Income Tax Appellate Tribunal - Jaipur
Jaipur Development Authority, Jaipur vs Assessee on 4 January, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA No. 427/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2009-10.
Jaipur Development cuke Assistant Commissioner of
Authority, Vs. Income Tax,
J.L.N. Marg, Jaipur. Circle-(5), Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAATJ 4598 C
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 447/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2009-10
Deputy Commissioner of cuke Jaipur Development
Income Tax, Vs. Authority,
Circle-(5), Jaipur. J.L.N. Marg, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAATJ 4598 C
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Shyam Lal Agarwal &
Shri Tarun Agarwal
jktLo dh vksj ls@ Revenue by : Mrs. Rolee Agarwal (DR)
lquokbZ dh rkjh[k@ Date of Hearing : 14/12/2015.
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 04/01/2016.
vkns'k@ ORDER
PER T.R. MEENA, A.M.
These are cross appeals one by the assessee and the another by the revenue arise against the order dated 28/02/2013 passed by the ld 2 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT CIT(A)-II, Jaipur for A.Y. 2009-10. The effective grounds of both the appeal are as under:-
Grounds of assessee's appeal:-
"1. The ld. CIT(A)-II has erred at law as well as in facts to apply the provisions of Section 145(3) and assessee in the manner as provided in section 1`44 of the I.T. Act, 1961.
2. The ld CIT(A)-II has erred in law and exceeded in jurisdiction in disallowing the exemptions U/s 11 of the Act by holding that the activities of the appellant Board are not charitable in view of amended proviso section 2(15) of the Income Tax Act, 1961.
3. The ld CIT(A)-II has erred at law as well as in facts in disallowing the net amount of Rs. 269,69,91,775/- of the development expenditure and development revenue treating it as capital expenditure as on account of change in accounting policy and further disallowing a sum of Rs. 21,13,94,421/- out of the establishment and administrative expenses to the extent of 5% of the total development expenditure related to such change.
4. the ld CIT(A)-II has erred at law as well as in facts in disallowing Rs. 1,07,02,423/- on account of expenses on shooting range.
5. The ld CIT(A)-II has erred at law as well as in facts in disallowing Rs. 5,00,00,000/- being expenditure as contribution for Deendayal Medical Hospital at Jaipur assuming them as donation to charitable institutions, further doubly disallowing the same.3
ITA No. 427 & 447/JP/2013 JDA Vs. ACIT
6. The ld CIT(A)-II has erred at law as well as in facts in disallowing Rs. 1,74,22,857/- on account of amortization of expenditure on tree guard/wire fencing being provided for growing trees in the JDA region.
7. The ld CIT(A)-II has erred at law as well as in facts in not providing proper opportunity of being heard to the appellant before passing the order."
Ground of revenue's appeal:-
"On the facts and in the circumstances of the case and in law the ld CIT(A) has erred in:-
(i) Deleting of Rs. 1,98,41,604/- made by the A.O. on account of disallowance of depreciation without appreciating the fact that the assessee has already take deduction of cost of assets purchased in earlier years as application of income in earlier year and claiming of depreciation on such assets would tantamount to double benefit."
2. The ld Assessing Officer has observed that the assessee is maintaining and developing of area and civic amenities including allotment of lands. The assessee filed its return on 29/09/2009 claiming loss of Rs. 1,86,64,18,300/-. The case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (in short the Act). All the grounds of appeal are interlinked. The ld Assessing Officer observed that the assessee had claimed exemption U/s 11,12 and 13 of the Act considering it to be a 4 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT charitable organization. From A.Y. 2009-10 w.e.f. 01/4/2009, the definition of charitable purposes has been changed by indicating the provisions of Section 2(15) of the Act. The ld CIT-II, Jaipur vide order No. 1264 dated 29/12/2011 had withdrawn the registration granted U/s 12AA of the Act, therefore, from A.Y. 2009-10, there was no registration U/s 12AA of the Act and the assessee is not entitled exemption U/s 11,12 and 13 of the Act. Therefore, the ld Assessing Officer calculated the assessee's income as per the normal provisions of the Act. The auditor of the assessee company had made 15 qualification on method of accounting adopted by the assessee one of the qualification is as under:-
"The authority has maintained the accounts on cash basis and has carried various notes in schedule X to the balance sheet, has not followed the applicable accounting standards and has also not ascertained the figures to be reported for necessary disclosures, therefore the same could not be commented upon. Reference is made to schedule X of accounting policies and notes for the individual issues and particularly the related accounting policy mentioned at Note No. 1 of schedule X. Further effect of changes in accounting policy has not been ascertained as per Note No. 1 of schedule X and the effect on the income and expenditure and balance sheet of the qualification 5 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT mentioned herein after could not be reported since not ascertained by the management as reported in the respective notes."
The ld Assessing Officer observed that the assessee had not followed existed accounting principle. He has not satisfied about correctness or completeness of the account of the assessee and in view of Section 145(3), the assessment was made in manner provided U/s 144 of the Act as a best assessment.
The ld Assessing Officer further held that no proper explanation was furnished before him as to how the incurred expenditure of last year shows as closing development fund would be admissible as expenses during the year specifically when the assessee is followed cash system of accounting. Similarly, it could not be explained before him as to how the change method is as per existed accounting norms and practices. Accordingly he rejected the accounting system followed during the year under consideration. He applied the last year method of accounting, the deposit shown in the income and expenditure account was required to be reduced by Rs. 2,69,69,91,775/- to make it comparable with the last year method. It does not include 5% of administrative expenditure, which was the practice till last year, which 6 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT was worked out at Rs. 1,41,85.013/-. He further found that Rs. 27,08,29,603/- had incurred on development work on shooting range. The expenses are required to be considered as application of income and as the assessee income is being computed without giving effect of Section 11 and 12. Accordingly he disallowed the expenditure incurred on shooting range and held that this expenditure is capital expenditure as enduring benefit is derived and assets are created. The assessee had also claimed Rs. 1,07,02,423/- as a civil payment in connection with shooting range programme, which has not been incurred wholly and exclusively for earning of the income, accordingly, it has been disallowed. The assessee also made payment exceeding Rs. 20,000/- cash amounting to Rs. 1,26,000/- which has also been disallowed U/s 40(a)(3) of the Act. The assessee had claimed depreciation amounting to Rs. 1,98,41,604/-. Since the expenditure in respect of addition to fixed assets is already allowed in earlier years as application of income, assessee is not entitled for double deduction on those additions to fixed assets in the shape of deprecation. Accordingly, depreciation was not allowed by the Assessing Officer. Similarly, the cost of tree guards/wire fencing of Rs. 1,74,22,857/- claimed as amortization was disallowed. This expense had been allowed as development expenses in earlier 7 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT years. Action as mentioned in case of depreciation would be taken after submission of full details and justification for amortization at rate of 30%. The appropriate depreciation would be allowed. As per note 27 of the Auditor Report the assessee had paid an amount of Rs. 5 crores each to Amber Development Authority and Deen Dayal Charitable Trust. No doubt these expenses would be admissible as application of income but in regular computation of income, these expenditures are not allowable. The ld Assessing Officer finally assessed the total income of the assessee at Rs. 126,36,80,980/- in place of deficit at Rs. 186,64,18,300/-.
3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the order by observing that the ld CIT-II, Jaipur has granted registration U/s 12AA of the Act vide order dated 21/11/2008 w.e.f. 14/3/2007. Later on in compliance of Hon'ble ITAT order dated 30/01/2009 it was made effective from 12/10/1982 but this registration was withdrawn by order dated 29/12/2011 by ld CIT-II, Jaipur. The ld CIT(A) has observed that when the assessee's registration has been withdrawn for the income tax purposes, the institution is not charitable. This was withdrawn by the ld CIT in view of the amendment made in Section 8 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT 2(15) wherein charitable purpose by way of advancement of any other object of general public utility had been added in this Section, advancement of any other object of general public utility shall not be charitable purpose in certain circumstances that is if it involves the carrying on any activities in the nature of trade, commerce or business, or any activity or rendering any service in relation to any trade, commerce or business, for a cess or fee on any other consideration, irrespective of the nature of use or application, retention on the income from such activity. The ld CIT(A) analysed Section 2(15) of the Act and also considered circular No.8/2008 dated 19th December, 2008. As per ld CIT-II, Jaipur order, JDA does not pay anything for cost of land as the land is vested to it by the State Govt. The revenue share between Jaipur Nagar Nigam and government of Rajasthan. Some of the receipts were kept by the assessee itself. The ld CIT(A) held that the JDA is selling property on auction, which is an activity duly commercial in nature. The assessee argued that the assessee is a charitable organization as per JDA Act. The assessee had followed existed principle of accounting, any change made in accounting system has been qualified by the auditor by providing the note in assessment year 2008-09, the develo0pment receipts and entire development expenditure was put and then the 9 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT result was taken to the balance sheet. During the year under consideration, the development expenditure as claimed as revenue as the assessee is not getting any enduring benefit from the development work like road, sewerage and other facilities provided to improve the urban area. In A.Y. 2006-07, the Additional CIT stated that all the development expenditure are of revenue nature and which was allowed by him but the assessee had treated the development receipt and expenditure as per past. Only change was made in the A.Y. 2009-10. All the development activities in the Jaipur region is carried out by the assessee itself or through local authority or private operators but on control from initial production given to completion of project always under the watch of the assessee. The norms of the JDA has to be followed by them. They further argued that the Hon'ble ITAT has granted registration U/s 12AA, therefore, even due to change of accounting policy as such there is no surplus if calculated will be adjusted against either carry forwarded loss of the assessee or applied for the charitable purpose. The ld CIT(A) emphasized the amendment made in Section 2(15) of the Act for charitable activities and availability of exemption u/s 11. The ld CIT(A) has held that there is no deficit because opening balance available of development fund of Rs. 10
ITA No. 427 & 447/JP/2013 JDA Vs. ACIT 334,68,94,540/-, which has not been added in schedule-D filed alongwith the return. She calculated the surplus of Rs. 64,99,02,764/- on the basis of system of accounting followed in A.Y. 2008-09. The ld CIT(A) has computed the income after considering the deficit shown by the assessee from page 46 to 63 and held that disallowance of Rs. 141,85,013/- taken out in the second part of ground No. 2, in this appeal, has been enhanced to Rs. 21,13,94,421/- as this is the correct amount, which should have been reduced from the expenditure side of the income and expenditure statement as per accounting note 9 of A.Y. 2008-09. According to which, 5% of development expenditure excluding grant given is capitalized as financial and the administrative overheads. In the result, the appeal of the assessee enhanced with respect to one ground and other grounds has been dismissed or allowed. The ld CIT(A) had allowed depreciation on fixed assets at Rs. 1,98,41,604/- on the ground that income has been assessed as business income, disallowance of deprecation. Accordingly she allowed depreciation.
4. Now both are in appeals before us. The ld AR of the assessee has reiterated the arguments made before the ld CIT(A) and argued that the Hon'ble ITAT has granted registration U/s 12AA of the Act w.e.f. 14/3/2007. The Assessing Officer has to allow the benefit given in 11 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT Section 11 and 12 of the Act to the assessee Trust. There is no doubt that the assessee's activities are charitable and are not covered U/s 2(15) of the Act. The Hon'ble Bench has considered this issue also at the time of allowing the registration in favour of the assessee. He further argued that in case of Trust, there is application of income in an acquired assets and thereafter depreciation is also allowable on the same assets as per accounting policy, which has been decided by the various courts in favour of the assessee that in case of Trust depreciation is allowable on assets. He further argued that the assessee had changed the accounting system during the year as per law. Earlier the development receipts and expenditure was separately taken and net amount was taken in the balance sheet. However, the assessee is not getting any benefit from the development activity as it is not an income generated apparatus for the assessee. Therefore, whole amount on development has been debited in the P&L account. Whatever development activity carried out by the appellant is making available to the public such as road, sewerage, developing of societies, water facilities, gardens and no revenue has been charged from the public on using these facilities. Therefore, there is no benefit to the assessee but being their activities are charitable, it has to be debited in full in the P&L 12 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT account. It is further submitted that even after completion of these development activities, the assessee has to be maintained them and incurred the expenses on it. Therefore, the ld AR has prayed to allow the accounting system changed by the assessee. He further prayed that the matter may be set aside to the Assessing Officer to give the benefit of Section 11 and 12 of the Act. He relied on the decision of Hon'ble Gujarat High Court at Ahmedabad (Tax Appeal No. 902 of 2013) in the case of CIT Vs Mapin Publishing Pvt. Ltd.
5. At the outset, the ld CIT DR vehemently supported the order of the ld CIT(A) and argued that the assessee's registration has been withdrawn by the CIT. However, the Hon'ble ITAT has allowed registration U/s 12AA of the Act, therefore, she fairly accepted the arguments made by the ld counsel for the assessee. Accordingly benefit of Section 11 and 12 are to be given by the Assessing Officer. Further, she argued that as per accounting principle, the assessee first applied income inquiring the capital assets and thereafter also claimed depreciation on it, which is double deduction, the same is not allowable. Accordingly she prayed to confirm the order of the ld CIT(A).
6. We have heard the rival contentions of both the parties and perused the material available on record. The assessee has been 13 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT granted registration by the order of the Coordinate Bench in ITA No. 927/JP/2007 order dated 30/05/2008 w.e.f. 14/3/2007 wherein the coordinate Bench has held that the assessee's activities are charitable and are not covered U/s 2(15) of the Act. Therefore, the Assessing Officer is directed to give benefit of Section 11 and 12 of the Act to the assessee. The income of the assessee is to be assessed on the real income basis which has been accrued to the assessee during the year under consideration. The appellant had changed method of accounting during the year under consideration but the same has been found more accurate and scientific to determine the assessee's income. Therefore, change of accounting is bonafide and same cannot be rejected on the ground that the assessee had claimed more expenses during the year under consideration. The case law relied by the assessee is squarely applicable. A change in the method of accounting should not be rejected for reasons that it would result in bringing into accounts in one year the losses of several years as held in the case of CIT Vs. Eastern Bengal Jute Trading Co. Ltd. (1978) 112 ITR 575 (Cal.) Accordingly change of the accounting policy is allowed.
The assessee has claimed depreciation on fixed assets which is also allowable as held by the various courts in case of Trust where the 14 ITA No. 427 & 447/JP/2013 JDA Vs. ACIT assessee first made income for application of acquiring of assets and thereafter claiming depreciation on it. Accordingly, we allow the assessee's appeal and dismiss the revenue's appeal.
7. In the result appeal of the assessee is allowed and revenue's appeal is dismissed.
Order pronounced in the open court on 04/01/2016.
Sd/- Sd/-
¼yfyr dqekj½ ¼Vh-vkj-ehuk½
(Laliet Kumar) (T.R. Meena)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 4th January, 2016
Ranjan*
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Jaipur Development Authority, Jaipur.
2. izR;FkhZ@ The Respondent- The ACIT/DCIT, Circle-5, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.427 & 447/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar