Income Tax Appellate Tribunal - Panji
Rajasthan Housing Board, Jaipur vs Acit(Exemption), Jaipur on 14 June, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ ITA No. 1130/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2007-08
M/s Rajasthan Housing cuke The ACIT(Exemptions),
Board, Janpath, Jyoti Vs. Jaipur.
Nagar, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No.: AAALR0046F
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ ITA No. 27/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2007-08
The ACIT(Exemptions), cuke M/s Rajasthan Housing Board,
Jaipur. Vs. Janpath, Jyoti Nagar,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No.: AAALR0046F
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.)
jktLo dh vksj ls@ Revenue by : Shri Verindra Mehta (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 23/05/2017
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 14/06/2017.
vkns'k@ ORDER
PER SHRI VIKRAM SINGH YADAV, A.M.
These are the cross appeals filed by the assessee and the Revenue directed against the order of ld. CIT(A)-5, Jaipur dated 18.10.2016 for A.Y. 2007-08. Both the appeals were taken up together and for the sake of convenience, they are being disposed off by this consolidated order.
ITA No. 1130/JP/2016& 27/JP/2017M/s Rajasthan Housing Board Vs ACIT(E), Jaipur ITA No. 1130/JP/2016 The assessee has taken following grounds of appeal:-
"1. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the action of the AO in holding that the notice u/s 148 and consequent order passed u/s 147/143(3) is in accordance with the provisions of the Act.
2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in not allowing the benefit of exemption u/s 11 & 12 in view of the proviso to section 12A inserted w.e.f. 01.10.2014 even when the assessee is granted registration u/s 12A w.e.f. 27.03.2008.
3. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in holding that the contingency and equalization reserves is in the nature of provision made on estimate and not an ascertained liability and accordingly confirming disallowance of Rs. 11,97,65,913/-
2. Regarding ground No. 1 of assessee's appeal, briefly the facts of the case are that the assessee filed its return of income u/s 139(1) on 31.10.2007 at income of Rs.88,75,22,659/-and thereafter, the assessment u/s 143(3) was completed on 29.12.2009 at an income of Rs.87,96,65,295/. The AO thereafter issued notice u/s 148 dt. 26.03.2014. In the reasons recorded for issuance of notice u/s 148, the AO observed that assessee has debited Rs.11,97,65,913/- as Contingency & Equalization Reserve (CER) in Works a/c which is not ascertained liability but a contingent liability which is not allowable and therefore income to that extent has escaped assessment on account of failure of the assessee to disclose the accounts in proper manner. The AO, thereafter, completed the reassessment proceedings u/s 147 by disallowing Rs.11,97,65,913/- on account of CER, Rs.1,03,54,890/- on account of depreciation, Rs.87,11,809/- u/s 40(a)(ia) and by making an addition of Rs.5,01,09,174/- on account of undisclosed profit from auctioned property.
2 ITA No. 1130/JP/2016& 27/JP/2017M/s Rajasthan Housing Board Vs ACIT(E), Jaipur 2.1 The Ld. CIT(A) upheld the notice u/s 148 and the assessment order passed u/s 147 by holding that AO has recorded proper reasons that income chargeable to tax pertaining to contingency and equalization reserve has escaped assessment. The relevant finding of the CIT(A) is reproduced as under:-
"2.3 I have considered the facts of the case, the assessment order and the submissions of the appellant. The first contention of the appellant is that since the case has been reopened after the expiry of 4 years, the AO was required to show that income had escaped assessment because the assessee had failed to disclose fully and truly all material facts. The assessee has stated that all material facts had already been submitted during the original assessment proceedings. In this regard, it is necessary to consider the reasons for issuing notice u/s 148 as recorded by the AO. The said grounds (reasons) are as follows:
"Income of the assessee was assessed for AY 2007-08 at Rs. 87,96,65,295/- u/s 143(3) vide assessment order dated 29.12.2009. While assessing income for the AY 2006-07, 2010-11, 2011-12 and 2012-13, it has been noticed that the assessee has been claiming contingency & Equalisation Reserve (CER) as expense in its work accounts for the AY 2007-08, the assessee has claimed Rs. 11,97,65,913/- as CER for AY 2007-08.
It is observed that CER fund is created by the assessee by charging certain percentage on development/ construction of work properties as per costing principles of RHB. The liability so created is utilized to compensate for various loses on account of unforeseen circumstances, on account of freezing of cost of property which may be necessitated in some cases, awards to the paid as result of litigation etc. in property disposal, to compensate loses on account of sick contracts, if required. Thus this CER is not ascertained liability. It is contingent liability which should not be allowable. Thus apparently income to the extent of Rs. 11,97,65,913/- has escaped assessment. This escapement was on account of failure of the assessee to disclose the accounts in proper and transparent manner.3 ITA No. 1130/JP/2016& 27/JP/2017
M/s Rajasthan Housing Board Vs ACIT(E), Jaipur In view of above I have reason to believe that income to the extent of Rs. 11,97,65,913/- has escaped assessment u/s 147 of IT act, 1961 on account of failure of the assessee to disclose truly and fully facts."
It emerges from the above grounds that the assessee had been claiming Contingency & Equalisation Reserve (CER) amount as deduction from year to year. The said amount was an unascertained liability as found out by the AO subsequent to passing the original assessment order from A.Y. 2007-08 and while assessing income of other years in which the similar claim had been made and such claim was found to be untenable. Accordingly, since the claim had been made in A.Y. 2007-08 also, the AO issued notice u/s 148 after duly recording the reasons including the fact that the escapement was on account of failure of the assessee to disclose the accounts in proper and transparent manner. The assessee has contended that it had given the Balance-Sheet containing the CER account and other audited accounts during the original assessment proceedings and had therefore made proper disclosure of all material facts. In this regard, it is firstly observed from the record that during original assessment proceedings no query was raised by the AO on the issue of CER, quantum claimed and nature thereof as to whether it was an ascertained liability. Consequently there is no discussion on this issue in the original assessment order. Secondly, mere submission of copy of accounts from which the facts could have been discovered on diligent application of mind, does not amount to disclosure of all material facts, as is obvious from Explanation 1 to section 147 which reads as follows:
"Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso"
It is therefore held that mere production/submission of accounts does not amount to full and true disclosure of all material facts necessary for assessment. Accordingly, there is no infirmity regarding the finding of the AO relating to absence of full disclosure of material facts.
2.4 As regards the next contention of the assessee that the AO has not disposed off the objections to the notice u/s 148, it is observed that the said objection contains only two core issues- first, regarding the fact that the 4 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur assssee had made full and true disclosure of all material facts and second, reasons have been given as to why CER amount is an allowable expenditure. In my opinion, both issues have been dealt with by the AO, the first one already dealt with in the reasons recorded, a copy of which has duly been given to the assessee and the second one, regarding merits of the issue as to whether CER amount is an allowable expenditure, has been elaborately dealt with in the order u/s 143(3) r.w.s 147. Therefore, there is no infirmity on this account. This view is supported by the decision of Hon'ble Punjab & Haryana High Court in the case of Sunil Bhaseen vs. CIT(2009) 179 Taxman 148(P&H), wherein it is held that if there is adequate material justifying reassessment and no prejudice to the assessee, the same should not be set aside on a technicality. It is further held that the contention of the assessee that Department was under obligation to dispose off the objection of the assessee to initiation of proceedings u/s 148 by way of separate independent order was not tenable.
3. During the course of hearing, the ld. AR submitted that the original assessment in this case was completed u/s 143(3) on 29.12.2009. The assessment is reopened after the expiry of the four years. Hence, the assessee's case falls in proviso to section 147 wherein the assessment can't be reopened unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. In the present case, the assessee in the course of original assessment filed the Balance Sheet and the Revenue account. In course of these proceedings, the assessee furnished the works account in which sale value of auction of plots and the contingency charged to work is separately mentioned. The contingency equalization and reserve fund is also appearing in the Balance Sheet where the opening balance in such fund, addition during the year, utilization from the same and the closing balance of the fund is reflected. The AO after considering the same has completed the assessment without drawing any adverse inference. In the reasons recorded, for issue of notice u/s 148, it is nowhere mentioned that these facts were not disclosed to 5 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur the AO. Rather, the AO has taken these amounts from the details disclosed by the assessee itself in the course of original assessment proceedings. Even in the reassessment order, there is no finding of the AO that any income chargeable to tax has escaped assessment by reason of failure on part of the assessee to disclose fully and truly all material facts. Hence, proceedings u/s 147 initiated by the AO is simply on the basis of change of opinion, without taking into consideration the material on record which shows that income of the assessee is not chargeable to tax at all.
3.1 It was further submitted that the Hon'ble ITAT in assessee's own case in ITA No.862/JP/14 for AY 2005-06 under the similar facts, quashed the assessment by relying on the decision of Hon'ble Bombay High Court in case of Dynacraft Air Controls Vs. Sneha Joshi & Ors. 355 ITR 102 and holding that assessee has during the course of original assessment furnished all its accounts, Balance Sheets and the Revenue account before the AO & there is no material suggesting that the assessee has not disclosed the material facts fully and truly for his assessment. This finding was also relied in AY 2006-07 in ITA No.863/JP/2014 where also the order passed u/s 147 was quashed.
3.2 In support of its contention, the ld AR placed reliance on the following cases:-
• CIT Vs. Eco Media (P) Limited 81 CCH 85 (Mad.) (HC) (2012) • CIT Vs. Reliance Energy Ltd. 81 DTR 130 (Bom.) (HC) (2013) • Dynacraft Air Controls Vs. Sneha Joshi & Ors. 355 ITR 102 (Bom.) (HC) (2013) • Titanor Components Ltd. Vs. ACIT &Ors. 60 DTR 273 (Bom.) (HC) (2011) • DCIT Vs. Convertech Equipment Pvt. Ltd. 32 CCH 136 (Del.)(Trib.) (2012) • Qmax Test Equipments Pvt. Ltd. vs. ACIT 36 CCH 544 (Hyd.) (Trib.) (2013) 6 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur • Atomstroy Export vs. Dy. Director of Income Tax (International Taxation) & Ors. 77 DTR 134 (Bom.) (HC) • Gemini Leather Stores Vs. ITO 100 ITR 1 (SC) • Jindal Photo File Ltd. Vs. DCIT 234 ITR 170 (Del.) • CIT Vs Bhanji Lavji 79 ITR 582 (SC) • Marudhar Hotels Pvt. Ltd. Vs. DCIT 259 ITR 509 (Raj.) • CIT Vs Kelvinator of India Ltd [2002] 256 ITR 1 (Delhi-FB) 3.3 It was further submitted that assessee has filed detailed letter dt. 11.06.2014 objecting the issuance of notice u/s 148. However, the AO without disposing of those objections has proceeded to complete the assessment which is against the principle laid by the Supreme Court in case of GKN Driveshafts (India) Ltd. Vs. ITO & Ors. 259 ITR 0019. The Delhi High Court in case of PCIT Vs. Tupperware India Pvt. Ltd. (2015) 127 DTR 161 held that although the CIT(A) accepted that the AO did not dispose of the objections raised by the assessee in reopening the assessment, however, he committed an error in holding that the said defect did not make the assessment order illegal & that it is a technical mistake which is curable and in not quashing the reopening of assessment and the consequent assessment.
Further, in the reasons recorded by the AO, there is no reference of the depreciation, disallowance u/s 40(a)(ia) and auction sale but the AO in reassessment proceedings has considered that these are also another reasons for which income has escaped assessment. The law does not provide any power to the AO to record the reason in the assessment order and thereafter to proceed to complete the assessment by considering such issue as income escaping assessment. In view of above, the assessment made by the AO is illegal and bad in law and be quashed.
7 ITA No. 1130/JP/2016& 27/JP/2017M/s Rajasthan Housing Board Vs ACIT(E), Jaipur
4. The ld DR is heard who has relied on the order of ld CIT(A) and justified the reopening of the assessment proceedings.
5. We have heard the rival contentions and perused the material available on record. This Bench under identical set of facts has quashed the reassessment proceedings in assessee's own case for AY 2005-06 in ITA No. 862/JP/2014 dated 20.1.2017 and following the same reasoning, we hereby quash the present reassessment proceedings being invalid in law. The relevant findings are contained in para 6.3 of our order which is reproduced as under:
"We find that the reasons are contrary to the records. The assessee has, during the course of original assessment furnished all its accounts, Balance Sheets and the Revenue account before the AO. Therefore, there is no material suggesting that the assessee has not disclosed the material facts fully and truly for his assessment. Therefore, respectfully following the judgment of the Hon'ble Bombay High Court rendered in the case of Dynacraft Air Controls vs. Sneha Joshi & others, 355 ITR 102 (Bom.), we hereby quash the assessment being invalid. This ground of the assessee is allowed."
6. Now coming to ground No. 2, it was submitted by the ld AR that the Ld. CIT vide order dated 29.05.09 has granted registration to the assessee u/s 12AA of the Act w.e.f. 27.03.08. Both the order of ITAT and CIT was available with the AO before he initiated the proceedings u/s 148. It may also be noted that section 12A of the Act has been amended by Finance Act 2014 w.e.f. 01.10.2014 whereby a proviso is inserted to provide that where registration has been granted to the trust or institution u/s 12AA, then the provision of section 11 and 12 shall apply in respect of any income derived from the property held under trust for which assessment proceedings are pending before the AO on the date of such registration. Hon'ble ITAT, Jaipur Bench, 8 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur Jaipur in case of Shyam Mandir Committee Vs. ACIT order dated 02.06.2016 reported at 138 DTR 367 has held that this proviso has retrospective application as it is inserted to remove the hardship of charitable trust/institutions and therefore assessee is entitled to benefit of section 11 and 12 for A.Y. 07-08 on account of the fact that assessment proceedings were pending though the Tribunal has granted registration w.e.f. 01.04.2008. Hon'ble Rajasthan High Court in case of CIT Vs. Jodhpur Development Authority 139 DTR 1 has also held that such authority are entitled to registration u/s 12A r.w.s. 12AA as they fall within the expression "advancement of any other object of general public utility". Therefore, once the provisions of section 12A are applied, there cannot be any income to the assessee chargeable to tax which can be said to have escaped assessment.
7. The ld CIT(A) has dealt with the above contention of the assessee and his findings are as under:
"2.5 The last contention of the assessee is that the assessee was granted registration u/s 12A w.e.f. 27.03.2008 and as per proviso to section 12A as amended w.e.f. 01.10.2014, where registration has been granted to the institution, then provisions of sec. 11 and 12 shall apply for the years for which assessment proceedings are pending before the AO on the date of such registration. In this regard, it is observed that registration u/s 12AA has been granted to the assessee w.e.f. 27.03.2008 which falls after the Assessment year under consideration. Secondly, as the institution was admittedly not registered for the year under consideration, neither provisions of section 11 and 12 apply to this year, nor has the benefit of section 11 and 12 ever been claimed by the assessee for the year under consideration. Further, no proceedings for this year was pending as on the date of grant of registration viz. 27.03.2008 as the notice u/s 148 was issued much later on 29.03.2014. Therefore the contention of the assessee is not sustainable."
8. The ld CIT(A) has given a finding that the benefit of section 11 and 12 have never been claimed by the assessee for the year under consideration 9 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur and no proceedings for this year was pending as on the date of grant of registration u/s 12A viz. 27.03.2008 as the notice u/s 148 was issued much later on 29.03.2014. The said findings remain uncontroverted before us. In light of the same, we are not inclined to accept the contention of the assessee. Hence, ground no. 2 of the assessee's appeal is dismissed.
9. Now coming to ground no. 3 of the assesee's appeal, briefly the facts of the case are that during the year assessee has debited Rs.11,97,65,913/- towards Contingency and Equalization Reserve (CER) in works account by crediting to CER Fund A/c in the Balance Sheet. The AO observed that CER fund is created by assessee by charging certain percentage on development/ construction of works as per the costing principle of the appellant. This is not an ascertained liability but a contingent liability. The explanation furnished by the assessee in this connection was not found convincing. He therefore, made addition of Rs.11,97,65,913/- to the income of the assessee.
9.1 The ld. CIT(A) held that facts of the matter is similar to the facts in AY 10-11. The provision of Rs.11,97,65,913/- is made on estimate basis out of which there is Nil utilisation this year. It is a contingent liability. He therefore, confirmed the addition of Rs.11,97,65,913/-. The findings of ld CIT(A) is reproduced as under:-
"I have considered the facts of the case, the assessment order and the submissions of the appellant. The issue was decided by CIT(A)-II, Jaipur in the appellant's case for A.Y. 2010-11 in Appeal no. 328/13-14 vide order dated 17.10.2014. The relevant extract of the same is as under:
"The Contingency and Equalization Reserve (CER) is in the nature of a provision which has been calculated on the basis of approximate rules of thumb by adopting certain percentages rich have also varied over a period of time. It can be seen from the Balance Sheet that the CER created in the preceeding years, has still not been utilized and there is a huge balance in this reserve of Rs. 122.81 crore at the end of this 10 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur previous year. This shows that this provision is an estimate and not an ascertained liability. In this year, against the CER of Rs. 24,36,53,857/- an amount of Rs. 6,31,22,527/- has been reversed (on NRI housing) and expenditure of Rs. 10,83,09,615 has been incurred during the year. The net amount in the CER of this year which is carried forward is Rs. 7,22,21,715/- which cannot be allowed as a deduction since it has been made on an estimate basis, is not an ascertained liability and has not been incurred during the year. The addition made by the Assessing Officer is restricted to the above amount of Rs. 7,22,21,715/-. The balance amount is directed to be deleted. Ground No. 3 is partly allowed."
3.4 In the year under consideration also, the facts are similar. The provision of Rs. 11,97,65,913 is made on an estimated basis, out of which there is Nil actual utilization this year. It is therefore a contingent liability. Respectfully following the order of CIT(A)-II, Jaipur (supra), the addition of Rs. 11,97,65,913 is confirmed."
10. During the course of hearing, the ld AR submitted that the applicant is engaged in providing and satisfying the housing needs of the public at large. For this purpose it works out the cost of housing project by adding to the cost of land, the cost of development, the cost of construction, other direct cost, interest cost, tools & plants charges, administrative charges and CER. The CER is added for working out the cost of the houses for different income groups as per the principal of costing approved by its Costing & Finance Committee as under:-
Income GroupRate of CER upto 2010 Rate of CER after 2010 EWS NIL Nil LIG 5% 2% MIG - I 7% 7% MIG - II 8% 7% HIG 9% 8% Commercial 10% 10% 11 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur 10.1 The purpose for charging CER to the cost of the work is to cover the following exigencies in execution of the work:-
i) To compensate various losses on account of unforeseen circumstances;
ii) For losses on account of freezing of cost of property which may be necessitated in some cases;
iii) To compensate for concessions given to EWS and LIG Houses;
iv) For development of Park, construction of Govt. primary schools, dispensaries and community centres, etc.;
v) Awards to be paid as a result of litigation, etc. in property disposal;
vi) Maintenance and upkeep of colonies after handing over of houses to the allottes till the colony is handed over to municipality/ local bodies.
10.2 From the above, it can be noted that the contingency charged to works account by crediting to Contingency & Equalization Reserve Fund A/c is not a contingent liability but is a provision for meeting an ascertained liability for which amount is estimated on the basis of the past experience. It is not an amount set apart to any reserve without any corresponding liability to incur the expenditure. Hon'ble Supreme Court in the case of Calcutta Company Ltd. reported at 37 ITR 1 held that difficulty in estimation of value would not convert an accrued liability into a contingent one. In the present case incurring of expenditure is certain. Hence, amount debited under the head contingency to the works account cannot be added to the income.
10.3 We may further point out that the amount provided on account of contingencies to the works account is not claimed in the profit & loss account. The amount provided on this account is carried forward as a part of closing WIP. In fact the entire work account is a part of Balance Sheet under the 12 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur head properties in the asset side. Thus, when such amount is not claimed in the revenue account, there is no question of its disallowance. This fact is ignored by both the lower authorities even when it is specifically pointed out to them.
10.4 Similar disallowance made in AY 2009-10 in ITA No.21/JP/2013 was deleted by Hon'ble ITAT vide its order dated 20.01.2017 by relying on the findings given by CIT(A) which is as under:-
"After going through rival submissions it is seen that CER of Rs.26,99,65,069 is not debited in the P&L Account. The disallowance of the reserve does not affect the appellant's eligibility of claiming exemption u/s 11. Section 11 states that 85% of the total income of the institution should be applied towards the objects for which it was created. The application of the income by the Board during the year of Rs.232,59,28,849 as specified in Form 10B audit report is much more than the total income of the appellant shown at Rs.98,90,80,448 in the statement of total income filed with the return. It was informed by the ld ARs that source of application of Rs.232 crores are capital loans of Rs.27 crores (approx) taken by the appellant and deposits made by the persons interested in buying houses of Rs.360 crores odd and also income of Rs.98 crores odd shown in the return. The appellant has been held as charitable organization following Hon'ble ITAT Jaipur Bench order dt. 04.05.2012 and its income to the extent of application as mentioned in section 11 is exempt from taxation u/s 11, therefore there is no justification for making the disallowance of Rs.26,99,65,069/- especially when the reserve has been informed created from the sale proceeds of houses and not appropriated from profit shown in the P&L Account called Revenue account as presumed by the AO."
These findings were also relied in AY 2010-11, AY 2011-12 and AY 2012-13 and the disallowance so made was deleted. In view of above, the disallowance confirmed by the CIT(A) be directed to be deleted.
13 ITA No. 1130/JP/2016& 27/JP/2017M/s Rajasthan Housing Board Vs ACIT(E), Jaipur
11. We have heard the rival contentions and pursued the material available on record. In ITA No.21/JP/2013 for AY 2009-10, this Bench has affirmed the view of the ld CIT(A) and one of the reasons was that reserve has been created from the sale proceeds of houses and not appropriated from the profit shown in the profit and loss account called revenue account. In the year under consideration, the treatment in the financial statements is identical and the amount provided on account of contingencies to the works account is not claimed in the profit & loss account and is carried forward as a part of closing WIP in the balance sheet. In light of the same, since the amount has not been claimed in the profit/loss account, there is no basis for disallowance of Rs.11,97,65,913/- towards Contingency and Equalization Reserve. Hence, ground no. 3 of the assessee's appeal is allowed.
ITA No. 27/JP/2017The Revenue has taken the following grounds of appeal:-
"On the facts and in the circumstances of the case and in law the Ld. CIT (Appeals)-5, Jaipur has erred:-
1. in deleting the addition of undisclosed profit from auctioned property amounting to Rs. 5,01,09,174/- made by the AO.
2. in allowing depreciation of Rs. 1,03,54,890/- without appreciating the fact that the assessee obtained 12AA registration by claiming itself as charitable organization in spite of the fact that the depreciation is allowable only to the entities which are engaged in carrying on business or profession. Depreciation and status of charitable organization cannot be together.
3. in deleting the sum of Rs. 87,11,809/- with regard to disallowance u/s 40(a)(ia) made in A.Y. 2006-07 in spite of the fact that the same has not been claimed by the assessee in the original return and the revised return has not been filed within the time prescribed.14 ITA No. 1130/JP/2016& 27/JP/2017
M/s Rajasthan Housing Board Vs ACIT(E), Jaipur
12. Regarding ground no. 1 of the Revenue's appeal, the AO observed that assessee sales the properties at reasonable price referred as ASP. However, plots or houses sold through auction are generally at times later than the times when the normal price is fixed. By this time market price rises. The reserve price is fixed considering the market value. Considering all these factors he held that it would be reasonable to estimate profit @ 30% on the sale price in respect of auctioned properties. Accordingly, 30% of the sale price of auctioned properties of Rs.16,70,30,583/- i.e. Rs.5,01,09,174/- was added to the income.
12.1. The Ld. CIT(A) deleted the addition by holding that the profit element on the auction of plots and shops cannot be determined separately as the same is already included in the books of accounts of the appellant leading to a surplus from its activities. Also, there is no basis for adopting a profit rate of 30% on sale through auction. The relevant findings of the ld CIT(A) is as under:-
"I have considered the facts of the case, the assessment order and the submissions of the appellant. The profit element on the auction of plots and shops cannot be determined separately as the same is already included in the books of accounts of the appellant leading to a surplus from its activities. Also there is no basis for adopting a profit rate of 30% on sale through auction. In view of the above discussion, the addition made by the AO on account of profit on sale through auction is directed to be deleted. Ground no. 3 is allowed."
13. During the course of hearing, the ld AR submitted that assessee is developing and allotting the houses on no profit no loss basis. The selling price of the houses are fixed in accordance with the para 6.12 of the costing guidelines which reads as under:-
"6.12 The allottees belonging to Economically Weaker Section and Lower Income Group will be cross - subsidized. The allottees belonging to the 15 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur Middle Income Group - A will be charged the rate of developed land for residential purpose as mentioned in clause 6.11(a). The rate of developed land for residential purpose will be calculated as follows:
Category of allottees The rate of developed land
Economically Weaker 80 per cent of the rate of developed land as
Sections mentioned in 6.11(a).
Lower Income Group 90 per cent of the rate of developed land as
mentioned in 6.11 (a).
Middle Income Group - A 100 per cent of the rate of developed land as
mentioned in 6.11(a)
Middle Income Group - B 110 per cent of the rate of developed land as
mentioned in 6.11(a)
Higher Income Group 120 percent of the rate of developed land as
mentioned in 6.11 (a)
From the above it can be noted that as per the objects of the appellant it is allotting houses to certain category of persons at lower than the cost of developed plots/ houses and to some category of persons at a rate higher than the cost of developed plots/ houses so as to compensate the loss incurred on allotting the houses at below the cost of the developed plots/ houses. In this process appellant only auctions the commercial properties and any gain on such auction is utilized to compensate the loss incurred on allotting the plots/ houses at lower than its cost. Therefore, in the works account after considering the opening balance, the cost incurred during the year and the sales including the auction sales realised during the year, the remaining amount is carried to the Balance Sheet as closing stock. Therefore, there is no profit motive involved in the properties sold by the appellant through auction and therefore the addition made by the AO on this account is grossly unjustified.
13.1. The AO estimated the profit from auction of plots/ shops at 30% of the sale proceeds. This is merely an estimate of the AO without following any basis/ method whatsoever and just on conjectures and surmises. The AO has not mentioned / discussed any method adopted in any other case or any 16 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur market practice prevalent for estimating the profit on auction of the plots and therefore no addition by estimating profit @ 30% on the sale proceeds of the auction plots/ shops can be justified.
13.2. Similar disallowance made in AY 2009-10 in ITA No.21/JP/2013 was deleted by Hon'ble ITAT vide its order dated 20.01.2017 by relying on the findings given by CIT(A) which is as under:-
"After going through rival submissions, the estimate addition made by the AO of Rs.15,24,58,828/- is directed to be deleted because the appellant has been held by the Hon'ble ITAT Jaipur Bench order dt.31.03.2009 and 04.05.2012 to be an entity existing for charitable purpose. Hon'ble Tribunal order dt. 31.03.2009 discusses in details the activities of the appellant Board and has held them to be charitable in nature. Therefore auction of commercial schemes by the Board cannot be treated as sale in the nature of business, as it is one of the objectives specified in section 26 of the RHB Act reproduced above in para 10 of this order. Moreover the addition has been made at 30% of sales without any basis but for a presumption that profit of 30% should have been earned on auction of commercial properties by the Board."
These findings were also relied in AY 2010-11, AY 2011-12 and AY 2012- 13 and the addition so made was deleted.
13.3. Reliance was also placed in case of Hoshiarpur Improvement Trust & Ors Vs. ITO 45 ITR (Trib.) 0682 (Amritsar) wherein it was held that auction of commercial plots and units does not amount to defeating an object of general public utility. Therefore, only on presumption, the profit on such sale estimated by AO at 30% and taxing the same as income is bad in law. In view of above, CIT(A) has rightly deleted the addition and thus the ground of the department be dismissed.
17 ITA No. 1130/JP/2016& 27/JP/2017M/s Rajasthan Housing Board Vs ACIT(E), Jaipur
14. We have heard the rival contentions and perused the material available on record. Similar issue involving identical facts were involved in ITA No.21/JP/2013 in assessee's own case for AY 2009-10 where this Bench has deleted the addition made towards 30% profit estimated on sale of plots. Following the same reasoning, we hereby delete the subject addition made by the AO. The relevant findings are contained in para 26.2 of our order dated 20.01.2017 which is reproduced as under:
"26.2. We have heard rival contention and perused the material available on record. We find that the ld. CIT(A) has given a finding of fact that the addition has been made at 30% without any basis with the presumption that the profit of 30% should have been earned on auction of commercial properties by the Board. This finding of fact is not controverted by the revenue by placing any contrary material on record. Therefore, we do not see any reason to interfere in the order of ld. CIT(A), which is hereby confirmed."
15. Regarding ground No. 2 of the Revenue's appeal, briefly the facts of the case are that the AO observed that in the revenue account, appellant has claimed depreciation of Rs.1,12,59,109/- on various fixed assets. The cost of such asset is already considered as application of income in earlier years when the assets were purchased. If any depreciation is allowed on such assets, then it would tantamount to double deduction. The AO further observed that during the year assessee has made addition of Rs.88,18,117/- in the fixed assets on which allowable depreciation works out at Rs.9,04,219/-. Accordingly, addition of Rs.1,03,54,890/- (1,12,59,109-9,04,219) was made to the income of the assessee.
16. It is a submitted that the income of the trust/ institution claiming exemption u/s 11 is to be computed based on commercial principles of accounting. Therefore, depreciation on the assets has to be deducted for 18 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur computing the income of the year even if the cost of such asset is considered as application of income in computing the income of such trust/ institution because of specific provision of section 11. This has been accepted in the various judicial pronouncements of various High Courts, some of which are as under:-
- CIT Vs. Krishi Upaj Mandi Samiti 125 DTR 281 (Raj.) (HC)
- CIT Vs. Devi Sakuntala Tharal Charitable Foundation (2013) 358 ITR 452 (MP)(HC)
- DIT Vs. Vishwa Jagriti Mission (2012) 73 DTR 195 (Del.)(HC)
- CIT Vs. Market Committee, Pipli 330 ITR 16 (P&H)(HC)
- CIT Vs. Tiny Tots Education Society 330 ITR 21 (P&H)(HC)
- CIT Vs. Shri Gujrati Samaj (Regd) 349 ITR 559 (MP)(HC)
- CIT Vs. Institute of Banking Personnel Selection 265 ITR 110 (Bom.)(HC) 16.1 The AO has relied on the decision of ITAT Cochin Bench in case of Charanjiv Charitable Trust and Lissie Medical Institutions where it is held that claiming of depreciation would amount to double benefit. It may be pointed that in both the cases Department has relied on the judgment of the Supreme Court in Escorts Limited Vs. Union of India which is inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purposes. It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV-D of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions.
We are concerned only with the concept of commercial income as understood 19 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. Section 35(2)(iv) of the Act specifically provides that where the deduction stands allowed u/s 35 of the Act then no deduction in respect of the said asset would be allowed for the same or any other previous year. The words "or any other" has been introduced by the FA, 1980 w.e.f. 01.04.1962. However, in the present case there is no such restrictive provision. The amendment made by FA, 2014 providing that where cost of asset has been claimed as an application of income then no deduction of depreciation will be allowed in the same or any other previous year is prospective in nature and has no retrospective application. Otherwise also where two reasonable constructions of a taxing provision are possible, then the construction which favours the assessee must be adopted as held by Supreme Court in case of CIT Vs. Vegetable Products Ltd. 88 ITR 192.
16.2 Similar disallowance made in AY 2009-10 in ITA No.21/JP/2013 was deleted by Hon'ble ITAT vide its order dated 20.01.2017 by relying on the findings given by CIT(A) which is as under:-
"The AO is directed to delete the disallowance of Rs.1,73,53,269/- as depreciation is to be allowed on WDV of the accumulated assets. The AO is directed to delete the disallowance relying upon Hon'ble Punjab & Haryana High Court decision also, in the case of Tiny Tots education society (2011) 330 ITR 21 where on the same issue Hon'ble Court held :"The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the 20 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur trust. There is no double deduction claimed by the assessee as canvassed by the Revenue."
These findings were also relied in AY 2010-11, AY 2011-12 and AY 2012-13 and the disallowance so made was deleted. In view of above, the CIT(A) has rightly allowed the depreciation and the ground of the department be dismissed.
17. The ld CIT(A) has dealt with the matter at para 5.3.& 5.4 of his order which is reproduced as under:
" 5.3 I have considered the facts of the case, the assessment order and the submissions of the appellant. The issue of disallowance of depreciation was decided by CIT(A)-II, Jaipur (supra) for A.Y. 2010-11, observing as follows:
"The AO has disallowed depreciation on fixed assets purchased in the earlier years on the ground that the assessee would obtain a double benefit in terms of consideration towards application of income as well as depreciation. The appellant has cited several case laws where the courts have not upheld such a view. Also, exemption u/s 11 has been denied to the appellant and therefore, there is no case of a double benefit. In view of the above, the disallowance of depreciation made by the AO is directed to be deleted. Ground no. 4 is allowed."
5.4 In the year under consideration also, the AO has disallowed depreciation of Rs. 1,03,54,890 on the grounds that the cost of acquisition of the assets has already been claimed as application of income in earlier years and hence amounts to claim of double deduction. The appellant has contended that registration u/s 12AA itself was granted to it for A.Y. 2008-09 onwards, hence there was no claim of any application of income on account of fixed assets and hence no double deduction. The contention of the appellant is correct. For the year under consideration, the assessee was not registered u/s 12AA. Hence there is no question of claim of application u/s 11 r.w.s. 12A. Accordingly, the disallowance of Rs. 1,03,54,890 is deleted . Ground no. 4 is allowed.
21 ITA No. 1130/JP/2016& 27/JP/2017M/s Rajasthan Housing Board Vs ACIT(E), Jaipur
16. We have gone through the rival contentions. The above findings of the ld CIT(A) that for the year under consideration, the assessee was not registered u/s 12AA and hence there is no question of claim of application u/s 11 r.w.s. 12A remain uncontroverted before us. Also, as we have held above while disposing off the assessee's ground no. 2 that the assessee was not entitled to claim of exemption u/s 11 &12. In light of that, the order of ld CIT(A) deleting the disallowance of 1,03,54,890 is hereby confirmed and ground no. 2 of the Revenue's appeal is hereby dismissed.
17. Now coming to ground No.3 of the revenue's appeal, briefly the facts of the case are that the in AY 2006-07, AO made disallowance of Rs.87,11,809/- u/s 40(a)(ia) on account of delay in deposit of tax deducted at source. During the year under consideration, assessee in course of original assessment proceeding u/s 143(3), claimed the above deduction as the amount deducted was paid during the year. This was allowed by the AO. The AO however, in the present proceedings observed that the assessee has neither claimed the above disallowance in original return nor in the revised return and accordingly rejected the assessee's claim and made disallowance of Rs.87,11,809/-.
18. During the course of hearing, the ld AR submitted that the claim was made by the assessee in the original assessment proceedings u/s 143(3) and the same was allowed by AO. However, in the course of present reassessment proceedings, AO disallowed the same for the reason that the assessee has neither claimed the same in the original return nor in the revised return. It is a settled law that the CIT(A)/Tribunal has the power to allow the claim which has been raised before him by the assessee without filing the revised return before the AO. For this proposition, reliance was placed on the following cases:-
22 ITA No. 1130/JP/2016& 27/JP/2017M/s Rajasthan Housing Board Vs ACIT(E), Jaipur • CIT vs. Pruthvi Brokers & Shareholders (P) Ltd. (2012) 349 ITR 336 (Bom.) (HC) • CIT vs. Mitesh Impex & Ors. (2014) 104 DTR 169 (Guj.) (HC) • DCIT vs. Vishwanath Prasad Gupta (2011) 57 DTR 0089 / 130 ITD 73 (Jab.) (TM)
19. The relevant findings of the ld CIT(A) are reproduced as under:-
" 6.3 I have considered the facts of the case, the assessment order and the submissions of the appellant. The disallowance of Rs. 87,11,809 was made u/s 40(a)(ia) in the assessment for A.Y. 2006-07 on the grounds that corresponding TDS amount was deposited into Government account during F.Y. 2006-07. The said amount was accordingly allowed as a deduction in the original assessment u/s 143(3) for A.Y. 2007-08 vide order dated 29-12-2009. However, the same was disallowed in the assessment u/s 143(3) r.w.s. 147. The provisions of sec. 40(a)(ia) clearly direct deduction of the amount disallowed in earlier year on the basis of deposit in a subsequent year. Therefore, the disallowance of Rs. 87,11,089 is untenable, more so when the disallowance was consciously not made in the original assessment u/s 143(3). The disallowance of Rs. 87,11,809 is accordingly deleted."
20. We have heard the rival contentions. Where the amount has been disallowed in the earlier year u/s 40(a)(ia), the assessee is eligible to claim the same on the basis of deposit in the year under consideration. The ld CIT(A) has recorded his findings that the TDS amount was deposited into Government account during F.Y. 2006-07 i.e, relevant to AY 2007-08 and the said amount was accordingly allowed as a deduction in the original assessment u/s 143(3) for A.Y. 2007-08. We, accordingly, donot see any 23 ITA No. 1130/JP/2016& 27/JP/2017 M/s Rajasthan Housing Board Vs ACIT(E), Jaipur infirmity in the order of the ld CIT(A) and the same is hereby confirmed and ground no. 3 of the Revenue's appeal is dismissed.
In the result, the appeal of the assessee is partly allowed and the appeal of the revenue is dismissed.
Order pronounced in the open court on 14 /6/2017.
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(Kul Bharat) (Vikram Singh Yadav)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Jaipur
Dated:- 14/06/2017
Santosh
vkns'k dh izfrfyfi vxzsf"kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Rajasthan Housing Board, Janpath, Jyoti Nagar, Jaipur.
2. izR;FkhZ@ The Respondent- ACIT(E), 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. 1130/JP/2016& 27/JP/2017) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar.24