Income Tax Appellate Tribunal - Chandigarh
Punjab Urban Planning & Development ... vs Assessee on 23 March, 2012
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. 391/Chd/2012
Assessment Year : 2009-10
Punjab Urban Planning & Vs. D.C.I.T. C-6(1)
Development Authority, Mohali Mohali
AAALP 0045J
ITA No. 485/Chd/2012
Assessment Year : 2009-10
D.C.I.T. C-6(1) Vs. Punjab Urban Planning &
Mohali Development Authority, Mohali
AAALP 0045J
(Appellant) (Respondent)
Assessee by Shri Ashwani Kumar
Department by: Smt. Jyoti Kumari
Date of hearing 23.9.2013
Date of Pronouncement 23.12.2013
O R D E R
PER T.R.SOOD, A.M
These are cross appeals and are directed against the order dated 23.3.2012 of the ld. CIT(A), Chandigarh.
ITA No. 391/Chd/2012 - assessee's appeal2 In this appeal the assessee has raised the following grounds:
" 1. Th at or d er p as s e d u / s ( 6) of t h e Inc o me tax Ac t , 1 96 1 by t h e Le ar n ed C o m mis s i o ne r of I nc o m e Tax ( A pp ea ls ) , C ha n di g ar h is ag a i ns t l aw a nd fac ts on t he f i le i n as muc h as he was n ot j us t i fi e d in n e ga t in g th e c l a i m of t h e a p pe l l an t in r es p ec t of th e f ol l ow i ng it e ms c l a im e d b y way of f i l in g a r ev is e d r et u r n:
( a) I nt er es t fr om G ov t . ( R ev e r s e d) Rs . 9 1, 4 6, 7 4, 79 5 /- ( b) I nt er es t o n DD A F l ats ( R ev er s e d) Rs . 2 ,1 8 ,0 0, 0 00 /- ( c ) R e nt fr o m DG P- Mi s c . Rec e ip ts ( R ev er s e d) Rs . 3 ,8 2 ,2 4 5/-
2. Th at t he L e ar n e d Co m m is s i o ne r of I n c om e- T ax ( A p p ea ls ) , Ch a nd i ga r h w as n ot j us t i fi e d to ar bi tr ar ily up h o ld t h e ac t i o n of t he Ld .2
As s es s i n g O f f ic er i n mak i n g a n a d d it i on of Rs . 1 , 34 ,4 4 ,3 4 6/- on ac c o u nt of ins ta l l m en ts a ga i ns t s a l e of ho us es / fl a ts r ec e iv e d d ur i n g th e y e ar
3. Th at t h e or d er u /s 25 0 ( 6) p as s ed by t h e L e a r ne d Co m m is s i o ne r o f Inc o me- Tax ( A pp e a ls ) , Ch an d ig ar h is ag a i ns t l aw an d f ac ts on t h e fi l e i n as m uc h as he w as no t j us t i f ie d t o up h o l d th e ac ti o n of t h e L ear n e d DC IT, C ir c l e 6 ( 1) , Mo ha l i D el h i i n m ak i n g a dd i t io n of Rs . 11 , 64 , 1 9, 3 04 /- by d is a l l ow i n g 50 % of ad m i n is tr at iv e ex pe ns es .
4. Th at t h e or d er u /s 25 0 ( 6) p as s ed by t h e L e a r ne d Co m m is s i o ne r o f Inc o me- Tax ( A pp e a ls ) , Ch an d ig ar h is ag a i ns t l aw an d f ac ts on t h e fi l e i n as m uc h as he w as no t j us t i f ie d t o up h o l d th e ac ti o n of t h e L ear n e d DC IT, C ir c l e 6( 1) , M oh a l i i n m ak in g a n a dd i t io n o f Rs . 1 , 60 ,7 9, 0 56 /- be i n g 5 0% of Rs . 3, 21 , 58 ,1 1 2/- wh ic h is a mo u nt pa i d to war ds ma i nt e n anc e o f Ur b a n es t at es .
5. Th at t h e L d . C om m is s i on er of I nc o me T ax ( A pp e a ls ) , C h a nd i ga r h was n ot j us t if i e d t o a r b itr ar i ly u p ho l d t h e ac t i on o f t he L d. As s es s in g O ff ic er i n no t g iv in g c r ed i t of a d m in is tr at iv e ex pe ns es of t h e pr e c ed i n g y ear in de t er m i n in g t h e v a lu e o f th e o p en i n g s t oc k . "
3 Ground No. 1 - After hearing both the parties we find that the assessee had initially made provision for the following income:
a. In ter es t fr o m G ov er n m en t ( R ev er s e d) Rs . 9 1, 4 6, 7 4, 79 5 /- b. In ter es t on D D A Fl a ts ( Rev er s ed ) Rs . 2 ,1 8 ,0 0, 0 00 /- c. Re nt fr o m DG P- Mis c . Rec e ip ts Rs . 3 ,8 2 ,2 4 5/-
( Rev er s ed ) ----------------------------
Rs . 9 3, 6 8, 5 7, 04 0 /-
Later on the same were reversed and the claim for these incomes was made as expenses in the revised return. The Assessing Officer rejected this revised return itself and did not consider the revised return.
4 The ld. CIT(A) accepted that the assessee had right to file revised return vide para 3.2.1. which is as under:
Para 3 . 2 . 1 . Thus , the pr ov is i o ns of s ec t i on 13 9( 5) e nt i tl e a ny as s es s e e t o fi l e a r ev i s ed r et ur n w it h in t h e s ti p u la te d p er i od t o c u r e a ny m is t ak e i n t he or i g in a l r et ur n. I f t h e a p pe l l a nt o m it te d to ex c l ud e c er t a in it e ms fr o m t he t ax a b l e i nc om e i n th e or i gi n a l r et ur n, t h e ap p el l a nt a hs a r i gh t to f i l e a r ev is ed r e tur n t o c l a im t h at c er t a in it e ms i nc lu d ed i n t he tax a bl e i nc o m e in t he or i g in a l r et ur n wer e w r o n gly s o d e c l ar e d. In d ep e nd e nt of th e m er its of th e c la i m , t he r e is n ot h i ng wr o n g w it h t h e ac t i on o f t h e a p pe l l an t. W h il e i t is w it h i n t h e d is c r e ti o n of th e As s es s in g O ff ic er t o t ak e a v ie w o n t he m er its of t h e c l a i m m a de i n t he r ev is e d r et ur n i n th e s a me w ay as h e has t o c o n s i der t h e c or r ec t nes s o f t h e or ig i n al r et ur n, b ut onc e t he r et ur n is r ev is e d w it h in t h e s ti pu l at e d per i o d, t h e r ev is e d r et ur n g ets s u bs t i t ut e d fo r th e or i g in a l r e t ur n an d As s es s i n g O f f ic er h a s to c ons i d er t ha t r e tur n. Th er e is a bs o l u te ly no bas is for t he v i ew t ak en by th e as s es s i n g o ff ic er a n d h e was d uty bo u nd to d ec id e th e c l ai m ma d e by t h e a p p el l a nt i n t h e r ev is e d r et ur n . A n as s es s e e c an f i le as ma ny r ev is ed r e t ur ns as it w a nts w it h in t h e t i m e l im i ta t io n a l lo we d u/s 13 9( 5) of th e Ac t . I n fac t, i n s uc h a s it ua t i on t he l as t r ev is ed r et ur n is t o be c ons i de r e d a n d a l l ot he r ear l i er r e t ur ns of i nc o m e ar e to b e i g n or ed . G r o u nd o f a p pe a l No . 2 is a l l ow e d. "3
On merits of the claim it was submitted before the ld. CIT(A) as under:
" Th e as s es s ee ha d c r ed i te d a hy po t he t ic a l i nc o m e i n t h e f or m o f i nt er es t an d r e nt a l t o b e r ec ov er e d fr om St at e G ov t . th o ug h t her e was n o for m a l un d er s t a nd i n g o n t h is is s ue . T he as s es s e e o n i ts bo n af i de b e li e f c r ed i te d th e s a m e in th e b o ok s of ac c o u nts , h ow ev er af ter th e f i l i ng of th e r et ur n wh e n t h e ma tt er was tak e n u p by th e S ta te G ov t. i t w as dec i d ed by th e G ov t . f or t he r ev er s a l of t he s a m e. Th us th i s hy po th e tic a l i nc o m e i n t h e for m of i nt er es t a n d r en t al r ec ov er a b l e fr o m G ov t . ma d e t h e in t er es t / r en t al i nc om e s h ow n as a wr on g s ta te m en t an d t h is m is t ak e was a bo n af i de on e s o th e as s es s ee was l eg a l ly e nt i t le d t o r ev er s e t his hy p o th et ic a l inc o me b y fi l i ng a r ev is e d r e t ur n w h ic h i t d i d s o by f i l i ng th e s am e wi t h in th e pr es c r i be d t i m e p er i od . T he r e l i anc e is p l ac ed i n t he c as e of K M B ha t ia v s . CIT 1 9 3 ITR 37 9 ( G u j.) i n wh ic h i t w as h e l d th a t th e r e t ur n c a n b e r ev i s ed i f t he m is t ak e is a bo n af i de . Th us t h e L d. A. O . mak i n g th e as s es s me nt a t or i g in a l r e tur n a nd ig n or in g t he v a li d r ev is e d r et ur n is i l l eg a l . Th e r e li a nc e is p l ac e d i n th e c as e of D h a mp ur Su ga r Mi l ls L t d. v s . C IT ( 9 0 I TR 2 36) an d C hi e f CI T v s . Mac h in e To o ls C or p . o f In d ia Lt d. 10 8 CT R 1 1 0 wh ic h h e ld th at onc e a r ev is e d r e tur n is fi l ed , t he or ig i n al r et ur n s ta n ds wi t hdr a wn .
Mo r e ov er t h e as s es s e e w as m a in ta i n i ng c a s h s y s t e m of ac c ou n t i ng a n d th e en tr y r ec o g n i zi n g t he i nc om e was m a de on ac c r u al b as is as t h e s a m e was e n ter e d i n t he bo ok s by j us t de b it i n g t he am o un t t o th e O U V L A /c . Th us by r ec o gn i zi n g t he i nc om e o n ac c r u a l ba s is i ts el f ma d e a wr o n g s ta te m en t in th e or i g in a l r e t ur n pa r t ic ul a r ly w h en th e as s es s ee was fo l l ow i ng c as h s y s t e m of ac c o un t in g. By r e v er s in g th e s a id tr ans ac t i on an d r ev is i n g t he r et u r n c o nf ir m ed to th e ac c o u nt i ng s y s te m r e gu l ar ly fo l l ow ed by th e as s es s ee . H e nc e t he d ec is i on t o r ev er s e t h e s am e w as r i gh t ly t ak en by th e e mp o wer e d c om m it t ee . S ir , i t is f ur th er br ou gh t t o y our n ot ic e th at i n th e pas t no s uc h t r a ns ac ti o n r ec o g ni zi n g t h e i nt er es t i nc o m e w as e nt er ed by t he as s es s e e o n t he bas is of c as h s y s te m o f ac c o u nt i ng as t h is inc om e w as n ev er r ec e iv ed . T h e de p ar t m en t h as als o nev er o b jec te d to t h e s a me a n d c o ns is t e nt l y ac c ep te d th e r e tur n of t he as s es s e e. H ow ev er i t w as f or t h e f ir s t t i me dur i n g t h e r e lev a nt y e ar un d er c ons i de r a t io n t ha t t h is inc o m e tr a ns ac t i on w as e nt er e d w h ic h to o was a hy po t he t ic a l i nc o m e a nd n ot r ec e iv e d, s o t o m a in t ai n t he c ons is te nc y a nd i n c ons o na nc e wi t h e ar l ier y e ar s t his i nc o me w as r ev e r s e d a nd a r ev is e d r et ur n w as fi l e d.
S ir , ev e n i f t he as s es s e e w o ul d n o t h a v e r ev is ed t h e r e tur n, t h e hy p o th et ic a l i nc o m e c r ed i te d i n t he b o ok s is n ot a t a l l as s e s s ab l e. S i mi l ar ly , th e r at i o l a i d d ow n by t he Ho n 'b l e S u pr em e C o ur t i n t he c as e of C IT W es t B en g al - I Vs . I n d ia D is c ou n t Co . Lt d. 7 3 IT R p ag e 1 9 1 ( S C) ap p l ies t o t he a pp e l la nt 's c as e as t h e H o n 'b le S up r e m e C o ur t ha s he l d th at " t h e r ec e ip t b e i ng on e w h ic h in la w c ou ld no t b e r e gar de d as i nc o m e, it c o u ld no t bec o me i nc om e mer e ly b ec a us e t h e r es p on d en t er r on e ous ly c r e d it e d it t o th e pr of i t a nd l os s ac c o u nt . " S i m il ar ly , t h e Ho n 'b l e Su pr e me Co u r t i n t h e c as e o f Sa t l u j C ot to n Mi l ls Lt d. v s . CI T W es t B e ng a l 1 6 I TR p ag e 1 37( S C) h e ld " it is n ow w e ll s e tt l e d t ha t th e way i n w hic h en tr ies ar e m ad e by th e as s e s s ee i n h is b o ok s o f ac c o u nt is no t de t er m i n at iv e of t he q ues t io n w he th er t h e as s es s e e has ear n e d any pr of i t or s u ff er ed any l os s . T he as s es s ee m ay by mak i ng en tr ies wh ic h ar e no t i n c o nf or mi ty w it h th e pr o pe r pr i nc ip l es of ac c o u n ta nc y , c onc e a l pr of i t or s h ow l os s a nd t he en tr i es ma d e by h im c an n ot , th er ef or e, be r e gar d e d as c o nc l us iv e o n e way or t he o th er . W hat is nec es s ar y to be c o ns i der e d is t he tr u e na tur e o f t h e tr a ns ac t i o n an d wh et h er i n f ac t it h as r es u lt e d i n pr of i t or l os s to t h e as s es s e e. " T he Ho n 'b l e J ur is d ic t io n H i gh C our t has h e l d in th e c as e o f CIT Amr its ar - 1 Vs . N. D. R ad h a K is h a n & C o. 14 0 IT R 8 6 0 ( P &H ) th at " Inc o me d oes no t ac c r u e by mer e e nt r y i n bo ok s o f ac c ou n t- as s e ts o f o ld f ir m t ak en ov er by n ew fi r m at wr it t en d ow n v a l ue - As s e t s r ev a l ue d an d d i ff e r enc e de b it e d t o ol d fi r m- D eb i t e n tr y r ev er s e d a nd i nt er es t c h ar g e d fr om o l d fir m e ar l i er w it h dr a w n in r ev is e d r e tur n r es u lt i ng in r ed uc ti o n o f i nt er es t i nc o m e to inc o me der i v ed fr o m o uts i de s our c e- A m ou nt is o nly a n ot i on a l r ec e i pt a n d n o t as s e s s ab l e i n h a nds o f as s es s e e- F ir m ". Th ey hav e 4 up h e ld th e dec is i on o f th e Tr i bu n al t ha t " t h e me r e p as s i n g o f a n en tr y d i d no t m e an th a t i nc om e ha d ac c r u e d t o t he as s es s e e t h at th e as s es s ee d id no t d er iv e a ny i nc o m e fr o m any o uts i de s o ur c e a n d t ha t it was e nt i tl e d t o r ev e r e th e en tr y at a n y ti m e r etr os pec t iv e ly be f or e th e c o mp l et i o n of th e as s es s m e nt for t he r e l ev a n t y e ar . " T hey f o ll ow e d t h eir e ar i er d ec i s i on i n th e c as e o f CIT Vs . Fer o ze p ur F i n anc e ( P ) Lt d . ( 19 8 0) 12 4 IT R 6 1 9 ( P &H ) . I n v ie w o f t h e ab ov e d ec is i o n o f t h e H on 'b l e S u pr e m e C our t o f In d ia a n d t h e jur is d ic t i on H ig h C our t t h e la w o n th e p oi n t is abs o lu te ly c l ear th a t n ot i o na l i n c om e c an n ot b e as s e s s ed ir r es pec t iv e of t he fac t th at wh e th er t h e as s es s e e has m ad e a ny e ntr y i n t h ei r b o ok s o f ac c o u nt . " T h e as s es s ee h as th e r i g ht t o r e v er s e t h e en tr ies a t a ny t i m e be f or e fr a m in g o f th e as s es s m e nt.
S i mi l ar v i e w hav e b e e n tak e n i n th e f o ll o wi n g d ec is i o n:-
i) CIT v s . I n di a D is c ou n t C o. L t d. 1 9 70 ( 7 5 IT R - 1 9 1) ( S C) i i) S ut l ej C o tt o n Mi l ls L t d . Vs . C IT , 19 7 9, 1 1 6 I TR 1( SC ) .
i i i) CIT v s . Sh o or j i V a ll ab h D as s a nd C o m p any ( 19 6 2) , 46 I TR- 14 4( S C) .
iv ) CIT Vs . N .D . Ra d hak r i ha n a n d Co . ( 1 98 3) 1 4 0 ITR 86 0( P &H)
v) CIT Vs . Ba wa S in g h C ha u ha n ( 1 9 84) 15 0 IT R 8 ( De l h i) Th us i n v i ew of t h e a bov e i t is c l ea lr t h at t he f i l i ng of t h e r ev is e d r e tur n by t he as s es s e e r ev e r s i ng a hy p ot h et ic a l i nc o m e is l e ga l an d t he L d. A. O . mak i n g th e as s e s s me n t o n t he or i gi n a l r e t ur n is il l e ga l ac c o r d in g ly it is no t o n ly t h at th e as s es s me n t o f t he as s es s e e s h o u ld hav e b e en ma d e o n t h e r ev is e d r et ur n a n d i t is n ot on l y th at th e b e n ef it of r ev er s a l of hy p ot he t ic al inc o m e c r e di t ed by t h e as s e s s ee in t h e or ig i n al r e tur n t o be a l lo w ed , ev e n i f t he as s es s e e w o u ld n ot hav e r ev is e d t h e r et ur n r ev e r s i n g t h is hy po t he tic a l i nc o me it is t h e wh o le of th e as s es s m en t t ha t is l ia b le t o b e qu a s he d i n t he c as e wh er e t he A .O . m a k es t h e as s es s m e nt on th e or i g in a l r e t ur n wh e n h e h as a lr e ady i n h is pos s es s io n a v a l id r ev is e d r et ur n . Th us i t is r e qu es t e d th at t h e as s es s e e be giv e n th e b e ne f it of r ev er s a l of hy po th e tic a l i nc o m e w hic h c an no t b e as s es s e d. T hus t h e r ev is e d r e tur n o f t h e as s es s e e wh ic h was a v a li d r et ur n a nd t h e r ev er s a l o f t h e hy po t he t ic a l i n c om e b e ac c e pt ed . "( s i c ) "
The ld. CIT(A) examined the above submissions and did not find any force in the same. He observed that the claim that no income has actually accrued or received after two years from the previous year can not be entertained. He further observed that if the assessee was following cash system of accounting then only that part of income which has actually been received, would be shown in the income and expenditure account. He also observed that the perusal of the accounts particularly schedule "G" of current assets show that there was no mention of amount receivable, therefore, this amount must have been received and accordingly rejected the contention of the assessee.
5 Before us, it was mainly contended that the assessee under the wrong impression credited these amounts as income believing that these amounts were receivable from the Government. However, later on Government of Punjab took a 5 decision that they did not wish to pay these amounts therefore, no income has actually accrued and reversal of the same was proper. In any case no amount has been received and since the assessee was actually following cash system of accounting therefore, this income cannot be taken into credit for taxation purposes unless and until the amount is received.
6 On the other hand, the ld. DR for the revenue strongly supported the order of the ld. CIT(A).
7 We have heard the rival submissions carefully. In this case initially the assessee had recognized income in respect of interest from Government of Punjab, interest on DDA flats and rent from DGP (Miscellaneous receipts) and these incomes were shown in the return of income. Later on these entries were reversed because the assessee had not received any of these payments and filed revised return. No doubt these receipts relate to the income and the assessee is supposed to show this income in the return. There is no justification that these incomes were later on reversed because the Government of Punjab decided not to pay the interest. The assessee being a commercial entity should have insisted on the receipt of interest from the Government of Punjab. However, at the same time the assessee is following cash system of accounting and therefore, these incomes can be recognized in the books of account only when the income has been actually received. We have already discussed the issue regarding cash system of accounting while discussing the issue regarding advance installments received by the assessee in Assessment year 2003-04 in Revenue's appeal in ITA No. 762/Chd/2008 vide order dated 6.12.2013. The issue regarding installments has been adjudicated even in this appeal while discussing the issue regarding installments in ground no. 2 of this appeal vide para No.11. W e have already held while adjudicating the issue of installments that whatever amounts are received have to be accounted as income, therefore, this would also mean whatever has not been received, cannot be accounted as income. However, the facts are not clear because it is not clear whether this amount was received or not because of the 6 accounts with Government of Punjab have been dealt through optimum utilization vacant Government land account (In short OUVGL). Therefore, we set aside the order of the Ld. CIT(A) and remit this issue back to the file of Assessing Officer with the direction to examine OUVGL account and if this amount has not been received by the assessee then same cannot be subject to tax.
8 Ground No. 2 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee has received a sum of Rs. 1,34,44,346/- on account of installments against sale of houses and flats. Since the assessee was following cash system of accounting therefore, this amount was charged to tax.
9 On appeal the ld. CIT(A) confirmed the action of the Assessing Officer.
10 Before us, both the parties agreed that the issue is similr to the issue in respect of ground No. 5 of ITA No. 762/Chd/2008 for Assessment year 2003-04 and made similar arguments as were advanced in that case.
11 After considering the rival submissions we find that the facts inn this case are identical to the facts of assessee's case in respect of ground no. 5 in the appeal filed by the Revenue inn ITA No. 762/Chd/2008. The contentions of both the parties are also same. The issue in respect of ground No. 5 has been adjudicated by us in the consolidated order in ITA No. 762/Chd/2008 dated 6.12.2013 vide para 62 to 72 which are as under:
"62 W e have heard the rival submissions carefully. Section 145 of Income Tax Act reads as under:
"Section 145 - (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.7
( 3) W her e t h e As s es s i ng O f f ic er is n o t s a t is f i ed a bo ut th e c or r ec t n es s or c om pl et e nes s of th e a c c ou n ts of t h e as s es s ee , or whe r e t h e m et ho d of ac c o u nt i ng p r o v i de d i n s ub- s ec t i o n ( 1) o r ac c ou n ti n g s ta n dar ds as no t if i ed u nd er s u b- s e c ti o n ( 2) , h a v e n ot be en r e gu l ar l y f o ll o we d b y t he as s es s e e, th e As s es s i ng O f f ic er m a y m ak e a n as s es s m en t i n t h e m an n er pr o v i d ed in s ec t i on 1 4 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 one system of accounting in respect of income under the head "profits and gains of business or profession or income from other sources". This 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 surprise that assessee is following cash system of accounting when in assessee's case large number of transactions are involved how can an organization can 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 8 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 in an item of expenditure will be booked only when actual cash payment is made. In case of mercantile system of accounting 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 submitted that when the accounts are maintained on cash system of accounting, receipt of money alone may be taken into 9 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 st territories before the beginning of such year 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 ta i n ed ac c o r d i ng to t h e m er c an t i le s ys t em , wh e ne v er t h e r ig h t to r ec ei v e m on e y in th e c o ur s e of a t r ad i n g tr a ns ac t i on ac c r ues or ar is es , e v en th o u gh i nc om e is n ot r e a li ze d , i nc om e em be dd e d i n t he r ec e i pt is d e em ed t o ac c r ue or ar is e. W her e th e ac c o u nts ar e m ai nt a i ne d o n c as h b as is , r ec e i pt of m on e y or m one y' s wor th a nd no t t h e a c c r ua l of th e r ig ht to r ec e i v e is th e d e ter m ini n g f ac tor . T h er ef or e , if c om m er c i al as s ets ar e r ec e i v ed b y a tr a d er m aint a i n in g ac c ou n ts o n c as h bas is i n s at is f ac t io n of an o b l i ga t io n , i nc om e wh ic h is em bed d ed i n t h e va l u e of th e as s e ts is d e em ed t o b e r ec e i v e d; th e r ec e i pt o f inc om e is n o t d ef er r e d t i l l t he as s et is r e a l i ze d i n ter m s of c as h or m on e y. It m ak es n o d if f er enc e wh e th er th e r ec e ip t of as s e ts is in p ur s u anc e of an ag r e em en t or t h at t h e tr a d er is c om pe l l ed b y l a w t o ac c e pt t h e as s ets f r om the d eb tor . O nc e t it l e of th e tr a d er t o a n as s e t r ec e i v ed is c om p le te wh et h er b y a c o ns e ns ua l ar r an g em ent or b y op er at i o n of l a w, h e r ec e i v es t h e i nc om e em bedd e d i n t h e va l ue of th e as s e t. "10
Therefore, in cash system of accounting for determination of the income receipt on money (cash) or moneys worth instruments are determining fact and in accrual of right to receive such money is a 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 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 meaning. 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 case of present year the 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 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 11 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. When 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.
64 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 12 taxable. The Tribunal decided the issue in favour of the assessee vide following paras:
W e hav e c o ns id er ed t he f ac ts of t h e c as e a nd r i v a l s u bm is s i o ns . W e m a y r ef er t o t he c har g i ng s ec t i on 4 of th e Ac t t o th e ef f ec t th a t i nc o m e- tax s ha l l b e c h ar ge d f or a n y as s es s m ent ye ar at the r at e or r at es pr o v i de d i n an y Ce n tr a l Ac ts i n r es p ec t of t he to ta l i n c om e of th e pr e v i ous ye ar of e ver y p er s o n. Sec t io n 5 d e als wi th t h e " s c o pe of t ot a l inc om e" , wh ic h is def in e d in r es pec t of an y pr e v io us ye a r i n t er m s of ac c r u a l, de em ed ac c r u a l, r ec e ip t a n d de em ed r ec e i pt etc . S ec t i on 1 45 de a ls wi th t h e m etho d of ac c o un t in g in r es p ec t of " pr of it s an d g a ins of bus i n es s or pr of es s i o n" or " inc om e f r om oth er s o ur c es ." T hus , wh i l e s ec t io ns 4 an d 5 de a l wi t h t h e s c o p e of i nc om e an d i ts c h ar g e t o i nc om e- t ax , s ec t i on 1 4 5 is a pr oc e d ur a l s ec t i o n r e g ar d i n g t he m et ho d t o b e f o ll o we d f or r e c or d i n g of i nc om e i n th e b o ok s of ac c ou n t. It is n o do u bt tr ue t ha t f or t he as s es s m e nt ye ar 19 9 7- 9 8 an d o n war ds , t h e as s es s ee c an f o l l o w e it h er th e c as h or t he m er c a nt i l e s ys t em of ac c ou n ti n g a n d t he h yb r i d s ys tem of ac c o u nt i ng is pr o hi b it ed . H o we v er , wh at is to b e t ax ed is i nc o m e an d r ec e i pt of a n am oun t i s no t t o be th e bas is f or t h e l e v y of th e tax . In th e c as e of M es s r s . S ho or j i V a l la b hd as a n d Co . [ 19 6 2] 46 IT R 1 44 , t h e ho n ' bl e Su pr em e Co u r t p oi n te d o ut t h at t h e Inc om e- t ax Ac t t ak es i nt o ac c o u nt t wo p oi n ts o f tim e o n wh ic h th e l ia b i l it y to t ax is at tr ac t e d, nam e l y,- ( i) ac c r ua l of i nc om e o r ( ii) r ec e i pt of i nc om e. I t is f ur t h er m enti o n ed t h at t h e s ubs t anc e of t he m att er is " i nc om e" . It m a y b e em phas i ze d th at it is ac c r u al of i nc om e or r ec e ip t of inc om e t h at c a n bec om e t h e s u bj ec t- m at ter of t ax an d i t is th e i nc om e wh ic h h as t o be r ec o r d e d as per s ys t e m of ac c oun t in g f o l l o we d b y th e as s es s e e i n v i e w of s ec t i on 14 5 of t h e Ac t, bec a us e th e s ubs t anc e of t he m att er is " i nc om e" . T her ef or e, th er e is an inf ir m it y i n t h e or d er of t h e l ear n e d Com m is s io ne r of I nc o m e- tax ( Ap p ea ls ) i n par a gr ap h 4. 7 wh er e it wa s s ta te d th at t he e nt ir e am oun t r ec e i v e d, wh e t her ar r e ar s or a d v anc e, is to be s ho wn as inc om e un d er t he c as h s ys te m of ac c ou n ti n g. T he co rr e ct pos it io n w ould b e t h at t h e ent i re inc om e re c eiv ed, w het he r ar r ea r o r adv a nc e of i nc om e, has t o b e sh ow n as in com e un de r t h e c a sh s yst em of a c count ing . "
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 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, 1 9 4 8 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 its earnings. The revenue sought to assess the amounts t o R s . 1 , 3 6 , 9 0 3 / - a n d R s . 2 , 0 0 , 6 2 5 / - b e i n g 7 ½% o f t h e foregone amount as income. On these facts it was held as under:
13" He l d, t h at th e s u bs e q ue n t a gr eem en t ha d al t er e d t h e r at e of c om m is s i on i n s uc h a wa y as t o m ak e the in c om e wh ic h r e a l l y ac c r ue d t o th e as s es s ee d if f er e nt f r om wh at h ad b e en e nt er ed i n t he b o ok s of ac c o u nt . T his was n ot a c as e of a g if t b y t he as s es s e e to t h e m an a ge d c om pan i es of a po r t i on of i nc om e whic h ha d a lr ea d y ac c r u ed , b ut a n agr e em ent to r ec e i ve a l es s er r em u ner a ti o n th an wh a t h ad b ee n agr e e d up o n. T h e as s es s e e h ad i n f ac t r ec e i v e d o n l y t he l es s e r am ou nt i n s p it e of th e e n tr ies i n t he ac c o u nt bo ok s , a n d t h is l es s er am ou n t a l o ne was tax a bl e .
Inc om e- t ax is a le v y on i nc om e. T h ou g h t h e I nc om e- t ax Ac t t ak es in t o ac c o u nt t wo p o i nts of tim e a t wh ic h t he l i ab i l it y to tax is at tr ac t ed , v i z. , th e ac c r u a l of th e i nc om e or i ts r ec e ip t, ye t th e s u bs t anc e of t he m atter is t he inc om e. If i nc o m e does n o t r es ul t a t al l, th er e c a nn o t be a tax , e ve n t h ou g h i n b o ok - k eep i ng , a n e ntr y is m ade a b ou t a " h yp ot he t ic a l i nc om e" , wh i c h d oes no t m at er ia l i ze . W her e inc om e h as , in f ac t , b e en r ec e i v e d an d is s u bs eq u en t l y g i ve n u p i n s uc h c ir c um s tanc es th at it r em ai ns t he i nc om e of th e r ec i p ie nt , e v e n t h ou g h g i v en u p, t h e t a x m a y be p a ya b l e . W her e, ho we v er , th e i nc om e c a n be s ai d n ot t o h a ve r es u l te d at a ll , t h er e i s ob v i ous l y n ei t her ac c r ua l n or r ec e i pt of in c om e, e ve n t ho u gh an e n tr y to t ha t ef f ec t m ig ht , i n c er ta i n c ir c um s ta nc es , ha v e be e n m ad e i n t he bo ok s of ac c ou nt . "
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 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 the amount and the main reason noted 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 Rs. Sale of Rs.
plots 105,42,88,169/- plots 65,18,29,803/-
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 14 the Assessing Officer as mentioned in the assessment order as under:
As r e gar ds t he r e as on f or hu g e los s f r om p ur c h as e an d s a l e of p l ots , it was ex p la i n ed b y th e c ou ns e l, d ur in g d is c u s s i on a nd a ls o ex p l a i ne d b y th e as s es s e e i n i ts l et ter N o. 15 6 7 da te d 0 8. 0 3. 20 0 6 th a t s in c e th e as s es s e e h as c h an g e d i ts s ys tem to c as h s ys t em of ac c ou n ti n g, on l y t h e am oun t ac t ua l l y r ec e i v ed ou t of t ot a l s a l e am oun t h as b e en s h o wn as s a le whe r e as th e p l ot s whic h h a ve b e en s o l d bu t o nl y a p ar t of t h e s a le am oun t of wh ic h h as b ee n r ec e i v ed a r e n o t r ef l ec t e d i n th e c l os i ng s toc k wh ic h is th e r e as o n f o r t he l os s i n th e p ur c h as e a n d s a le of pl o ts f or th e as s es s m e nt ye ar 20 0 3- 0 4 . B u t i n t h e s u bs eq u en t ye ar s i. e . as s es s m ent ye ar 2 0 04- 0 5 on wa r ds , t h er e is pr of i t f r om pur c h as e a n d s al e of p lo ts . Dur i n g d is c us s i o n, it was ex p l a in e d b y t h e c ou ns e l b y g i v i ng an e x am pl e. S up p os e , t h e c os t o f pl ot is Rs . 1, 00 , 0 00 /- an d it is s ol d f or Rs . 1, 5 0, 00 0 /- dur i n g t h is ye ar b u t o n l y 25 % of th e c os t of t h e p l o t i. e. , Rs . 37 , 50 0/- is ac t u a l l y r e c e i ve d d ur in g t he ye a r . Ac t u a l l y, t he pr of it ear n e d is Rs . 5 0 ,0 0 0/ . B ut s i nc e t h e as s es s e e h as a do p te d c as h s ys tem , s al e wi l l b e s h o wn a t Rs . 3 7, 5 00 /- f o r th e ye a r . T he v al u e of c los i n g s t oc k of th at pl o t wi l l b e N i l as the pl o t has be e n s o l d a nd is i n th e p os s es s i on of th e p ur c h as er . So th is wi l l r es u l t i n to l os s o f Rs . 6 2, 50 0 /- f or t h at ye ar .
No w i n t h e nex t ye a r , th er e wi l l b e n o op e n in g s toc k in r es p ec t of t ha t p lo t b u t if t h e b a l anc e am oun t of s a le c o ns i der a ti o n i. e. Rs . 1, 1 2, 50 0 /- is ac t u al l y r ec e i ve d i n t ha t ye ar t ha t wi l l b e s ho wn as t he am ou nt of s a l e f or wh ic h t her e wi l l b e no o p en i n g s t oc k or c or r es p o n di n g pur c h a s e an d th e s am e, a lr e ad y- s o l d p lo t wi l l g i ve a pr o f it of Rs . 1 , 12 , 50 0/- i n th a t nex t ye ar . T h is is t h e r e as o n th at t her e is s te e p r is e i n t h e pr of i t f r om s a le of p lo ts in th e n ex t ye a r . T h e as s es s ee 's c ou ns e l r ef er r e d to t h e or ig i n al a n d r e v is ed r e tur n f or th e s uc c ee d i n g as s es s m ent ye ar 2 0 04- 0 5. P er us a l of th es e r et ur ns s h o ws t ha t i n th e or ig i na l r e tur n f or t h e as s es s m e nt ye a r 20 0 4 - 05 , th e i nc om e as p e r t he pr of i t a nd l os s a c c ou n t an d af t er de d uc t i ng de pr ec ia t io n as p er I nc om e T ax Ru l es h a s be en s ho wn a t Rs . 7 ,6 7, 6 1, 28 9 /- , I n t h e r e vis e d r et ur n, t he i nc om e as per t h e pr of it a n d l os s ac c o un t a nd af ter de d uc t i ng d e pr ec i a ti o n as per t h e Inc om e T ax R u les h a s b ee n s ho wn a t Rs . 3 9, 50 , 14 ,9 0 7/- . T h er e is a s te e p r is e of Rs . 31 ,8 2, 5 3, 61 8 /- i n t he i nc o m e f or the as s es s m en t ye a r 20 0 4- 05 wh ic h is m a in l y on ac c o un t of r ec og n i zi n g r e ve n ue o n pu r c has e an d s a l e of pl o ts on c as h m eth o d of ac c o u nt i ng . "
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 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 15 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 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 Income Tax 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). I n t h a t c a s e t h e a s s e s s e e 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 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 as under:
" He l d ac c or d i n gl y, af f i r m ing t h e d ec is i o n of th e H i gh C o ur t , t ha t, s i nc e , f r om the var i o us s t at e m ents pr o duc e d, t h e en t ir e ex er c is e ar is in g ou t of th e c h a ng e of m eth o d f r om the c om pl et e d c on tr ac t m eth o d t o d ef er r ed r e ve n u e ex pe n d it ur e was r e ve n ue n eu tr a l, t h e c om pl e te d c on tr ac t m etho d wa s no t r e q u ir e d t o be s u bs t i tu te d b y th e p er c en ta ge of c om pl et i on m eth o d. "16
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) t ha t t he un d er t ak in g t o c ar r y o u t th e d e ve l o pm ents wi t h in s ix m onths f r om the da te s of the d e eds of s al e ( whic h , i n v i e w of t he f ac t th at t im e was no t of th e es s enc e of th e c on tr ac t , m ea nt a r e as on a b le tim e) was unc o nd i ti o n a l, t h e a p pe l l an t b i n d i ng i ts e lf a bs ol u te l y t o c ar r y ou t t h e s am e. T ha t un d er t ak i ng im por te d a l i ab i l it y o n t he a pp e l la n t wh ic h ac c r u e d o n t h e da t es of th e d ee ds of s a le , t h o ug h th a t l ia b i l it y wa s to be d is c har g e d a t a f utur e da t e. It was th u s an ac c r ue d l ia b i l it y an d t h e es t im at ed ex pe n di t ur e wh ic h wou l d be i nc ur r ed i n d is c h ar g i n g t he s am e c ou l d b e de d uc t e d f r o m the pr of i ts a n d g a i ns of t he b us in es s , a nd th e am oun t t o be ex p e nd ed c o u l d be de b it e d i n ac c o u nts m ai nt a in e d i n th e m er c ant i l e s ys t em of ac c o u nt i ng b ef or e it was ac tu a l l y d is b ur s e d. T h e d if f ic u lt y i n t he es t im at i on t h er e of d i d n ot c on v er t t h e ac c r ue d l i ab i l it y i nt o a c o n d it i on a l on e, b ec a us e it was al wa ys o pe n t o t h e I nc om e- tax au t hor i ti es c o nc er n e d t o ar r i ve a t a pr o p er es t im at e th er eof ha v i n g r eg ar d t o a ll t h e c ir c u m s tanc es of t he c as e .
( i i) T ha t th e s um of Rs . 24 , 80 9 r e pr es en te d the es t im at ed am oun t wh ic h wo u ld h a ve to b e ex pe nd e d b y th e as s es s e e i n t he c ou r s e of c ar r yi ng o n its bus i n es s a nd was i nc id e nt a l to th e b us i n es s a nd , h a v in g r eg ar d t o th e ac c e p te d c om m er c ia l pr ac t ic e an d tr ad i ng pr inc i p les , was a de d uc t i on wh ic h, if t her e was n o s pec if ic pr o v is io n f or it u nd er s ec t i on 1 0( 2) of th e Inc om e- t ax Ac t, was c er t a in l y a n a l lo wa b l e d e duc t io n, ar r i v i ng at t h e pr of its an d g a ins of th e b us in es s of th e a p p e ll a nt , u nd er s ec t io n 1 0( I) of th e Ac t, t h er e b e i ng n o pr oh i b it i on ag a ins t i t, ex pr es s or im pl i e d, i n t h e Ac t .
T he ex pr es s i o n " p r of it s or g a ins " i n s ec t io n 10( I) of t h e I nc om e- t ax Ac t has t o b e un d er s t o o d in i ts c om m er c ia l s ens e an d th er e c a n be n o c om put at i o n of s uc h pr of its a n d g ai ns u nt i l th e ex p en d it ur e wh ic h is nec es s ar y f or th e p ur p os e of ear n in g t he r ec e ip ts is d e duc t ed t h er e f r om - wh et h er th e ex pe n d it ur e is ac t u al l y i nc ur r ed or t h e l ia b i l it y i n r es p ec t th er eof h as ac c r u e d e v en t h ou g h it m a y h a v e to b e d is c har g ed a t s om 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 17 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 the such installments and net results should be considered in the year of completion of each of the housing schemes.
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."
Following the above, we decide this issue against the assessee.
1812 Grounds No. 3 & 4 - After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that the assessee has incurred administrative and maintenance expenses on developed and developing sectors. According to him the expenses incurred on developing sector is not revenue expenditure and therefore, he disallowed a sum of Rs. 11,64,19,304/- on account of administrative expenses after reducing provident fund contribution from the total expenses because according to him some expense were incurred for the scheme which are under development. This issue has been raised in grounds No. 3 & 4 and disallowance of maintenance expenses has been separately challenged by the assessee through ground No. 4 that is why these two grounds are being considered together.
13 On appeal the action of the Assessing Officer was confirmed by the ld. CIT(A).
14 Both the parties before us submitted that the facts in this case are identical to the facts in respect of ground no. 4 in assessee's appeal for Assessment year 2004-05 and both the parties submitted same arguments as were advanced in Assessment year 2004-05, may be adopted here.
15 After considering the rival submissions we find that the facts are identical to the facts of ground No. 4 in assessee/s appeal in Assessment year 2004-05 in ITA No. 759/Chd/2007 vide order dated 6.12.2013. This issue was decided vide para No. 115 which is as under:
"115 We have heard the rival submissions carefully. We 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 administrative expenses incurred is clearly in the field of revenue. Further the assessee was following cash system of accounting, therefore, once cash has been spent or outgone from the assessee same has to be treated as 19 expenditure. Therefore, we set aside the order of the Ld. CIT(A) and delete the addition."
16 Ground No. 5 - After hearing both the parties we find that the assessee has also taken a plea if the administrative expenses and maintenance expenses, was disallowed then same should be added to the closing stock and benefit should be given for the opening stock. However, the ld. CIT(A) did not find force in the same and following the appeal order for Assessment year 2007-08 held para 9.1 as under:
"Similar ground was taken in Assessment year 2007-08 also and my predecessor has adjudicated this ground vide paras 29 to 3`1 of her order dated 14.1.2011 (sup4a) as under:
"29 I have carefully considered the rival contentions and material on record. I find that the Assessing Officer in the preceding year has disallowed 50% of the administrative expenses on the count that these expenses were relatable to incomplete project. Since these expenses were disallowed on account of being related to uncompleted projects, such disallowed expenses formed part of the closing stock in that preceding year. The closing stock of the preceding year becomes the o0pening stock of the year under appeal. I agree with the contention of the appellant that the disallowed expenses of the preceding year on this account should form part of the opening stock. I further find that there is no martial on record to suggest that the projects in respect of which the expenses were disallowed in the preceding year got completed in the year under consideration . Since there is no evidence or material with regard to completion of projects in respect of which these expenses were disallowed in preceding year, I am of the opinion that these disallowed expenses of preceding years which formed part of opening stock of the year under consideration due to non completion of these projects and will be carried forward to the subsequent years until the projects to which these disallowed expenses relate are completed.
30 In view of the above, the contention of the appellant that it should only form part of the opening stock is not tenable since it will also form part of the closing stock due to non completion and sale thereof of the projects to which these expenses related.
31 This ground of appeal is therefore, partly allowed."
17 Both the parties were heard in detail.
18 After considering the rival submissions we find that we have already held that the administrative expenses as well as maintenance expenses are allowable in view of the cash system of accounting and therefore, this ground would become infructuous and accordingly the same is dismissed.
19. In the result, appeal of the assessee is partly allowed.
20 ITA No. 485/Chd/2012 - Revenue's appeal20 In this appeal the revenue has raised the following grounds:
"3 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. 5,99,39,928/- on account of contributions 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 Scheme framed under the Employee provident fund Act, 1952.
4 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. 1,99,96,457/- 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."
21 After hearing both the parties we find that during assessment proceedings the AO disallowed a sum of Rs. 5,99,39,928/- on account of contribution to unrecognized provident fund. The addition was deleted by the ld. CIT(A).
22 Before us, both the parties submitted that the facts are identical to the issue taken up by the revenue in Assessment year 2003-04 in Revenue's appeal in ITA No. 762/Chd/2008 vide ground No. 7. Both the parties made similar contentions as were made in respect of ground No. 7 for Assessment year 2003-04 in ITA No. 762/Chd/2008.
23 After considering the rival submissions we find that since the facts and contentions are identical to the facts in respect of ground No. 7 in Revenue's appeal for Assessment year 2003-04 in ITA No. 762/Chd/2008, this issue has been decided by us vide paras No. 84 to 86 which is as under:
"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 21 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 he St at e G o v er nm ent s h a ll es t ab l is h a pr o v id e nt f un d f or t h e em pl o ye es of t h e B o ar d a n d s uc h pr o v id e nt f u n d s ha l l be de em ed t o b e a G o v er nm e nt Pr o v i d en t F un d f or t h e p ur p os e of the Pr o v id e nt F u nd Ac t, 1 92 5( Ce n tr a l Ac t X I V o f 192 5) a nd no t wi ths t an d i ng an yt h i n g c o n ta i n ed i n s ec t i on 8 th er eof , s uc h f u nd m a y b e a dm in i s ter e d b y s uc h of f ic er s of t h e S t at e G o v er nm ent o r of th e B o ar d as t h e St at e G o v er nm en t m a y s p ec if y i n t h at b e ha 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 some 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 reads as under:
Application 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 where 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 22 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 the same contribution is received by the assessee and when the 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 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 towards recognized provident fund or other funds. From this it becomes clear that as far as employees 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 employees 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 23 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) Th e pr ov is i on s of t h is s ec ti o n s h a l l hav e e ff ec t no tw i t hs t an d i ng any t hi n g t o th e c o nt r ar y c o nt a in e d i n a ny oth er pr ov is i on of t h is Ac t r e la t in g to t he c o m pu t at i on o f inc o m e u n de r th e h ea d " Pr of i ts a n d g ai ns of b us i nes s o r pr o f es s i on " .
However, careful reading clearly shows that exception provided in this section are in respect of deduction allowed u/s 36(1)(iv)n 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 for 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 approved.
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 24 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 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 25 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:
"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 plo yed 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 plo yer should not have an y control over the f unds 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 one ys 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 th Fund) Rules 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 where 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 26 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).
86 Another contention was also raised that the funds have not been invested in the long term FDRs. We 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."
Following the above, we set aside the order of the Ld. CIT(A) and remit the matter to the file of Assessing Officer with similar directions as contained in above extracted paras.
24 Ground No. 4 - During the assessment proceedings the Assessing Officer had disallowed depreciation amounting to Rs. 1,99,96,457/- because according to him the details were not available whether the building included land or not?
25 On appeal the issue was decided in favour of the assessee.
26 Before us, both the parties submitted that this issue is also identical to the issue raised in ground No. 3 of Revenue's appeal for Assessment year 2005-06 in ITA No. 769/Chd/2008.
Both the parties submitted that the decision in respect of ground No. 3 for Assessment year 2005-06 may be followed here also.
27 After considering the rival submissions we find that this issue is identical to the issue in respect of ground no. 3 of revenue's appeal in Assessment year 2005-06 in ITA No. 27 769/Chd/2008 which has been decided by us vide para 124 of the consolidated order dated 6.12.2013 which reads as under:
"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 cleared the chunks of land and it is not possible to identify only plots for capitalization and therefore, there is merit in the argument that value of land was considered in various schemes. In these circumstances, we find nothing wrong with the order of the ld. CIT(A) and confirm the same."
Following the above we decide this issue against the revenue and in favour of the assessee.
28 In the result, ITA No. 485/Chd/2012 is partly allowed 29 ITA No. 391/Chd/2012 and ITA No. 485/Chd/2012 are partly allowed.
Order pronounced in the open court on 23.12.2013 Sd/- Sd/-
(SUSHMA CHOWLA) (T.R. SOOD)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 23.12.2013
SURESH
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR 28