 143(2) on 5.1.2004, therefore, the jurisdiction will be that of the Assessing Officer Circle 2(1). We find no force in this submission because after filing of revised return the authorities get fresh powers to issue notice u/s 143(2) against such revised return which was issued on 12.7.2005. The revised return filed on 7.2.2005 u/s 139(5) which was well in time. At the relevant point of time notice u/s 143(2) could have been issued within a period of 12 months from the end of the month in which the return has been furnished. In this regard we reproduce the provisions of section 143(2) which read as under:
" [( 2) W her e a r et ur n h as be e n f ur n is he d u nd er s ec t i o n 13 9, or i n r es p o ns e t o a no t ic e un d er s u b- s ec t i on( 1) of s ec ti o n 1 42 , t he As s es s i n g O f f ic er s ha l l ,- ( i) wh er e h e h as r eas o n t o b e l ie v e t h at an y c la im of los s , ex e m ptio n , de d uc t i on , a l lo wa nc e or r e li ef m ad e in t h e r et ur n is in a dm is s i b l e, s er ve o n th e as s es s e e a no t ic e s pec if yi n g p ar t ic u lar s of s uc h c l aim of los s , ex em pt i on , de d uc t i on , a l lo wa nc e or r e l ief an d r e q ui r e h i m , on a d at e to b e s p e c if i e d t h er ei n to pr o duc e, or c a us e to b e pr od uc ed , a n y e v id e nc e o r p ar t ic u l ar s s pec if ie d th er ei n or on wh ic h t h e as s es s e e m a y r e l y, i n s u pp or t of s uc h c l a i m :
[Pr o v i de d th a t n o n ot i c e un d er t h is c l aus e s ha l l b e s e r ve d o n t h e as s es s e e on st or af t er th e 1 d a y of J un e , 20 0 3; ] ( i i) no t wi ths t an d in g a n yt h in g c on t ai n ed i n c l aus e( i) , if h e c o ns i der s i t nec es s ar y or ex p e d ie nt t o e ns ur e t h at t he as s es s e e has n ot u n d er - s t a te d th e i nc om e or has no t c om pu t ed ex c es s i v e los s o r has no t u n der - p a id t he tax i n a n y m anne r , s er ve o n t he as s es s e e a no t ic e r e q u ir i n g h im , o n a da t e t o b e s p ec if i e d th er ei n , e it h er to att e nd his of f ic e or t o pr o duc e , or c a us e t o b e pr o d uc ed , a n y e v id e nc e o n wh ic h t h e as s es s ee m a y r e l y i n s up p or t of t he r et ur n: [ Pr o v i de d th at n o n o ti c e u n der c l a us e ( i i) s h a ll b e s er v e d o n th e a s s es s e e af ter th e ex p ir y of s ix m ont hs f r om the e nd of the f ina nc ia l ye ar in wh ic h th e r e t ur n is f ur n is h e d. ]]"
First of all it is clear from above that sub-section (2) of Section 143 refers to Section 139 which means that the return under various sub- section of Section 139 are included herein. Since notice has been issued on 12.7.2005 which is well within time and therefore, if the assessee had any objection he should have raised the same u/s 124(3)(a) within one month of issue of such notice. The ld. counsel of the assessee had made another objection that Section 124(3)(a) which refers to the objection to be raised by the assessee, in fact makes reference to returns filed u/s 139(1) and therefore, this requirement of raising the objection cannot be read in cases of 18 revised returns which are filed u/s 139(5). W e again f ind no force in this contention. Requirement for raising the objections regarding jurisdiction has been incorporated in Section 124(3)(a) because it is settled law that the issue of transfer is a administrative matter and if any question arises regarding jurisdiction the same can be determined by the Director General of Income Tax or the Chief Commissioner of Income Tax. This is specifically provided in sub- section (2) of Section 124. Another aspect is that in Section 246A which gives right to assessee for filing of appeals, no appeal has been prescribed in respect of jurisdiction issues i.e. against Section 120, 124 and 127 etc. The reason for not making a provision for filing of an appeal is that the issue of jurisdiction is an administrative act and that is why issue of jurisdiction has been left alone to be decided by the administrative authority u/s 124. Therefore, merely not mentioning sub-section (5) of Section 139 in Section 124(3)(a) can not lead to the conclusion that objection is not required to be raised u/s 124(3)(a) if the assessee disputes the jurisdiction. If this interpretation is adopted then that would mean that first the assessee allows the assessing authority to complete the assessment and then later on dispute the jurisdiction by way of an appeal which is not provided in the Act itself. It is settled law that appeal is a statutory right and no appeal can be entertained which has not been provided in a particular statute. In other words, the remedy has been provided to the assessee by making a provision for raising the objection regarding jurisdiction by Section 124(3)(a) and that is why no appeal has been provided in the Act.
22 One more objection was raised in respect of the issue of notice by the Assessing Officer Circle 6(1) i.e. this notice was issued only to comply with the provisions of section 129. No doubt assessing authority has clearly mentioned that notice u/s 143(2) and Section 142(1) dated 12.7.2005 were issued to comply with the requirement of provisions of section 129 but this is not correct p o s i t i o n (W e h a v e a l r e a d y o b s e r v e d e a r l i e r t h a t e v e n t h e R e v e n u e has not handled the issue properly). W e have already reproduced Section 129. This provision would come into operation where the incumbent officer in a particular office ceases to exercise the jurisdiction. Thus it is clear that this provision is not required to be used where a particular case is transferred from one particular jurisdiction to another jurisdiction. Even if assuming for the 19 argument sake that Section 129 would apply even in cases of transfer of jurisdiction we fail to understand how the assessee cannot be allowed to raise objection against the jurisdiction u/s 124(3)(a) particularly in the light of legal scenario that no remedy is available later on by way of appeal. Since both the parties have cited many case laws on this aspect we would like to discuss the important cases as under:
23 In case of CIT V. Sewa Ram Jaggi (Supra) the facts before the Hon'ble Allahabad High Court were that the assessee had filed return u/s 139(1) with ITO W ard 1(1), Lucknow and notice was issued by the same ITO. Later on the jurisdiction of the assessee was transferred by the CIT, Lucknow to W ard 1(2), Lucknow. However, ITO W ard 1(3), Lucknow had issued notice on 18.11.1995 u/s 143(2) of the Act which was served on the assessee. The assessee participated in the proceedings. Later on he raised the objection vide letter dated 21.3.1996 regarding jurisdiction. However, the ITO W ard 1(3) completed the assessment proceedings. The matter was taken to the ld. CIT(A) who allowed the relief. Even the Tribunal held on further appeal that in the absence of an order to transfer the ITO Ward 1(3), could have not assumed the jurisdiction over the assessee therefore, the assessment was nullity. Hon'ble High Court after considering the contentions of both the parties held vide para 6 as under:
" 6. W e hav e g i ve n o ur a nx i o us c ons i d er a t io n to t he var i o us p l e as o f th e le ar ne d c ou ns e l f or t h e par t ie s . Fr om the f ac ts s t a te d ab o v e, we f in d th at th e no t ic e un d er s . 1 4 3( 2) of t h e Ac t h a d be e n s e r ve d u po n t h e r es p o n de nt as s es s e e on th 18 N o v. , 1 99 5. T he p r o v is i o ns of s u b- s .( 3) of s . 12 4 of th e Ac t ar e s p ec if ic a nd c l ear t ha t a n as s es s ee or a n y ot h er pe r s on s h o u ld h a v e r ai s ed o bj ec t i on r eg ar d in g j ur is d ic t io n wi t hi n 3 0 d a ys f r o m the d a te of t he n ot ic e i. e. , t h e st s er v ic e . I n th e pr es e n t c as e, o bj ec t io n , if a n y, was r a is e d o n l y o n 2 1 Ma r c h , 19 9 6, wh ic h is m uc h be yo n d t h e p er io d of 30 da ys as pr o vi d ed i n s u b- s .( 3) of s .1 2 4 of th e Ac t. I t is we l l s e tt l ed t h at t h er e is no pl ac e f or eq u it y in t ax l a ws . W hether t he as s es s ee is u nd er a f ac tu a l im pr es s io n or has n o k no wl e dg e of t he or d er of t r a ns f er i n a par t ic u l ar c as e an d if h e is t o r ais e an y o bj ec t i on r eg ar d in g j ur is d ic t io n, he s h o ul d d o s o wit h i n 3 0 d a ys a n d no t be yon d th a t a n d th e s am e h a v in g no t be e n do n e in t he pr es en t c as e , we ar e of th e c ons i de r e d op i n io n t h at t h e T r ib u na l was no t j us tif ie d i n a nn u l l in g t h e as s es s m ent o n t h is gr o u n d a lo n e. "
23 From above it becomes clear that once a notice is issued by a particular officer and if the assessee wishes to object to such jurisdiction then objection has to be raised in terms of Section 124(3)(a) within 30 days of issue of such notice. Now in case before us, once the notice was issued to the assessee by Assessing 20 Officer Circle 6(1) and if the assessee had any objection to the jurisdiction he should have raised such objection within 30 days of issue of such notice. In the absence of such objection the assessee can not challenge the jurisdiction later on.
24 In case of Smt. Jaswinder Kaur Cooner (supra), Hon'ble Punjab & Haryana High Court was concerned with a case where the assessment was completed at income of Rs. 2,44,243/- on account of undisclosed investment made in the construction of house. The ld. CIT(A) allowed part relief and the Tribunal remanded the matter back to the file of Assessing Officer. The assessee had also raised the issue that the order of transfer of jurisdiction u/s 127 of the Act was also void and therefore, reassessment proceedings were void on that ground. The Tribunal did not agree that this proposition by following another order in which it was observed that the assessee had the knowledge of the order and did not challenge the same at the relevant forum. Therefore, same could not be set aside in the assessment proceedings by the Assessing Officer or the ld. CIT. On these facts it was held as under:
" T he s c o pe of as s es s m ent pr oc e e d in gs u n d er t he Ac t is c o nf i n e d to de te r m in in g th e i nc om e of the as s es s e e a n d l i ab i l it y t o t ax . T he of f ic er t o who m j ur is d ic t io n is t r a ns f er r e d an d wh o d er i v es j ur is d ic t io n f r om s uc h an or d er , c a n no t qu es ti o n th e v a l id i t y of s uc h an or d er . If th e as s e s s ee is ag gr i e ve d b y a n or d er of tr a ns f er , t he r em ed y of th e as s es s ee is to c h a l l en g e s uc h an or der i n i nd e pe n de nt pr oc e e di ngs e it her bef or e th e h ig h er a dm in is tr a ti v e au t hor i ti es as per t h e Ac t o r in a n y i n d e p en d en t pr oc e e d in gs b y wa y of a w r it p e ti t io n or ot h er wis e. If n o s uc h c ha l l en g e is m ad e at t he i n i ti a l s ta g e, t he is s ue c a n no t b e r a is e d i n a n a pp e a l ag a ins t th e as s es s m en t or d er . "
25 The ld. counsel of the assessee had tried to distinguish this decision by contending that in this case an order u/s 127 was passed which was not challenged by the assessee. We do not agree with the submissions because the ratio of the decision is that if the assessee has objection to the jurisdiction of such assessing authority then objection should be raised at the earliest before relevant forum or by way of W rit petition.
26 The ld. counsel of the assessee strongly relied on the decision of Hon'ble Punjab & Haryana High Court in case of Lt. Col. Paramjit Singh Vs. CIT (supra). In that case the assessee retired from Army o n A u g u s t 3 1 , 1 9 9 0 . At the time of retirement, he was posted at Pune in the State of Maharashtra. For the assessment year 1988-89 corresponding to the accounting year 1987-88, when the petitioner was 21 stationed at Pune, the petitioner filed a return of his income with the Income-tax Officer, GHQ W ard 4(3), Pune. The assessment for the year in question was completed by the Income-tax Officer, Pune, under section 143(1) of the Income-tax Act, 1961. The order of assessment was communicated to the petitioner and the amount payable was paid by the petitioner. After his retirement from the Army, the petitioner shifted to Jalandhar in the State of Punjab and settled there. In March, 1995, the Income-tax Officer, Jalandhar, issued a notice of reassessment for the assessment year 1988-89. T h e a s s e s s e e f i l e d r e t u r n o f i n c o m e w h i c h was filed before the ITO, Pune with a note thereon that the assessment proceedings for the relevant Assessment year had already been completed by ITO, Pune and the tax found payable was also paid. It was further submitted that notice issued was time barred and the Assessing Officer had no jurisdiction to proceed in the matter. It was also cited that the proceedings had been initiated at the instance of the father of the son-in-law with a view to harass the assessee because there was some matrimonial disputes between his daughter and her husband. The assessee also filed writ petition before the Hon'ble High Court. In the W rit Petition the Revenue took the preliminary objection to the effect that writ petition is not directed against the notice issued u/s 148 of the Act and since no adverse order has yet been passed against the assessee, the writ petition is premature and deserves to be dismissed. It was further stated that if the assessee is having any objection the same should be raised before the Income tax authorities. The Court did not accept this objection because of the extra ordinary situation and in this regard Hon'ble High Court observed as under:
" He l d, t ha t it was a d m itte d th at t he f i le o f the p et i t io n er p er ta i ni n g t o th e as s es s m e nt ye a r 1 98 8 - 89 h a d n ot b ee n tr an s f er r e d f r om t he j ur is d ic t i on of th e As s es s i n g O f f ic er , P u ne , t o th e I nc om e- tax O f f ic er , J a l an d har . A s a m atter of f ac t, n o o r d er of tr an s f er ha d b e en pas s e d b y t h e c om pe te n t a u th or it y un d er s ec t i on 12 7 of th e Ac t f or an y as s es s m ent year an d , th er ef or e, t h e pr oc e e d in gs f or r e as s es s m e nt wer e wh ol l y wi t ho u t j ur is d ic t i on . T he n ot ic e wa s l ia b l e t o b e qu as he d . "
In the above case, it is clear that Hon'ble High Court referred to Section 127 because assessment had already been completed in the relevant assessment year by ITO Pune and if for the same year another ITO in a different city wanted to assume jurisdiction then there was a requirement of passing an order u/s 127. In case before us, we have already observed that an order through computer was passed u/s 127. Moreover in case before us, the assessment is not 22 completed and in any case inherent jurisdiction resided with the Assessing Officer Circle 6(1). In this case the jurisdiction was sought to be transferred from Pune to Jalandhar that is why because of the different cities without passing the relevant order and affording opportunity to the assessee in terms of Section 127(3)(a) the ITO, Jalandhar could not have exercised the jurisdiction. Whereas in case before us, the jurisdiction remain within the same Region i.e. the same city and there was no requirement to afford opportunity in terms of Sub-section (3) of Section127. Therefore, this decision is of no help to the assessee.
27 The next decision relied on by the ld. counsel of the assessee is in case of Inderjit Singh & Co. Vs. State of Punjab & Others (supra). In this case it was held as under:
" W her e t he Ex c is e a n d T ax at i on O f f ic e r , L u dh i a na , wi t h in wh os e j ur is d ic ti o n th e pe t it i on er was c ar r yi n g o n its b us in es s , o n h is o wn tr ans f e r r e d t he f i le of t he pe t it i on er 's c as e t o th e A d di t io n a l Ex c is e a nd T ax at i on O f f ic e r , B ha t in d a, wh o ha d b ee n g i ve n j ur is d i c ti o n t hr ou g h ou t t h e S ta te : H e l d, th a t u n l es s th er e was a pr o p er or l a wf u l or d er tr ans f er r i n g th e p et it i on er 's as s es s m ent pr oc e e d in gs or f il e f r om th e r ec or ds of th e As s es s in g A ut h or i t y, t he A d d it i on a l Ex c is e an d T ax at i on O f f ic er , Bh a t i nd a, t ho u gh h a d b e e n c onf er r e d j ur is d ic ti o n t hr ou g h ou t th e S ta t e, c o u ld no t d ea l wi th t h e c as e . "
However, it has to be noted that above decision has been rendered under the provisions of Punjab General Sales Tax Act. Hon'ble High Court has not referred to relevant provisions of the Punjab General Sales Tax Act in the order. Even at the time of hearing ld. counsel of the assessee has not made any efforts to show us the relevant provisions. Therefore, it is not clear what were the provisions relating to the transfer of the cases under the Punjab General Sales Tax Act and whether there is any provision equivalent to Section 124(3)(a) of the Act relating to raising of objection, was also there or not? Therefore, this decision is also of not much help to the assessee.
28 The next case law relied in case of Valvoline Cummins Ltd Vs. DCIT (supra). I n t h a t c a s e t h e f a c t s w e r e t h a t t h e r e t u r n of the assessee for the assessment year 2005-06 was considered by the Additional Commissioner of Income-tax. The returned income was Rs. 7.5 crores and the assessed income was Rs. 58.68 crores. The tax liability on the assessed income was worked out to Rs. 25.01 crores. The assessee preferred an appeal before the Commissioner (Appeals). The assessee also filed an application on the next day before the Assessing Officer i.e., 23 the Additional Commissioner for stay of enforcement of the tax demand. The assessee was advised by the Additional Commissioner to approach the Deputy Commissioner who had concurrent jurisdiction in the matter. Therefore, the assessee filed an application before the Deputy Commissioner for stay of the demand. W hile this request was pending, the assessee was served with a notice under section 221 of the Act requiring it to show cause why penalty should not be levied since the demanded tax had not been paid by the assessee. Therefore the assessee moved another application before the Deputy Commissioner again requesting for stay of the demand. Meanwhile, some discussions took place between the assessee and the Chief Commissioner of Income-tax. Thereafter, the Deputy Commissioner passed an order requiring the assessee to pay 15 per cent. of the net demand. The assessee sent a letter to the Commissioner of Income-tax informing him that it had earlier deposited Rs. 1 crore in two installments and its request for stay of the demand in its entirety till the disposal of the appeal before the Commissioner (Appeals). However, the assessee addressed a letter to the Deputy Commissioner informing him that to avoid litigation it was agreeable to pay 15 per cent. of the tax ordered by the Deputy Commissioner but it may be permitted to make the deposit in installments. There was no immediate response to the request .
On these facts it was held as under:
He l d, a l lo wi n g th e pe t it i on , t h at s i nc e th e Ad d it i o na l Com m is s io n er ha d ex er c is e d t h e p o wer of a n As s es s i ng O f f ic er , h e was r eq u ir ed t o c o n ti n ue t o ex er c is e t h at p o wer t i l l his j ur is d ic t io n i n t he m atter was o v er . H is j ur is d ic ti o n in th e m att er was no t o v er m er e l y o n t h e p a s s i ng of th e as s es s m en t o r d er bu t c on t in u ed i n t er m s of s ec t i on 2 20( 6) of th e Ac t i n d e a li n g wit h t h e p et i t io n f or s ta y. T h e A d d it i on a l Com m is s io ne r af te r p as s in g t he as s es s m e nt or d er h a d was h ed his ha n ds of the m att er an d l ef t it t o t h e De p ut y C om m is s io n er to dec i d e t h e s t a y pe t it i on f i le d un d er s ec t i o n 2 2 0( 6) of th e Ac t wh ic h was n ot per m is s i bl e in l a w. T he p o wer u n d er s ec ti o n 22 0( 6) of th e Ac t be i ng a s t at ut or y po we r , t he A dd i ti o na l C om m is s i on er c o u ld n ot a b d ic a t e or r e l in qu is h i t. T he A dd i ti o n al C om m is s i o ner h a d no a ut h or it y i n la w to d e l eg at e h is p o wer to t he De p ut y C om m is s io n er wh e n he wa s c onf e r r e d a s t a tu to r y p o wer b y t h e C en tr al B oar d f or Di r ec t T ax e s . T h e ap p l ic a t io n f i le d b y th e as s es s e e wa s r e q uir e d to be d ea l t wit h o n l y b y t h e As s es s i ng O f f i c er , wh ic h i n t h is c as e was th e A dd i ti o n al C om m is s io ner . T he m er e f ac t h t at t h e l et ter s wer e a d dr es s e d t o th e De p ut y Com m is s io n e r d id n ot m ea n t h a t t he D ep ut y C om m is s io n er ha d j ur is d ic t i o n o v er t he m atter . T he as s es s ee c ou l d n ot c o nf er j u r i s d ic t i on on t h e De p ut y C om m is s io ner to de a l wit h t h e a p pl ic at i on f i l e d u nd er s ec t i on 22 0( 6) of th e Ac t. T h e as s es s e e ha d b ee n i ns is t i ng thr o ug h v ar i ous l e tt er s th a t it wa s pr e p ar ed to p a y 1 5 per c e nt . of t h e n et dem an d bu t o n l y in i ns t a llm e nts . T her ef or e th e De p ut y Com m is s io ne r wh il e pas s i n g t he or de r h a d c om p le te l y m is c ons t r u e d th e s t a nd of th e as s es s e e. T he as s es s e e wou l d i n th e n or m al c our s e , b e en t it l ed t o a n abs o l ut e s t a y of th e dem an d on t he b as is of Ins tr uc t io n No . 9 6 d a te d Au g us t 21 , 19 6 9 i s s ue d b y t he B oa r d . T he R e ve n ue was s e ek i ng t o e nf or c e th e d em an d wh e n t h e pe t it i o n f or s t a y was p en d i ng . T h e pe t it i on er wa s di r ec te d t o p a y 15 p er c e nt . of t h e n e t dem an d i n ins t alm e nts af ter de d uc t i on of Rs . 1 c r or e a lr ea d y p a id ."24
Firstly this case has been mainly decided with reference to power of the Additional Commissioner to deal with the objection filed u/s 226 which is not relevant for us. Secondly the Hon'ble High Court has not referred to provisions of section 124(3)(a) relevant for raising objections relating to the jurisdiction. Therefore, this decision is of no help to the assessee.
29 The next case relied the ld. counsel of the assessee is that of Gangadhar Aggarwal Vs. JCIT (supra). In that case also originally the jurisdiction of the assessee was with ACIT Circle 4(1) Investigation, Mumbai and the return for the block period filed with the same Assessing Officer. Later on the file was transferred to the jurisdiction of JCIT, Special Range XV, Delhi. An objection was raised to the transfer of the case and the Tribunal ultimately held that since no order u/s 127 has been passed, therefore, JCIT, Special Range XV has no jurisdiction over the assessee. It has to be noted that in this case also the case was transferred from Mumbai to Delhi without passing an order u/s 127 and without affording an opportunity to the assessee. As has already been discussed by us, no such opportunity was required to be given in view of the provisions of section 127(3) of the Act if the case of transferred within the same city. Secondly it is also mentioned in the order that the assessee had also informed JCIT, Delhi regarding notices issued by Mumbai office. In the order no detailed discussion has been made but the way this fact has been discussed it seems that the assessee had also raised his objection u/s 124(3)(a) i.e. why the jurisdiction was not correct. Therefore, this decision is not relevant.
30 Next case relied by the ld. counsel of the assessee is P.A. Ahammed Vs. CCIT & another (supra), In that case the assessee has challenged the order issued by CCIT regarding transfer of assessee's file from ITO W ard (1), Trivendrum to Central Circle. It seems that the assessee had moved the Hon'ble High Court earlier also regarding this issue because after some search the cases of 18 assessees were transferred to Central circle. It was contended that the transfer order was made without informing the assessee and giving reasons and the Hon'ble High Court has directed the Ld. CCIT to consider the matter afresh. The assessee filed the returns with ITO, W ard (1), Trivendrum. However, these orders were later recalled by the Assessing Officer. It was mainly contended that the 25 case can be transferred u/s 127 but the Hon'ble High Court held against the assessee by observing that Exp 1 to Section 127 clarify that "case' means all proceedings under the Act. Therefore, the assessee was held not be entitled to retain the assessment with the previous officer. Other argument was that after the search only raid cases should be transferred to Central Circle and the regular assessment should be retained by the regular Assessing Officer. This contention was also rejected. W e fail to understand what assistance the assessee wants to obtain from this decision. Basically the decision is laying down that once an authority transfers the case then whole record would stand transferred to the new assessing authority, therefore, this case is of no help to the assessee.
28A In fact similar issue came up for consideration before the Full Bench of Hon'ble Gauhati High Court in case of Smt. Sohani Devi Jain Vs. ITO 109 ITR 130 (Gauhati). In that case following observations were made by the majority.
A wr it be i n g a d is c r e ti o nar y r em ed y, it wi l l n ot b e gr a nt e d if t he pe t it i on er i n vi t ed or ac q u ies c e d i n t he j ur is d ic t io n of the a ut h or i t y. B ut a di s ti nc ti o n m us t be m ad e be t we e n p a te nt a nd l at e nt wa n t of j ur is d ic ti o n. W her e th e lac k of j ur is d ic t i o n is p at e nt , i . e., ap p ar e n t o n t h e f ac e of th e pr oc ee d in gs , a pa r t y ag gr i e ve d is e nt i t le d to a wr it e v en if h e ac q u i es c e d t o t h e ex er c is e of th e j ur is d ic t i o n. W her e, h o we v er , t he lac k of j u r is dic t io n is la te n t, i. e . , de p en ds o n c er t a in f ac t or s , ac q u ie s c enc e wi l l d is en t it l e a p ar t y t o a wr it : S I K K U V . S T A T E O F A S S A M AI R 19 7 0 As s a m 91[F B ] r e l ie d o n.
T he c as e of th e p et i t i on er - as s es s e e was t h at s he ha d b e en a p ar tn er i n a f i rm at Ca lc ut t a, an d t h at on A u gus t 1 8, 1 95 9 , s h e h a d f i l ed r et ur ns b ef or e t h e Inc om e - tax O f f ic er at Ca lc ut ta f or t h e as s e s s m ent ye ar s 1 95 2- 53 to 1 95 9- 19 6 0 an d as s es s m ents h a d be e n m ad e th er e on . T he as s es s m en t f or t h e as s es s m ent ye ar 19 6 0- 6 1 was m ad e b y th e I nc om e- t ax O f f ic er , C a lc u tt a , on Dec em ber 2 9, 19 6 0, un d er s ec ti o n 2 3( 4 ) as n o r e t ur n ha d be en f i l e d. T he p et it i on er c los e d do wn th e bus i ne s s at Ca lc ut ta a nd s hif t e d t o J or h at . S h e b ec am e a p ar t n er i n a f ir m at J or h at . T he pe t it i o ner f i l e d a r e t ur n o n J u l y 2 9 , 1 96 4, f or th e as s es s m ent ye ar 19 6 0- 6 1 b ef or e t he I nc om e- tax O f f ic er , J or h at . T he p et i ti o ne r 's c as e was th at t h is r e tur n was m ad e i n ad v er te n tl y an d th at s he h a d c o nt e nd e d b ef or e t h e Inc om e I nc om e- t ax O f f ic er , Ca lc ut t a, s h e c ou l d no t be as s es s ed a g ai n at J or h a t. T h e I nc om e- t a x O f f ic er , J or h a t, d i d n ot ac c e pt t ha t c on t en t i on a n d m ad e an as s es s m en t or d er on Mar c h 2 4, 19 6 5, f o r the as s es s m en t ye a r 19 60- 6 1. T he pe t it i on er 's ap p ea ls t o th e A pp e l la te As s is ta nt Com m is s io n er a n d t he A p pe l l at e T r ib un a l wer e u ns uc c es s f u l. T he T r ib u na l a ls o r ef us ed t o m ak e a r ef er e nc e t o th e H i gh C our t. T h er e af ter , t h e p et i t io n er f i l ed a wr i t p et i t io n pr a yi ng f or a wr i t of c er t ior ar i q uas h in g t h e or der of as s e s s m ent of th e I nc om e- t ax O f f ic er , J or h a t, d a te d M ar c h 2 4, 1 96 5, an d t he c ons e qu e nt n o tic e of d em an d a nd als o a wr i t of m and am us d ir ec t i ng t h e r e tur n o f Rs . 10 ,0 0 0 c o l lec t ed f r om the pe t it i on er u n der t h e n ot ic e of dem an d :
He l d, p er B A H A R U L I S L A M J . a nd P A T H A K J . ( S A D A N A N D A S W A M Y J ., dis s en t in g) , th at t h e p o in t ur ge d f or t he p e ti t i on er was t ha t t he inc om e of th e pe t it i on er f or th e as s es s m e nt ye a r 19 6 0- 61 h a v in g b ee n as s es s e d b y t h e I nc o m e- tax O f f ic er , Ca lc ut ta , t h e I nc om e - tax O f f ic er , J or ha t, ha d no j ur i s d ic ti o n t o as s es s t h e i nc om e of t he p et it i o n er f or t h e s am e ye a r . If th e p et i ti o ne r h ad r a is e d bef or e th e I nc om e- tax O f f ic e r , J or h at , t he c o nt e nt i on th a t h e ha d no j ur is d ic ti o n t o m ak e an as s es s m en t ag a i n f or th e ye a r 1 9 60- 6 1, t h at c o n te nt i o n wou l d h a v e be e n de a lt wi th u n de r t he pr o v is io ns of s ec t i on 1 2 4 of t he I nc om e- tax Ac t , 19 6 1, c or r es p on d i ng t o s ec ti o n 6 4 of th e I n d ia n I nc om e- t ax Ac t , 19 2 2. T ho u g h 26 i n t he wr it p et i ti o n a nd i n t h e af f i d a v it f i l ed i n s up p or t th er e of , i t ha d be e n s ta te d t ha t th e q u es t i on of j ur is dic t io n was r a is e d b ef or e th e of f ic er , t h er e was no r ec or d to s up p or t t ha t p l e a. T he Inc om e- tax O f f ic er h a d n ot r e f er r e d i n h is or d er t o a n y s uc h o bj e c ti o n h a vi n g b ee n t ak e n b ef or e h im . T he pl ea of f ili n g th e r et ur n b ef or e h im thr o ug h " m is tak e" a p pe ar e d to be a n af t er th o ug h t. N o r e l ia nc e c ou l d be p lac e d o n th e a v er m en ts of t he p et it i o ner t ha t o b j ec t i on as t o j ur is d ic t i o n was r a is e d b ef or e th e I nc om e- tax O f f ic er at J or ha t. S ec t i on 1 24 do es no t d e al o nl y wi t h t er r it or ia l j ur is d i c ti o n. I t d o es n ot u s e t he wor d 't er r i tor i a l '. T h e s ec t i on s p eak s o n l y of j u r is dic t io n of th e Inc om e- t ax O f f ic er .
J ur is d ic t io n i nc l u des bo t h t er r it or i a l a n d ot her k in ds of j ur is dic t i on . T h er ef or e , th e obj ec t i o n r a is e d b y t h e as s es s e e o nl y a t th e a pp e l la t e s t a ge was hi t b y s ub - s ec t i on( 5) of s ec ti o n 12 4 of th e Ac t a n d t h e I nc om e- tax O f f ic er , J or h a t, c o ul d no t b e s a id t o h a v e l a c k ed j ur is d ic t i o n.
If t wo or d er s of as s es s m ent ar e m ade f or t h e i nc om e of the s am e ye ar , i t d o es no t nec es s ar il y f o ll o w t ha t t h e s ubs e qu e nt or der of as s es s m en t is wi th o ut j ur is d ic t i o n. T he f ir s t I nc om e- t ax O f f ic er m ig ht h a v e p os s i b l y l ac k e d j ur is d ic t io n or t h e s ec o n d I nc om e- tax O f f ic er m a y p os s i b l y h a v e j ur is d ic t i o n. I n t h e ins ta n t c as e , whe t her th e I nc om e- tax O f f ic er , J or h at , h ad or h a d n o j ur is dic t io n was de p en d en t o n t h e q u e s ti o n whe t her th e I nc o m e- tax O f f ic er , C a lc u tt a, ha d or h a d no j ur is dic t io n . T he f in d in g was th a t t he as s e s s m ent or d er al l e ge d t o h a v e b e e n pas s e d b y t he I nc om e- tax O f f ic er , C a lc u tt a, was " g ot p as s ed" , i n o th er wor ds , th at or de r of t h e C a lc ut ta I nc om e- t ax O f f ic e r ha d be e n f o un d to b e s us p ic io us an d c o ll us i v e. T h at w as a f in d i ng of f ac t . If th at b e s o, it wa s a n i n va l i d or d er . As b et we e n a v a l i d an d a n i n va l i d or der , th e f or m er s u p er s ed es t h e l at ter .
T he pr es e n t a pp l ic at i on was on e f or wr its of c er t i or ar i an d m an dam us . T h es e wr i ts ar e wr its of d is c r et i on . T h e H i gh C o ur t ex er c is i ng d is c r et i on ar y p o wer s un d er ar t ic l e 2 2 6 wi l l r ef us e t o is s u e s uc h a wr i t, if j us t ic e of t h e c as e d oes n ot dem an d i t. A wr it of c er t i or ar i c an b e is s u e d if t h er e be , i nt er a li a , an e r r or of l a w a pp ar en t on t he f ac e of t h e r ec or d. T h e p e ti t io n er ha d n ot be e n ab l e t o s ho w th at t her e wa s a n y er r or of la w a pp ar e nt o n t h e f ac e of th e r ec or d . W hic h of th e t wo I nc om e- t ax O f f ic e r s h a d j ur i s d ic t i on wa s d e pe n d an t on f ac ts . T her ef or e , n o wr i t of m andam us c o u ld b e is s ue d a n d t h e a pp l ic at i on h a d to b e r ej ec te d . "
Combined reading of the above observations show that if no objection is raised in respect of the jurisdiction before the ITO then later validity of the assessment cannot be challenged.
32 The ld. DR for the revenue has referred to one more aspect of the case i.e. in this case orders passed u/s 120 fixing the jurisdiction would show that Mohali area would fall under Circle 6(1) and therefore, in terms of Section 124(5), the inherent jurisdiction was with the Assessing Officer Circle 6(1). The notification No. C C I T / NW R / T e c h / J u r i / 2 0 0 1 - 0 2 / 6 1 7 i s s u e d o n 1 1 . 5 . 2 0 0 1 b y C C I T , NW Region, Chandigarh clearly shows that areas falling within the revenue district of SAS Nagar (Mohali) Punjab excluding the areas falling within the jurisdiction of Range V SAS, Nagar (Mohali) would fall in Range VI, Chandigarh. Now it has to be noticed that Sub- section (5) of Section 124 starts with non obstante clause which means even if some directions have been given by the CIT or other authorities still different Assessing Officers of the territory which has been notified u/s 120 can still exercise the jurisdiction. This provisions has been explained by commentary of Sampath Iyengar's 27 commentary on Law of Income Tax at page 8901. The relevant para reads as under:
" 20 . A s a v in g pr o vis i on .- S ub - s ec t io n( 5) c or r es p o nds t o s ec t i on 6 4( 4) of t h e 19 2 2 Ac t . I t is es s e n t i a ll y a pr o v is io n of a c l ar if ic at or y na t ur e . No as s es s e e c an c l aim a bas ic r i g ht of be i n g as s es s e d b y o ne of f ic er r at h er t h an an o th er . T he ear m ar k in g of j ur is d ic t i o n to of f ic er s v is - à- v is as s es s es h as t wo pr i nc i pa l obj ec ts : ( i) t h at of c aus i n g l eas t i nc o n v en i e nc e a n d h ar as s m ent to t h e as s es s e e, a n d ( i i) m a x im um or g an i za t i on a l ad v a nt a ge a n d c on v e n ie nc e t o t he of f ic er s of the Re v e nu e to ef f ec t i ve l y d is c h a r ge th e ir s t at ut or y f un c ti o ns . So , i n a c as e wh er e an as s es s e e h as s uf f er e d n o r e al har ds h ip , a n o bj ec t io n as t o j ur is d ic t i o n s h ou l d n ot be a l l o wed to p r e v a i l on t h e b as is of s om e lac u n a, e r r or or om is s i on i n t h e p a s s i ng of a ppr o pr ia t e or d er s of a l lo tm ent of j ur is d ic t i o n. T his is h o w s u b- s ec t i on( 5) c om es i nt o th e p ic t ur e as a n o ver r i d in g c l aus e , wh ic h br us hes a wa y a ll th e t ec h n ic a li t ies of th e e ar l ier s ub- s e c ti o ns i n t he e ve n tu a l it y c o n tem p la te d b y it . T he n o n o b s ta tn t e c l as u e a t t he be g i nn i ng of s ub- s ec ti o n( 5) is v er y wid e a n d m ak es i t c l ear t h at i t is i nt e n de d as a s a v i ng pr o v is i o n a g a ins t th e tec h nic a l o bj ec ti o ns a nd d is pu t es t h at m a y be r a is e d in v i e w of th e o th er s ub- s ec t i ons . H a v in g s et o ut e la b or a t el y i n s u b- s ec t i ons ( 1) to ( 4) t h e b as is of t he d et er m in at i o n of j ur is di c ti o n of t he of f ic e r a n d a ls o h a v in g ou t l in e d a pr oc ed ur e wh er eb y an y dis p ut es r eg ar d in g j ur is d ic t i on c an be s or t e d ou t, if r a is e d in s uf f i c i en t t im e, t he Ac t n e ver t he l es s pr o v i des a s af e t y va l v e wh er eb y, t h e v a l id i t y of as s es s m e nts ar e pr ot ec t e d n ot wi t hs t a nd i n g a n er r or i n th e ex er c is e of j ur is d i c ti o n i n ac c or da nc e wit h t h e e ar li er s ub- s ec ti o ns if t her e has b e en n o i nj us t ic e to t he as s es s ee ; an d he h as b ee n as s es s e d o nl y b y a n of f ic er wh o is h a vi n g j ur is d ic ti o n o v er th e ar ea in wh ic h t h e as s es s ee r es i d es or c ar r ies on t h e b us in es s an d th a t to o o n l y i n r es p ec t of i nc om e f al l i ng wi t hi n t h e ar e a c o ver e d b y t h at j ur is d ic t i on . I t wil l b e a ppr ec i at e d th a t th is is a v er y l im ite d s a v i ng c l a us e . It a p pl i es i n a c as e s uc h as t he f o l lo wi n g: s u pp os e an as s es s e e is c ar r yi n g on a j e we l l er y b us i ne s s wi th i n a p ar t ic u lar ar e a in De l h i an d h is e n t ir e i nc om e f r om tha t b us i nes s a c c r ues , ar is es or is r e c e i ve d wi t hi n th at ar e a. S u pp os e c as es of al l j e we l er s i n D e l h i ar e as s i gn e d b y t h e Com m is s io ne r of I nc o m e- tax t o an As s es s i ng O f f ic er he a d in g a s pec i a l c ir c le bu t o v er lo ok i ng t h at s pec ia l o r d er of a s s i gnm en t, t h e As s e s s i ng O f f ic er ex er c is i n g t er r it or ia l j ur is d ic ti o n o v er th e pl ac e wh er e t h e as s es s ee 's s ho p is s it u at e d c om pl e tes a n as s es s m en t. T he v a li d it y of s uc h a n a s s es s m ent is c om pl et e l y pr ot ec t e d b y th e pr o v is i o ns of s ub- s ec ti o n ( 5) . T h e s u b- s ec t io n h as no wi der s c o p e. I t wi l l no t c o ve r t h e c as e of t h e as s es s es wh o ar e h a v i ng bus i n es s i n s e ver a l pl ac es a nd wh os e inc o m e ac c r u es , ar is es or is r ec e i v ed i n s e ver a l ar e as . "
The above makes it clear that the assessment which has been made by an assessing authority who holds territorial jurisdiction over the assessee in terms of Notification issued u/s 120 then validity of such assessment is completely protected by sub-section (5) of Section
124. 33 In this regard the observations made by Hon'ble High Court in case of CIT Vs. Siri Paul Oswal (supra) is also relevant. Following observations were made:
" A d is t i nc t i o n has t o b e m ade b et we e n a s it u at i on wh en th er e is i n her e nt lac k of j ur is d ic t i o n a nd a s it u at i on wh er e j u r is d ic t i o n is ir r e g ul ar l y as s um ed an d p l ea of wa nt of j ur is d ic t i on c an b e wa i ve d b y a p a r t y. If th e as s es s e e p ar t ic i pa t es i n as s es s m e nt pr oc e ed i n gs , th e As s es s i n g O f f ic er h a v i ng pr oc e e de d f ur t h er an d as s es s m e nt h a vi n g be en f i na l i ze d , p le a of l ac k of j ur is d ic t io n c a n no t be r a is e d f or t h e f i r s t t im e in a p pe a l.
T he Com m is s io n er of Inc om e- tax pas s e d an or der in Dec em be r 19 7 8 u nd er s ec t i on 12 7( 1) of t h e Inc om e- t ax , 1 9 61 , a n d d ir ec t ed t h at p o wer c o nf er r e d on th e I nc om e- t ax O f f i c er s ha l l be ex er c i s ed b y th e Ins p ec t i ng As s is ta n t 28 Com m is s io ne r of I nc o m e- tax ( As s es s m ent) i n r es p ec t of c as es m e nt i on e d in t he s a id or d er . T h er e was , ho we v er , n o or der p as s e d i n r es p ec t of j u r is dic t io n of th e W ealth- t ax O f f ic er s , C en tr al C ir c le ( 1) , L ud h i an a , b ut t h e I ns pec t in g As s is t a nt Com m is s io n er of I nc om e- tax ( As s es s m ent) p as s e d as s e s s m ent or d er s un d er t he W ealth- tax Ac t a ls o in r es p ec t of th e as s es s e e . T he as s es s e e d i d n ot r a is e a n y o bj ec t i on t o th e as s es s m en t bef o r e t h e As s es s i n g O f f ic er b u t r a is e d obj ec t i o n b ef or e th e ap p e ll a te au th or i t y w h ic h was u p he l d a nd the T r i b un a l d is m is s e d t h e a pp e a l of t h e Re v e nu e. O n a r ef er enc e :
He l d, th at th e as s e s s ee p ar t ic i pa te d in as s es s m en t pr oc ee d in gs b y th e As s es s i n g O f f ic er to wh om as s es s m en t pr o c ee d i ngs u n der t h e I n c om e- tax Ac t wer e tr a ns f er r ed a nd wh o ex er c is ed j ur is d ic ti o n t o as s es s wea l t h- tax als o wi t h th e p ar t ic i pa t io n of t h e as s es s e e wit h ou t a n y o bj ec ti o n b y t h e a s s es s e e . T he as s es s e e h a v i ng n ot r a is e d obj ec t i o n as to t he j ur is dic t io n bef or e t he As s es s i ng O f f ic er , was de b ar r ed f r om r ais in g t he s am e b ef or e t h e a pp e l la te au t hor i t y an d th e a pp e a l f il e d b y th e as s es s e e o n t he qu es t i on of j ur is d ic t i on was n ot m aint a i na b l e. "
The ld. counsel of the assessee had tried to distinguish above decision, however, he accepted the fact that by virtue of notifications issued u/s 120 territorial jurisdiction of Mohali area was with the Circle 6(1), therefore, it cannot be denied that Assessing Officer Circle 6(1) had inherent jurisdiction over the assessee and therefore, assessment made by him were protected in terms of Section 124(5).
34 One more aspect was hotly contested by both the parties whether the ld. CIT(A) had power to adjudicate the issue regarding exercise of jurisdiction. Main submission of the department is that even after the decision of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. (supra) the issue could not be raised because many facts were involved and additional ground can be raised in respect of legal issues and for which the facts were already on record. In this regard she had further relied on the observations of Hon'ble Punjab & Haryana High Court in case of Aravali Engineers P. Ltd. Vs. CIT (supra). She also contended that there was no provision in Section 246A of the Act to challenge the question of jurisdiction. In this regard reliance was also placed on the decision of Hon'ble Allahabad High Court in case of CIT V. British India Coprporation Ltd. (supra).
35 On the other hand, the ld. counsel of the assessee had mainly submitted that once the issue goes to the root of the matter then the same could be raised before the appellate authority. He mainly relied on the decision of West Bengal State Electricity Board Vs. DCIT (supra) and National Thermal Power Co. Ltd. (supra). We do not find force in the submissions of the ld. counsel of the 29 assessee. First of all we are of the opinion that it is a trite law that appeal is a statutory right and not an inherent right. (Reference may be made to Smt. Ganga Bai Vs. Vijay Kumar AIR (1974) S.C 1126,1129, Darshan Singh Vs. Ram Pal Singh (1992) Supp (1) SCC, 191, 212, CIT Vs. Syed Jaffer & Sons (1992) 194 ITR 645, 649). This issue came up for consideration of Hon'ble Allahabad High Court in case of CIT Vs. British India Corporation Ltd.. In that case, the assessee was having two W oollen Mills located in Kanpur (U.P) and another mill in Gurdaspur (Punjab). The assessee filed return of income for Assessment year 1994-95 which was processed by the Assessing Officer Central circle (1), Kanpur (U.P). Later on notices u/s 143(2) were issue and assessment was completed u/s 143(3) r.w.s. 144B of the Act on Sept 7, 1977 after making certain addition. The assessee carried the matter in appeal before the ld. CIT(A), Kanpur. During the course of appeal proceedings an additional ground with regard to lack of jurisdiction of the Assessing Officer by Central circle (1) was also raised because assessment filed stood transferred from ITO Central Circle 1, Kanpur to Inspecting Assistant Commissioner, Range-D, Kanpur by order dated July 1, 1977. Therefore according to the assessee the assessment order was void ab-initio. The appellate authority considered the appeal on merits as well as on question of jurisdiction. The appeal was allowed in part on merit. However, the question of jurisdiction which was permitted to be raised by means of additional ground, was rejected on the ground that question of territorial jurisdiction of the ITO is a matter on which the decision rests with the Administration side and not with the appellate authority for which reliance was placed on Raja Bhahadur Seth Teomal, Vs. CIT, 36 ITR 9 and Wallace Brothers Co. Ltd. 13 ITR 39. On these facts Hon'ble High Court made following observations and held as under:
" T he qu es t i o n of j ur is d ic t i on of t he as s es s i n g a ut hor i t y c a nn o t be d is p ut e d af t er th e c om pl et i o n of th e as s es s m e nt pr oc e e d in gs . A l ter n at i v e l y, if s u c h a qu es t i o n ar is es t h e qu es ti o n c a n be ad dr es s e d b y t h e C om m is s i on er or t he B oar d , as th e c as e m a y be , i n v ie w of s ub- s ec t i o n ( 4) of s ec t i on 12 4 of t he Inc om e- tax Ac t , 19 6 1, a nd t h is b y n ec es s ar y c or o l lar y ex c l ud es th e j ur is d ic t io n of th e f ir s t ap p e ll a te a u th or it y or th e c o ur t . A n ap p ea l t o an a p pe l l at e a ut h or i t y u n d er th e Ac t l ies on th e gr o un ds as e n um er at e d i n s ec t i on 24 6 of t he Ac t. N o ne of its c l aus es s ho ws t ha t a n a p pe a l o n th e qu es t i on of j ur is d ic t io n of the as s es s in g au t hor i t y is m a in ta i n a b le . U n les s s om e pr e j ud ic e is c a us e d to a par t y b y a wr o n g or ir r e gu l ar ex e r c is e of j ur is d ic t i on b y a c o ur t , n o in t er f er en c e i n ap p ea l or r e v is io n is le g a l l y p er m is s i b le .
He l d, a l l o wi ng t h e ap pe a l, t h at t he b ur d en was up o n th e as s es s ee t o s t at e s pec if ic a l l y wh en t h e or d er of th e tr ans f e r was r ec e i v e d b y i t, wh ic h i t f ai l ed to d is c h ar ge . T her e was no p l e a e v en i n th e ad d it i o na l g r o u nds of ap p ea l r a is e d bef or e th e f ir s t a p p e ll a te au t hor i t y a n d th er e was n o e v i d en c e t ha t a n y 30 pr ej u d ic e h a d b ee n c aus e d to th e as s es s e e b y t he as s es s m en t or d er h a v i ng be e n pas s e d b y th e I nc om e- t ax O f f ic er . T he I nc om e- t ax O f f ic er ha d t he j ur is d ic t i o n wh en th e as s es s m en t pr oc e ed i n gs c om m enc ed an d a dr af t as s es s m e nt or d er wa s s u bm itt e d to t h e I ns p ec ti n g As s is t a nt Com m is s io ne r . S ubs e qu e nt c h an g e in th e j ur is d ic ti o n if a n y un l es s br ou g ht to t he no t ic e of t h e au t hor i t y c o nc er ne d, wo u ld n ot i n an y m an ner vi t ia t e t he as s es s m ent or d er in th e a bs enc e of an y obj ec t i o n wit h r eg ar d to t h e l ac k of j ur is d ic t i o n b y t h e as s es s e e. T h e T r i b u n a l a t th e m os t s h ou l d ha v e r em it te d th e m at t er bac k t o t h e Ins p ec t i ng As s is ta nt Com m is s io ne r f or c o m plet i n g t h e as s es s m en t. It wa s n ot j us t if i e d i n an n u l li n g t he as s es s m en t or de r . T he as s es s m e nt or d er was v a l id .
The ld. counsel of the assessee had contested the above decision by submitting that the decision was wrong because the assessee had not raised any objection for transfer u/s 124(3)(a). But in the present case, the assessee had not challenged before the ld. CIT(A) the issue of territorial jurisdiction of the Assessing Officer but has challenged the absence of order u/s 127. W e have already made detailed discussion regarding order passed u/s 127 as well as significance of raising the objection before the assessing authority and therefore, we do not find any merit in this contention but combined reading of Sections 120, 124 & 127 clearly show that the issue of jurisdiction is administrative matter and the purpose of raising objection is that the issue may be settled at the threshold by the administrative authorities and that is why there is no provision for filing the appeal against the order passed under these sections.
36 The decisions relied on by the ld. counsel of the assessee in case of W est Bengal State Electricity Board Vs. DCIT (supra) is of not much assistance to the assessee. In that case basically the dispute was regarding the rate of interest charged u/s 201(1A) and only a passing reference to the jurisdiction was made by the Hon'ble High Court. Hon'ble High Court has not dealt with the provisions of section 124 (3)(a) i.e. regarding raising of objections within one month of issue of notice as well as section 124(5) with respect to inherent jurisdiction which have been both adjudicated by Hon'ble Punjab & Haryana High Court which we have discussed in detail earlier and therefore, the decision is of no help to the assessee.
37 W e would again like to refer to the observations of Hon'ble P u n j a b & H a r y a n a H i g h C o u r t i n c a s e o f CW T V S i r i P a u l O s w a l a t Para 16, it was observed:
"Para 16 - A dis t i nc t i on h as t o be m a de b et we e n a s it u at i on wh e n th er e is i nh er e nt l ac k of j ur is d ic t i o n an d a s i tu a ti o n wh er e j ur is d ic ti o n is ir r eg u l ar l y as s um ed a nd p l ea of wan t of j u r is dic t io n c an b e wa i v e d b y a par t y. In t he l at t er s it u at i on , th e q ues t io n ar is es wh et h er par t y wh o c o u ld wa i v e th e 31 p le a of j ur is d ic t i on , r a is e d s uc h a p l ea an d whe t her s uc h a p a r t y h ad b ee n pr ej u d ic e d o n ac c o un t of er r on e ous as s u m ptio n of j ur is d ic t i on . T he pr es en t c as e , in o ur v ie w, f a ll s i n t he s ec o nd c at e g or y. T h e as s es s e e p a r tic i p at e d i n as s es s m e nt pr oc ee d i ngs b y th e As s es s i ng O f f ic er to wh om as s es s m en t pr oc e e di n gs u nd er t h e Inc om e- t ax Ac t we r e tr ans f er r e d a n d who ex er c is e d j ur is d ic t i o n to as s es s wea l th - t ax a ls o wi t h the par t ic ip a ti o n of th e as s es s e e wi t ho ut a n y o bj ec t i on b y th e as s es s e e . If t h e as s es s e e h ad r ais e d a n o bj ec ti o n, th e pr oc e e d in gs c o ul d h a ve b e en tr a ns f er r e d bac k t o th e c o nc er n ed W ealt h- tax O f f ic er . T h e As s es s i ng O f f ic er h a v in g pr oc e e de d f ur th er an d as s es s m ent h a v in g be e n f i n al i ze d , p le a of l ac k of j ur is d ic t i o n c o u ld n ot b e r a is e d f or t he f ir s t t im e i n a p pe a l, wi th o ut s h o wi n g er r o r in t he or d e r o n t h e m er i t an d wi t ho u t s h o wi n g an y p r ej ud ic e to t h e as s es s e e b y ex er c is e of j ur is d ic t i on b y t he As s es s i n g O f f ic er . "
Thus from above it is clear that once it is not a case of lack of inherent jurisdiction and also if the assessee has participated in the assessment proceedings without raising any objection regarding jurisdiction then the jurisdiction cannot be called into question later on. Other decisions relied on by both the parties are not very relevant or distinguishable on their own facts and therefore, for the sake of brevity we are not making any further discussion in respect of these cases.
38 In view of above position firstly the assessee has itself filed return with Circle 6(1). No doubt the department has also not handled the issue very well (i.e. original return and revised returns were transferred to Circle 2(1) and again transferring the same to Circle 6(1). However, as far as the assessee is concerned, it submitted itself to jurisdiction of Circle 6(1). Secondly when the assessee filed revised return and a notice u/s 143(2) was issued by Assessing Officer Circle 6(1), the assessee did not raise the objection as required u/s 124(3)(a). This clearly shows that the assessee had no objection on the jurisdiction but this issue is being raised merely as a matter of technicality to get the assessment annulled which is not possible because even if the assessment was to be made by the Assessing Officer Circle 6(1) no inconvenience was caused to the assessee. Thirdly inherent jurisdiction of the assessee being located at Mohali lies with Assessing Officer Circle 6(1). In view of these facts and above detailed discussion, we set aside the order of the Ld. CIT(A) and hold that the Assessing Officer Circle 6(1) holds jurisdiction over the assessee. We also hold that the ld. CIT(A) has not power to entertain the additional ground in respect of the jurisdiction. In the result, ground raise by the revenue in this regard is allowed.
3239 Ground No.2 is of general nature and does not require any separate adjudication.
40 Ground No. 3 - The ld. DR for the revenue submitted that during the year the assessee had changed the method of accounting from mercantile to cash, however, the ld. CIT(A) while adjudicating various issues, has not considered change of method of accounting and has not given any finding in this regard. Therefore, impugned order suffers from infirmity.
41 On the other hand, the ld. counsel of the assessee submitted that this ground is of general nature, however, he admitted that the assessee had changed method of accounting from mercantile i.e. accrual to cash system of accounting.
42 After considering the rival submissions we find that no specific finding is required to be given in this regard. However, we shall take notice while adjudicating other grounds on merit that the assessee had admittedly followed cash system of accounting in the present year.
43 Ground No. 4 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has originally filed return showing taxable income of Rs. 21,15,46,295/-. Later on this return was revised by declaring a loss of Rs. 19,12,35,451/-. He further notice that perusal of the accounts shows that the assessee has not only changed the figure of present year but have also changed the opening balances under various heads which means that closing figures for Financial Year 2001-02 have also been changed. He observed that once assessment has been completed u/s 143(3) then the assessee has no right to change the figures of earlier year. It was further noticed that profit figure for Assessment year 2002-03 was radically changed and details are as under:
( i) T he pr of i t f or t he as s es s m e nt ye ar 20 0 2- 0 3 t r a ns f er r e d t o g en er a l r es er v e s ho wn i n th e or i g in a l r et ur n f or t h e as s es s m en t ye a r 2 00 3- 04 is as u n der :-
Pr of i t of Rs . 41 , 20 , 63 , 29 1/- l es s Rs . 5 , 00 , 00 ,0 0 0/- = Rs . 3 6, 2 0, 63 , 29 1/ - tr a ns f er r e d to G en er a l R es er v e .
B ut in t h e r e v is e d r e t ur n f or t h e as s es s m ent ye ar 2 0 03 - 0 4, t h e f ig ur es un d er th es e he a ds f o r t h e as s es s m ent ye ar 2 0 02 - 0 3 h a ve b e en s ho wn as u n der :- Pr of i t of Rs . 43 , 75 , 78 , 69 7/- l es s Rs . 5 , 00 , 00 ,0 0 0/- = Rs . 3 8, 7 5, 78 , 69 7/ - tr a ns f er r e d to g e n er a l r es e r ve .
T he a bo v e f i g ur es s h o w th a t i n a d d it i on to t he r e v is in g of t h e ac c ou n ts f or t he as s es s m e nt ye ar , t h e as s es s ee h ad a l s o inc r e as e d th e p r of i t f or t h e 33 as s es s m e nt ye ar 2 00 2- 0 3 b y Rs . 2 ,5 5, 1 5, 4 06 /- [ Rs . 43 , 75 ,7 8 ,6 9 7/- m in us Rs . 41 , 20 ,6 3 ,2 9 1/- ].
( i i) Ne t pr of it f r om th e Sc hem e ( As p er A n nex ur e- 2) f or t he as s es s m ent ye ar 20 0 2- 03 as s h o wn i n t he or i g in a l r e tur n f o r t he as s es s m en t ye ar 2 00 3- 0 4 is Rs .
2, 7 4, 38 , 04 9/ - wher e as in th e r e vis e d r e t ur n f or th e as s es s m en t year 2 00 3- 04 , th e ne t pr of it f r om Sc h em e f or t he as s es s m ent ye a r 2 0 0 2- 0 3 has b ee n s ho wn a t Rs . 5, 29 , 36 ,7 7 2/- . T h i s s ho ws t h at t h e as s e s s ee h ad r a is ed th e f i gur es of pr of it f r om Sc hem e f or t he as s es s m en t ye ar 20 02- 0 3 b y Rs . 2, 5 4, 9 8, 7 23 /- [ Rs . 5, 2 9, 36 , 77 2/ - m in us R s . 2, 7 4, 38 , 04 9/- ].
It was further noticed that there was some change in respect of interest figure in respect of delayed installments for Assessment year 2002-03 and this variation was of Rs. 16,683/-. He further noticed that these changes were reflected by the auditors in the "Notes to Accounts" as under:
" ( i) T he n et ef f ec t f r om de vi a ti o n f r om ac c r ua l s ys tem to c as h s ys t em of r ec o g n i zi n g th e i nt er e s t in t he c as es of i nt er es t o n ins t a llm en ts of ho us es c ou l d no t b e q ua l if i e d.
( i i) L oa n f r om HU DCO is s t i ll un d er r ec onc i l i at i on .
( i i i) A s um of Rs . 1, 1 0 ,6 5, 2 81 /- h as be e n s h o wn i n t h e b o ok s of ac c ou n t as t h e am oun t i n tr ans i t. O u t of th is , Rs . 8 , 55 ,1 1 7/ - is pe n d in g f or r ec on c i l ia t io n s inc e l on g.
( i v) A dif f er e nc e of Rs . 19 , 23 ,1 8 8/- ex is ts i n th e i nt er d i v is i on ac c o un ts .
The assessee was confronted with these issues. In response vide letter dated 23.8.2005 it was explained that these changes are not on account of any figure which has been imported in the books of accounts but rather they are on account of only grouping and regrouping of figures of the earlier years so that the accounts show a clear picture of the state of affairs. No new figure of any amount have been introduced in the revised accounts. In the original statement of affairs, the figures were shown of net value (i.e. credits were deducted from deposits whereas in the revised returns the credits which were earlier reduced from the deposits have been taken to the credit side as a result of which figures are reflected at higher value and this increase in the debit side is only the result of grossing of the net assets. Therefore, revision of figure of closing balance of the earlier years would not effect the determination of true and correct profits for the year. It was further submitted vide reply dated 28.9.2005 that in case of closing balances of the assets as on 31.3.2002 there is corresponding increase in closing balance of the liability as on 31.3.2002. Thus net effect of revision of 34 closing figures for Assessment year 2002-03 would be nil. This was explained by the following chart:
S l. No . Des c r i pt i o n As s et / B al a nc e as o n 31- 0 3- B al a nc e as o n 31- Am ou nt of i nc r eas e of t h e f i g ur e L ia b i li t y 20 0 2 s h o wn i n th e 03- 2 0 02 s h o wn in or ig i n al r et ur n f or th e r e v is ed r et ur n th e as s es s m ent ye ar f or t h e as s es s m e nt 20 0 3- 04 ye ar 20 0 3- 0 4 1 Ca p it a l L ia b i li t y Rs . 3 6 9, 69 , 08 ,0 6 8/- Rs . 90 0 ,8 6, 8 8, 0 86 /- Rs . 53 1 ,1 7, 8 0, 0 18 /-
Res er v e 2 De p os i ts L ia b i li t y Rs . 1 4 8, 89 , 91 ,9 5 4/- Rs . 27 5 ,3 6, 7 2, 9 77 /- Rs . 2 6, 4 6, 8 1, 02 3 /-
wi t h PU D A 3 Cur r e nt L ia b i li t y Rs . 5 6, 3 3, 5 5, 42 1 /- Rs . 20 4 ,6 3, 5 7, 4 21 /- Rs . 4 8, 3 0, 0 2, 00 0 /-
L ia b i li t ies an d Pr o v is i o ns T ota l I nc r e as e Rs . 0 5, 9 4, 6 3, 04 1 /-
S l. N Des c r i pt i o n of As s et /L i ab i l i t B al a nc e as o n B al a nc e as o n Am ou nt of i nc r eas e
o. th e f ig ur e y 31- 0 3- 20 0 2 31- 0 3- 20 0 2
s ho wn i n th e s ho wn i n th e
or ig i n al r et ur n f or r e v is e d r e tu r n f or
th e as s es s m ent th e as s es s m ent
ye ar 20 0 3- 0 4 ye ar 20 0 3- 0 4
1 W ork s As s et Rs . Rs . Rs .
ex ec u te d 90 , 58 ,7 0 ,9 5 1/- 21 5 ,5 2, 8 9, 8 43 /- 12 4 ,9 4, 1 8, 8 92 /-
2 Cur r e nt As s et Rs . Rs . 1 0 33 , Rs .
As s ets an d 35 2 ,3 2, 3 8, 5 08 /- 32 , 82 ,6 5 8/- 68 1 ,0 0, 4 4, 1 50 /-
Lo a ns an d
ad v a nc es
3 T ota l I nc r e as e Rs .
80 5 ,9 4, 6 3, 0 41 /-
44 Regarding the increase, it was explained that the same was
due to increase of following figures:
Increase of profit from scheme Rs. 2,54,98,723/-
Increase in interest income from Rs. 16,683/-
installments
Total increase Rs. 2,55,15,406/-
45 It was further contended that revision of accounts by switching
from mercantile system to cash system of accounting would have consequential effect on the figures of income for preceding 35 Assessment year 2002-03 but the increase in income pertaining to Assessment year 2002-03 will not have any taxable implications because the income in Assessment year 2002-03 was exempt u/s 10(20A) of the Act.
46 The Assessing Officer after considering these submissions observed that main contention of the assessee is that it had been working out income from purchase and sale of plot right from the beginning upto Assessment year 2002-03 and it was only in Assessment year 2003-04 that the assessee recognized revenue from purchase and sale of plots of these year as well as earlier years which would have consequential effect on the income of earlier Assessment years. He further observed that income from schemes (i.e. from sale and purchase of houses and flats) has already been worked out and shown in the return for Assessment year 2002-03 and the assessment has been completed accepting such income from sale of plots and houses. Such income was worked out on mercantile system of accounting. The change in system of accounting would have some effect on the sale of houses and flats during Assessment year 2003-04 but cannot have any effect for the earlier year. The increase of income from houses and flats resulting from the change of system of accounting made in Assessment year 2003-04 will belong to the present year and not earlier years. The assessee has cleverly shown the income belonging to Assessment year 2002-03 when the income was exempt and not in the Assessment year 2003-04 when the income is not exempt. Therefore, to this extent method of accounting was rejected and a sum of Rs. 2,55,15,406/- was added to the income of the assessee.
47 On appeal before the ld. CIT(A), it was mainly submitted that the assessee authority was engaged in the development of plots, construction of houses and sale thereof income was exempt upto 31.3.2002 in terms of Section 10(20A) of the Act. Due to loss of exemption the assessee revised its accounting policy and because of which certain matters required revision of accounts of the earlier years also. It was further submitted that profits on work in respect of two schemes have not been worked and recognized in respect of two schemes upto 31.3.2002. Earlier the profits was being accounted on the completion of the scheme and therefore, when the accounts were amended such profits were recognized upto 31.3.2002 and 36 changes were made accordingly. This profit came to Rs. 2,54,98,723/-. Similarly additional interest income on installments amounting to Rs. 16,683/- was not recognized earlier and it was now recognized. Therefore, this addition of Rs. 2,55,15,406/- was not justified.
48 The ld. CIT(A) considered these submissions and agreed with the same and allowed relief vide following paras:
"The Assessing Officer made an addition of Rs. 2,55,15,046/- at Point No. 8 of his order on account of difference in the figures of net profit from Schemes for the Financial Year 2001-02 as per original profit and loss account and for the same Financial Year as per revised balance sheet. It is seen that the authority had not worked out and recognized profitability on two of the housing schemes upto 31.3.2002. The accounts for the Financial Year 2001-02 were reopened and audited and the profit from those schemes were inducted into the books appertaining to the Financial Year 2001-02. It was subm itted by Ld. AR that it did not have any impact on the income chargeable to Income tax as the authority was exempt from Tax upto 31.3.2002 due to the applicability of the provisions of section 10(20A) of the Income Tax Act. A copy of statement of computation of net profit from schemes were examined with the original balance sheet pertaining to Assessm ent year 2002-903 and the sam e was enclosed with the revised balance sheet f or the sam e year was also given to me. It is clear that the unrecognized profitability of two schem es were incorporated in the revised accounts for Assessm ent year 2002-03. The addition done by the Assessing Officer during the Assessm ent year 2003-04 was uncalled f or as the incom e pertained to Assessm ent year 2002-03 which was properly incorporated in the accounts of Financial Year 2001-02. It is further seen that the Authority had not revised the return pertaining to Assessm ent year 2002-03, the period to which the entries pertain, as the revised accounts were finally signed and audited on 1.2.2005. The last date for revising the return was 31.3.2004. Since the last date had already expired and there was no im pact on Taxable incom e of the Authority f or the relevant year as the income was exempt u/s 10(20A) the allegation of the Assessing Officer that since the return has not been revised for Assessment year 2002-03 and hence the income should be credited to Assessment year 2003-04 is not correct.
In regard to this addition of Rs. 2,55,15,046/- it is observed that amount represents the income from projects which were completed as on 31.3.2002. This income can only be taxed as income for Financial Year 2001-02 or Assessment year 2002-03 and not Assessm ent year 2003-04. Hence this ground of the appellant is allowed and the addition on this account of Rs. Ordered to be deleted."
49 Before us, the ld. DR for the revenue submitted that the ld. CIT(A) was not able to appreciate the basic facts once the assessee had filed its return of income for Assessment year 2002-03 and the assessment was also completed u/s 143(3) then how can the assessee claim that a sum of Rs. 2,55,15,406/- pertain to Assessment year 2002-03. The ld. CIT(A) further failed to appreciate that the assessee had worked the income at various schemes from sale of houses and flats and profit had already been worked out for Assessment year 2002-03. If the assessee was not working income from sale of plots to Assessment year 2002-03 and the same was worked out in Assessment year 2003-04 and 37 recognized the revenue for the first time in this year then this would have effect on the profits of the current year and not for the earlier year. The assessee could not have filed revised return for Assessment year 2002-03 because Section 139(5) prescribes only two situations where the revised return can be filed i.e. if there is an omission or wrong statement in the original return. In this regard she relied on the decision of Hon'ble Delhi High Court in case of Golden Insulation and Engg. Ltd. Vs. CIT, 305 ITR 427 (Delhi). In any case on principle also if some increase of income was not shown by the assessee in earlier years and if due to certain reclassification there is a change in the amount of income, the same should be taxable during the current year only. In this regard she placed reliance on the decision of Hon'ble Supreme Court in case of CIT Vs. British Paints India Ltd. (S.C), 188 ITR 44. Further it was submitted that the way accounting entries have been made, is not determinative of the amount of real income and same is required to be taxed on the basis of provisions of the Act.. In this regard reliance was placed on the decision of Hon'ble Supreme Court in case of Sutlej Cotton Mills Ltd. Vs. CIT, 116 ITR 1 (S.C). She also referred to decision of Hon'ble Supreme Court in case of Southern Technologies Ltd. Vs. JCIT, 320 ITR 577 (S.C) wherein it was held that subject to the provisions of Income tax the profits to be assessed under the Act have to be real profits which have to be computed on the ordinary principles of commercial accounting.
50 On the other hand, the ld. counsel of the assessee submitted that when the accounts were revised it came to the light that profitability of two schemes had not been recognized in Assessment year 2002-03 and therefore, since system of accounting was being changed from mercantile to cash the sales and closing stocks were reworked and profit for the earlier year i.e. Assessment year 2002- 03 was worked out at Rs. 2,54,98,722/- and ultimately this sum was credited to General Reserve account. Similarly interest of installments amounting to Rs. 16,683 which also remain unrecognized in the earlier balance sheet for Assessment year 2002- 03 was recognized. Therefore, only mistakes have been corrected. In this regard in the written submissions following chart has been furnished:
As per original As per revised Difference
38
balance sheet as on balance sheet as on
31.03.02 31.03.02
Receipts from 2062070049 1908793878 153276171
allottees (Schedule
'F')
Sales of houses 248022499 401298670 153276171
(Annex-2)
Further the profitability of above two schemes in the A.Y. 02-03 as per original balance sheet as on 31.03.02 is as under:-
As per original balance sheet As per revised balance sheet as on 31.03.02 (Annex-2) as on 31.03.02 (Annex-2) Opening Stock 106887543 106887543 452 MIG Sec. 66 Mohali 696 57008053 57008053 LIG Section, 66 Mohali Total(A) 163895596 163895596 Sale 452 MIG Sec. 66 Mohali - 105909156 696 LIG Sec. 66 Mohali - 47367015 Total(B) - 153276171 Closing Stock 452 MIG Sec. 66 Mohali 106887543 26848535 696 LIG Sec. 66 Mohali 57008053 9269613 Total (C) 163895596 36118148 Profitability(B+C-A) - 25498723 The ld. counsel of the assessee referred to various documents in the form of balance sheet and pointed out how the figures have been reworked. The Assessing Officer has clearly accepted the fact that income belongs to Assessment year 2002-03 and simply because return for that year cannot be revised now, does not mean that the income can be assessed now in the present year.
51 W e have heard the rival submissions carefully and do not find any force in the submissions of the ld. counsel of the assessee. It is settled position of law that when ever system of accounting is changed such change has to be bonafide and the system should clearly reflect the income of the concerned year. It has not been explained before us why the profit in respect of two schemes was not recognized in Assessment year 2002-03 earlier simply by saying that it was not done by mistake, is not enough. Even if assuming that because of the change in system the income of earlier year has come to this year then the assessee has no right to change income to earlier year i.e. Assessment year 2002-03 by simply saying that 39 the income belongs to that year and was not recognized in the earlier year. This cannot be done particularly in view of the fact that in the Assessment year 2002-03 the income was exempt u/s 10(20A).
Moreover the assessment which has become final cannot be reopened again. The assessee has no time left in terms of Section 139(5) to revise the return. Therefore, we are of the opinion that the ld. CIT(A) has erred in giving relief by simply stating that this income actually belongs to the earlier year without giving any reasons how and why this income was not recognized in the earlier year. Accordingly we set aside the order of the Ld. CIT(A) and restore that of the Assessing Officer in this regard.
52 Ground No. 5 - After considering the rival submissions we find that during assessment proceedings it was noticed by the Assessing Officer that receipts from sale of houses and flats where complete payments by the purchaser were not made, were being accounted as capital receipt by the assessee. In response to the query it was mainly stated that such houses and flats have been sold on hire purchase basis and as per the "Hire Purchase Agreement" sale is not complete unless all payments have been made by the purchaser. However, the Assessing Officer observed that since the assessee has adopted cash system of accounting of receipts and therefore, the amount of such installments were required to be treated as revenue receipt and should be accounted in "income expenditure statement". The assessee was asked to furnish the details. In response the assessee filed the details and it was again stated that in such cases buyer would not become owner of the property till all the hire purchase installments are paid and till then such houses and flats continued to rest with the seller i.e. assessee authority. Therefore, in legal sense sale can not be said to have completed unless the property passes on to the buyer. However, the Assessing Officer observed that this can not be treated as hire purchase if the allottees were termed as tenant till all the installments are paid by him. He further observed that as per Section 145 of the Act the assessee can compute his income either on mercantile system or cash system of accounting regularly employed by him and the assessee had option either to adopt cash system or mercantile system as long as it is feasible to compute the income through different activities by different methods. Since the assessee had adopted cash system of accounting, therefore, income has to be 40 computed on the basis of installments received during the year minus any amount which has already been accounted for as revenue receipt during the year under consideration . Accordingly from the details it was observed that total installments received during the period 1.4.2002 to 31.3.2003 was Rs. 23,00,77,465/- out of which a sum of Rs. 3,22,06,541/- was already accounted for as revenue during the year and therefore, net amount of Rs. 19,78,70,924/- was added to the income of the assessee.
53 On appeal similar contention as have been made before the Assessing Officer, were reiterated. The ld. CIT(A) discussed the issue in detail and found merit in the submissions of the assessee and deleted the addition by holding that since the assessee was following the Project Completion Method, therefore, the income would be shown only on the completion of the scheme.
54 Before us, the ld. DR for the revenue submitted that as per Section 4 of the Act income tax is chargeable in respect of total income of each Assessment year and therefore, income received during the year cannot be deferred to future years by adopting the method of accounting which is inconsistent with the method of accounting which the assessee is following regularly. Since the assessee has started following the cash system of accounting during the year and therefore, income received during the year has to be subject to taxation. She also referred to the provisions of section 145 and submitted that though the assessee had the option to adopt the mercantile system or cash system of accounting but the assessee has no right to follow hybrid system of accounting i.e. one method for one particular source of income and another method for other source of income. She further submitted that it was stated by the ld. counsel of the assessee that the assessee was recognizing revenue on the completion of the scheme because assessee was selling houses and flats on hire purchase agreement but it has to be noted that the assessee is in the business of development and selling houses and not in the business of providing finance /credit to various customers. The assessee has basically received installments in construction of flats and houses and was following cash system of accounting and therefore, such installments are to be taxed in the current year. In any case the provision of Hire Purchase Act cannot over ride the provisions of the Act and in this 41 regard she relied on the decision of Hon'ble Supreme Court in case of Southern Technologies Ltd. Vs. JCIT (supra).
55 It was further submitted that Hon'ble Punjab & Haryana High Court in case of CIT v Chandigarh Industrial and General Development Corporation Ltd. 319 ITR 85 (PH) has clearly held in the similar circumstances that amount received on account of installments are taxable during the year. Similarly the same view was taken in case of CIT Vs. Fair Deal Traders, 327 ITR 34 by Hon'ble Punjab & Haryana High Court wherein the assessee after purchasing the land divided the same into plots and received installments but the same was held to be taxable because possession of the flats had already been given. She also referred to the decision of Hon'ble Delhi High Court in case of Tirath Ram Ahuja (P) Ltd. Vs. CIT, 103 ITR 15 (Del) where contract was not complete but it was held that it was open to the revenue to estimate the profit on the basis of receipt in each year of consideration even when the contract is not complete. She also relied on the decision of Hon'ble Punjab & Haryana High Court in case of CIT V. Dhir and Co. Colonisers P. Ltd, 288 ITR 561 (PH) wherein it was held that once possession of the plots was transferred then the receipts could not be held to be merely a deposit.
56 On the other hand, the ld. counsel of the assessee reiterated the submissions made before the Assessing Officer. It was emphasized that in case of houses and flats the assessee authority was entering into hire purchase agreement. He referred to various provisions of the agreement and submitted that this hire purchase agreement clearly provide that ownership of the property would remain with the authority till last installments is paid. It was further provided in the agreement that status rights of the hirer shall be exclusively that of a tenant and not as owner. It was contended that installments consist of two elements namely interest embedded in such installments and secondly the principle amount. It was submitted that as far as interest is concerned, the same was being accounted for in every year because it was possible to quantify the same even during the year a sum of Rs. 24,76,01,075/- has already been accounted for as interest on installments. On account of installments the assessee has already credited a sum of Rs. 6,71,56,134/-. This is the only the amount which can be recognized on account of revenue. It was further submitted that it was not 42 possible to quantify the profit during the mid of the scheme because even true expenses on account of construction of last house was also carried over as stocks and therefore, the expenditure is not being debited and the profit could not be worked in respect of uncompleted schemes. In fact there was unclaimed expenditure during the year as per following detail:
Particulars Balance as on 31.3.2003 Balance as on 1.4.2002 Receipt from allottees Rs. 210,66,64,803.65 Rs. 19,08,79876.72 pending recognition of revenue due to schemes for incomplete Expenditure pending Rs. 233,72,05,032.55 Rs. 226,43,47,998.60 debit to profit and loss account due to schemes for incomplete Excess of expenditure Rs. 23,05,40,228.90 Rs. 35,55,54,119.88 over receipt
57 It was further contended that the assessee was following completed contract method which was one of the recognized method as per accounting standard AS 7 which was enforced for all the contracts entered upto 31.3.2003 and therefore, same would not violate the charging section and true profit can still be worked out by following this method. Moreover this method was consistently followed by the assessee in the earlier year when the income was exempt u/s 10(20A) of the Act. No doubt there is change in the system of accounting to cash system from mercantile system followed earlier, however, the method of recognition of the income from housing schemes continued to remain the same as in the past and receipt as well as expenditure were accumulated in the scheme and in this regard reliance was made to schedule "F" of the balance sheet filed in the paper book. He also referred to the definition of "hire purchase" in Hire Purchase Act, 1972 as well as other relevant provisions. This definition clearly shows that allottee of a house would become owner of the same only on the completion of the terms of the agreement.
58 The ld. counsel of the assessee further submitted that addition on account of installments have mainly been made because the assessee was following cash system. The Assessing Officer failed 43 to realize that Section 145 which is a machinery section and provides for system of accounting, can not over ride charging section. Since in the present case, the sale is not complete and till completion of the tenure the receipt of installments could not be recognized as income and the same have to be treated as advance only irrespective of the system of accounting followed by the assessee. In this regard reliance was placed on the decision of Delhi Bench of the Tribunal in case of K.K. Khullar Vs. DCIT, 304 ITR (AT) 295 (Delhi). Unless and until there is a realistic income the same cannot be charged to tax and in this regard reliance was placed on the decision of Hon'ble Supreme Court in case of CIT Vs. Messrs. Shoorji Vallabhdas and Co. 46 ITR 144 (S.C). The ld. counsel of the assessee also referred to the decision of Hon'ble Punjab & Haryana High Court in case of CIT Vs. Punjab Financial Corporation, 295 ITR 502 (PH) wherein it was clearly held that a mere system of accounting can not create a income. In view of these decisions simply because the assessee was following cash system of accounting the receipt cannot be given colour of income.
59 It was further submitted that receipts were accumulated in the balance sheet and at the same time the cost was also accumulated in a particular scheme in the balance sheet. The Assessing Officer again simply picked up the receipt without allowing corresponding cost. Therefore, in the alternative even if it is held that advance receipt of installments is in the nature of the income then suitable directions for allowing the actual cost incurred should also be given. In this connection reliance was placed on the decision of Hon'ble Supreme Court in case of CIT Vs. Bilahari Investment P. Ltd. 299 ITR 1 (S.C). It was further submitted that the decision of Hon'ble Punjab & Haryana High Court in case of CIT Vs. Chandigarh Industrial and General Development Corporation (supra) and CIT Vs. Dhri and Co. Colonisers P. Ltd (supra) have been reversed in view of the decision of Hon'ble Supreme Court in case of CIT v Realest Builders and Services Ltd. 307 ITR 202 (S.C).
60 He also submitted that there is no force in the contention of the ld. DR for the revenue that income of one particular year cannot be deferred to future years because first of all no income has materialized and secondly profit of each year being determinable at the year end is one thing and profit of each year are required to be essentially to be determined at the end of the year, is another thing.
44Simply because the method of accounting exists for determination of profit of each year, it cannot be followed that the profits of the project must be determined when the whole project got completed in the future and this method was consistently followed. He also placed reliance on the decision of Special Bench of the Tribunal in case of DCIT Vs. Nagarguna Investment Trust Ltd. 65 ITD 17 and Taparia Tools Ltd. Vs. JCIT, 260 ITR 102.
61 In the rejoinder the ld. DR for the revenue submitted that there is no force in the submissions that Section 145 can not over ride the charging section because in the present case installments received would come under the purview of income under the charging section also. She also submitted that decision in case of CIT v Realest Builders and Services Ltd (supra) is totally distinguishable because in that case the issue was whether it was for the department to give vital aspects regarding method of accounting followed by the assessee which resulted in under estimation of profit whereas in the case before us, is regarding consequences of following of cash system of accounting.
62 W e have heard the rival submissions carefully. Section 145 of Income Tax Act reads as under:
" S e c t i o n 1 4 5 - (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income.
( 3) W her e t he As s es s i ng O f f ic er is n ot s at is f i e d ab o ut t he c o r r ec t n es s or c om pl et e nes s of th e ac c o un ts of t he as s es s e e , or wh er e th e m eth od of ac c o u nt i ng p r o v i de d i n s ub- s ec ti o n ( 1) or ac c ou n ti n g s ta n dar d s as n ot if i e d un d er s u b- s ec t i on ( 2) , ha v e n ot be e n r e g u l ar l y f ol l o we d b y t h e a s s es s e e , th e As s es s i n g O f f ic er m a y m ak e an as s es s m en t in th e m an ner pr o vi d ed i n s ec t i o n 14 4 .
The above provision was substituted by Finance Act,1995 w.e.f. 1.4.1997. Before this substitution the assessee had choice to follow mercantile or cash or even hybrid system of accounting i.e. the assessee could choose cash system of accounting for one source of income and mercantile system of accounting for other sources. This choice have been removed and now the assessee could follow either cash system of accounting or mercantile system of accounting. Plain reading of the provision shows that the assessee could follow only 45 one system of accounting in respect of income under the head "profits and gains of business or profession or income from other sources". These restrictions have not been prescribed for other heads of business. In case before us, income of the assessee is chargeable under the head "profits and gains of business" therefore, the assessee could have adopted only one system of accounting. Before the present assessment year the assessee was following mercantile system of accounting and in this year system has been changed from mercantile system of accounting to cash system of accounting. Though it is very surprising how a large organization such as the assessee, could follow cash system of accounting but it is admitted fact that the assessee followed cash system of accounting. In fact in respect of other additions like receipt of interest from bank and receipt of interest from Government of Punjab, it was vehemently argued on behalf of the assessee that these receipts can be taxed only when the same have been actually received by the assessee because the assessee was following cash system of accounting. Therefore, admitted position is that the assessee is following cash system of accounting.
63 Normally people other than the traders keep accounts in cash system i.e. people like Doctors, Advocates or other professionals keep their accounts in cash basis because they are not selling any merchandise and it is very easy to follow cash system for them. As we have already observed that it is surprising that the assessee had followed cash system of accounting. Therefore, when the traders follow cash system and whenever such traders sell any merchandise on credit he would enter the transaction only in a memorandum account or in some other rough account as a record so that he does not forget the same. This is the reason we are surprised that assessee is following cash system of accounting when in assessee's case large number of transactions are involved then how can an organization follow cash system because in the transaction where no cash is incoming or outgoing such transactions are not recorded under this system and they are only noted as memorandum entries or in rough jotting. Under the cash system of accounting such trader would not enter the sale proceeds on the income side in his books of account or cash book until the same is actually received. Similarly an item of expenditure will be booked only when actual cash payment is made. In case of mercantile system of accounting 46 income as well as expenditure would be recognized on the principle of accrual. In fact this issue was considered by the Hon'ble Supreme Court in case of Raja Mohan Raja Bahadur Vs. CIT, 66 ITR 378 (S.C). In that case the assessee was a money lender and had given loan to one Shri Nisar Ahmad Khan, Taluqdar of Mohana Estate. The assessee was maintaining books of account on cash system of accounting. The assessee commenced an action in Civil Court for a decree for recovery of Rs. 2,58,000/-. Ultimately Judicial committee of the Privy Council decreed in favour of the assessee. Shri Nisar Ahmad Khan obtained under the UP Encumbered Estates Act, 25 of 1934 an order applying the provision of the Act to him. The Special Judge, Sultanpur, passed an order for payment of Rs. 5,00,992/- to the assessee. Pursuance to the order the assessee received in 1946, Rs. 1,54,692/- from the debtor and for the balance the Government of the United Provinces gave to the assessee Encumbered Estate Bonds of the face value of Rs. 3,46,300. The amount received in the year 1946 was appropriated by the assessee towards the principal due. The assessee split up the amount of the face value of the bonds into two sums of Rs. 2,22,097-9-11 and Rs. 1,24,202-6-1 and credited the first amount in the books of account towards the balance of principal and the second amount to an account styled "interest Accrued". In submitting the return of his taxable income for the Assessment year 1948-49 the assessee did not disclose any receipt of income from interest due on the loans advanced to Nisar Ahmad Khan. The assessee was duly assessed to tax on the income disclosed by him. In Oct 1948, the assessee sold the Encumbered Estates Bonds and realized a total sum of interest received during the year on account the difference between the amount realized by sale of the bonds and the amount due as principal. The ITO issued a notice u/s 34(1)(a) of the Indian Income Tax Act and brought to tax the difference between the face value of the bonds and the amount due as principal as escaped income of the previous year relevant to the Assessment year 1948-49. The order was confirmed by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The High Court also decided the issue against the assessee. On further appeal before the Hon'ble Supreme Court it was mainly contended that the assessee was maintaining books of account on cash system of accounting and until the assessee realized the value of bonds, no interest can be said to have been received by the assessee because it was further 47 submitted that when the accounts are maintained on cash system of accounting, receipt of money alone may be taken into account in determining the taxable income. The Hon'ble Apex Court mainly observed at page 382 as under:
" Under section 4 of the Income-tax Act, 1922, the total income of any previous year of a resident assessee includes all income, profits and gains from whatever sources derived which are received or are deemed to be received in the taxable territories in such year by or on behalf of such person, or accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year, or accrue or arise to him without the taxable territories during such year, or having accrued or arisen to him without the taxable territories before the beginning of such year st and after the 1 day of April, 1933, are brought into or received in the taxable territories by him during such year. The Act does not contain much guidance as to cases in which tax is to be levied on income received, and cases in which tax is to be levied on income accrued or arisen. Section 13 however requires that income, profits and gains for the purposes of sections 10 and 12 shall be computed in accordance with the method of accounting regularly employed by the assessee. If accounts are maintained according to the mercantile system, whenever the right to receive money in the course of a trading transaction accrues or arises, even though income is not realized, income embedded in the receipt is deemed to arise or accrue. Where the accounts are maintained on cash basis receipt of money or money's worth and not the accrual of the right to receive is the determining factor. Therefore, if commercial assets are received by a trader maintaining accounts on cash basis in satisfaction of an obligation, income which is embedded in the value of the assets is deemed to be received: the receipt of income is not deferred till the asset is realized in terms of cash or money. It makes no difference whether the receipt of assets is in pursuance of an agreement or that the trader is compelled by law to accept the assets from the debtor. Once title of the trader to an asset received is complete, whether by a consensual arrangement or by operation of law, he receives the income embedded in the value of the asset. In Californian Copper Syndicate v. Harris Lord Trayner in dealing with a case of assesseement to income-tax of a company, formed for the purpose, inter alia, of acquiring and re-selling mining property, which resold the whole of its assets to a second company and received payment in fully paid shares of the purchasing company, observed:
" A profit is realized when the seller gets the price he has bargained for. No doubt here the price took the form of fully paid shares in another company, but, if there can be no realized profit, except when that is paid in cash, the shares were realizable and could have been turned into cash, if the appellants had been pleased to do so. I cannot think that income-tax is due or not according to the manner in which the person making the profit pleases to deal with it."
The other observations have been summarized in the head note which read as under:
" If ac c o un ts ar e m a in t a in e d ac c or d in g t o t h e m er c a nt i le s ys tem , wh e ne v er t h e r i gh t to r ec e i ve m one y i n t h e c ou r s e of a tr a d in g tr a ns ac t i on ac c r u es or ar is es , e ve n t h ou g h i nc om e is no t r e a li ze d , i nc om e em bed d e d i n t he r ec ei pt is d e em ed to ac c r u e or ar is e . W her e th e ac c o un ts ar e m aint a i ne d o n c as h b a s is , r ec e i pt of m one y o r m one y' s w or t h an d no t t h e ac c r ua l of t he r i gh t t o r ec e i v e is t he de t er m in in g f ac t or . T her ef or e , if c om m er c ia l as s e ts ar e r ec e i v e d b y a tr a de r m aint a i n in g ac c ou nts o n c as h b as is i n s a tis f ac t i on of an o b l ig at i on , i nc om e wh ic h is em be d de d i n t he va l u e of t he as s ets is d e em ed t o be r ec e i v e d; t he r ec e i pt of inc om e is n ot d ef er r ed t il l th e as s et is r e al i ze d i n ter m s of c as h or m one y. It m ak es no di f f er enc e whe t her th e r ec e i pt of as s ets is i n pur s u a nc e of an a gr e em en t o r t ha t th e tr a de r is c om pe l l e d b y l a w t o ac c e pt th e as s e ts f r om th e d eb t or . O nc e t i t le of th e tr a d er t o an as s et r ec e i v ed is c om pl e t e wh e th er b y a c o ns e ns ua l ar r a n ge m ent or b y op er at i on of la w, h e r ec e i v es the i nc om e em bed d e d i n th e v a l ue of th e as s et . "
Therefore, in cash system of accounting for determination of the income receipt on money (cash) or money's worth instruments are determining factor and in accrual of right to receive such money is a 48 material. In other words, whenever the cash is received on income side the same has to be taxed if the cash is received on capital side for example loan from bank then the same would not be required to be taxed. However, if there is simply a right to receive such cash the same cannot be taxed in the cash system of accounting. In our opinion, this would answer the question and or contention raised by the ld. counsel of the assessee that before taxing an item the same has to pass through the test of charging section. Section 4 of the Act which is charging section, reads as under:
" S e c t i o n 4 - (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and [subject to the provisions (including provisions for the levy of additional income-tax) of, this Act] in respect of the total income of the previous year [* * *] of every person :
Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.
(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.
Plain reading of this provision would show that tax can be charged at the rate prescribed by any Central Act which is practically done through passing of Finance Act in every year by the Parliament. Such tax can be charged in respect of total income of the previous year. Total income has been defined in Section 5 of the Act. The word "Income" has been defined in Section 2(24) so therefore, before charging tax it has to be seen that an item is in the nature of "income" and covered by the definition of income given in Section 2(24) of the Act. It is further to be noted that income has been defined in inclusive manner. This is very complex issue and without going into the details we would simply take the simple meaning of the "income". In the normal commercial parlance an item which is of revenue nature, is taken as income. Now in a case where an organization which is carrying out the business of construction and development of houses and if such organization sells the same outrightly or on installments basis then such installments would be in nature of income. Therefore, there is no force in the submissions of the ld. counsel of the assessee that installments received by the assessee do not come under the charging section and therefore, same cannot be taxed simply because u/s 145 the receipt under cash system has to be taxed. No doubt Section 145 is a machinery section but machinery section also have lot of bearing on determination of income and cannot be ignored lightly. In this 49 connection we would like to refer to one of the celebrated judgment of Hon'ble Supreme Court in case of CIT Vs. B.C. Srinivasa Setty, 128 ITR 294 (S.C). In that case the assessee was a Regd firm. Clause 13 of the Instrument of Partnership deed showed that goodwill of the firm have not been valued and valuation would be made at the dissolution of the partnership. Period of the partnership was extended and subsequently partnership was dissolved on 31.12.1965. At the time of dissolution goodwill was valued at Rs. 1,50,000/-. The new partnership with the same name was constituted through another deed of partnership. New firm booked over all the assets including goodwill and liability of the dissolved firm. Originally no addition was made on account of gain arising out of transfer of goodwill but this assessment order was found erroneous and prejudicial to the interest of the revenue and therefore, Ld. Commissioner passed revisionary order directing the Assessing Officer to make fresh assessment after taking into account the capital gain arising out of sale of goodwill. The assessee maintained that no sale took place to attract the tax on capital gain u/s 45 of the Income Tax Act . The Tribunal allowed the appeal. W hen the matter traveled to the Hon'ble Supreme Court the matter was argued in great detail. One of the issue arose whether there was transfer and it was held yes it was a transfer. Another issue arose whether the gain of such transfer of goodwill would be taxed u/s 45 of the Act. It was found that goodwill is a self generated asset and no cost of acquisition can be attributed to self generated assets. Since Section 48 which is mode of computation of capital gain prescribes reduction of cost of acquisition from the sale consideration it was held that in the absence of cost of acquisition computation of capital gain, was not possible. Therefore, same was held to be not taxable. This clearly shows that computation provision which is again a machinery provision, had lot of bearing on the taxability of gain received on transfer of goodwill. Therefore, even if section 145 being machinery section has its own implications. Implications are very clear that the assessee has a right to follow either mercantile system of accounting or cash system of accounting for determination of the income. The assessee has been given a choice and in the case before us, the assessee has deliberately and after applying its mind decided to follow cash system of accounting, therefore, the assessee has to bear the consequences of such system of accounting.
5064 The ld. counsel of the assessee has strongly relied on the decision of K.K. Khullar Vs. DCIT (supra). In this case the assessee was an Advocate and received certain amounts for services to be performed over a period of time. The amount received from the client in respect of services rendered in the year under consideration , was shown as income and the balance amount was shown as advance. The Assessing Officer held that as per the provisions of section 145 the assessee was following cash system of accounting and therefore, whole amount was taxable. The Tribunal decided the issue in favour of the assessee vide following paras:
W e hav e c o ns i der e d t he f ac ts of th e c as e a nd r i v a l s ubm is s io ns . W e m a y r ef er to th e c h ar g i n g s ec t i on 4 of t he Ac t t o t he ef f ec t th a t inc om e- tax s h a ll b e c har g e d f or an y as s e s s m ent ye ar at t he r a te or r at es pr o vi d ed i n a n y Ce n tr a l Ac ts i n r es pec t of th e to t al i nc om e of th e pr e v io us ye ar of e v er y p er s on . S ec t i on 5 de a ls wit h t he " s c op e of to t al i nc om e" , wh ic h is def in e d i n r es pec t of an y p r e v i ous ye ar in ter m s of ac c r u a l, de e m ed ac c r u a l, r ec e ip t an d d eem e d r ec e i pt e tc . S ec t i o n 14 5 de a ls wi t h t he m etho d of ac c ou nt i n g i n r es p ec t of " pr of its an d g a i ns of bus i n es s or p r of es s i o n" or " i nc om e f r om other s o ur c es ." T hus , wh i l e s ec t i o ns 4 a n d 5 de a l wit h t h e s c op e of inc om e a nd its c har g e t o i nc om e- t ax , s ec t i o n 1 45 is a pr oc e d ur a l s ec t i on r e gar d i ng t h e m etho d t o b e f ol l o wed f or r ec or d i n g of inc om e i n t he bo ok s of ac c o un t. I t is n o d o ub t tr ue th a t f or th e as s es s m ent ye ar 1 9 9 7- 9 8 an d on wa r ds , th e as s es s e e c a n f ol l o w e it he r th e c as h or t he m er c an t i le s ys tem of ac c ou n ti n g a n d t he h yb r i d s ys t em of ac c o u nt i ng is pr o hi b it ed . H o we v er , wh at is t o b e tax e d is inc om e an d r ec ei p t of an am ou nt is n ot t o b e t he bas is f or t h e l e v y of t he tax . I n t he c a s e of M es s r s . S ho or j i V a l la b hd as a nd Co . [ 19 6 2] 4 6 IT R 1 44 , t he ho n 'b l e S upr em e Co ur t po i nt e d ou t th at t h e I nc om e- t ax Ac t t ak es i nt o ac c o u nt t wo p o in t s of t im e o n wh ic h t he l ia b i l it y t o tax is at tr ac t ed , n a m el y, - ( i) ac c r u a l of i nc om e or ( i i) r ec e i pt of i nc om e. I t i s f ur th er m ent i on e d t ha t t he s ubs t anc e of th e m att er is " i nc om e" . It m a y b e e m phas i ze d t h at i t is ac c r ua l of i nc om e or r ec e ip t of inc om e th at c a n b ec om e t he s ubj ec t- m at t er of t ax a nd it is t h e inc om e wh ic h has t o b e r ec o r d e d as per s ys t em of ac c ou nt i n g f o l l o we d b y t h e as s es s e e i n v ie w of s ec t i on 14 5 of th e A c t, b ec aus e t h e s u bs ta nc e of th e m att er is " i nc om e" . T her ef or e , t h er e is a n inf ir m it y in th e or d er of t h e le ar ne d Co m m is s io ner of Inc om e- t ax ( A p pe a ls ) in pa r a gr ap h 4. 7 wher e it was s ta te d t ha t t h e e nt ir e am oun t r ec e i v ed , wh e th er ar r e ar s o r a d va nc e, is t o b e s h o wn as i nc om e u n der th e c as h s ys t em of ac c ou n ti n g. T he co r re ct posi t io n w ould be t h at t h e ent i re inc om e r e ce iv ed , w het h er a rr e a r or adv a n ce of in com e, h a s t o be s how n as inc om e und er t h e c as h s ys t em of a cc ount i ng. "
The highlighted portion of the above paragraph clearly shows that in cash system of accounting the receipt of money whether arrears or advance, has to be shown as income, therefore, this decision is totally distinguishable.
65 Another decision relied on was that of CIT Vs. Messrs, Shoorji Vallabhdas and Co. (supra). In that case the assessee firm was the managing agent of two Shipping companies and under the Managing Agency Agreement, the assessee was entitled for commission @ 10% of the freight charges. Between April 1, 1947 and December 31, 1947 an amount of Rs. 1,71,885/- from one company and Rs. 2,56,815/- from other company became due to the assessee as 51 commission @ 10%. This amount was credited in the books of account and debited to managing agent. In November 1947 the assessee desired to have managing agency transferred to two Private Companies and in this connection agreed in December, 1948 t o a c c e p t 2 ½% a s c o m m i s s i o n a n d g a v e u p 7 ½% o f i t s e a r n i n g s . The revenue sought to assess the amounts to Rs. 1,36,903/- and Rs. 2 , 0 0 , 6 2 5 / - b e i n g 7 ½% o f t h e f o r e g o n e a m o u n t a s i n c o m e . On these facts it was held as under:
" He l d, t ha t t h e s u bs e qu e nt a gr eem en t h ad a lt er ed t h e r at e of c om m is s i on i n s uc h a wa y as to m ak e t h e inc om e wh ic h r ea l l y ac c r u ed t o t he as s es s ee d if f er e nt f r om wha t h a d be e n en ter e d i n t h e b ook s of ac c o u nt . T h is was n ot a c as e of a g if t b y t he as s es s ee t o th e m ana g ed c om pan i es of a po r t i on of i nc om e wh ic h h ad a l r ea d y ac c r ue d, b ut a n a gr eem e nt t o r ec e i v e a l es s e r r em un er a t io n th a n wha t ha d be e n agr e ed up o n. T h e as s es s e e ha d i n f ac t r ec e i v e d on l y t he l es s er am ou nt i n s p it e o f th e en tr ies i n t he a c c ou n t b o ok s , an d t h is l es s er am oun t a l on e was tax a b le .
Inc om e- t ax is a le v y o n inc om e. T h o ug h th e Inc om e- t ax Ac t t ak es i nt o ac c ou nt t wo p o i nts of t im e at wh ic h t h e li a b il i t y t o t ax is a ttr ac te d, v i z. , t he ac c r u al of th e inc om e or its r ec e ip t, ye t th e s u bs ta n c e of t he m at ter is t he i nc om e. If i nc om e do es n ot r es u lt a t al l , th er e c an n ot b e a tax , e v en t h ou g h i n bo ok - k eep i ng , a n en tr y is m ade a b o ut a " h yp ot h et ic al i nc om e" , wh ic h d o es n ot m ater ia l i ze . W her e i n c om e h as , in f ac t, b ee n r ec e i ve d a n d is s ubs e qu e nt l y g i ve n u p i n s uc h c ir c u m s tanc es t h at it r em ai ns th e inc om e of th e r ec ip i en t, e ve n th o ug h g i ve n u p, t h e t ax m a y b e p a ya b l e. W her e , ho we v er , th e i n c om e c a n b e s a id no t t o h a v e r es u lt ed at a ll , t h er e is o b v i ous l y ne i th er ac c r u a l nor r ec e ip t of i nc om e, e v e n t h ou g h an e n tr y to t ha t ef f ec t m ig ht , i n c er t a i n c ir c um s tanc es , ha v e b e en m ad e i n th e b o ok s of ac c o un t. "
Thus it is clear from above that the amount which was sought to be assessed was not in nature of income because the assessee has clearly agreed to reduce the rate of commission on conversion of the agency in the name of Private companies. In case before us, nowhere it has been denied that installments received by the assessee firm from the allottees of the houses is not in the nature of the income. Therefore, the proposition laid down in case of CIT v Messrs Shooroji Vallabhdas and Co. Supra) are not applicable.
66 W e would also like to note that in original return filed by the assessee, was for income of Rs. 21.19 crores whereas in the revised return a loss of Rs. 19.12 crores was claimed. The Assessing Officer examined the reasons for loss and he found that main reason was that expenditure accounts show the figures of cost of plots and therefore, sale which was not there in the original income and expenditure account. Result of these figures is as under:
Cost of plots Rs. Sale of plots Rs.
105,42,88,169/- 65,18,29,803/-
52
Loss Rs.
40,24,58,366/-
Rs. Rs.
105,43,88,169/- 105,42,88,169/-
This matter was investigated in detail and ultimately the reason for these entries was analyzed and discussed by the Assessing Officer as mentioned in the assessment order as under:
As r e g ar ds t h e r e as o n f or hu g e l os s f r om pur c h as e an d s a l e of p l ots , it was ex p l a in e d b y th e c o uns e l, d ur i ng dis c us s i on a n d a ls o ex p l a i ne d b y t he as s es s e e in i ts le tt er No . 1 5 67 d at e d 08 .0 3 .2 0 06 th a t s inc e t h e a s s es s e e has c ha n ge d its s ys tem t o c as h s ys t em of ac c ou n ti n g, o nl y th e a m ount ac t u a ll y r ec e i v e d o ut of to ta l s a le am oun t h as b e e n s h o wn as s a le wh e r eas th e p l o ts wh ic h ha v e b ee n s o ld b ut o nl y a p ar t of t h e s al e am ou nt of wh i c h has b ee n r ec e i v e d ar e n ot r ef le c te d i n t he c los i n g s to c k wh ic h is th e r e as o n f or th e l os s i n t he p ur c h as e a n d s a le of p l ots f or th e as s es s m ent ye a r 2 0 03 - 0 4. B ut i n t h e s ubs e qu e nt ye a r s i. e. as s es s m en t ye ar 2 0 04- 0 5 o n war ds , t he r e is p r of it f r om pur c h as e an d s a l e of p lo ts . D ur i ng dis c us s i on , i t was ex pl a i ne d b y t he c ou ns e l b y gi v i n g an ex am pl e. S up p os e, th e c os t of p lo t is Rs . 1, 0 0, 0 00 /- an d i t is s ol d f or Rs . 1, 5 0, 0 00 /- dur i ng t his ye a r bu t o n l y 25 % of th e c os t of th e p lo t i. e. , Rs . 37 , 50 0/- is ac tu a l l y r e c e i ve d dur i n g t he ye a r . Ac t ua l l y, t he pr of i t ear n e d is Rs . 50 , 00 0/ . B ut s inc e t he as s es s ee h as a d op te d c as h s ys t em , s al e wi l l b e s h o wn at Rs . 3 7 ,5 0 0/- f or th e ye ar . T he v al u e of c l o s i ng s t oc k of th at p lo t wi l l be Ni l as th e p l ot h as b e en s o l d a n d is i n t h e p os s e s s i on of th e pu r c h as e r . S o th is wi l l r es u l t in t o l os s of Rs . 62 , 50 0/- f or t h at ye a r . No w in t he n ex t ye a r , th er e wi l l be no o pe n i ng s toc k i n r es p ec t of t h at p lo t bu t if th e ba l a nc e a m ount of s a l e c ons i d er a t io n i .e . Rs . 1, 1 2, 5 00 /- is ac t u a l l y r ec e i ve d i n t h at ye ar th at wi l l be s ho wn as t he am ou n t of s al e f or wh ic h t her e wi l l b e no o pe n i ng s to c k or c or r es p o nd i ng p ur c ha s e an d t h e s am e, a lr e ad y- s o l d p l o t wi l l gi v e a pr of it of Rs .
1, 1 2, 50 0 /- i n t ha t n ex t ye a r . T h is is t h e r e as o n t h at t h er e is s t e ep r is e i n t he pr of it f r om s al e of p lo ts i n th e n ex t ye a r . T he as s es s e e 's c o uns e l r ef e r r e d t o th e or i g i na l an d r e v is ed r et ur n f or t h e s uc c ee d i ng as s es s m e nt ye ar 2 00 4- 05 . P er us a l of t hes e r e tur ns s ho ws th at in t he or ig i n al r e t ur n f or th e as s es s m ent ye ar 2 0 04- 0 5, t he i nc o m e as p er th e pr of i t a nd l os s ac c ou n t a n d af ter d e duc t in g de pr ec ia t io n as pe r In c om e T ax Rul es h as b ee n s h o wn at Rs . 7 ,6 7, 6 1, 28 9 /- , I n th e r e v is e d r e tur n , t h e inc om e as p er t he pr of i t a n d l os s ac c o un t an d af t er de d uc t i ng d e pr ec i a ti o n as per t h e I nc om e T ax Ru l es h as be e n s ho wn at Rs . 39 , 50 ,1 4 ,9 0 7/- . T her e is a s t ee p r is e of Rs . 31 , 82 ,5 3 ,6 1 8/- i n t h e i nc om e f or th e as s es s m e nt ye ar 2 0 04 - 05 wh ic h is m ai nl y on ac c o un t of r ec o g n i zi n g r e v en u e o n pur c h as e an d s a l e of p lo ts o n c as h m et ho d of ac c o un t in g . "
This explanation of the assessee was found to be convincing and accepted. Thus it is clear that the assessee itself contended that sale of plots has to be accepted on the basis of actual cash receipt on sale effected during the year. Therefore, the assessee could not take a different stand in respect of sale of houses and flats.
67 Coming to the facts of the case, the assessee sold certain houses and flats under the Hire Purchase agreement. The allottees were treated as tenant during the completion of such hire purchase agreement till all the installments were paid by such allottees. The installments as well as expenditure incurred by the assessee, was 53 being accumulated in various schemes and was reflected in the balance sheet because the assessee was following mercantile system of accounting till Assessment year 2002-03. However, in this year the assessee has changed accounting system and now adopted cash system of accounting. W e have already expressed our surprise on adoption of cash system by the assessee but admittedly this system has been adopted and therefore, the assessee has to bear the consequences. First contention was that houses and flats were sold on hire purchase basis and under the Hire Purchase Act, 1972 the buyer does not get the ownership right till the completion of the purchase as provided in the agreement and as per the agreement till all the installments are paid such buyer or allottees will not become the owners. However, we find no force in this contention because no other Act can over ride the provisions of the Act and this has been clarified by the Hon'ble Supreme Court in case of Southern Technologies Ltd. Vs. JCIT (supra). Therefore, the installments received agaisnt such sales which are in the nature of revenue receipts, are required to be taken into consideration for determination of income in this year because the assessee has adopted cash system of accounting during the year. Next contention was that the assessee was following continuously Project completion method and therefore, no income can be determined unless the projects are completed. Again as discussed above in detail the issue of system of accounting and the meaning of cash system of accounting, this contention cannot be accepted because the assessee can not follow two different systems of accounting under the same head. Therefore, in our opinion, the Assessing Officer has correctly included all the installments received from the allottees of the houses and flats in the income of the assessee.
68 However, we find that the submissions of the ld. counsel of the assessee that if such installments are included then the corresponding expenditure which has been incurred should also be allowed on matching principle. The ld. counsel of the assessee had relied on the decision of CIT Vs. Bilahari Investment P Ltd. (supra). In that case the assessee subscribed to chits as their business activities. They maintained their accounts on the mercantile basis and computed the profit/loss at the end of the chit period following the completed contract method. This was accepted by the Department, but for the assessment years 1991-92 to 1997-98 the Assessing Officer came to 54 the conclusion that the completed contract method for chit discount was not accurate in recognizing /identif ying income and that the percentage of completion method was to be preferred. The High Court held that the completed contract method of accounting adopted by the assesses for chit discount was valid and the Department erred in spreading the discount over the remaining period of the chit under the percentage of completion method on proportionate basis. On appeal by the Department to the Supreme Court. i t w a s h e l d a s u n d e r :
" He l d ac c or d in g l y, af f ir m in g t h e d ec is i on of th e H i g h C ou r t , t ha t, s i nc e , f r om th e v ar i ous s t a tem en t s pr o duc e d, t h e e nt ir e ex er c is e ar is in g o ut of th e c h an g e of m eth o d f r om t he c o m plet e d c o ntr ac t m eth od t o d ef er r e d r e ve n u e ex pe n di t ur e was r e v en u e n e utr a l, th e c om p le t ed c o ntr ac t m et ho d was n ot r eq u ir ed to b e s ubs t it ut e d b y t he p er c en t ag e of c om pl et i on m etho d. "
69 in our opinion, the above case is not very relevant because in this case the assessee was continuously following the method of completed contract under mercantile system of accounting which was found to be correct. However, the matching principle was laid down in case of Calcutta Company Ltd. Vs. CIT, 37 ITR 1 by the Hon'ble Supreme Court. In that case the assessee purchased certain lands and developed the same for building purposes by laying roads, providing drains system and installing lights etc. The flats were sold on installment basis. At the time of sale the assessee undertook to carry out more developments. In the relevant year the assessee received a sum of Rs. 29,392/- towards sale price of land. However, the assessee was following mercantile system of accounts and credited to its account a sum of Rs. 43,692/- representing full sale price of the land. At the same time the assessee also debited an estimated sum of Rs. 24,809 as expenditure for the developments. This was disallowed by the Revenue. On appeal it was held as under:
" He l d,( i) th at t he u n d er t ak in g to c ar r y o ut t he d e v el o pm ents wi t h i n s ix m ont hs f r om the da tes of th e de e ds of s al e ( wh ic h, i n v i e w of t he f ac t t h at tim e was n ot of t he es s e nc e of th e c on tr ac t , m ea nt a r e as on a b le t im e) was u nc o nd i t io n al , th e ap p e ll a nt b in d i ng i ts e lf a bs o l ut e l y t o c ar r y ou t t h e s am e. T h at un d er t ak in g im por te d a l ia b i l it y o n th e ap p e ll a nt wh ic h ac c r ue d o n t h e da te s of th e de e ds of s a le , t ho u gh t ha t l i a bi l it y was to b e d is c ha r g ed at a f ut ur e d a te . I t was t h us a n ac c r u e d li a b i li t y a n d th e es t im ate d ex p e nd it ur e wh ic h wo u l d b e inc ur r e d i n d is c h ar g in g th e s am e c o ul d b e de d uc t ed f r om th e p r of its a nd ga i ns of t he bus i n es s , an d th e a m ount to b e ex p e nd ed c o u ld b e d e b it ed i n ac c o un ts m aint a i ne d i n t h e m er c a n ti l e s ys t em of ac c o u nt i ng bef or e it was ac t u a l l y d is b ur s ed . T he d if f ic u lt y i n t he es tim at i o n t her e of d id n ot c on v er t t he ac c r ue d l ia b i l it y i nt o a c o n di t i on a l on e, b ec aus e it was a l wa ys op e n t o t he I nc om e- t ax au t hor i ti es c o nc er ne d to a r r i v e a t a p r o p er e s tim at e t her e of ha v i n g r eg ar d to al l th e c ir c um s ta nc es of t he c as e .
( i i) T ha t t h e s um of Rs . 2 4, 8 09 r e pr es e nt e d th e es t im ate d am o un t wh ic h wou l d ha v e t o be ex p en d ed b y t h e as s es s e e i n th e c our s e of c ar r yi n g o n its b us i nes s an d was i nc i d e nt a l t o t he b us in es s an d, ha v i ng r e g ar d to t he ac c ep t ed c om m er c i al pr ac t ic e a nd tr ad i n g pr i nc ip l es , was a de d uc t i on wh ic h , if t h er e was 55 no s p ec if ic p r o v is i on f or it u nd er s ec t i o n 10( 2) of th e I nc om e- tax Ac t, was c er t a in l y a n a l l o wa bl e d ed uc t i o n, ar r i v i ng a t th e pr of i ts an d ga i ns of t h e bus i n es s of th e a p p e ll a nt , u nd er s ec t i on 10( I) of th e Ac t , t h er e be i n g n o pr o h i b it i on a g a ins t i t, ex pr es s or im pl i ed , i n th e Ac t.
T he ex p r es s i on " pr of it s or g a i ns " i n s ec t i on 1 0( I) of t he I nc om e- t ax Ac t has t o be un d er s t o od i n i ts c om m er c i al s ens e an d t her e c an be no c om pu ta t io n of s uc h pr of its a nd g a ins u nt i l th e ex p e nd i tur e wh ic h is n ec es s ar y f or t h e p ur p os e of ear n i ng th e r ec e i pts is de d uc t ed th er e f r om - wh et h er t h e ex pe n d it u r e is ac tu a l l y i nc ur r e d or t h e l ia b i li t y i n r es p ec t t he r e of h as ac c r u e d e v e n t h o u gh i t m a y h a v e to b e d is c ha r g e d at s o m e f utur e d at e . "
70 Thus from above it is clear that for determining true profits cost incurred by the assessee towards the construction of the houses and flats which has been accumulated in the schemes is also to be recognised. However, it has to be noted that in case of Calcutta Company Ltd Vs. CIT (supra) the assessee was following mercantile system of accounting and had credited whole amount received or receivable towards sale of proceeds i.e. why the amount still to be incurred on development was allowed as expenditure but still the principle is there. Therefore, in case were cash system of accounting is followed then what ever expenditure has been incurred in cash during the year, has to be allowed. In the case before us, the assessee has neither offered the installments as income nor claimed expenditure incurred. Since we have already held that installments received have been rightly included in the income of the assessee, therefore, corresponding expenditure which has been incurred inc cash towards construction of such houses and flats sold under hire purchase is also to be allowed.
71 One more angle needs to be considered that is what would happen to the opening stock as well as closing stock. In the cash system of accounting closing stock is not considered, therefore, what has been accumulated in the schemes is also required to be considered. Considering the contentions of the parties and the principles we have already discussed, we are of the opinion that whatever installments were accumulated in the schemes needs to be considered along with the opening stock whenever a particular scheme was completed. This is so because it was pointed out by the ld. counsel of the assessee that the profit in each of the scheme was offered for taxation when a particular scheme was completed. Therefore, the results of individual schemes have to be recalculated and installments accumulated should be taken as income and expenditure incurred after reducing the expenditure incurred in cash which has been allowed in various years, should be reduced from 56 the such installments and net results should be considered in the year of completion of each of the housing schemes in the year in which profits of such completed scheme were actually offered by the assessee.
72 In these circumstances we set aside the order of the Ld. CIT(A) and direct the AO to include installments received on sale of various houses and flats under hire purchase agreement and at the same time allow corresponding expenditure which has been expended by the assessee in cash (including through cheque). Further in the year of completion of a particular scheme effect has to be given in respect of accumulated installments as well as accumulated expenditure which has not been already considered in a particular year on cash basis as observed earlier. W e have observed right in beginning that this issue is involved in all the years before us therefore, similar treatment as observed by us, should be given in each of the year.
73 Ground No. 6 - After hearing both the parties we find that during assessment proceedings it was noticed by the Assessing Officer from Schedule "G" in respect of "current assets, land and advance" annexed to the balance sheet that the assessee has shown an amount of Rs. 51,91,164/- which was received from hire purchase debtors but not shown in the income. In response to the query it was mainly stated that this amount represents installments received for pending adjustments for which particulars were not available and therefore, they were not credited to a particular buyer. Pending adjustments these amounts were shown under this head. The Assessing Officer following the same pattern as in respect of installments received against sale of houses and flats held the receipts also of the revenue in nature and same were added to the income of the assessee.
74 On appeal the ld. CIT(A) allowed the relief on the same basis as in case of installments received against sale of houses and flats.
75 Before us, the ld. DR for the revenue made similar arguments as in respect of ground no. 5. On the other hand, the ld. counsel of the assessee also reiterated the arguments which were made in respect of ground No. 5. However, he further submitted that even if it is held that installments are to be taxed on receipt basis then it should be noted that no fresh installments are received in the year 57 under consideration. In fact this amount represents the amounts received in the earlier year which remain unreconciled. He filed a chart showing the position of installments actually received out of total amount unreconciled.
76 W e have heard the rival submissions carefully. On principle the issue remains the same as in ground No. 5 and since the facts as well as the arguments are same principally we decide this issue against the assessee following our decision in ground No. 5 in para No. 62 to 72. However, the chart regarding these unreconciled installments filed by the ld. counsel of the assessee reads as under:
Balance as on Amount Fresh amount Addition made Maximum recdduring by the addition that (Rs.) the year Assessing can be made Officer of this issue 31.3.2003 51,91,164/- Nil 51,91,164 Nil 31.3.2004 53,31,184/- 1,40,620 53,31.784/- 1,40,620/-
31.3.2005 46,47,780/- Nil 53,31,784/- Nil Above shows that some of the installments pertain to earlier years.
Since we have held that the installments received during the year have to be added to the income which means installments received earlier remaining unreconciled cannot be added to the income in the later years. Therefore, we set side the order of the ld. CIT(A) and remit the matter to the file of Assessing Officer with the direction to consider only those installments which have been received during the particular year as income of the assessee.
77 Ground No. 7 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee had claimed following expenses:
( i) C. P. F Co n tr i b ut i o n - - - - - - - - Rs . 1 ,4 7 ,0 0, 1 64 /-
( i i) In ter es t on C . P. F c on t r i bu t io n Rs . 8 8, 8 2, 6 89 /-
( Em pl o ye es ' s h ar e)
( i i i) In ter es t on C . P. F. c o n tr i b ut i on - - - - - - - - Rs . 1 ,1 5 ,5 0, 6 54
( Em pl o ye r 's s ha r e)
T ota l - - - - - - - - Rs . 3, 5 1, 33 , 50 7
He further noted that -
" ( a) A ut hor i t y is d e po s it i n g th e em pl o ye es a nd t h e em pl o ye r c on tr i bu t io n to war ds P.F . f o r th e year in ba nk ac c o un t i n t he f or m of ba nk f ix ed d e pos i t 58 r ec e i pt af ter f i n al i za t i o n of t h e B a la nc e S he e t. P .F . Co nt r i b ut i on of 20 0 2- 20 0 3 is ye t t o b e d e pos i te d i n s ep ar at e b a nk ac c o un t.
( b) I n t he abs e nc e of no n- c r ea t io n of s e p a r at e tr us t to wh ic h c o ntr i bu t io n of bo t h em p lo ye r an d e m plo ye e ar e m ad e p er io d ic al l y or r em itt a nc e of s uc h c on tr ib u t io n t o th e e m plo ye e P .F . a dm in is tr a te d b y th e Ce ntr a l G o v er nm e nt r en d er s PU D A P. F. Sc hem e as u nr ec o g n i ze d. N o. P .F. wa s de d uc t e d / c on tr ib u te d o n t he s a l ar y of s t af f wh ic h wor k o n c o ntr ac t bas is ."
It was further noticed that the auditors report contained following notes:
" ( a) A ut hor i t y is d e po s it i n g th e em pl o ye es a nd t h e em pl o ye r c on tr i bu t io n to war ds P.F . f o r th e year in ba nk ac c o un t i n t he f or m of ba nk f ix ed d e pos i t r ec e i pt af ter f i n al i za t i o n of t h e B a la nc e S he e t. P .F . Co nt r i b ut i on of 20 0 2- 20 0 3 is ye t t o b e d e pos i te d i n s ep ar at e b a nk ac c o un t.
( b) I n t he abs e nc e of no n- c r ea t io n of s e p a r at e tr us t to wh ic h c o ntr i bu t io n of bo t h em p lo ye r an d e m plo ye e ar e m ad e p er io d ic al l y or r em itt a nc e of s uc h c on tr ib u t io n t o th e e m plo ye e P .F . a dm in is tr a te d b y th e Ce ntr a l G o v er nm e nt r en d er s PU D A P. F. Sc hem e as u nr ec o g n i ze d. N o. P .F. wa s de d uc t e d / c on tr ib u te d o n t he s a l ar y of s t af f wh ic h wor k o n c o ntr ac t bas is ."
From the above the Assessing Officer concluded that the assessee has not created any separate provident fund which is approved by the prescribed authority and therefore, PUDA provident fund scheme was unrecognized. Secondly provident fund contribution of the employer and the employees was being deposited in the fixed deposit and thirdly these contributions were not being regularly deposited on the dates of their receipt but were being deposited after finalization of the balance sheet. Therefore, the assessee was asked to show why these amounts should not be disallowed particularly under the provisions of section 43B. It was stated that PUDA has its own statutory rules known as "Punjab Housing Development Board (Provident Fund Rules, 1983) and as per these rules funds belonging to the provident funds can be invested in the term fixed deposit with the scheduled bank. However, the Assessing Officer was not satisfied with the submissions and observed that as per Section 36(1)(iv) of the Act deduction on account of contribution to provident fund was admissible when the contribution is made to a recognized provident fund and the recognized provident fund is defined in Section 2(38) of the Act would mean a fund which has been recognized by the Chief Commissioner of Income tax or Commissioner of Income tax in accordance with the rules made under Part 'A' of Fourth schedule. Since the assessee has not made contribution towards such approved provident fund and therefore, these expenses amounting to Rs. 3,51,33,507/- were disallowed.
78 On appeal before the ld. CIT(A) it was mainly submitted that provident fund of the assessee is deemed to be a Government 59 provident fund and disallowance can be made only u/s 40A(9) of the Act, if possible. The Assessing Officer has not invoked this section at all. The disallowance has been made u/s 36(1)(iv) which is not correct. It was further pointed out that to protect the interest of the employees, Punjab Housing Development Board Rules were framed in 1983 and as per Section 16 of these Rules, State Government was to administer and control provident fund of the Board. Later on when PUDA was formed said rules were adopted and by an order where word "Board" was replaced with the word "authority". As per these rules "authority" was given the power to administer the provident fund.
79 The ld. CIT(A) discussed the submissions on the issue in detail and also referred to Section 16 of Punjab Housing Development Board. He mainly observed that the Assessing Officer has ignored the treatment given to the employer contribution to the provident fund and employees contribution. According to him employer contribution to provident fund was deductible u/s 37 but if same was not paid within time the provisions of section 43B would over ride section 37. Further the employees share of provident fund is initially treated as income u/s 2(24)(X) and later on when the same is deposited, deduction can be claimed u/s 36(1)(va). He also observed that Section 36(1)(va) did not mention anything about recognization of the provident fund. Similarly Section 43B also does not refer to the recognized provident fund. He also referred to decision of CIT Vs. UJ.J. Dechane Labs (P) Ltd. 216 ITR 383 (AP) wherein it was held that when provident fund is debited under statute no further recognization was required. Since the assessee had established provident fund as per the provisions of law there was no necessity for approval of the Commissioner. Further since the amounts have been credited to the accounts of the employees on or before the due date, the disallowance was not maintainable and accordingly he deleted the addition.
80 Before us, the ld. DR for the revenue mainly submitted that the contribution was not made to approved provident fund. It was further submitted that contributions were not deposited in a separate bank account even after finalization of the accounts as pointed out by the auditor in the audit report. She further submitted that Section 40A (9) needs to be seen with reference to section 36(1)(iv) of the Act. Section 40A(9) starts with non- obstante clause therefore, it will 60 have over riding effect. She referred to the provisions and submitted that condition of Section 36(1)(iv) has to be fulfilled in order to claim the deduction on account of contribution to the provident fund. In this regard she also relied on the decision of Hon'ble Supreme Court in case of Shree Sajjan Mills Ltd. Vs. CIT, 156 ITR 585 (S.C) wherein it was clearly held that provisions of section 40A would have over riding effect on the provisions of any other section notwithstanding anything to the contrary contained in other provisions of the Act. She also referred to the decision of Hon'ble Andhra Pradesh High Court in case of Raasi Cement Ltd. Vs. CIT, 275 ITR 579 (A.P) and decision of Hon'ble Kerala High Court in case of Aspinwall and Co. (Travancore) Ltd. Vs. DCIT (Assessment), 295 ITR 553 (Ker) wherein it is clearly held that contribution made only towards recongnised provident fund u/s 36(1)(iv) or (v) or as required by any law, is liable to deduction u/s 40A(9). However, Hon'ble Calcutta High Court in case of Brook Bond India Ltd. Vs. JCIT and another, 337 ITR 482 (Cal) has clearly held that joint reading of Section 36 and 40A(9) would show that liability on account of contributions towards an unapproved superannuation fund, would not be entitled to deduction. In any case the assessee is following the cash system of accounting and therefore, the assessee can claim the deduction only on actual payment.
81 She further stated that though it was claimed that the assessee was maintaining a separate bank account/FDRs where contribution of provident fund was deposited but reading of the balance sheet would show that no separate funds or Trust have been created and the amounts are reflected in the balance sheet of the assessee only. In this regard she referred to the decision of Hon'ble Supreme Court in case of CIT V. Texttool Co. Ltd. in Civil Appeal No. 447 of 2003 wherein it was held that the employer should not have control over the funds consisting of various contributions of the employees in provident fund or other funds. Since the assessee have full control over the funds, therefore, the deduction was not allowable. W hile concluding her arguments, she submitted that in any case the assessee is following cash system of accounting and therefore, the deduction cannot be allowed if actual cash payment has not been made during the year.
6182 On the other hand, the ld. counsel of the assessee submitted that through a notification gazette on 12.8.1983 the Punjab Government implemented the provisions of Provident Fund Act, 1925 to Punjab Housing Development Board u/s 16 of Punjab Housing Development Act, 1972. He referred to this Act and pointed out that Housing Board was mandated by the State Government to implement provident fund scheme. Later on the assessee authority i.e. PUDA was constituted somewhere in 1995 and the Rules of the erstwhile Board were adopted by the PUDA. Therefore, the assessee was governed by the Provident Fund Act 1925. He further submitted that part "A" of Fourth Schedule clearly excludes the application of the Rules contained in Part "A" in respect of Provident Fund Act, 1925. This means that the assessee authority was not required to get its provident fund recognized from the Commissioner etc. Therefore, contribution made by the assessee by way of employer share and the employees share cannot be governed by Section 36(1)(iv) or 36(1)(va) of the Act. This position becomes clear if Section 40A(9) is referred to which provides for disallowance of various contributions except for contribution u/s 36(1)(iv) or 36(1)(va) or by way of residuary provision in respect of any contribution required by any other law. Since contribution towards provident fund in case of the assessee is governed by the Provident Fund Act, 1925, the same would be covered by third exception. In view of this position assessee's contribution is allowable as business expenditure u/s 37 of the Act. Coming to the second aspect where the provident fund was being independently implemented and monitored he submitted that authority had constituted a committee to administer the provident fund. In this regard he referred to an office order constituting the committee. He also submitted that as per Section 3 of the Notification, money belonging to the funds were required to be invested either in the securities of the nature specified on Section 20 of Indian Trust Act, 1982 or in the Post office, saving bank account or in term deposits with the Scheduled bank. In the case before us, the money has been invested as FDR, therefore, that requirement is also compiled. He submitted that if the payments are made before due date of filing of return then requirement of Section 43B would also stand to be complied. He referred to various vouchers regarding making of FDRs. He also relied on the decision of Hon'ble Punjab & Haryana High Court in case of CIT Vs. Punjab 62 Financial Corporation Ltd. 295 ITR 510 and CIT Vs. J & J Dechane Labs (P) Ltd, 216 ITR 383 (A.P) 83 In the rejoinder the ld. DR for the revenue submitted that in case of Punjab Financial Corporation (supra) the issue related to Assessment year 1977-78 whereas Section 40A(9) was inserted by Finance Act, 1984 with retrospective effect from 1.4.1980 and therefore, this judgment cannot be relied.
84 W e have heard the rival submissions carefully. First of all we would like to point out that this issue is arising in all the years in which the appeals were heard by us, therefore, the decision in these paras would be applicable in all the years wherein appeals are being adjudicated through this order. The assessee authority was formed in 1995 prior to which this organization was known as "Punjab Housing Development Board" which was stated to have been formed in 1972. Through a gazette notification dated 12th August 1983 (copy placed at paper book at pages 135-136) Government of Punjab made certain rules for Punjab Housing Development Board through GSR No. 70/PA6z/73/S/98/83.Rule 16 of this Notification reads as under:
Pr o v id e nt Fu n d- ( 1) T h e St a te G o v er nm ent s ha l l es ta b l is h a pr o v i de n t f u nd f or th e em pl o ye es of th e B oar d a n d s uc h pr o v i de n t f u nd s ha l l b e de em ed to b e a G o v er nm en t Pr o v id e n t F un d f or t he p ur p os e of t h e Pr o v i d en t F un d Ac t , 19 2 5( C e ntr a l Ac t X I V of 1 9 25) a n d no t wi ths ta n d in g an yt h i n g c on t ai n ed i n s ec t i on 8 th er eof , s uc h f u n d m a y b e adm i n i s ter e d b y s uc h of f ic er s of th e S t at e G o v er nm en t or of t h e B oar d as th e S ta t e G o ve r nm en t m a y s pec if y in t h at be h a lf .
The above clearly shows that Government through this notification was mandated to establish a Government provident fund under Provident Fund Act, 1925. Further page 152 of the paper book is copy of another order of the Government of Punjab showing that on constitution of Punjab Urban Planning and Development Authority various terms in Punjab Housing Development Board Rules, 1983 would stand amended by substitution of the words "Punjab Housing Development Board" to "Punjab Urban Planning Development Authority" This shows that same rules which were made for Punjab Housing Development Board were adopted for the assessee authority also. Therefore, it becomes clear that provident fund established by the assessee is governed by the provisions of Provident Fund Act, 1925. Rule (1) of Part "A" to the Fourth Schedule of the Act reads as under:
63Application of the part This part was not applied to any provident fund to which the Provident Fund Act, 1925 (19 of 1925) applies.
The above makes it clear that provident fund which are governed by Provident Fund Act, 1925 are not covered by the Rules made under the Fourth schedule. In other words, the provisions regarding recognition of the provident fund would not be application to such funds, therefore, it does not make any difference whether assessee's provident fund is recognized or not recognized. Therefore, there is no force in the submissions of the ld. DR for the revenue that the contribution should not be allowed because the assessee has not got its funds recognized or contribution was not made towards recognized provident fund. This also leads to the conclusion that section 36(1)(iv) which was for contribution towards recognized provident fund, is not applicable. However, as far as Section 36(1)(va) is concerned, the same is still applicable because Section 36(1)(va) reads as under:
" 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to insection 28--
(i) to (v) - Not relevant [(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.
Explanation.--For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;] The above provision deals with employees share of the contribution. According to the scheme of the Act the employee's share is treated as income when some contribution is received by the assessee and when same is contributed to provident fund then same is allowed as deduction under this provision. At the same time receipt of such contribution is treated as deemed income u/s 2(24)(X) which reads as under:
Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ;
In this clause which is part of the definition of income, there is no mention of the word "recognized provident fund" therefore, any 64 contribution raised from the employee towards any provident fund would form part of the deemed income under this provision. In our opinion, this has been deliberately done by the legislature because as far as employees contribution is concerned, the Parliament wanted that the same should not be used by the business people and should be deposited with the provident fund authorities and or trust at the earliest and that is why no difference has been made between recognized provident fund or other funds. From this it becomes clear that as far as employee's contribution is concerned, the same is not covered by Section 36(1)(iv). However, at the same time it cannot be denied that the contribution made by the assessee towards provident fund is clearly in the nature of business expenditure and therefore, same is allowable u/s 37 of the Act which is residuary provision. Since the contribution of employer share towards provident fund is in nature of revenue expenditure and not covered by any other provision as explained above, same is covered by Section 37 of the Act. This analysis leads to the conclusion that as far as employer share is concerned, the same is allowable u/s 37 and as far as employee's share is concerned, the same is allowable u/s 36(1)(va). Lot of arguments have been made by both the parties in respect of Section 40A(9) which reads as under:
(9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) [or clause (iva)] or clause (v) of sub-section (1) of section 36, or as required by or under any other law for the time being in force.
Plain reading of this provisions shows that the contribution made by an assessee as a employer towards various funds for the benefit of the employees are not allowable except for contribution provided in this section itself. Therefore, the ld. DR for the revenue is correct that contribution which are not mentioned in this section cannot be allowed because this provisions starts with non obstante clause which is made clear by starting of Section 40A(1) which reads as under:
40 A. ( 1) T he pr ov is i ons o f t h is s ec t i on s ha l l h av e ef f ec t n o tw it hs ta n di n g any t hi n g to t he c on tr a r y c o nt a i ne d i n any o t her p r ov is i on o f th is A c t r el a ti n g to th e c o m pu t at i on of in c om e un d er t he he a d " Pr o f its an d g a i ns of bus i nes s or pr o f es s i o n ".65
However, careful reading clearly shows that exception provided in this section are in respect of deduction allowed u/s 36(1)(iv) or 36(1)(iva) or 36(1)(v). There is another exception which reads as under:
"or as required by or under any other law for the time being in force"
Therefore, the ld. counsel of the assessee is correct that since provident fund established by the assessee was in terms of Indian Provident Fund Act, 1925, therefore, this has to be read into the exceptions and accordingly fetter for not allowing the deduction u/s 40A(9) would not be applicable for the funds contributed towards provident fund as the employer share in terms of Indian Provident Fund Act, 1925 which was adopted by the assessee. Therefore, we hold that the assessee is entitled to claim deduction in respect of contributions made towards provident fund even if such fund is not recognized.
85 The next contention raised is whether deduction can be allowed even if the contribution was paid after the end of the year. The claim of the assessee is that the payments have been made before the due date of filing of return as provided in Section 43B. Relevant portion of Section 43B reads as under:
43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of--
[(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or]
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, [or] [(c) to (f) - not relevant Shall be allowed (irrespective of the year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him>"
[Provided that nothing contained in this section shall apply in relation to any sum [***] which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.
Careful reading of the above provision show that a fetter has been provided for allowability of certain expenses. The expenditure even if is allowable because of the method of accounting followed by he assessee the same is still not allowable unless and until such expenditure is paid. This means that this section provides further 66 restriction on allowability of an expenditure which are otherwise allowable u/s 30 to 44. In other words even if an expenditure is allowable under various provisions under the head "profits and gains of business and profession" the same is not allowable because of Section 43B unless such expenditure is actually paid. In case before us, the assessee is following the cash system of accounting which we have already discussed while adjudicated ground No. 5. Therefore, any expenditure in case of the assessee has to be allowable only if actual cash has been paid during the year. Therefore, if no cash has been paid expenditure is not allowable. No doubt Section 43B has carved out an exception by way of proviso that even if expenditure is paid before due date of filing of return then the same shall be allowed and the Hon'ble Punjab & Haryana High Court in case of CIT V. Nuchem Ltd. in ITA No. 323 of 2009 following the decision of Hon'ble Apex Court in CIT V. Alom Extrusions (2009) 227 CTR 417 has clearly held that if such payments are made before due date of filing of return then the same has to be allowed. However, as observed earlier this benefit could not be given to the assessee because the assessee is following the cash system of accounting and allowability of expenditure itself depends on actual cash payment. However, we would like to observe that at the beginning of this issue we have clearly mentioned that this issue relates to many years, therefore, if the payment for this year was made in next year the same would be clearly allowable in the next year. Therefore, the Assessing Officer should examine this issue clearly and allow the payments on cash basis even if they relate to earlier years. The last dispute raised by the revenue is that the assessee was not maintaining separate bank accounts and or FDRs in the account in respect of provident fund because the same have been shown in the balance sheet. In this regard the ld. DR for the revenue has relied on the decision of CIT Vs. Textool Co. Ltd (supra). In that case the assessee had claimed deduction of Rs. 92,06,978/- as contribution towards approved gratuity fund. A sum of Rs. 50 lakhs was paid as initial contribution and Rs. 5,84,754/- was paid towards annual premium. The balance of Rs. 36,22,224/- was provided for initial contribution. All the sums were paid to LIC. The question arose whether direct payment to LIC was covered by Section 36(1)(v). In this connection the Hon'ble Supreme Court observed as under:67
"Having consideration the matter in the light of the background facts, we are of the opinion that there is no merit in the appeal. True that a fiscal statute is to be constructed strictly and nothing should be added or subtracted to the language em ployed in the Section, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular Provision of the Act (See Shri Sajjan Mills Ltd. Vs. CIT, M.P. & Anr (1985) 156 ITR 585). From a bare reading of Section 36(1)(v) ;of the Act, it is manifest that the real intention behind the provision is that the em ployer should not have an y control over the funds of the irrevocable trust created exclusively for the benefit of the em plo yees."
It is clear that intention behind the provisions for various funds for employees is that employer should not have control over the funds which has been contributed by the assessee or the workers. In this regard the ld. counsel of the assessee referred to Section 3 of the Notification which reads as under:
"All m oneys belonging to the Fund shall be invested either in securities of the nature specified in clause (a), (b), (c), (d) or (e) of Section 20 of the Indian Trusts Act, 1882 (Central Act 2 of 1882) or in the Post office Savings Bank Accounts or in long term fixed deposits with Scheduled Banks. Post Office National Saving Certificates or kept as a deposit with the State Government beating interest."
Further the assessee also issued office order copy of which is placed at page 70 of the paper book which reads as under:
" In pursuance to Rule 3(1)(2) of the Punjab Housing Development Board (Provident Fund) Rules th 1983 and further adopted PUDA in its meeting held on 17 July 1995 vide Agenda item No. 17 a committee, is hereby constituted to administer and Manage the Contributory Provident Fund of the employees of PUDA.
The committee shall include:
(a) The Chief Administrator as ex-officio Chairman of the Committee or his nominee
(b) Accounts Officer (Pension) as Secretary of the Committee
(c) Administrative Officer (Admin-I)- Member
(d) Sh. Karam Chand, Senior Assistant and Sh. Shishu Pal, Senior Assistant-
Members (representing the employees of PUDA, approved vide item no. 9,10 in the meeting of the Authority held on 29.11.02).
Rakesh Singh Vice Chairman, PUDA Thus it is clear that separate committee has been constituted but it is not clear whether this committee was monitoring the funds of the provident fund. The FDRs have been debited and made in the name of the CPF FDRs which means separate FDRs have been made but how it has clearly been controlled by the managing committee, is not very clear. Therefore, to this extent we set aside the order of the Ld. CIT(A) and direct the AO to examine whether provident fund was independently monitored in the light of the directions issued by Hon'ble Supreme Court in case of Textool Co.Ltd (supra).
6886 Another contention was also raised that the funds have not been invested in the long term FDRs. W e have seen various notes issued by the committee where FDRs have been made only for one year and justification for the same has been given that presently interest is on lower side and interest is likely to go up therefore, FDR was made for one year. This aspect also need further examination by the Assessing Officer where regularly FDRs have been made for a period of one year or longer period and where no justification for such shorter period is there or not? Therefore, the Assessing Officer should examine this matter further and decide the issue in accordance with law. In the result, this ground is allowed for statistical purposes.
87 Ground No. 8 - After hearing both the parties we find that during assessment proceedings the AO noticed that the interest on FDR amounting to Rs. 2,24,44,923/- has not been shown by the assessee as income on the basis that same had accrued but not received. According to the Assessing Officer the interest income from bank deposits relates to the year in which it accrues irrespective of the method of accounting adopted by the assessee because interest is not required to be shifted from bank to the hands of the assessee. Otherwise a person who never withdraws the amount of interest would never be taxable. Accordingly he added Rs. 2,24,44,923/- as income of the assessee.
88 Before the ld. CIT(A) it was mainly submitted that as per Section 145 the assessee had choice to maintain the books of account on cash basis in respect of income under the head "income from business or profession" as well as the "income from other sources". It was further submitted that as the assessee was following cash system of accounting, therefore, if interest was not received the same cannot be taxed in this year.
89 The ld. CIT(A) found force in the submissions because the assessee was following cash system of accounting and accordingly deleted the addition.
90 Before us, the ld. DR for the revenue strongly supported the order of the Assessing Officer.
91 On the other hand, the ld. counsel of the assessee submitted that the Assessing Officer has himself accepted that the assessee 69 was following cash system of accounting and made addition in respect of installments received on account of sale of houses and flats then how can the Assessing Officer deny the same system in respect of interest on FDRs. It was further submitted that similar submissions were made for Assessment year 2004-05 which has been accepted by the Assessing Officer and in this regard he referred to the assessment order for Assessment year 2004-05 wherein no addition has been made on account of accrued interest.
92 W e have heard the rival submissions carefully and find force in the submissions of the ld. counsel of the assessee. W e have also discussed this issue of cash system of accounting in detail while discussing ground No. 5. In that discussion we have also reproduced the provisions of section 145 which mandates that the assessee can follow either cash system of accounting or mercantile system of accounting in respect of the profits and gains of the business or profession and income of other sources. Thus the assessee had right to follow the cash system of accounting even in respect of income to be assessed under the head "income from other sources". Though in the assessment order income has not been computed head-wise but even if assuming that the income on account of interest is assessed under the head "income from other sources" even then the assessee had right to offer the same on receipt basis. Therefore, we find nothing wrong in the order of the ld. CIT(A) and confirm the same.
93 In the result, appeal in ITA No. 762/Chd/2008 is partly allowed.
Before parting with this order, we would like to clarif y tha t i n t h i s appeal, we have confirmed many additions and have allowed relief on account of certain additions. Some of the issues have been remitted to the Assessing Officer for fresh determination in view of the directions and observations contained in various paras. The result of all these directions would lead to variation in the income determined substantially, therefore, the Assessing Officer is further directed that after giving effect to our order the Assessing Officer should make it sure that in no case the resultant loss should not be higher than the loss returned by the assessee for this year.
70 ITA No. 765/Chd/2008 - Revenue's appeal for 2004-0594 In this appeal the revenue has raised the following grounds:
"1 On the facts and in the circumstances of the case and law, the ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.
2 On the facts and in the circumstances of the case and law, the ld. CIT(A) vide appellate order No. 407/P/2006-07 on 19.6.2008 has erred in deleting the disallowance made at Rs. 3,61,11,651/- on account of CPF and interest on CPF contribution. The disallowance Ws made for the reason that the contributions have neither been made to a provident fund approved by the CCIT nor to a provident "Fund established under a Scheme framed under the Employee provident fund Act, 1952.
3 It is prayed that the order of the ld. CIT(A) be set aside and that of the Assessing Officer may be restored."
95 After hearing both the parties we find that the facts and arguments of both the parties are identical to the issue raised regarding disallowance on account of contribution to provident fund raised in Ground no. 7 in Assessment year 2003-04 by the Revenue which we have adjudicated above vide para No. 84 to 86. Following the same we set aside the order of the Ld. CIT(A) and remit the matter back to the file of AO to decide the issue in accordance with the directions contained in the above para.
96 In the result, appeal No. 765/Chd/2008 is allowed for statistical purposes.
I T A N o . 7 5 9 / C h d / 2 0 0 8 - As s e s s e e ' s a p p e a l f o r 2 0 0 4 - 0 5 97 In this appeal the assessee has raised the following grounds:
"1 That the ld. CIT(A) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 6,78,007/- on account of regrou0ping/reclassification of the accounts as per findings given in para 6 of the order.
2 That the ld. CIT(A) has also erred in confirming the action of the Assessing Officer in making the addition of Rs. 5,99,52,243/- on account of installments for sale of houses/flats received during the year.
3 That the ld. CIT(A) has also erred in confirming the action of the Assessing Officer in making the addition of Rs. 53,71,784/- towards installments received pending adjustments from hire purchase debtors.
4 That the ld. CIT(A) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 15,39,45,370/- by disallowing 50% of administrative expenses claimed b6ythe appellant and treating the same as capital expenditure."
In addition to above, the assessee has also raised an additional ground which reads as under:
71"That the notice u/s 143(2) and the assessment order of the Assessing Officer u/s 143(3) and consequently all the consequent actions thereof are illegal, unjustified and void ab-initio as the Assessing Officer had not acquired valid jurisdiction to issue the impugned notice u/s 143(2) f or the year under appeal, there being no valid orders of the concerned CIT u/s 127 of the Income Tax Act therefore, the order is passed by the Assessing Officer is void ab initio and needs to be quashed by the interference of this Hon'ble Bench."
98 In respect of this additional ground, both the parties submitted that whatever decision is taken for Assessment year 2003-04 will be applicable in this year also.
99 After considering the rival submissions we find that this issue has been adjudicated by us while deciding the appeal filed by the Revenue in ITA No. 762/Chd/2008 wherein this issue has been decided by us against the assessee vide para No. 18 to 38. Following that order we decided this issue against the assessee.
100 Ground no. 1 - After hearing both the parties we find that during this year also the assessee had filed revised return. The assessee was asked to clarify the variations in the original return vis-à-vis the revised return. It was mainly submitted that it was due to regrouping of the accounts. Variation had occurred because of the reclassification in various groups but totals in the final had been tallied with each other. Further that accounts had not been prepared fully by the time the return was to be filed. It was also stated that upto Assessment year 2002-03 the assessee was exempt u/s 10(20A) and therefore, it only recognized the revenue on sale of plots by due date of filing. This required calculation from the inception of the authority for last 20 years and took sometime by the time return was filed. Financial statements were also violative of AS 9 but the violation was of bona fide nature which has also been mentioned by the statutory auditor. Basically the fact has been discussed during the assessment proceedings for Assessment year 2003-04 which had implications in this year also. However, the Assessing Officer observed that for increase of income from sale of houses will belong to the year to which it pertains and accordingly he added a sum of Rs. 6,78,007/- from sale of houses and plots as income of this year.
101 On appeal, written submissions were filed and the ld. CIT(A) after considering the same decided the issue vide para 6 which is as under:
72" I have carefully considered the submissions of the assessee as well as gone through the assessment order. I find that the Assessing Officer has noted that there is some increase in the income due to regrouping of the accounts. The Assessing Officer has specifically pointed out that there is an increase of income from the sale of houses. The Assessing Officer has not given details as how the figure of Rs. 678007/- has been arrived at. In principle, if there is some increase of income which has not been shown by the assessee in any of the earlier Assessment Years due to certain reclassification or rearrangements of the accounts/changed method of accounting, then such income should be taxable. The Assessing Officer is directed to find out how this figure has been arrived at and after ascertaining the correct figure, the same should be added to the income of the assessee. In result, this ground of the assessee is dismissed. "
102 Before us, the ld. counsel of the assessee submitted that the difference has arisen because of the regrouping of account and reiterated the submissions made before the Assessing Officer. It was also emphasized that addition is totally aribitrary and has been made without providing basis of making this addition.
103 On the other hand, the ld. DR for the revenue submitted that this issue is identical to the issue as per ground No. 4 for Assessment year 2003-04.
104 W e have heard the rival submissions carefully and find that the ld. CIT(A) has already directed the Assessing Officer to verify the figures of addition. In principle this issue is identical to the issue decided by us in respect of ground No. 4 in Revenue's appeal for Assessment year 2003-04 in ITA No. 762/Chd/2008 wherein we have decided this issue against the assessee vide para 51 and following the same we find nothing wrong in the order of the ld. CIT(A) and confirm the same.
105 Ground no. 2 - In this year also the Assessing Officer has brought into amount of installments received by the assessee on account of sale of houses and flats.
106 Both the parties made similar arguments as in case for Assessment year 2003-04 in respect of ground No. 5.
107 After considering the rival submissions we find that the facts in respect of this issue are identical to the facts of ground no 5 in appeal filed by the Revenue in Assessment year 2003-04 which we have adjudicated above. This issue was decided in para 62 to 72 and following the same order we decide this issue against the assessee.
108 Ground No. 3 - After hearing both the parties we find that the facts of this issue are identical to the facts of ground no. 6 of 73 Revenue's appeal for Assessment year 2003-04 in ITA No. 762/Chd/2008.
109 After considering the rival submissions we find that the facts and the arguments are identical in Revenue's appeal in ITA No. 762/Chd/2008 in ground No. 6 for Assessment year 2003-04. This issue has been decided by us against the assessee vie para 76. Following that order we decide this issue against the assessee. However, we again clarify as observed in Assessment year 2003-04 that whatever installments which have been included in the earlier year should not be included again in this year.
110 Ground no. 4 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee authority was in the business of acquiring land and developing it and after development the land, same was sold in auction. It was maintaining various sectors even after completion, for different time period ranging from 5-13 years depending on the same. That means that maintenance and development in respect of developed sectors and undeveloped sectors was being done by PUDA. Staff and infrastructure available with the PUDA was jointly shared by the developed and undeveloped sectors. The assessee had debited entire cost in respect of this expenditure and claimed the same as revenue expenditure. The assessee was asked to bifurcate these expenses into two parts i.e. the expenditure on developed and developing sector. It was submitted that as per accounting standard AS7, general administration cost and finance cost were to be allowed as revenue expenditure. The Assessing Officer noted that if the assessee was following cash system of accounting whereas AS7 provides that accounting for such contract has to be on accrual system. Therefore, according to him the expenses in relation to developing the sectors were to be capitalized. He further observed that the total administrative expenses were 34,40,02,391/-. Since a separate addition on account of CPF contribution was made and this amount was reduced from total expenditure and out of balance amount 50% expenditure was disallowed being of capital nature.
111 On appeal before the ld. CIT(A) it was mainly submitted that addition made by the Assessing Officer was not in accordance with AS7 as well as general accounting principles. It was submitted that administrative expenses which could not be identified were required 74 to be shown in the profit and loss account and should not be made as part of the contract.
112 The ld. CIT(A) after considering the submissions observed that as per the decision of Hon'ble Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT, 227 ITR 172 (S.C) Accounting Standard were made for general guidelines and accounting purposes and the same can not be used for determining tax liability. He further observed that no project can be completed without general administration expenses and accordingly confirmed the addition.
113 Before us, the ld. counsel of the assessee reiterated the submissions made before the ld. CIT(A). He further submitted that the assessee was following cash system of accounting and the Assessing Officer has himself held that installments received in cash on account of sale of houses and flats under hire purchase agreement were taxable which means he has totally followed cash system of accounting and therefore, he cannot take a "U" turn and deny the deduction on account of administrative expenses which have been incurred in cash. Alternatively it was submitted that if these expenses are held to be on capital account then value of the opening stock and closing stock should be adjusted accordingly .
114 On the other hand, the ld. DR for the revenue submitted that administrative expenses were incurred jointly for developed and developing sectors. The Assessing Officer has asked for bifurcation of the same which was not given. She further submitted that even if the assessee was following cash system of accounting and when the assessee was not showing receipt from a particular project then the expenses against the same could not be allowed.
115 W e have heard the rival submissions carefully. W e have already discussed the implications of cash system of accounting while adjudicating ground No. 5 of revenue's appeal in ITA No. 762/Chd/2008. Basically once the cash system of accounting is followed then all receipts which relate to the revenue filed, have to be taxed. Similarly all cash outgoings which are in the revenue field, had to be allowed as expenditure. Since the assessee is in the business of purchase and developing the land and selling the same after the development of the same and therefore, administrative expenses incurred is clearly in the field of revenue. Further the 75 assessee was following cash system of accounting, therefore, once cash has been spent or outgone from the assessee same has to be treated as expenditure. Therefore, we set aside the order of the Ld. CIT(A) and delete the addition.
116 In the result, ITA No. 759/Chd/208 is partly allowed.
ITA No. 769/Chd/2008 - Revenue's appeal for 2005-06117 In this appeal the revenue has raised following effective grounds:
"2 On the facts and in the circumstances of the case and law, the ld. CIT(A) vide appellate order No. 361/P/2007-08 on 20.6.2008 has erred in deleting eh disallowance made at Rs. 38248714/- on account of CPF and interest on CPF contribution. The disallowance was made for the reason that the contributions have neither been made to a provident fund approved by the Chief Commissioner or C.I.T. nor to a provident "fund established under a Scheme framed under the Employee Provident Fund Act, 1952.
3 On the facts and in the circumstances of the case and law, the ld. CIT(A) has erred in deleting the disallowance made at Rs. 20723700/- on account of depreciation, despite the fact that the assessee does not fulfilled the conditions as laid down in Section 32 regarding ownership of land and the cost of land on which building erected and the time when these lands were acquired, the assessee is not eligible for claim of depreciation."
118 Ground No. 2 - After hearing both the parties we find that this issue is identical to the issue raised by the Revenue in ground No. 7 in ITA No. 762/Chd/2008 for Assessment year 2003-04 which we have adjudicated above. Since the facts as well as the arguments of both the parties remained same, we decide this issue following our order in ITA No. 762/Chd/2008 at para 84 to 86 and the issue is remitted back to the file of Assessing Officer with similar directions.
119 Ground No. 3 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has claimed depreciation on flats/SCOs/Booths as well as PUDA building at Sector 62, Mohali and PUDA building at Ludhiana, PUDA building at Patiala, Community Centre, Swimming pool and store shed. The assessee was asked to clarify whether the cost of above sites includes the cost of land or not? The assessee was further asked to clarify if the cost of land is not included in the building then the detail of cost of land be mentioned separately. In response it was stated that cost of land is not included in the building, on which depreciation has been claimed. However, the Assessing Officer 76 after examining these details noted that in the balance sheet total assets have been grouped under four heads i.e. fixed assets in schedule "E", W orks executed in schedule "F", OUVGL works in Schedule F-1 and current assts and loan and advances in schedule "G". As per schedule "G" closing stock of only building material, stock in transit, stock in trade (built up houses) and stock in trade (Plots) are given. There is no mention of land in the closing stock as mentioned by the assessee in its reply. Therefore, the assessee was asked why the cost of land is not included in the building when such land has not been accounted for separately. After various opportunities it was stated in the letter dated 17.12.2007 that all the lands on which buildings in question have been constructed are under the ownership of PUDA. All such lands were acquired before 31.3.2000 and most of then were acquired during the existence of "Housing Development Board prior to 1995" when the authority was formed and took over the figures shown by Punjab Housing Development Board. No other reply was filed. On the basis of this discussion it was concluded that the land has been included in the buildings and since the depreciation is not allowable on the land, therefore, depreciation claimed during the year amounting to Rs. 2,07,23,700/- was added to the income of the assessee.
120 On appeal before the ld. CIT(A) it was submitted as under:
" V i de or d er of G o vt . o f P unj ab an d as s en t o f Pr es i d e nt of In d ia , a l l th e as s ets per t ai n i ng t o u r b a n e s ta tes g ot tr ans f er r e d to P HD B . PH D B la t e r o n b ec am e PU D A i n 19 9 5. V i de Ch a pt er V, t h e la n ds v es t e d in t he a ut h or it y. T he c o p y of r e le v a nt or d er a n d po r ti o n of P UD A Ac t h a s alr e ad y b e e n s ubm i tt ed wi th t h e ap p ea l f or t h e e ar l ie r A. Y. 20 0 4- 0 5 to yo u r Ho n 'o ur . Fr om th is t h e o wn er s h i p of l an ds g ets es t ab l is he d. I t is f ur t h er s u bm it te d t ha t a lm os t a l l t h e b ui l d in gs i n qu es ti o n ha v e be e n c ons tr uc t ed o n l an ds v es t e d in th e a ut h or i t y thr o ug h th is r ou t e an d t h e au t hor i t y h a s p a id n o th i ng f or ac q u ir i ng t h es e la n ds .
A A l l t he La n ds o n wh ic h th e b u i ld i n gs i n qu es t i o n h a ve b ee n c ons tr uc t ed a r e u n der th e o wn er s h ip of P U DA . He nc e th e c l a im of de pr ec i a ti o n on bu i l di n g is le g it im at e.
B A l l l a nds o n wh ic h th e b u i l di n gs in qu es ti o n h a v e b e en c ons tr uc t ed ha v e b ee n ac qu ir ed bef o r e 3 1 .0 3. 2 00 0 . Mos t of th e l an ds h a v e be e n ac qu ir e d dur i n g th e te n ur e of H ous i n g D e ve l o pm ent B o ar d p r i or to 1 9 95 . In 1 9 95 , wh e n t h e a ut hor i t y was f or m ed , t h e au t hor i t y t o ok o v er th e f ig ur es of PH D B as i ts b a la nc es i n c o ns on a nc e wi th PU D A Ac t a nd G o vt n ot if ic a ti o n f or tak e o ver of as s ets an d l i ab i l it i es of P HD B. He nc e th e c l a im of depr ec i at i o n o n bu i l d in g is le g it im at e.
S inc e th e la n d p or ti o n on wh ic h b u i l di n gs i n qu es t i o n h a v e b e en er ec t ed h a ve no t be e n c h ar ge d to t he Pr of i t & Los s ac c o un t of th e au t hor i t y d ur in g th e ye ar i n q ues t io n or d ur i n g t he l as t 7 ye a r s , no qu es t i on of un d er s t at em en t of i nc om e c ou l d b e c o nc e i v e d.
T he am o un t inc l u de d i n t h e ba l anc e s h ee t i n s c h ed u le E u n de r t h e h ea d P UD A B ui l d i ng at M oh a l i, Lu d h ia n a a n d P a ti a l a r e pr es e n ts o n l y t h e am ou n t of c ons tr uc t i on of s uc h bu i l d in gs . I t d o es no t inc l ud e a n y c os t of l an d . T he l an d v a lu e was t ak en as Z er o i n t h is c as e as t he c o nc er n ed l an d was tr ans f er r e d 77 au t hor i t y n am el y P HD B & D ir ec tor a te of H ous i n g & Ur b an D e v e l opm en t e tc . T hes e l a nd was tr ans f er r ed b y t he or d er of t he G o v t. a n d P UD A h a s n ot b ook e d an y am ou nt as c os t of s uc h l an d . T he am ou nt de p ic t e d in th e ba l anc e s he e t is on l y th e c os t of c o n s tr uc t io n m et b y t h e PU D A. T h us t he qu es t i on of th e i nc l us i on of s uc h e lem en t of c os t i n t h e he a d b u i ld i n gs a n d t h er ea f ter c la im in g de pr ec ia t io n o n s uc h am oun t d oes n ot ar is e as s uc h de pr ec ia t io n has n ot b e en c l aim e d on t h e l an d v a l ue . As it is n o t i nc l ud e d i n th e b u il d in g h ea d as ex p l a in e d e ar li er . T h e d epr ec i at i on r e l at e s o n l y to t h e bu i l d in g p or t i on t h e c ons tr uc t i on c os t of w h ic h is m et b y P U D A. T hus th e ac ti o n of t he Ld . A .O . of d is a l l o wa nc e of d epr ec i at i on wor th Rs . 20 7 23 7 00 /- is i nc or r e c t a n d ag a i ns t t he f ac t of t h e c as e a n d l i ab l e to b e de l et e d."
121 The ld. CIT(A) found force in the submissions and allowed the depreciation.
122 Before us, the ld. DR for the revenue mainly submitted that the assessee has not filed any details showing cost of lands and same were not included in the building and in the absence of such details, the ld. CIT(A) has erred in allowing depreciation.
123 On the other hand, the ld. counsel of the assessee submitted that in fixed asset only buildings have been capitalized. Most of land basically was inherited from Punjab Housing Development Board and it is included in the various claims which was permitted by the authorities. Therefore, the ld. CIT(A) was correct in granting depreciation.
124 After considering the rival submissions we find that the ld. CIT(A) has adjudicated this issue vide para 19 which is as under:
" I have carefully considered the rival arguments. I find that the existing of PUDA came into by merger of Department of Housing and Urban Development and Punjab Housing Development Board. The assets were taken over by PUDA. Once all the assets are taken by PUDA, then it is understood that the assets belong to the assessee. In the written submission, it has been categorically stated that in the PUDA building, there is no inclusion of any cost of land. The deprecation amount only relates to the cost of construction. In my considered opinion, the Assessing Officer has not justified in declining the depreciation. The assessee is allowed to claim the depreciation. Thus, this ground of appeal is allowed. "
In our opinion, the ld. CIT(A) has correctly adjudicated this issue. The Revenue has not shown anything to prove that the value of the land was also included in the cost of building, when the first appellate authority has decided the issue in favour of the assessee, the burden was on the revenue to prove otherwise. In this case the assessee came into existence in 1995 after inheriting Punjab Housing Development Board. The assessee is being a Government authority, may have large chunks of land and it is not possible to identify only plots used for buildings for capitalization and therefore, there is merit in the argument that value of land was considered in 78 various schemes. In these circumstances, we find nothing wrong with the order of the ld. CIT(A) and confirm the same.
125 In the result, ITA No. 769/Chd/2008 is partly allowed for statistical purposes.
I T A N o . 7 6 0 / C h d / 2 0 0 8 - As s e s s e e ' s a p p e a l f o r 2 0 0 5 - 0 6 126 In this appeal the assessee has raised the following grounds:
1. That the Worthy Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 4,90,51,888/- on account of installments for sale of houses/flats received during the year.
2. That the Worthy Commissioner of Income Tax (Appeals) has also erred in confirming the action of the Assessing Officer in making the addition of Rs. 46,47,680/- &6,84,104/- towards installments received of pending adjustments from hire purchase debtors.
3. That the Worthy CIT(Appeals) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 18,87,02,121/- by disallowing 50% of administrative expense claimed by the appellant and treating the same as capital expenditure.
4. That the Ld. CIT(Appeals) has erred in confirming the addition of Rs. 3,63,74,569/- made by the Assessing Officer on account of legitimate claim of assessee of bad debts u/s 36 of the Act.
5. That the Ld. Assessing Officer has erred in confirming the addition of Rs. 84,000/- made by the Assessing Officer on account of disallowance of claim of legal expenses by invoking the provisions of section 40(a)(ia) of the Act.
6. That addition as per above paras has been confirmed by the Ld. CIT(Appeals) against he facts and circumstances of the case and without considering our submission properly. "
127 Out of above grounds, ground no. 5 was not pressed and hence the same is dismissed as not pressed.
128 Ground No. 1 - After hearing both the parties we find that the facts in respect of this issue are identical to the facts in respect of ground No. 5 in revenue's appeal in ITA No. 762/Chd/2007 for Assessment year 2003-04. Since the facts and arguments of both the parties are identical and the same was decided vide para 62 to 72 against the assessee vide our order in revenue's appeal for Assessment year 2003-04 in ITA No. 762/Chd/2007. Following the same we decide this issue against the assessee.
129 Ground No. 2 - The facts in respect of this issue are identical to the facts in respect of ground No. 6 in revenue's appeal in ITA No. 762/Chd/2007 for Assessment year 2003-04. This issue has been decided by us vide para 76 in ITA No. 762/Chd/2007. Following the same we remit the matter back to the file of Assessing Officer with similar directions as in para No. 76 of ITA No. 762/Chd/2007.
79130 Ground No. 3 - After hearing both the parties we find that the facts in respect of this issue are identical to the facts in respect of ground No. 4 in assessee's appeal in ITA No. 759/Chd/2008 for Assessment year 2004-05. Since the facts and arguments of both the parties are identical. This issue has been decided by us in favour of the assessee vide para No. 115 and following the same we decide this issue in favour of the assessee.
131 Ground No. 4 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has claimed a sum of Rs. 3,63,74,569/- as bad debt. This amount was recoverable on account of 50% of the salary payable to the employees of erstwhile Urban Estate Department which was merged with PUDA. In response to the query raised it was submitted that this amount represented recoverable on account of establishment and contingency expenses from Assessment year 1992-93 to 1998- 99 when the Urban Estate Department was continuing. Department of Housing, Government of Punjab has agreed to pay 50% of salary of the Department of Urban Estate staff, therefore, this amount was shown recoverable under the mercantile method by crediting the salary provision account. The Assessing Officer did not find force in these submissions because according to him once the assessee was following cash system of accounting, therefore, it cannot be said to have been any outgoing during the year. Therefore, this amount was held not to be allowable.
132 On appeal it was mainly stated that the amount claimed, was written off and without verifying whether the assessee had really shown income in the earlier Assessment year when the assessee was following mercantile system of accounting. The same were written off when the Government of Punjab was not ready to pay the same. The ld. CIT(A) did not find force in these submissions and observed that it could not be verified that the assessee has really shown income in the earlier Assessment year. He also referred to the decision of Hon'ble Madras High Court in case of South India Surgical Co..Ltd. Vs. ACIT, 287 ITR 62 (Mad) wherein it was held that the debts from the Government cannot be written off and ultimately confirmed the disallowance.
133 Before us, it was mainly argued that the assessee was following mercantile system of accounting in the earlier years when 80 Urban Estate Department was merged with PUDA i.e. the assessee and at that time it was agreed that 50% of the cost of the salary to be paid to the employees of erstwhile Urban Estate Department would be recoverable by PUDA from Punjab Government. Accordingly at that time a provision of 50% of salary of Urban Estate Department was made by crediting the salary account and showing it receivable from Punjab Government in the balance sheet. However, till date nothing was received from the Government despite best efforts. Therefore, it was decided by the Committee of Secretaries to write off this amount. It was contended that after the amendment in Section 36(1)(vii) w.e.f. 1.4.1989 the only requirement for claiming bad debt is that the same should have been written off. In this regard reliance was placed on various case laws including the decision of Hon'ble Supreme Court in case of TRF Ltd. Vs. CIT, 323 ITR 397.(S.C). It was further submitted that the decision of Hon'ble Madras High Court has been wrongly relied by the ld. CIT(A) because in that case, it was held that it was not sufficient for making a claim that a bad debt has been written off particularly in view of the decision of Hon'ble Supreme Court.
134 On the other hand, the ld. DR for the revenue submitted that for making a claim for bad debt first it has to be proved that same has been accounted for computing the income of the earlier year and the assessee has not proved that this amount was accounted for u/s 36(2)((i) of the Act. Further the assessee was following the cash system of accounting, therefore, unless and until real outgoing of cash happens same cannot be allowed. Further the decision of Hon'ble Madras High Court has been correctly relied on by the ld. CIT(A) because what is allowable u/s 36(1)(vii) is bad debt and only because it was held that a debt from Government Department cannot be construed to be bad debt.
135 W e have heard the rival submissions carefully and agree with the submissions of the ld. DR for the revenue. First of all it is not clear how the salary was payable at the time of merger of Urban Estate Department with the assessee authority. Normally the salary would be paid from month to month and there cannot be any outstanding salary. If some arrears of salary are there then question arises whether they were booked by the assessee as expenditure or not, is also not clear. If it a mere case of taking over a liability for which no expenditure has been booked then it would be a simple 81 case that liability without any recovery from the Government has been met which cannot be treated as bad debt because the same does not comply with the requirement of Section 36(2)(i) for claim of bad debt. This provision makes it clear that for claim of bad debt it has to be shown that in the earlier year the same has been accounted for while computing the profits. In other words, in a particular year if a trader sells the goods on credit basis and credit sales cannot be recovered from the customers then it can be said that the sale of the goods have been recorded and considered for the computation of income and in later years this amount is not recoverable from the customer, the same can be said to bad debt. But the situation before us is totally different. The salary was payable by Urban Estate Department and assessing authority has taken over liability without any details to show whether the expenditure was booked by the authority or not? Therefore, firstly it cannot be said that the amount involved in the claim of bad debt has really been considered for calculating the income in the earlier years.
136 Secondly Section 36(1)(vii) provides for allowing of claim of bad debt which means good debt cannot be written off. No doubt after the amendment from 1.4.1989 the claim for bad debt can be made merely by writing off the amount which has become bad but this claim cannot be made by writing off the good debt. In case of South India Surgical Co.Ltd. Vs. ACIT, 287 ITR 62 (Mad) the assessee was carrying on the business of manufacturing and marketing of Surgical instruments. The assessee has sold the goods to Government hospitals during the year and made the claim for bad debts. It was observed that concerned hospital has in fact delayed the payment of dues to the assessee on account of paucity of funds and the claim was not paid during the year. Therefore, such claim cannot be said to have become bad. In our opinion, this decision is still valid because what can be written off is only bad debt and not good debt. In view of this discussion, we find nothing wrong in the order of the ld. CIT(A) and confirm the same.
137 In the result, ITA No. 760/Chd/2008 is partly allowed for statistical purposes.
ITA No. 744/Chd/2009 - Revenue's appeal for 2006-07 82138 In this appeal through ground No. 2 which is the effective ground the revenue has raised two issues namely (i) deletion of addition amounting to Rs. 5,42,40,683/- on account of contribution to CPF and (ii) deletion of addition on account of depreciation amounting to Rs. 2,14,17,794/-.
139 First issue - After hearing both the parties we find that the facts relating to this issue are identical to the facts of ground no. 7 in revenue's appeal for Assessment year 2003-04 in ITA No. 762/Chd/2008. Since the facts and arguments of both the parties are identical, following that order in para no. 84 to 86 we set aside the issue to the file of Assessing Officer with similar directions is contained in above noted paras.
140 Second issue - As far as second issue is concerned, the facts are identical to the facts of ground no. 3 of revenue's appeal in Assessment year 2005-06 in ITA No. 769/Chd/2008. Since the facts and arguments of both the parties are identical, therefore, following the decision in revenue's appeal for ground no. 3 in ITA No. 769/Chd/2008 in para no. 124 we decide this issue in favour of assessee.
141 In the result, ITA No. 744/Chd/2009 is partly allowed.
ITA No. 745/Chd/2009 - assessee's appeal for 2006-07142 In this appeal the assessee has raised the following grounds:
1. That the order passed by Ld. Assessing Officer is illegal, impugned against fact & law and acted in haste.
2. That the Ld. Assessing Officer has erred in making an addition of Rs. 20,29,29,142.00 on account of installments for sale of houses / flats received during the year. As per the policy of the appellant and in terms of Hire Purchase Agreement entered in to between the assessee and allotters of houses/flats, the ownership rights of the said premises remain with the appellant till the completion of the scheme and the allottees only enjoy the tenancy rights till then. The ownership of the premises is transferred to the allottees only on the receipt of last installment there from. This fact was brought to the notice of the Ld. Assessing Officer but while framing the assessment, the Assessing Officer ignored the said facts has acted in the arbitrary manner to the total disregard of law.
3. That the Ld. Assessing Officer has erred in making an addition of Rs. 10,89,77,227/- on account of earnest money received from the prospective buyers against plots/flats. During the case proceedings this was brought to the notice of Ld. Assessing Officer that during the year nothing was received as earnest money against plots/flats. But this is the outstanding balance stated in books as against earnest money received during earlier years after deducting refunds made to certain persons (to whom allotment was not made). So, there is not a single point to add back this outstanding amount, the Assessing Officer has ignored the said facts and has acted in the arbitrary manner to the total disregard of law.
143 Ground No. 1 is of general nature and does not require any separate adjudication.
83144 Ground no. 2 - After hearing both the parties we find that the facts are identical to the facts in ground No. 5 in revenue's appeal for Assessment year 2003-04. Since the facts and arguments of both the parties are identical, therefore, following the decision in revenue's appeal for ground no. 5 in ITA No. 762/Chd/2008 in para no. 62 to 72 we decide this issue against the assessee.
145 Ground No. 3 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has received a sum of Rs. 10,89,77,227/- which was reflected in schedule "C" to the balance sheet and the same was shown as earnest money from perspective buyers. On enquiry it was mainly submitted that this money represented advance receipt from customers but no allotment has been made and therefore, the same cannot be recognized as income. The Assessing Officer did not found the reply as convincing and added this amount to the income of the assessee.
146 On appeal the ld. CIT(A) confirmed the disallowance raisied in ground no. 2 in respect of the installments received by the assessee without giving any further reasoning.
147 Before us, the ld. counsel of the assessee reiterated the submissions made before the Assessing Officer. He further submitted that during the year nothing has been received. In fact the earnest money was outstanding on 31.3.2005 amounting to Rs. 11,71,39,423/-. During the year it reduced to Rs. 10,89,77,227/- which means there was a reduction during the year amounting to R. 87,62,196/-. It was further submitted that in respect of this earnest money no allotment was made and therefore, same cannot be treated as sales. In any case no money was received during the year, therefore, this could not be taxed even under the cash system of accounting.
148 On the other hand, the ld. DR for the revenue reiterated the submissions made in respect of ground No. 1 which are identical to the submissions in respect of ground No. 5 of revenue's appeal for Assessment year 2003-04 in ITA No. 762/Chd/2008.
149 W e have heard the rival submissions carefully and find force in the contention of the ld. counsel of the assessee. W hen we adjudicated the issue regarding installments in detail while 84 adjudicating revenue's appeal for Assessment year 2003-04, it was observed that once houses and flats etc. were allotted to the allottees and possession was given, the same was in the revenue's field. However, same logic cannot be applied if no allotment has been made at all. Assessee Authority may have invited the application for allotment of proposed houses and some of the public members may have applied for the same and authority may not have allotted the houses/flats therefore, unless the allotment is made same cannot be called sales. Further if no money has been received during the year then no addition is possible under cash system of accounting because under cash system of accounting addition can be made only if the money was received during the year. At the same time all these details are not available on record and even the ld. counsel of the assessee did not file these details before us, therefore, in the interest of justice, we set aside the order of the Ld. CIT(A) and remit the matter back to the file of Assessing Officer to find out the exact nature of earnest money received by the assessee. If the same is received from public without making any allotment of the house/flat/plot then the same cannot be brought to tax. However, if allotments have been made then the situation would change. Therefore, the Assessing Officer should inquire these facts in detail and then decide the issue in accordance with law.
150 In the result, ITA No. 745/Chd/2009 is partly allowed.
85 ITA No. 545/Chd/2011 - Revenue's appeal for 2007-08151 In this appeal the revenue has raised the following effective grounds:
"2 On the facts and in the circumstances of the case and law, the ld. CIT(A) has erred in deleting the disallowance made at Rs. 5,75,23,367/- on account of CPF and interest on CPF contribution. The disallowance was made for the reasons that the contributions have neither been made to a provident fund approved by the Chief Commissioner of Income Tax or to a 'provident fund" established under a Scheme framed under the Employee provident fund Act, 1952.
3 On the facts and in the circumstances of the case and law, the ld. CIT(A) has erred in deleting the disallowance made at Rs. 2,76,73,633/- on account of depreciation despite the facts that the a e does not fulfill the conditions as laid down in Section 32 regarding ownership of land and the cost of land on which buildings have been erected and the time when the land was acquired."
152 Ground No. 2 - After hearing both the parties we find that the facts relating to this issue are identical to the facts of ground no. 7 in revenue's appeal for Assessment year 2003-04 in ITA No. 762/Chd/2008. Since the facts and arguments of both the parties are identical, following that order in para no. 84 to 86 we set aside the issue to the file of Assessing Officer with similar directions as contained in above noted paras.
153 Ground No. 3 - As far as second issue is concerned, the facts are identical to the facts of ground no. 3 of revenue's appeal in Assessment year 2005-06 in ITA No. 769/Chd/2008. Since the facts and arguments of both the parties are identical, therefore, following the decision in revenue's appeal for ground no. 3 in ITA No. 769/Chd/2008 in para no. 124 we decide this issue in favour of assessee.
154 In the result, ITA No. 545/Chd/2011 is partly allowed.
I T A N o . 5 2 4 / C h d / 2 0 1 1 - As s e s s e e ' s a p p e a l f o r 2 0 0 7 - 0 8 155 In this appeal the assessee has raised the following effective grounds:
1. Th at t he Ld . C. I. T( Ap pe a ls ) h as er r e d n l a w an d o n f ac ts i n as s es s in g Rs . 6, 3 6, 0 7, 89 1 /- as r en t al inc o me w h ic h , i n f ac t , is n ot h in g bu t a m ou n t of i ns t a ll m e nts r ec e iv ed as p er Hi r e- P ur c has e agr e e me nt ac c or d i ng t o wh ic h, t h e ow n er s h i p of f l ats /h o us es , is tr ans f er r e d to t he p ur c h as er o n l y a ft er th e pay m en t o f l as t i ns ta l l me n t, w he n t he inc o m e is f in a l ly c r e d it ed by t he a p pe l l a nt on its ac c r u a l.
2. Th at t h e L d . C. I. T( Ap p ea ls ) h as er r e d i n la w an d on fac ts in as s es s i ng as r en t al inc o me , th e i n s ta l l me nts r ec e iv e d a t Rs . 6, 3 6, 0 7, 89 1 /- u nd er H i gh er -
P ur c h as e A gr ee m en t c om pr is i ng of pr i nc ip a l a mo u nt , wh er eas th e is s u e of 86 'R e n t a l I nc o m e ' was ne i th er b e for e h er f or ad j ud ic at i on , n or i t w as b ef or e th e As s es s i n g O ff ic er .
3. Th at t h e L d. C. I.T( A p pe a ls ) h as er r e d on fa c ts a nd i n l aw i n d is a l l ow i ng 50 % o f A d m in is tr at i v e ex p ens es a m ou n ti n g t o Rs . 2 3, 96 , 4 5, 2 49 /- ( Rs . 26 , 84 ,0 6 ,9 3 2- Rs . 2 ,8 7, 6 1, 68 3) on th e gr ou n d t ha t t h e a p pe l l an t f a i le d t o pr o d uc e ev id e nc e r eg ar d i n g e ac h ex p ens e c l as s i f ie d u n der t h e A dm i n is tr a tiv e he a d of ac c o u nt , des p it e t h e f ac t t ha t a ll th e r e lev a nt l ed g er a c c ou n ts d u ly s up p or t e d by s e lf ex p l an a tor y v o uc h er s wer e b ef or e th e a ut h or it i es b e lo w.
4. Th at t h e Ld . C .I .T ( A p pe a ls ) h as er r e d o n fa c ts an d in la w i n i nc r eas i n g th e v a l ue of c l os i ng s toc k hy po th e t ic a l ly an d ar bi tr ar ily j us t to s e t o ff t he en h anc e d v al u e of o pe n i ng s t oc k w h ic h i s o nly t he br o ug h t f o r war d c l os in g s toc k o f t h e pr ev i o us y ear w h ic h ha d to b e r ec a lc u l at e d as a c o ns e q ue nc e of c ap i ta l i za t i on of d is a l l ow a nc e of ex p e nd i tur e o ut of ad m i nis tr at iv e ex pe ns es o f pr ev i o us y e ar s an d t h us e nh a nc i n g th e v a l u e of s t oc k .
5. Th at t h e L d. C IT ( Ap p ea ls ) has er r ed in l aw an d o n f ac ts in dis a l l ow i ng th e 5 0% ex pe ns es o n ac c ou n t of m a in t en a nc e o f Ur ba n Es ta t es a mo u nt i n g t o Rs . 4 , 81 ,0 9 ,5 3 6/- , i n c l ud e d i n t he d is a l l ow ed ad m i n is tr at iv e ex p ens es o f Rs . 23 , 96 ,4 5 ,2 4 9/- , o n t h e gr o u nd th a t t he a pp e l l an t f a il e d t o es t ab l is h ed th a t t hes e ex p e ns es r e la t ed to c om p l et e d pr o jec ts / ar e as des p it e t h e fac t th a t a l l t he r e lev a nt l e dg er ac c o u nts d u ly s u p po r t ed b y s e lf ex p la n at or y v o uc h er s we r e be f or e t h e a ut hor i t ies be l ow . "
156 Grounds No. 1 & 2 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has received a sum of Rs. 7,01,10,584/- on account of installments against the house sold under hire purchase agreement. It was further noticed that only a sum of Rs. 65,02,693/- was recognized as revenue receipt and balance was shown as capital receipt. The Assessing Officer assessed the balance sheet at Rs. 6,36,07,891/- as income of the assessee because the assessee was following cash system of accounting.
157 On appeal it was observed that during life of hire purchase agreement the allottees were treated as tenants by the assessee. The ld. CIT(A) further observed that the decision of Hon'ble Punjab & Haryana High Court in case of CIT Vs. Dhir & Co. Coloniser (P) Ltd, 288 ITR 561 (PH) on the basis of which the addition has been made, was reviewed by Hon'ble Supreme Court in case of CIT Vs. Realest Builders & Services Ltd. 170 Taxman 218. According to her both the decisions were applicable. According to her the assessee has itself accepted that such allottees were treated as tenant and the assessee was following cash system of accounting and therefore, these amounts would be treated as rent and accordingly she decided the issue against the assessee.
158 Before us, both the parties made identical arguments as have made in respect of ground no. 5 in Assessment year 2003-04 in ITA No. 762/Chd/2008.
159 After considering the rival submissions we find that the facts in this case are identical to the facts of revenue's appeal in ground 87 no. 5 of ITA No. 762/Chd/2008. Since the facts are arguments are similar to Assessment year 2003-04 in ITA No. 762/Chd/2007 which we have decided vide para 62 to 72. Following that order we decide this issue against the assessee. We clarify that addition has been confirmed by the ld. CIT(A) as rental income but in view of the detailed discussion in respect of issue regarding installments which we have decided through para 62 to 72 of this order against the assessee, therefore, there is no need to adjudicate ground No. 2 separately.
160 Grounds No. 3, 4 & 5 - The facts in respect of this ground are identical to the facts of ground no. 4 in assessee's appeal in Assessment year 2004-05 in ITA No. 759/Chd/2008. Since the facts and arguments are identical to ground No. 5 in ITA No. 759/Chd/2008 which we have decided vide para No. 124 and following our order we decide this issue in favour of the assessee.
161 In respect of disallowance of depreciation it seems that this contention was not raised before the ld. CIT(A) that if such expenses are allowed and are held to be on capital account then effect should be given to the opening stock. These contentions have been dismissed by the ld. CIT(A) by observing that the details of expenses are not available.
162 Before us, both the parties raised identical arguments as in ground No. 5 of assessee's appeal in Assessment year 2004-05 in ITA No. 759/Chd/2008. Further the ld. counsel of the assessee reiterated the alternative submission which were made in the Assessment year 2004-05 that if these expenses are not allowed then the expense which have been disallowed, should be added to the value of the stock.
163 After considering the rival submissions since we have already allowed the administrative expenses vide ground No. 4 of this appeal by following our earlier order foray 2004-05 in ITA No. 759/Chd/2008 88 alternative ground become infructuous and accordingly the same are dismissed.
161 In the result, ITA No. 524/Chd/2011 is partly allowed.ITA No. 484/Chd/2012 - Revenue's appeal for 2008-09
162 In this appeal the revenue has raised the following effective grounds:
"1 On the facts and in the circumstances of the case and law, the ld. CIT(A) has erred in deleting the disallowance made of Rs. 5,56,59,077/- on account of contribution to unrecognized provident fund and interest on CPF contribution. The disallowance was made for the reason that the contributions have neither been made to a provident fund approved by the Chief Commissioner or CIT nor to a provident "fund established under a Schem e fram ed under the Em plo yee provident f und Act, 1952.
2 On the facts and in the circumstances of the case and law, the ld. CIT(A) has erred in deleting the disallowance made of Rs. 2,17,91,333/- on account of depreciation, despite the fact that the assessee does not fulfill the conditions as laid down in Section 32 regarding ownership of land and the cost of land on which building has been erected and the time when these lands were acquired, the assessee is not eligible for the claim of depreciation."
163 Ground No. 1 - After hearing both the parties we find that the facts in respect of this ground are identical to the facts of ground No. 7 in revenue's appeal in Assessment year 2003-04 in ITA No. 762/Chd/2008. Both the parties made identical arguments as were advanced in Assessment year 2003-04.
164 After considering the rival submissions we find that the facts and arguments are identical to the issue adjudicated vide ground No. 7 in revenue's appeal in Assessment year 2003-04 in ITA No. 762/Chd/2008. In that appeal this issue has been remitted back to the file of Assessing Officer vide para 84 to 86 and following that decision here also, we set aside the order of the Ld. CIT(A) and remit the matter back to the file of Assessing Officer with identical directions.
165 Ground No. 2 - After hearing both the parties we find that the facts in respect of this ground are identical to ground no. 3 in revenue's appeal for Assessment year 2005-06 in ITA No. 769/Chd/2008. Both the parties made identical arguments as in respect of ground No. 3 of ITA No. 769/Chd/2008.
89166 After considering the rival submissions we find that the facts as well as arguments of the parties are identical to the issue raised in ground No. 3 of revenue's appeal in Assessment year 2005-06 in ITA No. 769/Chd/2008. This issue was decided by us against the revenue and in favour of the assessee in that appeal vide para No.
124. Following the same we decide this issue against the revenue and accordingly confirm the order of the ld. CIT(A).
167 in the result, ITA No. 484/Chd/2012 is partly allowed.
I T A N o . 3 9 0 / C h d / 2 0 1 2 - As s e s s e e ' s a p p e a l f o r 2 0 0 8 - 0 9 168 In this appeal the assessee has raised the following grounds:
"1 That the order u/s 250(6) passed by the ld. CIT(A), Chandigarh is against law and facts on the file in as much as he was not justified to uphold the action of eth DCIT, Circle 6(1), Mohali Delhi in framing the assessment order u/s 143(3) of the Income Tax Act even though the statutory notice u/s 143(2) of the Income Tax Act was served beyond the statutory time prescribed under the Act.
2 That the order u/s 250(6) passed by the ld. CIT(A), Chandigarh is against law and facts on the file in as much as he was not justified to uphold the action of the DCIT, Circle 6(1), MOhali Delhi in making addition of Rs. 16,42,01,257/- by disallowing 50% of administrative expenses.
3 That the order u/s 250(6) passed by the ld. CIT(A), Chandigarh is against law and facts on the file in as much as he was not justified to uphold the action of DCIT, Circle 6(1), Mohali in making an addition of Rs. 2,15,79,657/- being 50% of Rs. 4,31,59,314/- which is amount paid towards maintenance of Urban Estates.
4 That the order u/s 250(6) passed by the ld. CIT(A), Chandigarh is against law and facts on the file in as much as he was not justified to uphold the action of the DCIT, Circle 6(1) Mohali in Making addition of Rs. 225 crores being expenditure for land at international airport at Mohali by ignoring the fact that the same was incurred wholly and exclusively for the purpose of the business and no capital assets or benefit of enduring nature in the capital field had been created as a result of the same."
169 In addition to above the assessee has also raised an additional ground as under:
"That the Assessing Officer gravely erred in treating the amount of Rs. 46,15,584/- as rental income which in fact is nothing but amount of installments received as per hire purchase agreement according to which the ownership of houses/flats is transferred to the purchaser only after the payment of last installment when the income credited by the appellant on accrual."
170 Ground No. 1 - After hearing both the parties we find that in this case a notice u/s 143(2) was issued on 30.9.2009. The ld. CIT(A) had adjudicated this issue vide para 3.1 which is as under:
90"Brief facts of the issue are that the return of income in this case was filed on 29.9.2008 and as per the assessment order, notice u/s 143(2) was issued on 30.9.2009. The appellant has not filed any reply in response to this ground of appeal and so it is presumed that the dated given in the assessment order are correct and the notice u/s 143(2) had been issued within the prescribed time limit. Ground of appeal No. 2 is dismissed."
171 Before us, the ld. counsel of the assessee submitted that this notice was issued to the assessee on 30.9.2009. Requirement of the Act is to serve the notice before the expiry of 12 months from the end of the month in which the return was furnished. Since the return was furnished on 29.9.2008, the notice was required to be served before 30.9.2009 which has not been done and therefore, the assessment itself is void.
172 On the other hand, the ld. DR for the revenue submitted that the assessee has not perused this ground before the ld. CIT(A), therefore, now the assessee cannot agitate this issue before the Tribunal. In this regard, she strongly relied on the decision of Mumbai Bench of the Tribunal in case of Thistle Properties (P) Ltd. Vs. ACIT, 134 ITD 6. S h e a l s o r e f e r r e d t o t h e d e c i s i o n o f M a d h ya Pradesh High Court in case of CIT V. 275 ITR 260 wherein it was held that the question of validity of notice may not be allowed to be raised first time before the Tribunal if the assessee has submitted to the jurisdiction of the Assessing Officer and participated in the proceedings. In this connection she referred to the decision of V.R.A. Cotton Mills (P) Ltd. Vs. Union of India and Ors, 250 CTR 188 : 70 DTR 439 (copy of judgment enclosed with the paper book) wherein it was clearly held that the purpose of the statute will be better served if the issue of notice is considered as compliance of the requirement of the proviso to Section 143(2) of the Act.
173 We have heard the rival submissions carefully. Section 143(2)(ii) reads as under:
" [(2) Where a return has been furnished under section 139, or in response to a notice under sub- section (1) of section 142, the Assessing Officer shall,--
(i) -------------------18
(ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return:
[Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.]]"91
From above it becomes clear that notice is required to be served before the expiry of 12 months from the end of the month for which the return has been filed. In this case return has been filed on 29.9.2009 which means the notice was required to be served on or before 30.9.2009. First of all the assessee has not given any argument before the ld. CIT(A), therefore, it cannot be said that the issue was not pressed before him and therefore, the assessee cannot be allowed to agitate this issue before the Tribunal for the first time. However, when similar issue came up for consideration before the Hon'ble Punjab & Haryana High Court in case of V . R . A . C o t t o n M i l l s ( P ) Ltd. Vs. Union of India and Ors, 250 CTR 188 : 70 DTR 439. Head note of the decision reads as under:
"Notice - 'Issue ' Vs. 'Service of notice ' - Petitioner contended that notice was not served on the assessee till the last date of limitation for the initiation of proceedings for the Assessment year 2009-10 - Question is, what is the meaning of expression 'served' - Whether such expression is to be used literally, so as to mean actual physical receipt of notice by the addressee or the expression is inter changeable with the word 'issue' - The case of Ld. Commissioner of Income Tax Vs. AVI-OIL India P. Ltd. (2010) 323 ITR 242 relied on by the assessee, suffers from per incuriam - Date of receipt of notice by the addressee is not relevant to determine, as to whether the notice has been issued within the prescribed period of limitation - The purpose of the statute will be better served, if the date of issue of notice is considered as compliance of the requirement of proviso to section 143(2) of the Act - Petition dismissed."
From above it becomes clear that even if notice is issued within time limit provided under clause (ii) of Section 143(2) even then the same would be considered as compliance with the provisions of section 143(2). In any case the assessee has appeared before the Assessing Officer and participated in the proceedings. In the similar circumstances in case of Thistle Properties (P) Ltd. Vs. ACIT, 134 ITD 6: 138 TTJ 538 Mumbai Tribunal had followed the decision in case of CIT Vs. Regency Express Builders P. Ltd. 291 ITR 55 (Delhi) and held that the assessee shall be presumed to have served notice because otherwise there was no occasion for the assessee to appear before the Assessing Officer. In view of this decision this ground is rejected..
174 Ground No. 2 & 3 - After hearing both the parties we find that the facts in this case are identical to the facts in ground no. 4 of assessee's appeal in Assessment year 2004-05 in ITA No. 759/Chd/2008.
175 Both the parties made identical arguments as in respect of this ground as in ground No. 4 in Assessment year 2004-05 in assessee's appeal in ITA No. 759/Chd/2008.
92176 After considering the rival submissions we find that the facts as well as the arguments are identical to the facts of ground No. 5 in assessee's appeal for Assessment year 2004-05. The only dispute is that during the assessment proceedings the administrative expenses have been treated separately under the head "administrative expenses" amounting to Rs. 28,52,43,200/- and maintenance of urban estate claimed at Rs. 4,31,59,314/-. It was explained by the ld. counsel of the assessee that both these amounts have been ultimately clubbed as disallowance of administrative and maintenance expenses at Rs. 16,42,01,257/-. It was further explained that by making total amount of Rs. 16,42,01,257/- has been taken in ground no. 2. In fact that amount should be 50% of Rs. 28,52,43,200/- because separate ground No. 3 has been taken for disallowance of maintenance expenses of 50% amounting to Rs. 2,15,79,657/-, therefore, in our opinion, both the issues relate to similar facts i.e. disallowance of administrative and maintenance expenses. The issues have been decided by us in favour of the assessee in Assessment year 2004-05 in ITA No. 759/Chd/2008 in para No. 115. Following that order we decide this issue in favour of the assessee.
177 Ground No. 4 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has claimed expenses of Rs. 225 crores for land for International Air Port (AAI) at Mohali. The assessee was show caused that why this amount should not be disallowed as capital expenditure. In response it was submitted by the assessee as under:
" 1. B y m ak in g p a ym en t of Rs . 22 5 c r or e , th e as s es s ee au t h or it y h as n o t ac q u ir ed a n y c a p it a l as s e t nor m a de a n y d o na t io ns or c h ar it y to a n y or g a n i za t io n . It was p ur e l y an d p ur p os e l y o r s a y wh o l l y a nd ex c lu s i v el y f or th e pur p os e of d e v el o p in g t he ar e a f or a l l r o un d ec o n om ic gr o wth r es u l t in g in t o m anif o l d i nc r e as e in t he r a t es of t he s t oc k s of l a nd a n d ot h er pr o p er t i es he l d b y th e as s es s e e as s t oc k i n tr a de . T he r ef or e , o n t h e s u g ges t io ns of P unj a b G o v t. , it was d ec id e d b y th e as s es s e e t o c o n tr ib u te to wa r ds th e de v e l o pm ent of a n i nt er n a ti o n al a ir po r t i n t h e St at e of P u nj a b , s o t ha t t h e o bj ec ts f or whic h th e au t hor i t y h as b e en c ons t it ut e d ar e ac h i e v ed . T his ha p pe n e d a s th is g a v e a bo os t t o t he ec on om y an d t o th e hum an ps yc he to i n v es t i n t he e nt ir e St at e b y ac q u ir i ng a n d d e ve l o p in g p l ots . It was e n v is a g ed t h at t he up gr a d at i o n of Ch a nd i ga r h A ir p or t to i nt er n a ti o n al s t at us wi l l c er t a in l y b oos t t h e lo c a l ec o nom y wi t h m or e b us i nes s i nf l o w i n t he to ur is t, c om m er c ia l , m an uf a c tur i ng a nd l og is tic s s ec t or s a nd th is is g o in g to o pe n t h e St at e of P unj a b t o t he i nt er n a ti o n al ar e na wi th r i g ht m ar k et i ng s tr at e g y a n d m or e f or e i gn i n v es tm en t wi l l f lo w i n t h e s t at e d ue t o its wor ld wi de P unj a bi N RI n et wo r k . It has n o w b e en r ec o g n i ze d t h at a v i at i on , f ar f r om bei n g a m er e m ode of tr a ns p or t at i o n is a bo os t to s us t a in a b le de v e l opm en t of tr ad e, tou r is m , c om m er c e an d i n d us tr y. T his is wh at has ha p p en e d i n Si n ga p or e b y th e d e v el o pm ent of Cha n g i A ir po r t , In h eo n in S o ut h Kor e a an d als o t h e H o ngk o n g I nt er na t io n a l A ir p or t . T o hi g hl i g ht th e m ain r e as o n wh ic h h as c om e tr u e is b a s ic al l y t h e i nc r eas e in the r at es of pr o p er t i es of th e a ut h or it y o n l y b ec a us e of the St at e b e i ng d e v e l op e d du e t o 93 th e ear l y es t a b lis h ed of i nt er na t io n a l a ir p or t f or wh ic h th e as s es s e e c o n tr i b ut e d as a wis e b us in es s m an f or th e b us in e s s ex pe d i enc y wh i c h is f u r t her au t he nt ic at e d f r om th e f o ll o wi n g f ac ts b as e d on s t a tis t ic s wh ic h s p e ak l ou d er .
For ins ta nc e, th e r a t e s of la n ds of th e a u th or it y in th e e n ti r e St a te of Pu nj ab i nc r e as ed m uc h m or e af t er t h e l au nc h of u pc om i ng i n ter n at i on a l a ir p or t in t h e s ta te . T o q u ot e f e w i n s ta nc e l ik e t h e r at es o f c om m er c ia l pr o pe r t i e s i n S am r al a af ter t his we r e s o l d @ Rs . 39 6 00 v i z a v i z @ Rs . 29 6 00 , s im il ar l y t he r es i de n ti a l p lo ts i n N a bh a wer e s ol d @Rs . 9 5 00 v i z a v i z @ Rs . 5 30 0 , s im i lar l y i n P at ha nk ot t h e n e w s e l l in g r at es wer e Rs . 9 1 00 as a ga i ns t Rs . 4 70 0. T hes e ar e on l y f e w ins t anc es , t her e ar e m uc h m or e ga i ns in o th er ar e as a ls o . I n ot her wor ds , b y s p e nd i n g R s . 2 2 5 c r or e o n l y, t h e im m edia t e on e tim e ga i n, i n t er m s of s a l e of pr o p er t i es of th e a ut h or i t y wa s m or e th a n 2 t im es an d i t was in ad d it i o n t o t he o th er ga i ns wh ic h ar e l ik el y to b e e ar ne d i n th e ne ar f ut ur e in ter m s of s a le of c om m er c ia l / i ns t i tu t i on a l p lo ts . T h es e h u ge g ai ns h a v e r ea l l y pr o v e d b e yo n d d o ub t, th at t h e as s es s e e, a s a wis e b us i nes s m a n, has r ig h tl y f or es ee n t he n ec es s it y o f m ak in g ex pe n d it u r e of Rs . 2 25 c r or e a s i ts b us i n es s ex p e d ie nc y o n t o p pr i or it y wh ic h h as pr o v e d b e yo n d d o ub t a ga i nf u l b us in es s ac t i v it y. T h er ef or e on a c om m on c om m er c i al n or m s a n d as pe r ac c o un t in g pr inc i p le , t h e ex pe n d it ur e of Rs . 2 25 c r or es c ou l d b e c har g ed or d eb i te d t o N o ot h er A /c , ex c e pt on l y an d o n l y to Inc om e a nd Ex pe n d it ur e A /c . T her ef or e , th e r at i o la i d b y H o n 'b l e S upr em e C o ur t i n S. A B u il d er s Lt d. Vs . C IT 2 88 IT R 1( SC) f ul l y ap p l ies t o t h is c as e o n a l l th e f o ur s b e yo n d a n y d ou bt or s ec o n d o p i n io n th at wh er e i n i t wa s he l d:
" O nc e it is es t a b l is h e d t h at th er e was n ex u s be tw e e n t h e ex p en d it ur e an d th e pur p os e o f t he bus i n es s ( w h ic h n ee d no t nec es s ar i ly b e t he b u s i nes s of th e as s es s e e its e lf) , th e Rev e nu e c a n no t j us t i fi a b ly c la i m to p u t its e lf i n th e ar m c ha ir of th e b us i nes s ma n or i n t h e p os it i on of th e Bo ar d o f Dir ec tor s a nd as s u m e t h e r o l e to d e c i de h ow m uc h is r e a s on a b le ex pe n d it ur e h av in g r eg ar d to th e c ir c u ms t anc es of th e c as e. No b us in es s ma n c an b e c om p e l le d t o max i m i ze his pr o f its . Th e I nc o me T ax A ut h or it i es mus t p ut t he m s e lv es i n t he s ho es o f th e as s es s ee a n d s ee ho w a pr u de n t bus i n es s m a n wo u l d a c t. "
Q u it e in ter es t in g l y, th e as s es s ee 's ef f or ts t o m ax im i ze its pr of its c ou p le d wi th f ulf i l l i ng t h e o bj ec ts f or whic h it has be e n c ons t it ut e d b y m ak ing c on tr i b ut i o n wh ic h is a n a ll o wa b l e ex p e nd i tu r e o n f ac ts a nd i n l a w bec a us e of i ts b e in g n ot be i n g of c a p it a l n at ur e n or is il l e ga l n or a g a i ns t t h e pu b l ic p ol ic y.
Mo r e im por t an t l y, i n t he c as e of t he as s es s ee a ut h or it y, it is n ot a c as e of s pec u l at i on b u t a d el i ber a te a n d c o ns c i o us m ove t o e ar n m or e a n d m or e p r of its i n ad d it i o n to im pr o v e th e ar ea i n a p la n ne d m anne r , wh ic h h as pr o v ed tr u e a ls o as per t he s t at is tic s m ade i n p ar a 1 ab o v e . So i t is s ubm it t ed e v en a t t h e c os t of r e p et it i o n to s tr es s th at t h is ex p e n di t ur e i s t o be a l l o we d par t ic u lar l y wh e n i t is n e it h er i l le g a l n or c ap i ta l nor ag a ins t p u bl ic p o l ic y an d a t t he s a m e tim e has s tar te d yi e l d i n g hu g e pr of its a n d o ver a l l gr o wt h of t he ar e a an d r i s e in t h e r at e of s t oc k of t h e as s es s ee .
2. T ha t th e ex pe n d it u r e was a ls o i nc ur r e d as pe r t h e d ir ec t i ons of t he Pu nj ab G o vt . a nd t h e obj ec ts of t h e a ut h or i t y as p r o v id e d i n s ec t i on 28 th e d et a i ls of wh ic h ar e d is c us s ed her e u nd er . T h is a u th o r i ze t h e au t hor i t y t o d o t h e obj ec t s an d f u nc t i o ns wit h th e pr i or ap pr o v al or o n d ir ec t i o n of t h e S t at e G o vt ., f or c ar r yi n g o ut t h e p ur p o s es of t h is Ac t.
Fur th er As p er S ec ti on 49 ( 2) , t he f u n ds of th e a ut h or it y s h a l l be a p p li e d to war ds m eet i ng :
( a) T he ex pe n d it ur e i nc ur r ed in th e a dm in is tr a t io n, im pl em en ta t io n a nd c ar r yi n g o ut t h e pr o v is i ons of t his Ac t ;
( b) T he c os t of ac qu is i t io n of l an d f or th e p ur pos es of t h is Ac t;
(c) T he ex p e n di t ur e f or d e v e lo pm en t of la n d an d c o ns tr uc ti o n of ho us e s ; an d ( d) T he ex pe n di t ur e f or s uc h ot he r pu r p os es as the s t a te g o v t. m a y d i r ec t o r per m i t.
In f ulf i llm e nt of a b o ve o bj ec ts es p ec ia l l y as m ent io n ed in c l a us e( a) an d c l a us e ( d) th e a ut ho r i t y has pa i d th e am ou nt of Rs . 2 2 5 c r or es an d c l a i m ed t he s am e as ex p e nd i tur e b y wa y of d e bi t to P r of it & Los s Ac c o u nt . F ur t h er , t h e p a ym en t m ade is n o n- r ef un d ab l e b ec aus e it is n ei t h er a l o an n or d e p os i t, nor i t is f or ac q u is it i on of an y c a p it a l as s et or pr o p er t y. T he s am e h as b ee n m ade i n f ur th er a nc e of de v e l opm en t o bj ec ts of t he a ut h or it y as m e n ti o ne d a bo v e i nc l u d in g ec o n om ic d e v e lo pm en t of t h e l a n d an d a ls o of t he ar e a i n to ta l i t y. It is a g en er a l ac c o u nt i n g pr inc i p le an d c om m erc i al nec es s it y t h at a n y ex p en d it ur e 94 i nc ur r e d i n f ur th er a nc e of o bj ec ts of as s es s ee h as t o b e c la im ed an d al l o we d as an d l e g it im at e bus i n es s ex p en d it ur e.
3. F ur t h er th e is s u e i n q ues t io n is no t r es - i nt e gr a . S im i lar is s u es ha v e a lr e a d y be e n tr i e d b y t he v ar i ous c o ur ts of t he c o u ntr y. T o q u ot e i n a r e c en t j u d gm ent of CIT an d An o th er vs . K ar na tak a F i na nc i al Cor p or a t io n ( IT A p pe a l N o. 16 1 of 20 0 5) 33 DT R ( k ar ) 1 45 ( 20 1 0) wh er e i n it has be e n h el d as u n d er :-
" Th e am o un t of Rs . 1 5 lak hs s pe n t by t he as s es s ee h as t o be c o ns id er e d to war ds its b us i nes s pr o m ot i o n. Si nc e t he Zi la Pa nc hay a th un d er a s c h e me k no w n as 'S w as t h i G r a ma Yo j a na ' was tr y i ng to dev e l op m od e l v il l a ges by pr ov i d i ng f ac il i t ies l ik ed d ev e lo p r o ads t o ne w m ar k e ts or ga n i zi ng s e l f he l p gr o u ps , c o m m un i ty c e ntr es a nd d ev e lo p me n t of i nf r as tr uc t ur a l f ac i l it i es . If t h e as s es s e e h as s p en t a mo u nt t o war ds t he dev e lo p me n t of in fr as tr uc t ur a l f ac i l it i es of v i l la g es a n d c ons tr uc t i on o f a n ew m ar k e t t o or g an i ze s e lf he l p gr o u ps w o u ld c er t a in ly pr om ot e t h e bus i n es s o f th e as s es s ee as t he as s es s e e c an l en d t h e l oa n o n ly if s uc h es t ab l is h me nts ar e t h er e i n v i l la g es . I f t he as s es s e e c a n s pr e a d i ts ac t iv it i es t o r ur a l par ts o f t h e S ta te , i t wo u ld c at er th e ne e d of t h e pe o p le a n d wo u ld s a tis fy th e p ur pos e fo r w hic h i t is c r e at e d by th e S ta t e. Th er e f or e , th e q u es t i o n of la w fr am e d i n th is a p pe a l h as to b e a ns wer e d a ga i ns t th e R ev e n ue . "
T he r e l i anc e is als o p l ac e d i n t he c as e of C I T vs . C h et an T r a ns por t C or p or at i o n Lt d 13 4 CT R ( M A D.) 46 6 i n wh ic h t he R e v en u e c onc e de d bef or e th e T r i b un a l B an g a lor e t h at in t h is c as e wh er e th e tr a ns por t c or p or at i on on t h e r e q ues t of th e S t at e G o v t. s p e nt th e am ou nt an d it was he l d th at th e am ou n t s pe n t b y t he ot h er c or p or a t io n was f or th e b e nef it of th e p u bl ic a nd do es no t v i o la t e t he pu b l ic p ol ic y.
Thereafter the assessee relied on the decision of Hon'ble Karnatka High Court in case of CIT Vs. Karnatka Financial Corporation, 33 DTR 145 and CIT Vs. 134 CTR 466 (Mad). It was further submitted as under:
" T he ex pe n d it ur e has be e n r i g ht l y c l a im ed a nd de b it e d to Inc om e & Ex p en d i tur e ac c o u nt of t he a u th or it y.
T he pa ym e nt h as b e en r ig h tl y c la im ed as ex pe n d it ur e u/s 3 7( 1) of t h e Ac t. Fur th er a lt er na t i ve l y t he as s es s ee h as f il e d a n ap p l ic a t io n u/s 3 6 ( 1) ( x i i) of t he Ac t bef or e t h e H on ' b l e C BDT wh ic h is p e nd i n g a dj u d ic a t io n s i nc e l on g. As r eg ar ds t h e c l a im of de d uc t i on u /s 3 7( 1) o f the Ac t, it is s ubm i tt ed th a t t he wor ds us e d i n t h e s a i d s ec t io n ar e " wh o ll y an d ex c lu s i v e l y" an d th er e is n o m enti o n of th e wor d " nec es s ar i l y" . T he wor d who l l y r ef er s t o q ua nt um of ex p e nd i tu r e wh i l e th e wor d ex c l us i v e l y r ef er s t o m ot i v e, o bj ec t i v e or p ur p os e wi t h wh ic h th e p ar tic u l ar ex pe ns e h as be e n i nc ur r e d.
PU D A is t h e de v e l op m ent au t hor i t y i n th e St a te of P u nj a b. T he au t hor i t y has be e n c o ns ti t ut ed u nd er PU NJ A B R EG IO N A L & T OW N P L AN NI NG & DE V E LO P M ENT A CT , 19 9 5. S ec t i on 2 8 of th at Ac t l a ys do wn th e o bj ec ts a n d f unc t i o ns of t h e au t hor it y. T h e s am e ar e r ep r od uc ed as un d er :
" O BJ E CT A ND F UN CT IO N S O F T H E AUT HO RIT Y"
S ec t i on 2 8 of P u nj a b Re g io n a l & T o wn P l an n in g & D e v e lo pm en t A c t, 1 9 95 wh ic h is r e g ar d i n g O bj ec t a n d F u nc t i o ns is r epr o d uc e d as u n der ;
T he obj ec t of t he A ut h or it y s h a l l b e to pr om o te a n d s ec ur e be tt er p l an n i ng a n d de v e l opm en t of an y a r ea of t he St at e a n d f or t ha t p ur p os e th e Au th or it y s h a l l ha v e t he po we r s to ac qu ir e b y wa y o f pur c h a s e, tr a ns f er , ex c h a ng e or g if t o r t o ho l d, m an ag e , p la n, d e ve l o p an d m or tg a ge of o t her wi s e dis p os e o f l an d or ot h er pr op er t y or to c a r r y o u t its e lf or i n c o l l ab or at i o n wi t h an y o t h er a ge nc y o n its be h alf , bu i l di n g, en g in e er in g, m in i ng an d ot h er op er at i o ns to ex ec u t e wor k s i n c on n ec t i on wi th s up p l y of wat er , d is p os a l of s e we r a g e, c o n tr o l o f po l l ut i on an d o th er s er v ic es a n d am en it i es a nd ge n er a ll y t o do an yt h i n g wi t h th e pr i or ap pr o v al or on di r ec t io n of t h e S ta te G o ve r n m ent, f or c ar r yi n g ou t th e p ur p os es of t h is Ac t.
95In p ar tic u l ar a nd wi th o ut pr ej ud ic e t o th e g en er a l i t y of t h e f or e go i n g pr o vis i o ns , th e A ut h or it y i ts e lf i n c o ll a bo r a t io n wi t h a n y ot h er A ge nc y or t hr ou gh an y o t her ag e nc y o n its be h a lf ;
a. If s o r e q u ir e d b y t h e St a te G o ver nm en t of t he Bo ar d, t ak e u p th e wor k s i n c o n n ec t i on wi t h t he pr e pa r a t io n a nd i m plem en ta t io n of R e g io n al Pl a ns , Mas t er Pl a ns a n d N e w T o wns h i p P l a ns an d T o wn Im pr o ve m ent Sc h em e; un d er t ak e t he wor k r e l at i ng to th e am e ni t ies an d s er v ic es t o b e p r o v id e d i n t h e ur b a n ar e as , ur ba n es t at es , pr om ot io n o f ur ba n de v e l opm en t as wel l as c ons tr uc t i on of h o us es ;
pr om ot e r es e ar c h , de v e l opm en t of ne w tec h ni q ues of pl an n in g , l an d de v e l opm en t an d ho u s e c o ns t r uc t io n an d m anuf ac t ur e of bu i l d i ng m at er i al . pr om ot e c om pa ni es , a s s oc ia t io n an d ot h er bo d i es f or c ar r yi n g ou t t he p ur pos e of th e Ac t; a n d p er f or m an y ot h er f unc t io ns wh ic h ar e s up p l em en ta l , i nc i d e nt a l or c o ns eq u en t ia l to a n y of t h e f unc t io ns r ef e r r e d t o i n t h is s u b- s ec ti o n or wh ic h m a y be p r es c r i b ed ."
In f u lf i l lm en t of a b o v e o bj ec ts , th e au t hor i t y h as p a id th e ab o v e am ou n t a nd c l aim e d t he s am e as ex p e nd i tu r e b y wa y o f deb i t t o its I & E A /c . Fur t h er , th e pa ym en t m ad e is n o n - r ef u nd a b le . T h e s am e has b e e n m ad e i n f ur t h er a nc e of de v e l opm en t o bj ec t o f th e au th or i t y. It is a ge n er a l ac c o un t in g pr inc i p le t ha t an y ex pe n di t ur e i nc u r r ed i n f ur t h er a nc e of o bj ec ts of as s es s ee m ay b e a ll o we d as ex pe n di t ur e ."
Further reliance was placed on the following case laws:
CIT Vs. Velumanickam Lodge (Mad) (2009) 32 DTR 246 Sri Venkata Satyanarayna Mill Contractors Co.V CIT (1997) 223 IT R 101 (S.C) CIT Vs. India Radiators Ltd. (1999) 236 ITR 719 (Mad) Addl CIT Vs. Rajasthan Spinning & W eaving Mills Ltd. (2005) 274 ITR 463 (Raj) CIT Vs. Chemicals & Plastics India Ltd. (2007) 292 ITR 115 (Mad) Panipat Co-Op Sugar Mills Ltd. Vs. CIT (1977) 108 ITR 111 (PH) 178 The Assessing Officer examined the submissions and observed that the assessee was in the business of acquiring land and selling the plots and it was further claimed that the assessee was bound by the directions of the Punjab Government because the assessee was responsible for infrastructure development. The Assessing Officer observed that the assessee has to keep in mind that the assessee is a taxable entity and bound to follow the mandate of Income Tax Act.
He then referred to the decision of the Tribunal in assessee's case reported in 103 TTJ 988 wherein following observations were made by the Tribunal:
"If the accounts of he assessee are analysed, it has turned into a huge prof it making agency for which it is taking money from the general public. In such a situation, we are of the view that no charity is involved and if any institution of public importance like schools, community centres are created/developed, the assessee is charging the cost of it from the public at large and the money is coming from the coffer of the Government. It cannot be said that 96 objectives/activities of the assessee are more of commercialized nature and we do not find any charity in it. At the same time if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved.
It is a known fact that the assessee is acquiring the land at very low prices and selling the same land on very higher rate sand is earning a profit therefrom.
The ld. counsel of the assessee during argument raised a plea that totality of circumstances has to be seen specially that all money goes with the State Government and not in private hands, the prices are fixed and the assessee is not commercial organization and the predominant activity of the assessee is to develop infrastructure and contended that rule of constituency has to be seen for which reliance was placed upon the decisions pronounced in Union of India & Ors Vs. Kaum udini Naryan Dalal & Anr (2001) 168 CTR 3: (2001) 249 ITR 219 (S.C).
If all the objects and activities actually carried out by the assessee are analysed and kept in juxtaposition with the af oresaid judicial pronouncem ent, we are of view that activities of the assessee are more of commercial nature with profit oriented intent, so no leniency should be shown to the assessee.
However, if the argum ent of the assessee is analysed on point of general public utilit y, still it can be said that com m ercial angle with prof it m otive is involved which has become predominant object of the assessee."
According to the Assessing Officer the above observations clearly show that the assessee is a huge profit making entity and was mainly engaged in the business of real estate developer. It was pointed out that joint venture company (in short JVC) has been formed for the purpose of construction of Airport at Mohali in which Greater Mohali Area Development Authority (in short GMADA), Haryana Urban Development Authority (in short HUDA) and Airport Authority of India (in short AAI) have joined hands and had defined shares in the joint venture, then in what capacity PUDA (assessee authority) has made contribution of Rs. 225 crores. The Assessing Officer also quoted various clauses of the agreement showing that contribution of AAI towards construction will be counted towards the 51% equity contribution and GMADA and HUDA were allotted 24.5% each in the said venture for development of the International Air Port at Mohali. In this regard statement of Additional Chief Administrator, PUDA was also recorded. According to the Assessing Officer answers given by the Additional Chief Administrator, PUDA clearly showed that PUDA had nothing to do with the Airport.
179 The Assessing Officer then referred to the provisions of section 37 of Income Tax Act and observed that the expenditure of Rs. 225 crores was for acquisition of land for Airport Mohali which was not related to the income earned in Financial Year by selling of plots etc and mainly reducing its actual profit. The land was not included in the fixed assets of the assessee which clearly show that it is not 97 related to the business of the assessee, therefore, this expenditure was not of revenue nature and not allowable u/s 37. He also distinguished the judgments relied on by the assessee and ultimately held that the assessee is not the beneficial owner of the shareholding in the JVC and therefore, expenditure of Rs. 225 crores should have been charged to the account of Punjab Government which is beneficial owner of the shares in the joint venture for the Airport. Ultimately it was held that the expenditure is of capital nature and not allowable.
180 On appeal before the ld. CIT(A), it was mainly submitted that a sum of Rs. 225 crores was paid by the assessee as non refundable amount towards contribution of development of the Airport in Mohali area. The expenditure was incurred on the principle of commercial necessity and the same was incurred in furtherance of the objects of the assessee. The same was exclusively for the purpose of development of the Airport area for economic growth which was leading to increase in rates of land manifold which would be beneficial to the assessee. Certain examples were given to show the rates of some of the properties. It was also submitted that once the assessee starts earning more profits, it would pay more taxes in the long run. It was submitted that the Assessing Officer is wrong in observing that the assessee contended that expenditure was incurred for general public utility actually the assessee only raised the contention that this expenditure was not against public policy. The observation of the Assessing Officer that the assessee failed to pay advance tax installments, is not connected It is wrong to say that contribution was towards allotment of shares because till date no shares have been allotted. Further regarding the JVA of Airport Authority of India, Government of Punjab and Government of Haryana, it was submitted that GMADA/PUDA had only acted as a trustee for the Punjab Government where all the acts to be done by Government of Punjab were only through this development agency and the assessee authority by acquiring/promoting the JVC is not the beneficial owner of any of the shareholding of the said JVC. This was clear from page 1 of the JVA wherein it is clearly written that the word (Government of Punjab) through GMADA and also Government of Haryana through HUDA". The intention of the JVA is clear from this clause that the role of GMADA/PUDA is nothing more than a mere agent of its principle which is the Government of Punjab 98 as it has no volition of its own. Even if some shares are allotted they are going to be the in the account of Government of Punjab as the assessee authority is acting only as an agent of Government of Punjab. Thereafter reliance was placed on various case laws. The ld. CIT(A) discussed the issue in detail. He also referred to provisions of section 37 as well as minutes of the meeting of the Cabinet and various clauses of JVA. He also discussed the case laws cited by the parties and ultimately the issue was decided by him against the assessee vide para 11.26 of his order as under:
"In view of the above discussion, it is held that the amount paid for acquisition of land for airport of Rs. 225 crores was not wholly and exclusively for the purpose of business and hence the same is not allowable u/s 37(1) of the Act. The addition made on this account is accordingly upheld.
181 Before us, the ld. counsel of the assessee mainly reiterated the submissions made before the Assessing Officer as well as the ld. CIT(A).He further emphasized that the assessee authority was mainly engaged in the business of colonization. It acquired land, developed the same and then selling the same by process of auction. When the proposal for expansion of International Airport at Mohali came up it was felt that this airport will have lot of benefits to the authority by way of increase in the value of land. When Government of Punjab instructed the authority to make contribution of Rs. 225 crores same was made because the same was thought to be beneficial to the assessee. Reference was also made to Section 28 and 49 of Punjab Regional & Town Planning & Development Act, 1995. Section 28 of this Act lays out the objects of the authority which was to promote and secure better planning and development of the city for which the authority was further empowered to acquire land and develop the same and then such developed lands would be sold to general public. Section 49 provided that the authority was to maintain its own funds which were received from various sources. Section 49(2) clearly provides for application of funds and clause (d) of Section 49(2) clearly mandates that the authority was obliged to incur such expenditure for such purposes as the State Government may direct or promote. Therefore, it is clear that the State Government had the power to direct the authority to expend a particular amount as was directed by the State Government. Since the contribution towards the development of Mohali International Airport was made at direction of the State Government, therefore, the same has to be construed for 99 the purpose of business of assessee authority. The ld. counsel of the assessee also referred to various clauses of JVA and pointed out that the assessee authority has neither acquired any land as alleged by the first appellate authority nor any shares in the proposed airport project have been allotted to the assessee. Therefore, the expenditure was clearly incurred for the purpose of business. Money was basically spent to improve the infrastructure in and around Mohali area and development of the State which would in turn lead to increase the value of the properties held by the authority which is clearly a business purposes. The ld. counsel of the assessee relied on the following case laws:
Sri Venkata SAtyanarayna Mill Contractorsw Cross-objections Vs. CIT, .223 ITR 101 (S.C) CIT Vs. India Radiators Ltd, 236 ITR 719 (Mad) Addl CIT Vs. Rajasthan Spinning & W eaving Mills Ltd. 274 ITR 463 (Raj) CIT Vs. Chemicals & Plastics India Ltd. 292 ITR 115 (Mad) Panipat Coop Sugar Mills Ltd. Vs. CIT, 108 ITR 111 (PH) CIT Vs. Cheran TRasnport Corporation Ltd, 241 ITR 137 (Mad) CIT Vs. Velumanickam Lodge, 317 ITR 338 (Mad) CIT Vs. D.T.T.D.C. Ltd. 350 ITR 1 (Del)
182 The ld. counsel of the assessee had also filed copies of certain documents showing change in the rates of lands in auction, at collector rate basis and held on various dates. These documents have been filed during the hearing as it transpired that no specific instances have been given for increase in prices, and therefore, the ld. counsel of the assessee sought the permission to file these documents.
183 On the other hand, the ld. DR for the revenue referred to various observations of first appellate authority's order and submitted that it has been clearly held by the ld. CIT(A) that the expenditure has not been incurred wholly and exclusively for the purpose of assessee's business. He has further observed that the decision for development of airport area was taken by the Government of Punjab along with Government of Haryana and Airport Authority of India and ultimately JVA was entered into. The contribution was mainly for acquisition of land for airport. For such acquisition compensation was required to be paid within the 100 stipulated period in view of Land Acquisition Act and since the Government of Punjab did not have funds it asked various organization in the State Government to make contribution which would be construed as expenditure for the purpose of business. The assessee has made statement that the purpose of business would be served due to increase in land prices but no specific instances have been given to show that the assessee has purchased huge lands immediately before the contribution prices of which, may have risen because of such contribution. In any case if any benefit arose it would arise to all the builders in the area and the same is not restricted exclusively to the assessee.
184 It cannot be said that the expenditure was for the benefit of the assessee because no deliberations have been done by the authority to show that it would get such benefit. In fact the expenditure has been incurred at the direction of the State Government and even the amount of contribution was decided by the State Government and not by the Chief Administrator of PUDA. In fact Chief Administrator, PUDA in his note to the Secretary Housing and Urban Development, which is reproduced at para 11.10 of ld. CIT(A)'s order has requested for reconsideration of the share of PUDA which was to be contributed as he was of the view that the funds could have been provided by GMADA & HUDA. Same did not get the approval of the Government and PUDA was forced to make this contribution. This clearly shows that the expenditure has been incurred at behest of the State Government and therefore, same cannot be said to be wholly and exclusively for the purpose of business. She also referred to the provisions of section 28 & 49(2) of Punjab Regional & Town Planning & Development Act, 1995 and submitted that Section 49 is at best enabling provision and does not make expenditure incurred as per Section 49(2)(d) if so facto allowable u/s 37 of the Act. For claiming deduction u/s 37 the expenditure has to be incurred for the purpose of the business. Even reading of Section 28 would show that the expenditure was not incurred for the objects of the authority which have been prescribed in section 28 because PUDA has not acquired any land in its own name. Therefore, it cannot be said that some advantage would accrue to the assessee through this contribution.
185 She also submitted that Section 28 of the Punjab Regional & Town Planning & Development Act, 1995 is a General Provision 101 giving the objects whereas Section 29 of the same Act is specific provision under which various authorities have been established for development of specific areas which is demarcated for development and maintenance. For example GMADA has been established to manage and develop the area in and nearby area vide Notification No. 13/52/2006/1 HF2/7443 dated 14.8.2006 and it has been specifically mentioned in this notification that all the powers of PUDA relating to development of Mohali and adjoining areas would be looked after by GMADA. therefore, PUDA is only nodal agency of the Government for policy formation and cooperation between PUDA and other development authorities. Therefore, it cannot be said that the assessee has incurred this expenditure in view of Section 49(2)(a) r.w.s. 29 because the Government should have directed the GMADA and not the assessee. She further submitted that there is no force in the contention that the expenditure has been incurred for the objects of the assessee in terms of Punjab Regional & Town Planning & Development Act, 1995. The contention that this expenditure was claimed as per the instructions of Government of Punjab has no force because the State Government can not give any instructions in violation of any Central law passed by the Parliament.
186 She also referred to JVA and pointed out that ultimately the contribution by PUDA has been made towards purchase of land against which PUDA has been allotted 24.5% stake in the proposed new airport through GMADA. This means the expenditure has been incurred because the contribution was to be used by the proposed airport for the purpose of acquisition of land and accordingly such expenditure is not allowable because the same is of capital in nature and in violation of Section 37.
187 She referred to the decision of Hon'ble Supreme Court in case of CIT Vs. Malayalam Plantations Ltd., 53 ITR 140 wherein the expression for the purpose of business, was discussed and it was observed that the purpose of business would not include sums spent by the assessee as third party whether the agency is voluntary or statutory. She also relied on the decision of Oil Industries Development Board Vs. CIT, 123 ITD 67. She also submitted that the burden was on the assessee to prove that the expenditure was incurred for the purpose of business was on the assessee and for this proposition she relied on the decision of Hon'ble Supreme Court in case of Lakshmiratan Cotton Mills Co. Ltd. Vs. CIT, 73 ITR 634.
102She also referred to various decisions cited by the ld. counsel of the assessee and distinguished the same.
188 W e have heard the rival submissions carefully. We have also perused the record and judgments cited by the parties. Admittedly the assessee has contributed a sum of Rs. 225 cores towards the development of Airport at Mohali. The main contention of the assessee is that the amount was spent for the purpose of business and this was allowable expenditure u/s 37. The relevant provision of sec 37(1) reads as under:
" 37 . ( 1) A ny ex p e nd it ur e ( n o t b e in g ex p en d it ur e o f t h e n at ur e d es c r i be d in s ec t i ons 30 t o 3 6 an d n ot b e i ng in t h e na t u r e of c a p i ta l ex p en d it ur e or pe r s o n al ex p e ns es o f t he as s e s s ee) , la i d ou t or ex p en d ed w ho l ly an d ex c l us iv e ly for t he pur p os es o f t he b us in es s or pr of es s i on s h al l b e a l lo we d i n c o m pu t i ng th e i nc o m e c har g e ab l e u nd er t he he a d " Pr of i ts a nd ga i n s o f b us i n es s or pr of e s s i on ".
Ex pl a n at i on .-- For th e r em ov a l o f d ou b ts , it is h er e by d ec lar ed th a t a ny ex p e nd i tu r e inc ur r ed by a n as s es s e e fo r a ny p ur p os e wh ic h is an of fe nc e or wh ic h is pr o hi b i te d b y l a w s ha l l n ot b e d e em e d to hav e b ee n i nc ur r e d f or th e pur p os e of bus i n es s o r pr o fes s i o n a nd no d ed uc ti o n or al l ow a nc e s ha l l b e m a de i n r es p ec t of s uc h ex p en d it ur e. ] "
Above provision shows that following conditions had to be complied for allowability of expenditure under this section:
i The expenditure should not be in the nature prescribed in Section 30 to 36 ii It should not be in the nature of capital expenditure iii It should not be in the nature of personal expenditure and iv The expenditure has been made out or expanded wholly and exclusively for the purpose of business.
189 Clearly the expenditure is not covered by Section 30 to 36 and it is not also in nature of personal expenditure and therefore, condition no. 1 and 3 are complied. Now we have to test whether the expenditure incurred by the assessee also meets other two requirements i.e. it is not capital expenditure and it has been expended wholly and exclusively for the purpose of business. Firstly we shall examine whether the expenditure was incurred wholly and exclusively for the purpose of business. Main contention of the assessee was that the assessee was engaged in the business of acquisition of land, development of the same and sale of such developed lands to the general public. By incurring this expenditure there would have been general development of the area of Greater Mohali leading to general appreciation of the land prices which would result in the benefits to the assessee in terms of value of land. W e do not find any merit in this contention. Firstly if the 103 assessee thought that this contribution would lead to general appreciation of land and it would be beneficial to the assessee then there would have been some deliberation on the part of the assessee before incurring this expenditure. During the course of hearing we have specifically asked how the authority was being managed and it was pointed out that major decisions were being taken by the Committee of Secretaries and day to day business was being looked after by the Chief Administrator of PUDA. If the assessee thought that by incurring huge expenditure of Rs. 225 crores, the same would be beneficial to the assessee there would have been some deliberations on the part of the Committee of Secretaries which can be equated with Board of Directors in case of Corporate assessees but no such deliberations have been made and it was not shown to us by way of resolutions or minutes of the committee that this issue was even deliberated/discussed by such committee or how such decision was arrived at before incurring the expenditure. Rather the expenditure has clearly been incurred on directions of the State Government and this fact has been brought out by the ld. CIT(A) very clearly in paragraph 11 of his order. In para 11.4 the ld. CIT(A) has extracted the minutes of the meeting of the Council of Ministers of State Government which is as under:
" Af t er c o ns id er i ng th e pr o p os a l c on ta i n ed i n p ar a- 2 of th e me m o r an d u m d at e d
1. 1. 2 00 8 o f t he Tr a ns p or t / C iv i l Av i at i on De p ar t m en t a n d he ar in g t h e c onc er n ed Ad m i nis tr at iv e S ec r e t ar ies , th e a p pr ov a l w as ac c or d e d.
It has a ls o b ee n dec i de d by t he Co u ns el of Mi n is te r s t ha t f or th is pur p os e P un j a b H ous i ng a nd ur b a n d ev e lo p me n t D ep ar tm e nt s ha l l ar r an ge fu n ds f or ac q u is it i on of 3 00 ac r e l a n d i nc lu d i ng i nc i de n ta l c har g es . F or t h is p ur pos e, PU D A, G MA D A a n d G L AD A wi l l b ear ex p en d it ur e i n th e r at i o . 7 5 %, 12 . 5% an d 12 . 5% r es p ec t iv e ly u nd er s ec t i on 4 9( 2) ( d) of t h e Pu n ja b Re g io na l an d T ow n P la n n in g a n d Dev e lo p me n t Ac t 19 9 5. "( s ic ) In another meeting held under the Chairmanship of Chief Secretary, Government of Punjab on 5.3.2008, the Decision taken was as under:
"The issue of implementation of decision of Council of Ministers, dated 2.1.2008, regarding provisioning of funds was discussed. Chief Secretary, Punjab impressed upon the urgency to make available the appropriate funds at the disposal of Department of Civil Aviation, as already directed by CMM, U/s 49(2) of the Punjab Regional & Town Planning and Development act, 1995. As per this decision, PUDA, GMADA, and GLADA are to provide funds in the ration of 75%, 12.5% and 12.5% respectively. Chief Secretary asked CA/PUDA on telephone to comply with these orders immediately.104
Since CMM has already issued directives u/s 49(2) of the Punjab Regional & Town Planning and Development Act, 1955, the CAs are fully competent and were directed to comply with these orders without any further unnecessary paper work. The three CAs may inform their respective Authorities in their next meetings."
In the light of above the proposal was put up to the Chief Administrator, PUDA on 7.3.2008 for approval by the following note:
" Th us P UD A s h o u ld a l s o f in a nc e t h e pr o jec t as ab ov e an d d ec is io n i n th is r eg ar d has be e n t ak e n by Ch i ef Sec r e ta r y , Pu n j ab in th e m e et i ng r ef er r ed a bov e. Fo l lo w in g p o in ts n ee d c l ar i f ic a t i on :-
A mo u nt h as n ot b e en me n ti o n ed a ny w h er e i n th e d ec is i o n i n or de r t o wor k o ut t he s har e o f th e PU D A. No for m a l d ir ec t i o n fr o m G ov er n m en t has b ee n r ec e iv e d ex c e p t t he dr af t pr oc e e di n gs m en t io n e d a bov e.
No th i n g is c l ea r r eg ar d in g th e f or m of p ar t ic i pa t io n of PU D A. It h as to b e c l ar if i e d wh et h er P UD A 's c o n t r i bu t io n s h a l l b e i n th e f or m of lo a n to G ov er n me nt of G MAD A ;
or It w i l l be t h e c o ntr i bu t i on un d er th e O U VG L s c he m e;
or It w i l l be PU D A 's ow n s har e t ow ar ds th e pr o j ec t .
1. A ny dec is i o n tak e n ab ov e ne e ds ap pr ov al of P UD A Au t hor i ty It is a ls o me nt i o ne d h er e t ha t a n am o un t of Rs . 10 5 C r or es r e la t in g t o r ec e i pt of Ch ot i B ar a dar i Sc h e m e at J a l an d h ar ( PI MS ) is ly i n g wi t h PU D A. I t may be dec i d ed w h et h er th e s am e b e u ti l i ze d for f u n d in g t he a b ov e pr o j ec t .
th S inc e t he p ay m en t is ot b e m ad e by 1 0 Ma r c h, 2 0 08 w e m ay s ee k a ppr ov a l of Ho n' b le C h ai r m a n on f i le a n d th er ea ft er t he Ex - p os t f ac ts ap pr ov a l f or m t h e PU D A A ut h or ity w i l l b e o bt a i ne d. " ( s ic ) The Chief Administrator on the above proposal made following comments:
" O f f ic e n ot e f o r m pa g e 1- 3 a nt e m a y k i n dl y b e p er us e d.
It is m en ti o n ed in t h e dec is io n of t he C o un c i l of M in is ter s th at P UD A, G M AD A an d G L A DA wi l l c on tr i bu t e 7 5 %, 1 2. 5% a nd 1 2. 5% r es pe c t i v el y un d er s ec t i on 49( 2) ( d) of th e P u nj a b Re g i on a l & T o wn Pl an n i ng an d D e ve l o pm en t Ac t, 19 9 5. It wi l l be be tt er if f o r m a l d ir ec t io n is is s u e d b y a G o ver nm en t l et ter .
Co ntr i b ut i on p a ya b l e b y PU D A h as no t b e e n q u an t if i ed . I t wi l l be be tt er if t ot a l s har e of th e P u nj a b G o ver nm en t a n d r es u lt a nt s har e of r es p ec t i v e au t hor i ti es is pr o p er l y wo r k ed o ut .
A c o ns c i ous an d c le ar dec is io n is a ls o r e qu i r ed o n ' A ' a t p ag e 2 a nd " b ' a t p ag e 3" ( s ic ) Thereafter the Chief Secretary, Government of Punjab mentioned in his noting that Cabinet was to decide on the amount of compensation and so the quantum of contribution was not known.105
However, Subsequently the Council of Ministers has decided in the meeting held on 20.3.2008 as under:
" Co u nc il of Mi n is t er s no t ed t h at as per t h e ear l i er a p pr ov a l g iv en by Co unc i l o f Mi n is ter s , t h e ex p e nd i tur e for m ak in g pay m en t of c o mp e ns a t io n f or ac q u is it i on of l a nd by t h e s et t in g up I nt er n at i on a l A ir por t a t Mo h a li w i l l b e i nc ur r e d by P un j a b u r b a n D ev e l op m en t a ut ho r i ty ( P UD A) a nd gr e at er Mo h a l i Ar e a Dev e lo p m en t A ut h or it y ( G MAD A) a n d G r e at er L u dh i a na Ar ea Dev e lo p m en t A ut ho r i ty ( G L A D A) . As o nly Rs . 30 0. 0 0 c r or es ar e av a i la b l e w it h t hes e A ut ho r i t ies , th er ef or e t h e c ou nc i l of Min is t er s d ec i de d th a t Pu n j ab In fr as tr uc t ur e Dev e l op me n t B oar d ( PI D B) wi l l m ak e av a i l ab l e Rs . 1 60 . 00 c r o r es to t hes e A u th or it i es s o th at t h e ex p e nd i t ur e a t t he r a t es ap p r ov e d by t he Co u nc i l o f Mi n i s t er s c ou l d b e i nc u r r e d o n t h e ac qu is it i o n of la n d. " ( s ic ) In view of above decision following proposal was again put up before the Chief Administrator, PUDA:
S inc e t he f u nds o f PU D A ar e ly i ng in Fix ed D e pos i ts w it h d if f er e n t ba nk s , pr e m at ur e e nc as h m en t of t he s am e m ay r es u lt i n l os s o f i nt er es t .
It is t her ef or e, pr op os ed th at Rs . 22 5 .0 0 c r or es b ei n g P U DA 's 7 5% s har e o f Rs . 30 0 .0 0 c r or e f or ac q ui s it i o n of l an d f or Mo h a li I nt er na t io n a l A ir por t may b e pa i d to th e G ov er nm e nt by r a is in g S h or t t er m L o an fr o m b a nk s ag a i ns t th e FD R 's wh ic h s ha l l be r ep a i d o n m at ur ity of F DRs of ot her w is e a nd S en i or a c c ou n ts O ff ic er , PU D A may b e a u th or i ze d to s i g n t he l o an doc u me n ts w i th b an k s .Ex - p os t f ac t o ap pr ov al of t he au th or i ty wi l l b e t ak e n I t he n ex t m e et i ng . "( s ic ) The Chief Administrator had put up following note to the Secretary Housing and Urban Development for approval:
" Th is c as e r e l at es t o r e le as e of s h ar e o f P UD A for s e tt i n g u p of In t er n at i o na l A ir por t at Mo h a li .
Th is f il e w as l as t s ee n by VC a t p ag e 1- 5 a nt e.
No w G ov er n m en t h as c onv ey ed t h e dec is i on tak e n by Co u nc il o f M i nis t er s in its me e ti n g h e ld o n 2 0. 3 . 20 0 8.
Th e s ha r e o f P UD A t o be de p os i t ed h as b e en w or k e d o ut t o Rs . 2 25 c or es .
Th is of f ic e ha d s u b mi t te d a d et a i le d n ot e r e gar d i ng s har e o f P UD A a t pa g es 1- 5 bu t PU DA h as b ee n as k e d t o c o n tr i b ut e 7 %% s h ar e. I t is a ga i n r es p ec t fu l ly s ub m it t ed t ha t G MA D A has pr o per ty w or t h t h ous a nds c or es i n Mo h al i a nd l og ic a lly , t he s h ar e of G MA D A s ho u l d be m uc h mor e o n th e e nt ir e fu n ds c ou l d hav e b e en pr ov i de d b y G MA D A. T he d ir ec t i on o f t he G ov er n me n t t o UP D A to c on tr ib u te 75 % of th e s har e n ee ds r e- c o ns i der at i o n. I f G ov er nm en t d ee ms it pr o p er , t h e f il e c a n b e r e- s u bm i tt e d af te r m a k i ng t h e pay m e nt .
Ho wev er , as d es ir ed by th e G ov er n me nt , fi l e is s u b m it te d f or ap pr ov a l t o de p os it f un ds a m ou n ti ng t o Rs . 22 5 .0 0 c r or e s i n G ov er n me nt Tr e as ur y .
Th e pr o pos a l o f t he of f ic e for r a is in g lo a n a g ai ns t FD R a n d a ut h or i zi n g S r . Ac c ou nts o ff ic er ) pos t of A C A ( F & A) is v ac an t) to s ig n th e l o an doc u me n ts is a ls o s u b m it te d f or a pp r ov a l p l "( s ic ) .
190 Combined reading of above minutes of the Council of Minister and various notes and notings prepared and deliberated by Chief Secretary, Government of Punjab and Chief Administrator, PUDA clearly show that initially on 2.1.2008, Punjab Government took the 106 decision for making of contribution for the purpose of acquisition of 300 acres of land as contribution for Mohali Airport. Thereafter Chief Secretary in a meeting took the decision that this contribution was required to be made u/s 49(2) of Punjab Regional & Town Planning & Development Act, 1995 and as per this decision PUDA, GMADA and GLADA were to provide funds in the ratio of 75%, 12.5% and 12.5% respectively. After the above decision when the proposal was put up before the Chief Administrator, PUDA he raised many doubts on the proposal. First doubt is clear regarding the quantum of amount. Second doubt is that no formal direction has been given by the Government of Punjab except for draft proceedings above. Doubt was further expressed vide item no. 3 of the proposal regarding participation of the PUDA. Question was raised whether it will be in the form of Government to GMADA or it will be a contribution under OUVGL scheme or it will be PUDA's own share to the project. Thus it is clear that nowhere it is being proposed or discussed that the contribution will be beneficial to the PUDA rather the proposal was that it may be treated as loan by PUDA to the Government of Punjab or it will be utilization of funds under OUVGL. Thus it is very clear that the theory of benefit to the assessee in the form of appreciation in the value of land has been taken only during the assessment proceedings whereas at the time of decision making no such discussion or deliberations were made. W hen all the doubts were put up before the Chief Secretary wherein it was reiterated that the payment was being made for compensation of acquisition of land for setting up of the Internationals Airport at Mohali and the decision has been taken that such expenditure should be incurred by PUDA, GMADA and GLADA. It seems that total expenditure was more than 300 crores which was not available with PUDA, GMADA and GLADA, therefore, further instructions were given that Punjab Infrastructure Development Board will make a contribution of Rs. 160 crores because the funds were available with that Board. This clearly shows that no analysis have been made on the basis of the benefits which would have accrured to various authorities i.e. the assessee (PUDA), GMADA and GLADA. It is not clear how Punjab Infrastructure Development Board would derive any benefit. Rather the contribution was decided by the Government on the basis of availability of funds. This fact clearly show that at no point of time the contribution was considered as a beneficial to the assessee. In 107 fact the Chief Administrator in his final note has again categorically observed as under:
" This o ff ic e h ad s ub m i tt ed a d et a il e d n ot e r e gar d i ng s har e o f P UD A a t p ag es 1- 5 b ut PU D A h as be e n as k e d t o c o ntr i b ut e 75 % s h ar e. I t is a ga i n r es p ec t fu l ly s ub m it t ed t ha t G MA D A has pr o per ty w or t h t h ous a nds c or es i n Mo h al i a nd l og ic a lly , t he s h ar e of G MA D A s ho u l d be m uc h mor e o n th e e nt ir e fu n ds c ou l d hav e b e en pr ov i de d b y G MA D A. T he d ir ec t i on o f t he G ov er n me n t t o PU D A to c on tr ib u te 75 % of th e s har e n ee ds r e- c o ns i der at i o n. I f G ov er nm en t d ee ms it pr o p er , t h e f il e c a n b e r e- s u bm i tt e d af te r m a k i ng t h e pay m e nt . "
The above clearly show that the Chief Administrator of PUDA was reluctant to make these payments and according to him GMADA was having huge profits in Mohali where this Airport was coming up and therefore, contribution should be made by GMADA. W hen these observations were made in the note put up by the Chief Administration then how it can be said that the contribution made was for the purpose of business because this would have led to general appreciation in the value of the lands. In this regard the ld. CIT(A) has made following observations vide para 11.12 to 11.14 which are as under:
" In view of the above, it is evident that a decision was taken by Punjab Government that an international airport should be constructed at Mohali. It appears that no provision of funds was available in the budget of the Punjab Government. In order to give immediate effect to the decision for establishment of international airport, a suitable piece of land had to be acquired. The government had the necessary power to acquire the land, but it required funds for payment to the persons whose land was to be acquired. Under the provisions of Land Acquisition Act, the payment to the persons, whose land is acquired, has to be made within the stipulated period. Now the position was that Government wanted to establish international airport and it had entered into an agreement with the Airport Authority of India, but it had no funds to pay the for acquisition of land. Therefore, the government had to find some source from where the acquisition could be funded. The Government realized that some organizations under its control had surplus funds available and these organizations could be asked to provide the necessary funds for acquisition of land.
In fact, as is clear from the noting of the files of PUDA, the officers of PUDA were against bearing the financial burden, which the Government had imposed on it. The selection of the organizations was purely on the basis of the availability of surplus funds, which is clear from the fact that one of the organizations required to contribute was Greater Ludhiana Area Development Authority (GLADA), which by no stretch of the imagination could be considered as having anything to do with the airport at Mohali. It can clearly inferred that the contribution was not even voluntary. Hence, the contention of the Ld. counsels that the expenditure in the form of contribution was for business purposes totally lacks conviction."108
191 We further find that before the ld. CIT(A) when this contention of the appreciation of land was made following examples were given which have been reproduced at page 11 of his order:
( i) T he l an d f or th e Ae r oc ity pr o j ec t was ac q u ir e d @Rs . 1 .5 0 c r or e per ac r e i .e . Rs . 31 0 0 p er s q. y a r d a n d a ft er th e l au nc h o f t h is pr o pos e d i nt er n a ti o n al a ir p or t. F or t he pr os pec t iv e buy er s w h o e nt h us i as tic a l ly a p pl i e d, t h e r a te of a ll o tm e nt p er s q. y ar d was f ix ed @ Rs . 1 2 0 00 p er s q. y ar d. Ev e n af te r t ak in g i nt o c o ns i der a ti o n t h e dev e l op m en t c os t of t hes e p lo ts , t he i m me d i at e o n e t i m e ga i n, in t er ms o f s a le of o n ly 4 00 0 p l ots w as m or e th a n 2 t im es .
( i i) Be fo r e t h e l a unc h of t h is p r o p os e d a ir p o r t f or w hic h t h e as s es s ee a ut hor i ty has c o nt r i b ut e d, t he r es er v e pr ic e per s q . y ar d f or a uc t i on o f th e c om m er c ia l s it e w as @Rs . 3 0 0 00 0 p er s q. y ar d . H ow ev er th e af ter e ff ec t was th at fo r auc t io ns c o n duc te d in S ec t or 6 9 a nd Sec t or 70 t h e p er s q. y ar d r e s er v e pr ic e o f c om m er c i al p lo ts w as fix e d a t @ Rs . 40 0 00 0 a nd ev en th e ac t ua l s el l i ng we nt muc h a b ov e th is . Th u s the r e w as a s t r a i gh tw ay o ne t i m e g a in o f m or e t h an 25 %- 30 % of t h e s toc k s h e ld by th e a ut h or ity .
( i i i) An ot h er on e t i m e ga i n l ik e ly to b e e ar ne d is fr o ba l a nc e o f 50 ac r es o f c om m er c i al l a nd i n S ec t or 76 to S ec tor 8 0 fr o m w h er e t he o n e ti m e g a i n is l ik e ly t o b e m or e t h an 25 % t o 3 0% in t er ms of s a l e o f c om m er c i al pr o p er t i es .
( iv ) B es i des ab ov e th e a ut ho r i ty h as a ls o pr o p os ed t o s e t up a n I.T . P ar k in 15 0 0 ac r e ne ar t he a i r po r t , ag a in f or w h ic h t he o n e ti m e g ai n i n ter ms o f s a le s ha l l b e h ug e . ( i n h un dr e ds o f c r or es ) ( v ) An o th er ins ta nc e of c o m m er c ia l ex p e di enc y an d t h e th o ug h of a wis e a n d pr u d e nt b us i n es s per s on is in t er ms of h ug e ga i ns fr o m s a l e of mo r e t ha n 1 50 ac r es of c o m mer c i a l l an d i n h an d i n S ec tor 6 2 wh er e a C ity C e n tr e h as b e en pr o p os ed an d t h e s a l e o f m or e th a n 1 5 0 a c r es o f c o m mer c i a l l a nd i n h an d in S ec t or 6 2 w her e a C i ty Ce n tr e h as b ee n p r op os ed a nd t h e s a l e of mor e t h an 60 0 ac r es o f l a n d i n S ec t or 88- 8 9 w i ll br in g i n e n or mo us p r of i ts to th e au t hor i ty . "
The above clearly shows that no specific instances have been given regarding value of land before making this contribution and after this contribution. Therefore, the ld. CIT(A) has correctly held that these are general statements and cannot lead to the conclusion that the assessee has derived any benefit from the said contribution to the Airport.
192 Before us, the ld. counsel of the assessee has filed certain evidences by way of examples to show that the properties in and around Mohali had appreciated after this contribution. Strictly speaking this evidence cannot be admitted at this stage because no reason have been given for not filing these documents before the lower authorities. However, we have still perused the same and find that these documents do not prove that the rates have really increased in the absence of details. For example auction rates of various properties given at para 1 of the additional paper book reads as under:
" Au ct io n Rat e s o f v a r iou s p ro pe rt ie s in Pu nja b 109 Ra tes per s q yd s Pr i or to Mar c h 20 0 8( i. e b ef or e m ak in g pa ym en t of 22 5 .0 0 c r or e Ar ea 20 0 8 20 0 9 20 1 0 20 1 1 Res i de n ti a l p l ot in 34 7 22 51 4 29 83 6 36 s ec t or 6 8/ 6 9 M oh a l i Com m er c ia l b oo t hs i n 67 6 57 10 5 16 1 s ec t or 6 5 b u lk Ma t er ia l M ar k et a t Mo h a l i S ho ps a t B an as ar 49 6 00 /- t o 54 0 00 /- 11 9 00 0 /-
E nc l a v e S a ngr ur 50 3 00 to to ( 29 . 08 .0 6) 82 3 00 16 6 50 0 Res i de n ti a l P l ots at 10 8 00 t o 1 8 75 0 18 4 65 /- P hu lk i an Enc l a v e , to P at i al a 21 6 00 193 Above clearly show that no plot numbers have been given.
Further there is no appreciation in case of plots at Phulkian Enclave, Patiala. Even if assuming for the sake of argument that in some pockets the rates have increased the same may be because of general appreciation of the property values. No link has been established to show that contribution made by the assessee resulted directly in increase of land prices. Further it is very important to note as pointed out by the ld. DR for the revenue that increase, if any, was available to all the builders and property developers operating in the area and was not restricted exclusively to the assessee only. Therefore, logically all such organizations dealing in the property should have been asked to contribute to the development of Airport.
194 We find force in the contention of the revenue that even the contribution was not considered and quantified by the PUDA and it was decided by the Punjab Government as it becomes clear from the note of Secretary, Housing and Urban Development then how the assessee can say that such contribution would have been beneficial to the assessee when even the decision regarding quantum of contribution was taken by somebody else.
195 It was also contended before us that general development of the area was one of the main object of the authority as per sec 28 of Punjab Regional & Town Planning & Development Act, 1995 and 110 further u/s 49 the Government can issue directions to the authority for making any expenses and therefore, the assessee was duty bound to incur such expenses as directed by the Government. Relevant portion of Sections 28, 29 & 49 of Punjab Regional & Town Planning & Development Act, 1995 are reproduced hereunder:
"28(1) Th e ob j ec t of t he A ut h or ity s h a l l b e to pr o m o te a n d s ec ur e be tt er p la n ni n g a nd dev e lo p me n t of a ny ar e a of t h e S ta te an d f or th a t pu r pos e t he A ut ho r i ty s h a ll hav e t h e p ow er s to ac q u ir e by w ay of pur c h as e , tr an s fer , ex c h a ng e or gi ft or to ho l d, ma n ag e , p la n, d ev e l o p an d m or tg a ge of o t her w is e d is p os e of la n d or o th er pr op er ty or t o c ar r y o ut its e lf or i n c o l l ab or a t io n w i th any ot her ag e nc y o n it s b e ha l f, b u i ld i n g, e n g i ne er i ng , m in i n g a nd o th er op er at i o ns to ex ec ut e wor k s in c o n n ec t i on w i th s u p p ly of w at er , d is pos a l o f s ew er ag e , c on tr ol of p o ll u ti o n a nd o t her s er v ic es an d a m en i t ies a n d g en er a lly to d o a ny t h i ng w i th t h e pr io r ap pr ov al or o n d ir ec t io n o f th e S t at e G ov er n m en t, for c a r r y i n g o ut t h e pu r pos es o f th is Ac t .
In p ar tic u l ar a nd w i th o ut pr e j ud ic e t o th e g en er a l i ty of t h e for e go i n g pr ov is i o ns , th e A ut h or ity its e lf i n c o ll a bo r a t io n w it h a ny ot h er A ge nc y or t hr ou gh any o t her ag e nc y o n its be h a lf;
I If s o r e q u ir e d by t h e S ta te G ov er n m en t of t h e B oa r d , tak e u p t he w or k s i n c on n ec t i on w i th t h e pr ep ar at i o n an d i m p le m e nt at i o n of R e gi o na l P l ans , Ma s t er P l a ns an d N ew T ow ns hi p Pl a ns a nd T o wn I m pr ov e me n t Sc he m e;
Ii un d er t ak e th e w or k r e l at i ng t o t he am e n it i es an d s er v ic es t o be pr o v i de d i n t he ur b a n ar eas , ur b an es t at es , pr o m ot i on of ur b an dev e lo p m en t as w e l l as c o ns tr uc t i o n of h o us es ;
Ii i pr o m ot e r es e ar c h , d ev e lo p me n t of n e w tec h n i qu es o f p la n ni n g, la n d dev e l op m en t a nd ho us e c o ns tr uc t i o n an d m a nu f ac t ur e of b u i ld i n g ma t er ia l .
Iv pr o m ot e c o m pa n i es , a s s oc ia t io n a nd ot h er b od i es f or c ar r y i ng o u t th e p ur p os e of t h e Ac t ; a nd V per f or m any ot her f u nc ti o ns wh ic h ar e s u pp l e me n ta l , i nc id e nt a l or c ons e qu e nt i a l to a ny o f t h e fu nc t io ns r e fer r e d to in t h is s u b- s ec t i o n or w hic h m ay b e pr es c r i b ed .
29( 1) W her e t he St a te G ov e r n me nt is of op i n io n t h at t h e ob j ec t of pr o per dev e l op m en t o f any ar ea or gr ou p o f ar eas t og e th er w it h s uc h a d ja c en t ar eas as m ay be c ons i de r e d n ec es s ar y w il l be b es t s er v e d by e n tr us t in g t he w or k o f d ev e l op m e nt or r ed ev e lo p me n t th er eo f t o a S p ec i a l A u th or ity , i ns t ea d t o th e P u n ja b Ur ba n Pl a nn i n g an d D ev e l o pm e nt Au t h or ity .
14 th e S ta t e G ov er n m e nt may , by n ot i f ic a t io n , c ons t it ut e a n A ut h or ity for s uc h ar e a to b e c a l l ed t h e S pec i a l Ur b a n P l an n i ng a n d D ev e l o pm e nt Au th or i t y f or th a t ar ea a n d th er eu p on , a l l th e p ow er s a nd f u nc t i ons of t h en Pu n j ab Ur ba n P l a n n in g a nd Dev e lo p m en t A ut h or ity r e l at i ng t o d ev e lo p me nt a n d r e dev e l op m en t of t h at ar e a un d er th is Ac t, , s h a ll be ex er c is ed a n d p er f or me d b y t he Sp ec i a l Ur b a n P l an n i ng a n d Dev e lo p m en t A ut h or ity s o c o ns ti t ut ed .
( 2) Ev er y n ot if ic at i o n is s u ed un d er s u b- s ec t io n ( 1) s h al l de f in e t he li m i ts of t he ar e a t o wh ic h i t r e l at e s .
49( 2) Th e fu n ds of t h e A ut h or ity s h a l l b e ap p l ie d t ow ar ds m ee t in g - ( a) th e ex pe n d it ur e i nc ur r ed in t h e a dm i n is tr at i o n, im p le m e nt at i on an d c ar r y i n g ou t th e pr ov is io ns o f th is Ac t ;
( b) th e c os t of ac q u is i t io n of l a n d for t h e pu r p o s es of t h is Ac t;
(c) th e ex pe n d it ur e for d e v e lo p me n t of la n d an d c o ns tr uc ti o n of ho us e s ; an d ( d) th e ex pe n d it ur e for s u c h ot h er p ur p os es as t he St at e G ov er n me n t may di r ec t or per m i t. "111
196 Plain reading of above provisions clearly show that Section 28 has provided objects of the authority. The objects are generally development of land and other services. Section 29 clearly provides that for development of such adjacent area where it is considered necessary separate authorities may be constituted therefore, there is force in the contention of the ld. DR for the revenue that PUDA had nothing to do with the development of this Airport because as per Notification No. 13/52/2006-07 HG2/7443 dated 14.8.2006 GMADA was notified for the development of Greater Mohali area. Further reading of Section 49 shows that various authorities were authorized to incur expenditure for such other purposes which were directed or permitted by the State Government. In our opinion, such other purposes, first of all have to be related to general purpose of the authority i.e. development of land. For example State Government perhaps cannot direct the assessee authority to start providing subsidies in food items. Secondly even if same expenditure is incurred because of statutory compulsions, it is not necessary that same would become allowable business expenditure for the purpose of Section 37 of the Act because for allowability the expenditure has to be further for the purpose of business. This becomes clear from the decision of Hon'ble Supreme Court in case of CIT V. Malayalam Plantations Ltd. (supra). In that case assessee company was a resident company incorporated outside India. Most of its shareholders were in U.K. On the death of shareholders not domiciled in India during the accounting period ending 31.3.1955 it paid Pound 1302-9-4 and Pound 1303 towards Estate duty which was payable on the death of certain share holders who were not domiciled in India. The assessee debited the said amount to its profit and loss account as expenses. In accounting year ending 31.3.1956 also an amount of Pound 3809-1-5 towards estate duty payable on the death of certain shareholders. ITO did not allow this expenditure.
197 On appeal, the AAC confirmed the action of the ITO. On further appeal to the Tribunal it was held that the assessee was entitled to deduct this amount in computing its profits. On an application made by the Ld. Commissioner, the Tribunal referred the case u/s 66 (1) of Income Tax Act, 1922 to the Hon'ble Kerala High Court and referred the following question of law for its opinion:
112"W hether on the f acts and in the c ircums tanc es of the c as e, the estate duty paid by the company u/s 84 of the Estate Duty Act, 1953, is a revenue expenditure deductible in computing the assessee's business incom e f or the Assessm ent years in question?"
Hon'ble High Court agreed with the view expressed by the Tribunal and answered the question referred to it in affirmative. Thereafter revenue filed an appeal before the Hon'ble Apex Court. The Hon'ble Apex Court after detailed discussion particularly u/s 10 which was for computing the profits and gains under the old Act, held that this expenditure was not allowable. The Analysis has been summarized in the Head note which is as under:
He l d th at a l th o ug h t he a m ou n ts pa i d we r e " ex p e nd i tu r e " , t h e y we r e n ot a ll o wa b le u n der s ec ti on 1 0( 2) ( x v ) of th e In d ia n Inc o me - t ax Ac t, 19 2 2, as bus i n es s ex pe n d it ur e bec a us e th e pay m en t s wer e n ot " for th e p ur p os e o f t he bus i n es s ". T h e p ay m e nts h ad n ot h in g to d o wi t h t h e c o n duc t of i ts b us in es s . Th e f ac t t h at o n its d ef a ul t, i f a ny , i n th e pay m en t of t h e d u es , th e R ev e n ue m ig ht r ea l i ze t he a m o un ts fr om t h e b us in es s as s ets w as a c ons e qu e nc e of t h e de f au l t o f t h e c o m pa n y i n n ot d is c har g i ng i t s s ta tu t or y o b l ig a ti o n, bu t t h at d id no t m ak e t he ex p e n di t ur e a ny t he mor e ex p en d it ur e i nc ur r ed i n t h e c o nd uc t o f th e b us in es s . T he ob l i ga t io n o f t h e c o mp a n y t o pay es t at e d uty un d er s ec t i o n 84 o f th e Es ta t e D u t y Ac t, 1 9 53 , was a s ta tu t or y du ty unc o n ne c te d w it h th e bus i n es s , th o ug h t h e oc c as i on for t he i mp os it i o n ar os e b ec aus e of th e ter r i tor i a l n ex us af for d ed by th e ac c i de nt of i ts do i n g bus i n es s i n In d ia .
Th e ex pr es s io n "f or t he p ur pos e of th e bu s i nes s " is wi d er in s c op e th a n t h e ex pr es s i on "f or t he p u r pos e o f e ar n i n g pr o f it s ". I ts r a ng e is w i d e; i t may t ak e i n no t o n ly t h e d ay t o d a y r un n i ng of a b us i nes s bu t a ls o t h e r a ti o n al i za t i on of its ad m i n is tr at i on an d m o der n i za t i on of i ts m ac h in er y ; it may inc l u de me as ur es for th e pr es er v a t io n of t he bus i n es s a nd for th e pr ot ec t i o n of it s as s e ts a nd pr o p er ty fr om ex p r o pr i at i on , c o er c iv e pr oc e s s or as s er t i o n o f h o s ti l e t i tl e ; i t may a ls o c om pr eh e nd pay m e nt of s t at ut or y du es a nd tax es i m pos ed as a pr e - c on d it i o n to c om m e nc e or f or t he c ar r y in g o n of a b us in es s ; it ma y c om pr e h e nd ma ny o th er ac ts i nc id en t al t o t he c ar r y i n g on o f t he b us i nes s . H ow ev er , w i de th e m e a ni n g o f t h e ex pr es s i o n m ay be , i ts l i m its ar e i m pl ic i t i n it . Th e p ur pos e s ha l l b e f or t h e p ur p os e o f th e b us i nes s , t ha t is to s ay , t h e ex p en d i tur e i nc ur r ed s ha l l b e for t h e c ar r y i ng o n o f th e b us in es s a nd t h e as s es s e e s h a ll inc ur i t i n h is c a p ac i ty as a per s on c ar r y i ng o n t he b us i nes s . I t c a n no t inc l ud e s u ms s pe n t by th e as s es s e e as a ge n t of a t h ir d p ar ty , wh et h er th e or i g in o f th e a ge nc y is v o lu nt ar y or s t a tu to r y . "
Thus it is clear that unless and until the expenditure is incurred for the purpose of business even if there is some statutory compulsions, same cannot be allowed as business expenditure u/s 37 of Income Tax Act.
198 The last condition for allowability of expenditure u/s 37 was that it should not be in the nature of capital expenditure. In the case before us, it has been held that the expenditure was incurred for the purpose of acquisition of land and therefore, being in capital nature is not allowable. In this regard we have perused Joint Venture Agreement (In short JVA) carefully and find that the same was entered on 17th day of Sept, 2009 between Airport authority of 113 India (statutory authority established under the Airport Act, 1994) and Government of Punjab through GMADA (statutory authority constituted by Government of Punjab and HUDA (statutory authority constituted by Haryana Housing development authority). In the recitation clause it has been recited that Memorandum of Understanding was signed among those parties on 4.1.2008 which broadly provide for the following terms and conditions:
" a J o i nt Ve n tur e C o m pa ny ( J VC) wo u ld be for me d w i th 51 % e q u ity s tak e o f A A I an d 2 4. 5% e qu i ty s t a k e eac h of G MA D A a nd H UD A to o p er a t e an d m a in ta i n th e Ch a nd i ga r h I nt er n at i o na l Ai r p or t ( CI A) a t Ch an d i gar h t o b e bu i l t by A A I;
P un j a b G ov er nm e nt w ou l d tr a ns f er t h e r e q u ir ed l an d l oc a te d at M oh a l i, P un j a b o f 30 0 ac r es a ppr ox i m at e ly to b e J V C o mp a ny i nc lu d in g l a n d f or c i ty s i de dev e l op m en t. T h e c os t of l an d w o u ld b e e q ua l ly s har e d b et w ee n th e G o v er n me n ts of Pu n ja b & Har y a na an d w ou l d b e c a pi t al i ze d an d s h a ll c ou nt t ow ar ds th e e qu i ty c on tr ib u t io n o f G MA D A a nd H U DA .
A AI wo u l d b e r es p on s i bl e f or c r ea t in g t h e Ter mi n a l B u i ld i n g a nd ot h er a ir s i de fac i l it i es fo r th e J V C wit h ou t s e ek in g a ny c as h c ons i d er a t io n for m ot h er J V par t ner s w h ic h w o ul d be s u bs eq u en t ly c ap i t a li ze d at a v a l ue t o b e de t er m i n ed by A AI at th e t i m e o f tr a ns f er a n d s h a l l c o u nt to war ds t h e e q u ity c o ntr i bu t io n of A AI ; an d Th e c os t of l a n d wo u l d b e c o un te d t ow ar ds th e 4 9% e q u ity c o n tr ib ut i on of G MA D A an d HU DA a n d t he c os t of In t er n a ti o na l C iv i l A ir Ter m i na l & O t her a er on a ut ic al as s e ts to b e b ui l t by A AI w i l l be c o u nt ed t ow ar ds t h e 51 % eq u i t y c o ntr i bu t io n o f A AI as pe r t he pr ov is i ons i n th e S har e ho l d e r s A gr ee m en t t o be ex ec u t ed by t h e J V P ar t i es a nd t h e J V C o mp a ny . "
As per recitation clause it is further agreed that same (JVC) is for the following purposes:
to for m a J o i nt v en t ur e C om p any wh ic h wi l l un d er t ak e t he o per a ti o n a n d ma i nt e n anc e of Ch a nd i g ar h I nt er n a ti o n al A ir por t t o be b u il t by A AI at Ch a nd i ga r h ;
to s u bs e qu e nt ly t ak e ov er th e ex is ti n g i nfr as tr uc t ur e b e lo n g in g t o A A I at t h e Civ i l Enc l av e at C h an d ig ar h at s uc h v a lu e a s may b e d et er m i ne d by A A I a nd t o op er at e a n d ma i nt a i n t he s am e.
to u nd er tak e f ur th er dev e l op m en t of C i v i l A ir T er m i n a l a t Ch a nd i g ar h , c om m e ns ur a te w it h t h e tr af f ic p o te nt i a l, c o m mer c i a l v i a b i li ty an d av a i l ab i l ity o f fi n anc i a l r es our c es ;
to r ec or d t h e t er ms a nd c on d it i o ns o n w h ic h t he par t ies to th is a gr e e m en t w i l l s ubs c r i b e to t h e S har e Ca p it a l ( as d ef i n ed h er ei n af te r ) of t h e J o in t V en t ur e Co m pa ny ( J KV C) a n d to r e g ul a te t he r el a ti o ns h i p a mo n gs t t he J o i nt V e nt ur e P ar t i es as l on g as th ey ar e S har e ho l d er s of t h e J V C. "
Further while defining the responsibility of the parties, it has been provided in respect of responsibility of the State Government/GMADA as under:
Res p ons i b il i t ies of S t a te G ov er n me n t / G MA DA :114
Cl e ar anc es / p er m is s i ons / N O C to b e o bt a in e d by G MA D A f r o m c o nc er n e d au t hor i ti es -
Ac t iv i ti es / Ser v ic es f o r R es p o ns ib i l it i es f or Cl e ar anc e / P er m is s i o n. Tr a ns f er o f l an d ( 2 0 0 ac r es ) to G MA D A th e J V c o m p any f or d e v e lo p me n t of pr o j ec t .
Th e G MA D A s h a l l ac qu ir e t h e la n d o f a r o un d 30 0 ac r es a nd tr ans f er t o t h e J VC f or th e d ev el o p m en t o f Ch a nd i ga r h I nt e r na t io n a l A ir por t.
Th e G MA D A an d H UD A s h al l b e ar a ll t he ex p en d it ur e i n eq ua l s har e i n r es p ec t of c l a i m or l i a b il i t ies ar is i ng o u t th e a ny l it i ga t i on , pr e s e n t or f u tur e i n th e m at te r of la n d ac q u is i t io n .
Th e G MA D A s ha l l e ns ur e t h at in i ti a l es ta b l i s hm e nt o f s u b s ta t i on an d w at er l in e to b e d o ne by St at e G ov er n m en t fr ee o f c os t .
Th e G MA D A s h a l l ex em p t th e C iv il A ir T er m in a l Co m p lex inc l u d i ng a pr o n i. e . ar e a inc l u di n g c i ty s i de dev e l op m en t s t af f c ol o ny a nd t h e l a nd us e d f or th e i ns t a ll a ti o n of N av i ga t i on a l A i ds an d o th er r e la te d e q ui p m en t fr o m pr o per ty tax an d o t her m un ic i pa l t ax es i ni t i al ly f or a p e r i od of t e n y e ar s c o m me nc i ng fr o m th e d a te of tr ans f er o f l a nd to J V C t o m in i m i ze o per a ti o na l l oos es . T h e n e ed for f ur t h er ex t ens i o n of t hes e c o nc es s i o n an d ex e m pt i o ns w i l l b e j o in t ly r ev ie w ed by G MA D A & A A I at t h e e nd of t he te n y e ar p er io d.
Th e G MA D A w i l l ac q u ir e t he l an d an d d ev e l op fo ur l an d ap pr oac h r oa d t o Civ i l A ir T er m in a l w it h l i gh t i ng , hor t ic ul t ur e , s i gn ag es e tc . a nd t h e c os t o f th e s a m e s ha l l b e e qu a l ly s h ar e d b et we e n G MA D A & HU DA .
Th e G MA D A s h a l l r e m ov e t h e i de nt i f ie d o bs tac l es , i f a ny , h a za r d for s a f ely o f a ir c r a ft o p er at i on f or m th e a p pr o ac h pa t h of ex te n d ed r u n way a nd tr a ns it i on a l ar e a s uc h as h i gh t ens i o n / l o w t ens i on po wer l i nes , c a n al , gas pi p e li n e, s tr uc tu r es , b ui l d in gs , c h im n ey s , tr e es etc . a t t h e ir c os t .
In clause 3.1 it has been specifically noted that JVC will be incorporated as a Private Ltd Company. Clause 3.2 deals with shareholders agreement which is as under:
Sh a re hol de r s' Ag r e e ment A S h ar eh o ld er s ' Agr e em e nt w i ll be ex ec u te d by a n d b et we e n A AI , G MA D A, HU DA an d t he J VC , af ter t h e J o in t V e nt ur e Co m pa ny is inc or p or a t ed .
Ti l l s uc h t im e t he Sh ar eh o l der s ' Agr e e me nt i s ex ec ut ed an d A o A is ap pr ov e d by th e p ar t i es , i t is a gr e e d by t h e p ar t i es t ha t t he Re g ul a t io ns c o nt a i ne d in T a bl e A i n Sc h ed u l e I t o th e In d ia n C o m pa n ies Ac t , 1 9 5 6 m ay b e a pp l i ed t o t he pr o p os ed J VC .
In t h e ev e nt o f a ny inc ons is te nc y be tw e en t h e pr ov is io ns o f t h is A g r ee m e nt a n d th e Mo A or A o A, th e p ar t i es s ha l l tak e a ll s t eps t o a l ter or a m en d th e Mo A a nd A o A to m ak e i t c ons is t en t w it h t he t er ms of t h is A gr e e m en t.
Clause 4.2 and 4.3 deals with share capital which is as under:
4. 2 In it i al s ub sc r ib ed / pa id up c ap it a l At t he t i me o f i nc or p o r at i on , th e Is s u e d s ha r e C a p it a l of th e C om pa ny s h al l b e Rs . 10 0 0, 0 0, 00 0 /- ( Rs . Te n Cr or e) a nd th e c on tr ib u ti o n of th e P ar t i es h a l l b e as fo l l ows :-
A AI s h a l l s u bs c r i b e to 5 1, 0 00 0 0/- ( F if ty on e L ac ) e qu i ty s har e o f Rs . 1 0/- ( Rs . Te n o n ly ) e ac h for c a s h a gg r e g at i ng t o Rs . 5, 20 ,0 0 ,0 0 0/- ( Rs . F i v e Cr or e T e n Lac on ly ) G MAD A s h a l l s u bs c r ib e to 24 ,5 0 ,0 0 0/- ( T we nty F our Lac F if ty Th o us a n d) e qu i ty s har es of Rs . 1 0 ( Ru p ees Te n on ly ) e ac h f or c as h a ggr e g at i ng t o Rs . 2, 4 5, 00 , 00 0/ - ( Rs . Tw o Cr o r e F or ty F iv e Lac o n ly ) HU DA s h a l l s ub s c r i b e to 2 4 ,5 0, 0 0 0/- ( Tw e n ty F our L ac F ifty T ho us a n d) eq u i ty s har es of Rs . 1 0 ( Ru p ees Te n on ly ) e ac h f or c as h a ggr e g at i ng t o Rs . 2, 4 5, 00 , 00 0/ - ( Rs . Tw o Cr o r e F or ty F iv e Lac o n ly ) 115 ( a) Th e pr op or t i o n i n wh ic h t he P ar t i es s ha l l s u bs c r i be t o t he eq ui ty s h ar e c ap i ta l o f t he J VC s h a l l b e as f ol l ows s ub j ec t t o pr ov is i o ns c o nt a in e d i n p ar a 5:-
A AO = 51 %
G MAD A = 24 . 5%
HU DA = 24 . 5%
( B) Th e S ta te G ov er n me n t w o u ld tr ans f er t he r e q u ir e d l an d l oc at ed a t Mo h a li , P un j a b to th e J VC a nd A AI wo u l d b e r e s po ns i bl e f or c r ea t in g t he a ir s id e fac i l it i es a nd T er m in a l bu i ld i n g fo r th e J VC , wh ic h w i ll b e a ppr o pr i at e d to w ar ds s har e c a p it a l a n d s ha r e pr e m i um . A t th e ti me o f v o lu nt ar y w in d i ng u p of t he Co m pa ny , t he S har e Pr em i u m p a id by G MAD A , H UD A & A AI s h a ll b e c ons i d er e d for d et er m i ni n g t h e v al u e of as s ets t o b e b if ur c at e d / a l loc at e d t o th es e thr e e p ar t i es . "
199 Rest all the clauses are general clauses and not very relevant for us and therefore, same are not being reproduced. Combined reading of above clauses clearly show that both the State Governments have contributed towards development of the Airport at Mohali in terms of acquisition of land and against such acquisition of land the Government of Punjab through GMADA has been allowed 24.5% equity stake in the airport which would ultimately be run as business venture by floating Private Ltd Company. Therefore, it becomes very clear that what has been contributed by the assessee, is only land. It seems that the land has been acquired by Government of Punjab and since Government of Punjab did not have money, therefore, the assessee authority has been roped in to make contribution to make the payment for acquisition of land. It is not clear in whose name the land has been registered from the documents produced before us. However, the fact remains that the contribution was made only in terms of land for which the Government of Punjab through GMADA would acquire shares to the tune of 24.5%. This is clear because of capital contribution for starting a new business venture of running Airport. It has further to be noted that name of PUDA does not appear in the JVA despite PUDA making the biggest chunk of the contribution i.e. Rs. 225 crores out of Rs. 300 cores of total contribution. When the money has been spent only for acquisition of land that is for ultimately purchasing of land for the proposed Airport, this cannot be called a revenue expenditure. It is clearly a case of capital expenditure which is not allowable u/s 37 because it clearly provides that expenditure in the nature of capital is not allowable for the purpose of computing "profits and gains of business and profession". In view of above clauses, we hold that this expenditure i.e. the contribution made by PUDA is not for the business purposes and it is in form of 116 capital contribution and in the nature of capital expenditure and therefore, same is not allowable u/s 37. W e fail to understand why PUDA has not looked after its interest either by becoming shareholder in the proposed Airport or by raising a claim against the Government of Punjab for transfer of land or recovery of the contribution if the land was retained by the Government of Punjab against which Government of Punjab was to receive 24.5% of equity shares in the JVA.
200 Before us, the ld. counsel of the assessee had relied on many judgments and we have gone through the same and now let us analyze these judgments:
201 First case relied on is in case of CIT V. Karnatka Financial Corporation (supra). In this case assessee company was a State Owned Corporation and the assessee had claimed expenditure of Rs. 15 lakhs under the head "Miscellaneous expenses" which was incurred by the assessee at the instance of State to promote its business at village known as "model village". This expenditure was disallowed by the Assessing Officer on the ground that the amount spent by the assessee, is not for its business purpose. The expenditure was allowed by the Hon'ble High Court by giving following reasons in para 7 which is as under:
" W e ar e o f t h e op i n i o n t h at t he a m o un t of Rs . 1 5 lak hs s p en t by th e as s es s ee has t o be c o ns id er e d t o war ds its b us i n es s pr o m ot i on . S i nc e t h e Z i l la P anc h ay a t h u n der a s c he m e k no wn as " S w as t h i G r am a Y o ja n a " was tr y i ng to dev e l op mo d e l v i l l ag e s by pr ov i d i ng fac i l it i es l ik e d ev el o p in g r oa ds t o n e w ma r k e ts , or g an i zi n g s e lf- he l p gr o ups , c o mm un i ty c e ntr es a nd d e v e lo p me n t of i nfr as tr uc tur a l f ac i l it i e s . Ac c or d i ng t o us , if th e as s es s e e has s pe n t a m ou n t to war ds t he dev e lo pm e nt o f i nfr as tr uc t ur a l f ac i li t ies of v i l la g es an d c ons tr uc t i on of a ne w ma r k e t t o or g a ni ze s e l f- h e lp gr o ups th at w o u ld c er t a i nly pr o m ot e th e b us in es s of t he as s es s ee as t h e as s es s e e c an le n d th e l oa n o nly if s uc h es ta b l is h m en ts ar e th er e i n v i ll a ges . W e ar e a ls o o f t he o p in i on th a t i f th e as s es s ee c an s pr e ad its ac t iv it i es t o r ur a l p ar ts of t he St at e , i t wo ul d c a t er to th e ne e ds o f t he p e op l e a n d w o ul d s at is fy th e p ur pos e f or wh ic h i t is c r e a te d by t he St a te . Th er ef or e, w e a r e of t h e o pi n i on th at th e q u es t i ons of la w fr a me d i n th is a p pe a l h av e t o be a ns w er ed ag a ins t t he R ev en u e. "
Thus it is clear that it was held that the assessee had incurred the expenditure towards development of infrastructural facilities by the village and construction of a new market to organize self help groups which would promote the business of the assessee. The assessee was lending money to the self help groups and therefore, the purpose was directly related to the business of the assessee. In any case this decision is not applicable to the facts of assessee's case. In case before us, the assessee has made contribution for promoting of Airport in which Government of Punjab through GMADA 117 has acquired staking of 24.5% which is clearly in the nature of capital contribution of new venture.
202 The next case relied on is in case of Sri Venkata Satyanarayana Rice Mill Contractors Co. Vs. CIT, 223 ITR 101 (S.C). In that case the assessee was carrying on the business of exporting rice from the State of Andhra Pradesh. The rice could not be exported without assessee's obtaining a permit from the District Collector. The permits were given only if a payment was made to W elfare fund which has been established. This payment was disallowed by the ITO by observing that the said amount was neither mandatory nor statutory but was only discretionary and the fund has not been approved u/s 80G of Income Tax Act . On appeal the Tribunal allowed the expenses by observing that though there was no compulsion on the assessee to make contribution to welfare fund still the contribution made in pursuance of a scheme evolved by the Rice Miller's Association in consultation with District Collector would show that advantage would ensure on the payment of contribution and therefore, same was allowable u/s 37. W hen the matter traveled to Hon'ble High Court it was decided that the expenditure was not allowable and it was observed that though the contribution to the W elfare fund was a pre-condition for the grant of export permit and the assessee was right in contending that the contribution was a compulsory payment but the same was disallowed by coming to the conclusion that this payment was opposed to the public policy. When the matter traveled to the Hon'ble Supreme Court, the Hon'ble Apex Court found that District W elfare fund was established pursuant to a scheme which had been evolved by the Rice Millers association with the District Collector. According to the scheme each member of the association was to deposit an amount of 0.50 paise per quintal if he proposed to export the rice from Andhra Pradesh. The amount was deposited in Andhra Bank. The application of export was required to be made in a Form wherein applicant debited the said amount of contribution deposited by him giving the particulars of the bank and challan etc. Quoting from various judgments it was observed that the money expended, not of necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order to directly facilitate the carrying on of the business, may also be considered as expended wholly and exclusively for the 118 purpose of business. After detailed analyses the amount was held to be allowable. The head note of the decision reads as under:
"Any contribution made by an assessee to a public welfare fund which is directly connected or related to the carrying on of the assessee's business or which results in benefit to the assessee's business has to be regarded as an allowable deduction u/s 37(1) of Income Tax Act . Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund f or the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. The mere fact that making of a donation for a charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount u/s 37(1) of the Act when such payment had been made for the purpose of the assessee's business."
Thus it is clear that a small contribution of 0.50 paise per quintal was being contributed towards welfare fund which was established by the Rice Millers Association in consultation with the District Collector for general development of State which was held to be directly connected to the business of the assessee. This is so because the scheme was framed by the Rice Millers Association and involved small contribution. In case before us, the contribution is made for development of the Airport through JVA between AAI and State Government of Punjab & Haryana. Airport would be run as a commercial venture though this may lead to the development of States but still it is another business venture and therefore, the facts of this case cannot be applied to the facts of the case before us.
203 Next case relied is that of CIT Vs. India Radiators Ltd (supra). In that case the assessee made contribution to Panchayat for upgrading the school on assurance by school management of the school that children of assessee's employees would be given preference in admission to school. Therefore, it is clear that the purpose of contribution was related to business of the assessee. In the rural area there may not be any school and if a sum of money was expended for the education of children of the employees of the assessee-company and that is why the assessee's contribution was allowed as business expenditure. This case is totally distinguished from the facts in case before us.
204 Next case relied on is Addl CIT V. Rajasthan Spinning and W eaving Mills Ltd (supra). In this case the dispute relates to the claim of the assessee that deduction of Rs. 15 lakhs as contribution made to The Bhilwara Export Fund. The expenditure was allowed by 119 the Assessing Officer. However, a revisionary order was passed u/s 263 where CIT was of the view that the Assessing Officer committed an error which was prejudicial to the interest of the revenue. The claim was allowed by the Tribunal and Hon'ble High Court also held it to be allowable because it was found that the contribution to the export promotion fund was established wholly and exclusively for the purpose of assessee's business. It was further noted that participating companies were required to make contribution based on export percentage of the companies as per the criteria decided by the trustees from time to time. It was provided that participating companies would receive stipulated subsidy on export percentage of the company as per criteria to be decided by the trustees. Head note reads as under:
" He l d, th at c o ntr i b ut i on t o t h e f un d s et u p f or ex p or t p r o m ot i o n o f pr o d uc ts wh ic h w as a ls o t h e bus in es s o f t he a s s es s e e h a d d ir ec t nex us t o t he adv a nc e m e nt o f t he a s s es s e e 's b us in es s . T he fac t t ha t t he ob j ec t of t he ex p or t pr o m ot i o n f un d w as no t c o n fi n ed to th e as s es s e e b ut was o p en to a l l wh o wa nt e d t o pa r t ic ip a te c ou l d n ot al t er t he c h ar ac t er of ex p e ns e s i n c ur r ed by way of c on tr i bu t io n t o s uc h fu nd by t h e as s es s ee fr o m h is be n ef i t t o o t her s ' b en ef i t. No n e o f th e o b jec ts o f t h e f u nd c o u ld b e s a id t o be u nr el a te d to th e b us in es s ac t iv it i es o f t he as s es s ee or w it h ou t a ny n ex us t o th e in t er es t o f t h e as s es s e e 's bus i n es s . T h us , t he Tr i b un a l ha d r i gh t ly r eac h ed t he c o n c l us i o n t h at c on tr ib u t io n to t he e x por t pr om o ti o n f u nd was m a de by t he a s s es s e e i n its bus i n es s ex p e d ie nc y f or pr om o ti n g i ts b us i n es s i nt er es t by a u g me nt i ng ex p or ts . S uc h ex p e ns es wer e inc ur r ed an d la i d o ut w h o lly an d ex c l us iv ely for t h e pur p os e o f t h e as s es s ee 's b us in es s , a nd wer e he nc e al l ow a b le as de d uc t i on un d er s ec t i o n 3 7( 1) of t he Ac t . "
Thus it is clear that the funds were directly related to the business of the assessee. Few mills which were exporting have made contribution of funds and that contribution was shared among various participating companies on the basis of actual export. The Tribunal found that in order to augment its own export sales and give competitive edge to its marketing the assessee-company has contributed to the fund in its own business expediency, first with the objects of increasing opportunity of export of goods manufactured by it and secondly to earn the subsidy out of contribution made by all the participating companies. The facts are totally distinguished from the case before us.
205 Next decision relied on is in case of CIT Vs. Chemicals and Plastics India Ltd (supra). In that case the dispute is regarding disallowance of sum of Rs. 1.5 lakh being contribution to the Madras Chamber of Commerce. W ithout going into details the facts itself shows that the contribution towards a Chamber of Commerce, which 120 is a business association, is definitely related to the business of the assessee and is for the purpose of business of the assessee, which is not the case before us..
206 Next decision is in case of Panipat Coop Sugar Mills Ltd Vs. CIT (supra). In this case the main dispute was regarding disallowance of a sum of Rs. 6 lakhs which was contributed by the assessee to the State Government for utilization towards cost of construction of an approach road connecting certain villages to the main road. After detailed discussion it was held as under:
"Held that though a road becomes comparatively more permanently restored by metalling, the conversion of a kutcha road into a metalled one does not amount to the construction of a new road. The road did not belong to the assessee nor could it have any control over them. The expenditure was incurred on account of business expediency, namely the effort to get fresh sugarcane which yielded high percentage of sugar. The kutcha road was a permanent inconvenience and the expense incurred by the assessee to get rid of this inconvenience cannot be held to have brought to it a lasting advantage. The metalling of the roads in the instant case amounted to their repair and the expenditure incurred was revenue expenditure allowable u/s 37(1) of the Income Tax Act, 1961."
The above clearly show that the expenditure was directly related to the business of the assessee. The conversion of a kutcha road into a metalled road lead to easy procurement of sugarcane. Since the roads did not belong to the assessee the expenditure could not be called even as capital expenditure, therefore, clearly the facts of this case are totally different from the facts in the case before us.
207 Next decision relied on is in case of CIT Vs. Cheran Transport Corp Ltd (supra) and the issue which has been cited before us is regarding disallowance of a sum of Rs. 5 lakhs contribution by the assessee to Cheran W elfare Trust. Hon'ble High Court has decided this issue on the basis of earlier decision which is reported in case of Cheran Engineering Corp Ltd Vs. CIT, 238 ITR 892 (Mad), In that decision it was held that once it was labour welfare expenditure, it was allowable. We may note that this decision was rendered for Assessment year 1978-79 when Section 40A(9) was not there which mandates that no expenditure contributed towards any fund for the benefit of the employee except for certain funds provided in the provisions, will not be allowable u/s 40A(9) which has been inserted by Finance Act 1984 w.e.f. 1.4.1980. Therefore, this provision was not applicable and since the expenditure was strictly related to the welfare of the labour and it was held to be allowable. The facts are totally distinguishable.
121208 Next decision relied on was in case of CIT V. Velumanickam Lodge (supra). In that case the assessee was engaged in the business of the constructing hockey stadium and cinemas. The assessee constructed hockey stadium and claimed the amount of Rs. 24 lakhs. It was held that the expenditure was incurred in the regular course of business for the purpose of revenue expenditure and it was not capital expenditure because the hockey stadium belongs to the public. In this case assessee was running a Cinema Hall, a Lodge and was also Government contractor and some contribution was made towards construction of the hockey stadium in the park of the town. The expenditure brought benefit to the assessee in the form advertisement etc. and that is why the same was held to be allowable. Again the facts are totally different from the facts in case before us.
209 Last case relied on is CIT V. DTTDC Ltd (supra). In this case two issues arose for consideration before the Hon'ble High Court. First issue was whether the expenditure incurred by the assessee on construction of flyover was allowable. Somewhere in 1989 Delhi Administration decided to expand the scope of Delhi tourism Development Corporation and it was decided that country liquors and UP rum which was being sold by the Excise Department of Delhi Administration, which would generate a surplus of Rs. 100 crores and such surplus can be utilized for construction of flyover and substantial number of pedestrian facilities. It was decided to hand over this trade to the DTDC which would use this surplus for construction of flyover and pedestrian out of such surplus. After going through all the documents and law ultimately it was held as under:
"Held (i) that it was the obligation of the assessee to construct flyovers and pedestrian facilities out of 95 paise from Re. 1 which the assessee was entitled to retain and keep. The balance 5 paise per bottle was to meet the administrative expenses including corporate expenses but it did not mean that there was diversion of income by way of overriding title."
From above it becomes clear that the assessee was entitled to retain and keep Paise 5 per bottle to meet the administrative expenses and Paise 95 per bottle was to be utilized for construction of flyovers etc. Therefore, it is clear that the Government itself allowed the Corporation to earn extra money which was mandated to be utilised for infrastructure in Delhi but in the case before us no such benefit has been given by the State Government to the assessee which was 122 specifically earmarked for the purpose of making contribution towards development of the Airport.
210 Second question is not relevant for the purpose of case before us and therefore, we are not dealing with the same.
211 Therefore, it is clear that all the case laws relied on by the assessee are totally distinguished and we find that none of these case laws help the case of the assessee.
212 Now we come to the cases cited on behalf of the revenue.
213 First decision relied on behalf of the revenue is in case of Oil Industry Development Board Vs. ACIT, 123 ITD 67 (Delhi Tribunal). In this case the assessee is a public sector undertaking. The assessee disbursed certain grants to different entities of the State. The question arose whether such expenditure was in the nature of grants and royalty and deductible u/s 37(1). In this case it was also contended that since the grants of royalty was one of the objects of the undertaking and therefore, such expenditure should be held to be allowable. The Tribunal after detailed discussion held as under:
" Sec t io n 3 7 d e a ls wi t h ex pe n di t ur e i n ge ner a l r ef er r e d t o as bus i n es s ex p e nd i tu r e . It l a ys do wn t ha t a n y ex p en d it ur e , n o t b e in g ex p en d it ur e, n ot be i n g ex p e nd i tu r e of th e n at ur e as d es c r ib ed in s ec t i on 3 0 t o s ec t i on 36 a n d no t b ei n g i n th e n at ur e of c a p it a l ex p e n d it ur e or p er s on a l ex p ens es of th e as s es s e e la i d ou t or ex p e n de d wh o l l y a n d ex c l us i v el y f or t h e pu r p os e of bus i n es s or pr of es s i o n, s h a l l b e a ll o we d i n c om pu t in g t he inc om e c h ar g e ab l e un d er th e h e ad ' Pr of it s a n d ga i ns of bus i n es s or p r of es s i o n' .
De d uc t i ons wh ic h ar e a ll o we d wh i le c om put i ng bu s i n es s i nc om e h a ve b ee n l a i d do wn i n s ec t i o ns 30 to 3 6 . S ec t i on 37 is a r es i du ar y s ec t io n e x te n di n g th e a ll o wa nc e of ex pe ns e s to i t em s of ex pe nd i tur e n ot c o v er e d b y s ec t i ons 30 to 36 , t h e l is t of a l l o wa nc es e n um er at e d i n s ec t i ons 3 0 t o 3 6 be i n g n ot ex h a us t i v e. A n it em of ex pe n di t u r e, wh ic h is who l l y or ex c l us i v e l y f or th e p ur p os e of bus i n es s m a y b e a ll o we d t o b e de d uc t e d i n c om pu ti n g th e pr of i ts an d g a i ns ac c or d i ng t o t h e or d i nar y pr inc i p les e ve n i f it do es n o t f al l un d er a n y of th e ab o v e s ec t i o ns . [ P ar a 20 ] S ec t i on 3 7 s ta r ts wi t h ne g at i v e c on d it i o ns . Af ter t h e ne g at i v e c on d it i o ns ar e s at is f i e d, th e s ec t i on l a ys d o wn a p os it i v e c on d it i o n. It is on l y w he n bo t h t he ne g at i v e an d p os it i v e c on d it i o ns ar e s a t i s f ie d t h at a n ex pe n d it ur e c an b e c ons i d er e d a n d a ll o we d u nd er t h is s ec t i on . T he ne g at i v e c on d it i o ns ar e:
( i) t ha t t he ex p en d it ur e s h ou l d n ot b e of th e na t ur e d es c r i be d- ( a) u nd er s ec t io n 3 0 t o s ec t i o n 36 ;
( b) i n t he na t ur e of c ap it a l ex p en d it ur e or per s o n al ex p e n d it ur e of th e as s es s e e. If t he ex p en d it ur e s a t is f i es th e s e n eg a ti v e t es ts , t h en it has t o s at is f y t h e pos i ti v e t es t, n am el y, t ha t i t is la i d ou t wh o l l y an d ex c lu s i v el y f or th e pur p os e of t h e as s s s e e 's b us in es s .[ P ar a 2 1] T hus , t he es s e nt i a l a n d p os i t i ve c on d it i o n of a l l o wanc e is t h at t h e ex p en d it ur e s ho u l d h a v e be e n la i d ou t or ex p e nd e d wh o l l y an d ex c lus i v e l y f or th e pu r p os e of s uc h bus i n es s . T h er ef or e , th e ex p e ns es wh ic h ar e p er m it te d as de d uc t i on ar e s uc h wh ic h ar e m ad e f or t he p ur p os e o f c ar r yi n g o n t he bus i nes s i. e. , t o en a b le a p er s o n t o c a r r y on a nd e ar n pr of i t in t ha t b us i nes s . I t i s no t e n ou g h th at th e d is b ur s em e n ts ar e m ade i n th e c our s e of or ar is e o ut of or ar e 123 c onc er n ed wi t h or m a de o ut of th e pr of it of th e b us i nes s , b u t t he y m us t als o be f or t h e pu r p os e of e ar n in g pr of i ts of t h e b us i nes s . [ Pa r a 2 2 ] It has t o be r em em be r ed t ha t th e wor ds ' w ho l l y a nd ex c l us i v e l y' b ot h r ef er t o th e ex pe ns es i nc ur r e d b y t h e as s es s e e f or t he pur p os e of his b us i nes s . W hile de t er m in in g as t o w he t her t he d ed uc ti o n c l aim e d h as b ee n wh o l l y a n d ex c lus i v e l y s p e nt on s uc h b us in es s , i t is p er m is s i b le t o f i nd o ut wh et h er t h e am oun t h as r e a ll y g o n e f or t h e p ur p os e of b us in es s or n o t. [ P ar a 23 ] T he wor d ' b us in es s ' u s ed i n s ec t i on 3 79 1) c on n ot es s om e r ea l , s u bs t a nt i al a nd s ys tem at ic or o r g a ni z ed c o ur s e of ac t i v it y or c o n d uc t wi t h a s et pur p os e wh ic h is c ar r i ed o n wi t h t h e en d i n v i e w of m ak in g or e ar n i n g pr of it . T h u s , in or d er to be d ed uc ti b l e u n der s ec t i on 3 7( 1 ) , t h e e x pe n d it ur e m us t b e in c ur r ed f or t he pur p os e of t he b us in e s s whic h wa s in ex is t e nc e in t he ac c o u nt i ng ye ar a n d th e pr of its of wh ic h ar e u n der as s es s m en t. [ P ar a 2 4] In v i e w of th e a b o ve d is c us s i on , t h e gr a nts b y t he as s es s e e e v e n t ho u gh th e y wer e i n ac c or d anc e wi th t he o bj ec ts s t a te d i n t h e O i l I n dus tr i es ( De v e lo pm en t) Ac t , 1 9 7 4 a nd t he y w er e m ad e or d is b ur s e d as p er d ir ec t i o ns of th e C e ntr a l G o v er nm en t an d in t h e p u b lic i nt er es t , ye t th e s am e di d n ot f u lf i l l t h e c r i t er ia l ai d do wn in s ec ti o n 3 7 t o c om e wit h in th e pur v i e w of a l l o wa b il i t y s o t h e s am e c ou l d no t b e s a id to b e a n ex p e nd i tu r e i nc u r r e d who l l y an d ex c lu s i v el y f or t he pur p os e of b us in es s . T her ef or e , t h e c l a im of th e as s es s ee t ha t th es e gr a nts s ho u l d b e al l o we d u n der s ec ti o n 3 7( 1) c ou l d n ot b e ac c e pt e d a n d wer e t o b e r ej ec te d . [ Par a 2 5] From above it is clear that unless and until the expenditure is related to the business of the assessee so as to meet the requirement of Section 37 that the expenditure has been incurred "wholly and exclusively" for the purpose of business, same is not allowable. Therefore, clearly this case law is applicable to the assessee in the sense that even if the expenditure is incurred to meet the objects of a particular undertaking the same is still not allowable unless the same has been incurred for the purpose of business.
214 Next case law relied on by the ld. DR for the revenue is in case of Malayala Manorama Co. Ltd. Vs. CIT (supra). In this case the assessee had incurred some expenditure for the purpose of reconstruction of Banegaon Village in Lathur District by way of contribution to a Trust which was constituted to grant relief and aid to the persons effected by natural calamities. It was contended that reconstruction of Lathur village was undertaken because a massive earthquake had effected Lathur. The Court held that the expenditure is not allowable. Head noted reads as under:
"Held that the amount contributed by the assessee to the relief fund was not utilized wholly or exclusively for its business purpose. The mere fact that indirectly the assessee earned goodwill of the victims and the general public did not mean that the expenditure incurred by the assessee was wholly or exclusively for business purpose. The contribution made by the assessee would be an allowable deduction u/s 80G of Income Tax Act and not u/s 37(1)."124
From above it is clear that incurring of expenditure for earning goodwill or indirect benefit to the assessee then the same cannot be held to be allowable because the same may not be wholly and exclusively for the purpose of business.
215 We have also gone through the decision rendered by Hyderabad Bench of the Tribunal in case of Andhra Pradesh Housing Board Vs. DCIT in ITA No. 717/H/12 and others. This case, in our opinion, is identical as that of the assessee. The assessee board was constituted under Andhra Pradesh Housing Board Act, 1956 and was engaged in the business of purchase and "sale of land and construction of houses." During the year the assessee had made a contribution of Rs. 1180 crores under the directions of Andhra Pradesh Government towards a scheme known as "Rajiv Greha Kalpa" for providing houses to the urban poor. Beneficiaries were to provide 10% of cost of house and balance was to be financed by banks as contribution for expenditure in providing infrastructure facilities like drainage, water supply, internal roads, power supply etc. The expenditure was not allowed by the Assessing Officer. In this case also the ld. counsel of the assessee contented that the expenditure was incurred because it was to meet one of the objects of Andhara Pradesh Housing Board Act, 1956 as well as the expenditure was incurred on the direction of the State Government. The Tribunal considered the issue in detail and ultimately held that this expenditure is not allowable. Para 56 of this order is important which we are extracting below:
" 56 . O n c ons i d er in g t he s u b m is s i o ns of t he p ar t i es i n t h e l ig ht o f th e m at er i als on r ec or d an d a ls o t h e r a t ios c it e d b ef or e u s , we ar e c o ns tr a in e d to ho l d t ha t i t is n ot a n a l lo w ab l e e x pe n d it ur e b ut on ly a n a pp l ic at i o n of i nc o m e. I t is n ot in d is p ut e th at t he a mo u nt of Rs . 1 18 0 c r or es is s t a te d t o hav e be e n g iv e n t o th e A P St at e Ho us i ng C o r po r a t io n on t he d ir e c tiv e of th e G ov er n m en t. H ow ev e r , th at w o u ld n o t am o un t t o an ex p e nd i tur e i nc ur r ed f or t he p ur pos e of b us i nes s . A n ex p e nd i tur e w hic h is ex c l us iv e ly l a id o ut f or t h e pu r p os e of bus i n es s is a r ev e n u e ex pe n d it ur e a nd , t h er e fo r e , a l l ow ab l e. O n a p pr ec i at i o n o f th e f ac ts on r ec o r d , it is qu i te ev i d en t t h at t he a mo u nt of Rs . 1 18 0 c r or es w as no t s pe nt by th e as s es s e e bo ar d f or t h e pur p os e o f its b us i n es s . Th e s a id am o un t was tr a ns f er r e d t o A P St a t e H ous i n g C or p or at i o n at t h e d ir ec t iv e o f t he G ov er n m en t for i mp l e me nt i n g c er t a in ho us i ng pr o j ec ts . Th e as s es s e e is n o w ay c o nn ec te d wi t h im p l em e nt i ng t h e pr o j ec t . T h is c a nn o t b e s a id t o be a n ex pe n d it ur e la i d ou t wh o l ly a n d ex c l us iv e l y for t h e p ur p os e of b us in es s . Th e d ec is io n s r el i e d u p on by t he l e ar n e d AR ar e f ac t u a lly d is t i n gu is h ab l e as i n t h os e c as es t he r e was nex us be tw e en th e e x pe n d it ur e i nc ur r ed a nd th e bus i n es s o f t he as s es s e e . Th er e f or e , i n o ur v i ew t he r ev e n ue a ut h or it i es wer e c or r ec t in dis a ll o wi n g s uc h ex p e nd i tu r e . "
216 The above ratio in the above case is clearly applicable to the case of the assessee.
125217 One more issue has been raised in the ground that this expenditure should have been allowed in any case u/s 36(1)(xii). Both the parties did not make any arguments before us, however, we would like to deal with this issue also. Section 36(1)(xii) of the Act reads as under:
"36(1)[(xii) any expenditure (not being in the nature of capital expenditure) incurred by a corporation or a body corporate, by whatever name called, if,--
(a) it is constituted or established by a Central, State or Provincial Act;
(b) such corporation or body corporate, having regard to the objects and purposes of the Act referred to 29 in sub-clause (a), is notified by the Central Government in the Official Gazette for the purposes of this clause."
The above makes it clear that any expenditure in case of Government Corporations is allowable if the same are established under some enactment of the Centre or State. However, at the same time under this provision, the capital expenditure is not allowable. Since we have already observed that the expenditure is of capital nature, therefore, the same is not allowable under this section.
In view of above discussion it becomes absolutely clear that firstly the expenditure has not been incurred for the purpose of business. In any case the expenditure is in the nature of capital expenditure and therefore, the same is not allowable.
218 Assessee has raised one additional ground in this appeal. The ld. counsel of the assessee submitted that originally addition of Rs. 107.20 crores was made by the Assessing Officer on account of installments received pending allotment. The issue was raised before the ld. CIT(A) vide ground No. 3. However, in the meantime the assessee had also moved an application u/s 154 and vide order passed on 23.3.2001 u/s 154, the contention of the assessee was accepted and addition was reduced to Rs. 4615584/-. It was further submitted that this ground could not be taken by mistake.
219 On the other hand, the ld. DR for the revenue opposed the submissions.
220 After considering the rival submissions we are of the opinion that this issue has been taken before the ld. CIT(A). Further the issue was raised in all other years, therefore, there is force in the submissions that this ground was not raised before us inadvertently and accordingly we admit this ground.
126221 After hearing both the parties we find that this issue is identical to the issue raised in ground No. 5 of revenue appeal for Assessment year 2003-04 in ITA No. 762/Chd/2008. Since facts and submissions of both the parties are same, therefore, following our order in ITA No. 762/Chd/2008 in respect of ground No. 5 which we have decided vide para No. 62 to 72, we decide this issue against the assessee.
222 In the result, ITA No. 390/Chd/2012 is partly allowed.
223 Before parting with this group of appeals relating to Punjab Urban Development Authority, we would like to clarify that we have confirmed may addition and have allowed relief on account of certain additions. Some of the issues have been remitted to the Assessing Officer for fresh determination in view of the directions / observations contained in various paras. The result of this may lead to variation in the income / loss substantially. Therefore, we would like to reiterate and clarify that after giving effect to our orders the Assessing Officer should make it sure that in case income so determined is less than the returned income in a particular year then returned income should be adopted and in case of loss so determined in a particular year is higher then the loss returned by the assessee then returned loss should be adopted. I T A N o . 1 2 2 0 / C h d / 2 0 1 1 - As s e s s e e ' s a p p e a l f o r 2 0 0 8 - 0 9 224 In this appeal the assessee has raised the following grounds:
"1 Th at th e Ld . C IT( A) h as er r e d in c o nf ir m i ng ad d it i o n o f Rs . 6 0 c r or es m a de by th e As s es s in g O ff ic e r by d is al l ow i n g ex p en d it ur e i nc ur r e d by th e as s es s e e as c on tr ib u t io n f or th e c o ns tr uc t i o n of t h e a ir p o r t at Mo h al i .
2 Th at th e a d d it i on i n r e s pec t o f ex p e nd i tur e o f Rs . 6 0 c r o r es has b e en c o nf ir m ed by th e L d. C IT( A) a g a i ns t a d d it i on o f t he f ac t s a n d c ir c ums t anc es o f t h e c as e.
3 Th at de ta i l ed s u bm is s i ons ma d e d ur in g t he c ou r s e of he ar i n g b ef or e t he As s es s i n g O ff ic er a n d a ls o b e for e t he C IT( A) h as n ot b e en c ons i d e r ed pr o p er ly .
4 Th at L d. CI T( A) has e r r e d in n ot c o ns i der i n g t h at M/s . G L A D A is d ev e l o pm e nt A ut ho r i ty c ons t it ut e d un d er th e P un j a b R e g i on a l & T o wn P l a nn i n g an d Dev e l op m en t Ac t , 1 9 95 wh ic h has to ac t as p er g u id e l i nes an d dir ec t io ns o f t h e P un j a b G ov er nm e nt . As s uc h, c o nf ir m i ng o f d is al l ow a nc e of Rs . 6 0 c r or es by t h e Ld . CI T( A) o n ac c ou n t of c on tr ib u t io n f or c ons tr uc t i on of I nt er na t io n a l A ir por t at Mo h a li is n o t j us t if i e d.
5 Th at th e L d. CI T( A) has f a il e d to a pp r ec i at e pr op er ly th e ob j e c ts o f G L AD A wh ic h pr ov i des for i nc ur r in g of ex p e nd i tu r e f or d ev e lo p me n t o f t he s ta te of P u nj a b as per d ir ec t i o n of t he P un j a b G ov er n m en t an d t h e ab ov e ex p e nd i tu r e ha d b ee n i nc ur r e d for pr o m ot i o n of i nfr a s tr uc tu r e f or t h e d ev e l op m en t o f ar e a w hic h is th e ma i n o b jec ts of t h e G L AD A .
6 Th at t he L d. C IT( A) h as fa i l ed t o c ons i der t h at t he AO wh i l e i nt er p r e t in g pr ov is i o ns of th e Pu n j ab Rur a l Ar e a T ow n P la n n in g a n d D ev e l o p me n t Ac t, 19 9 5 h as 127 tak e n v e r y n ar r o w a n d r i g id v i e w an d h as ig nor e d ac t u al m e an i n g an d p ur p os e of t he Dev e lo p m en t A ut h or ity .
7 Th at t he Ld . CI T( A) h a s f a il e d to t ak e i nt o c o ns id er at i on ap p l ic a t io n f i le d by t h e ap p e ll a nt w i th t he C e n tr a l B o ar d of D ev e l o p me n t T ax es , N ew D e lh i for no t if ic at i on u /s 36( i) ( x i i) o f t he I nc om e tax Ac t , 1 96 1. "
225 In this appeal though many grounds have been raised but only dispute is addition of Rs. 60 crores on account of contribution made towards contribution to the development of Airport at Mohali.
226 After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee had claimed a sum of Rs. 60 crores by way of expenditure incurred on construction of international Airport at Mohali. According to him since the expenditure was not wholly and exclusively for the purpose of business, therefore, the assessee was show caused that why such expenditure should not be disallowed. Before the Assessing Officer reference was made to Section 28 & 29 of Punjab Regional & Town Planning & Development Act, 1995 and it was submitted that the expenditure has been incurred for the purpose of the objects of the authority. Further reference was made to Section 49(2) of Punjab Regional & Town Planning & Development Act, 1995 and it was emphasized that the expenditure has been incurred on the direction of Government of Punjab and the Government had the power to give directions and therefore, it was allowable expenditure. It was mainly contended that expenditure was for the purpose of business and various case laws were also relied. Assessing Officer did not find merit in the submissions of the assessee. It was observed that the construction of Airport at Mohali which gave remote connection with the business of activities of the assessee and therefore, same would not bring any benefit to Ludhiana and accordingly the expenditure was disallowed.
227 On appeal the action of the Assessing Officer was confirmed by the ld. CIT(A).
228 Before us, Shri Sudhir Sehgal, the ld. counsel of the assessee adopted the arguments made by Shri Ashwani Kumar, the ld. counsel of the assessee in case of PUDA for Assessment year 2008-09 in ITA No. 390/Chd/2012 wherein identical issue of contribution of Rs. 225 crores was involved. He also filed written submissions in which identical arguments have been made and particularly a reference has been made to Section 28, 29 & 49 of Punjab Regional & Town 128 Planning & Development Act, 1995. It was also submitted that Ludhiana was famous for Hosiery, Textile, Bicycle, Auto industry, Motor cycle industries etc. which attracts international customers. Development of international Airport at Mohali would make it convenient to go to Ludhiana and trade and industry would further prosper once International Airport at Mohali was established. It was further contended that the Assessing Officer has observed that there was a small airport in Ludhiana, therefore, no benefit would come by development of international airport at Mohali because assessee could have made contribution to Ludhiana airport which is not feasible because development of the Airport at a particular place is decided by Central Government. Various case laws have also been cited and most of them are same as cited before us in case of PUDA in identical issue in Assessment year 2008-09. The ld. counsel of the assessee had strongly relied on these decisions in addition to these decisions reliance was also placed on the following case laws:
CIT Vs. Coats Viyella India Ltd. 253 ITR 667 (Mad) CIT Vs. Birla Cotton Spinning & W eaving Mills Ltd, 82 ITR 166 (S.C) CIT Vs. Madras Refineries Ltd. 266 ITR 170 (Mad) 229 On the other hand, the ld. DR for the revenue reiterated the submissions made in case of PUDA for Assessment year 2008-09 in ITA No. 390/Chd/2012 on similar issue. She also pointed out that there was already an Airport at Ludhiana (Sahneweal) and the assessee could have contributed for the improvement of that Airport which could have been more beneficial. The contribution made for the development of Mohali international Airport would not provide any direct benefit to Ludhiana.
230 W e have heard the rival submissions carefully and find that this issue is identical to the issue of contribution made by PUDA in Assessment year 2008-09 in ITA No. 390/Chd/2012 which we have adjudicated above. However, some additional arguments have been made by both the parties which we would like to deal with them.
231 The contention of the revenue is that there is already an Airport in Ludhiana, therefore, there was no logic for making contribution at Mohali International Airport. W e are of the opinion that this is not relevant and cannot be relied for denying the 129 contribution because the decision to make contribution for the development of Airport has to be made on the feasibility of the Airport as determination of Government of India and by AAI.
Therefore, this is not a determinative factor for deciding whether the expenditure is allowable u/s 37 or not?
232 The ld. counsel of the assessee has relied on three more decisions apart from the decision already quoted by the ld. counsel of the assessee for PUDA. First decision is in case of CIT Vs. Coats Viyella India Ltd. 253 ITR 667 (Mad). In this case the assessee had made contribution to the Government for building new bridge in place of old one which was not serviceable. The new bridge was very essential to provide access to the assessee's factory. This expenditure was allowed by Hon'ble Madras High Court. The decision is very clear that when the expenditure is directly linked to the business of the assessee, same has to be allowed. As we have already observed by deciding this issue in case of PUDA that contribution for development of Mohali Airport has not direct connection with the business of the assessee, therefore, this decision is of not assistance to the assessee.
233 Second decision relied on is in case of CIT v CIT Vs. Birla Cotton Spinning & W eaving Mills Ltd, 82 ITR 166 (S.C). In this case the dispute arose whether the expenditure incurred for engaging eminent lawyer for assessee-company before the Investigation Commission was allowable as general expenses or not? Clearly the lawyer has been engaged for defending the assessee and therefore, it was decided that this was allowable as general expenses. W e fail to understand how this proposition is of any help to the assessee.
234 Third decision relied is in case of CIT Vs. Madras Refineries Ltd. 266 ITR 170 (Mad). In this case the assessee-company incurred an expenditure for providing drinking water facilities to the residents in the vicinity of the refinery and some money was also provided as aid to the school run for the benefit of the children of those local residents. Total amount incurred was Rs. 15,32,000/- for that purpose. Hon'ble High Court decided this issue in favour of assessee and observed as under:
" The c o nc e pt of b us i n es s is n ot s t a tic . I t h a s ev o lv ed ov er a per i od of t im e t o i nc l u de w it h i n its fo l d t h e c o nc r et e ex pr e s s i on o f c ar e a nd c o nc er n fo r t h e s oc ie ty at l ar ge a n d t he p e op l e of t he loc a l i ty in w h ic h t he b us i ne s s is l oc at ed , i n p ar t ic u l ar . B e in g k no w n as a go o d c o r p or a t e c i t i ze n br i ngs g oo d wi l l of th e 130 l oc a l c om m u ni ty , as al s o w it h th e r eg u l at or y ag e nc ies an d th e s oc i ety at l ar g e , th er eby c r e at i n g a n at mos p he r e i n w h ic h t h e bus i n es s c a n s uc c e e d in a gr e a ter me as ur e wi t h th e a i d o f s uc h go o dw i l l.
For t he as s es s m en t y e ar 1 99 2- 93 , t he as s es s ee , a p u bl ic l im i te d c om p any , as a go o d c or p or a t e c i t i ze n a n d as a m eas ur e of g a i n in g g o od w i ll of t h e p e op l e l iv in g in a nd ar ou n d it s in d us tr y w hic h was t o s o m e ex t en t a p ol l ut i ng i nd us tr y , pr ov i d ed fu n ds f or es t ab l is h in g d r i nk i ng wa t er f ac il i t ies to th e r es i de nts i n t he v ic in i ty of t h e r e fi n er y an d a ls o pr ov i d ed a i d to th e s c h o o l r un f or th e b en e fi t o f th e c h i ldr e n of t h os e l oc a l r es i d en ts . I t i nc ur r ed a n ex p en d it ur e of Rs . 15 , 32 ,0 0 0 for t h at p ur p os e. T he As s es s i ng O f f ic e r dec l i ne d to a l l ow t h at ex p e nd i tu r e o n t h e gr o un d t ha t i t w as n ot a n it e m o f ex p e nd i t ur e in c ur r ed by th e as s es s e e for e ar n in g th e i nc om e i n th a t y ear . T h e Tr i b un a l a l l ow ed it . O n ap p ea l t o t he H i gh Co ur t . "
The above clearly shows that refinery was causing some pollution in the area therefore, the assessee felt obliged to provide certain facility to the local residents and spent this money. In the absence of this contribution the assessee could have faced legal problems because the manufacturing facility of the assessee was causing pollution in the surrounding villages. Therefore, this case is distinguishable. But as we have already observed in case of PUDA that the assessee has basically contributed towards acquisition of land which was contributed to the joint venture against which Government of Punjab through GMADA was to receive 24.5% stake and therefore, the expenditure was in nature of capital expenditure. As observed earlier identical issue in case of PUDA has been decided by us for Assessment year 2008-09 in ITA No. 390/Chd/2012 and following the same we decide this issue against the assessee.
235 In the result, ITA No. 1220/Chd/2011 filed by the assessee is dismissed.
236 In the result, appeals are disposed off as under:
S ITA No. Appeal by
No.
1 762/Chd/2007 Revenue Partly allowed
2 759/Chd/2008 Assessee Partly allowed
3 765/Chd/2008 Revenue Allowed for
statistical purposes
4 760/Chd/2008 Assessee Partly Allowed
5 769/Chd/2008 Revenue Partly allowed
6 744/Chd/2009 Revenue Partly allowed
7 745/Chd/2009 Assessee Partly allowed
8 524/Chd/2011 Assessee Partly allowed
9 545/Chd/2011 Revenue Partly allowed
10 390/Chd/2012 Assessee Partly allowed
11 484/Chd/2012 Revenue Partly allowed
12 1220/Chd/2011 Assessee Dismissed
131
Order pronounced in the open court on 6.12.2013
Sd/- Sd/-
(SUSHMA CHOWLA) (T.R. SOOD)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 6.12.2013
SURESH/ANUBHAV
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR